Editor’s note: William D. Waddill is the Senior Vice President and Chief Financial Officer of OncoMed Pharmaceuticals.
Small biotechnology companies are leading innovation across the country. My company, OncoMed Pharmaceuticals, is working at the cutting edge of oncology research, focusing on a specific set of cells within tumors that drives the growth of tumors. We have developed a portfolio of antibodies that target biologic pathways critical for survival of tumor-initiating cells, with the goal being to stop those cells from replicating.
Entrepreneurs across the biotech industry are conducting groundbreaking science like ours, and are deeply invested in treating the severe illnesses that families across the nation face. At the same time, biotech leaders must deal with the day-to-day challenges of running a small business. Of great import in the biotechnology industry is the constant struggle to find working capital. It can take over a decade and more than $1 billion to develop a single biotechnology therapy. Venture capital fundraising is stagnant and the IPO market is largely closed, forcing innovative companies to delay research on promising scientific breakthroughs.
The Senate is currently considering legislation, the JOBS Act, which would make important reforms to the regulatory burdens that small biotech companies face when raising the operating capital necessary to conduct research that will lead to advanced medicines and, perhaps one day, cures.
The JOBS Act aims to spur job growth through capital formation while at the same time protecting investors. Innovative biotechnology companies face unique financing hurdles as they work toward developing cures and breakthrough medicines to treat crippling illnesses, such as HIV/AIDS, cancer and Parkinson’s disease that affect families across the nation. The JOBS Act contains several provisions which would make capital formation easier for small biotechnology companies while maintaining key investor protections.
The innovation period, the time a biotechnology company needs to develop a product, can be up to a decade or more. During this time virtually all small biotech firms have no product revenue, so all product development costs must come from investors. Currently, newly public companies that are still in the innovation period are forced to divert those investment funds from groundbreaking research and product development to onerous compliance. The JOBS Act offers emerging growth companies five years to enter full regulatory compliance via its “on-ramp” proposal. Five years for a company without any revenues would allow it to find its footing on the public market and focus scarce capital to progress research and product development as well as create jobs to support that work, rather than divert these resources to costly regulations like Sarbanes-Oxley (SOX) Section 404(b). The development of life-changing products is the basis for investment in biotechnology and, until those products come to the market, should be the focus of innovative biotechnology companies.
The JOBS Act also supports small company capital formation earlier in the development process. By reforming the eligibility requirements of SEC Regulation A to include companies conducting direct public offerings of up to $50 million, the bill opens up a potential fundraising avenue for companies in the innovation period searching for cures and breakthrough medicines. In addition, the JOBS Act broadens the potential investor base for growing biotech companies by increasing the SEC private shareholder limit, giving them more investor options to finance their early-stage research. Likewise, it lifts the ban on general solicitation under SEC Regulation D, allowing innovative companies access to the full range of SEC accredited investors.
The important reforms in the JOBS Act would open the door for growing companies considering a public offering, allowing them to access the large pool of funds available on the public market while also giving confidence to private venture capitalists considering investments in smaller companies. By making targeted changes that support emerging growth companies in the biotechnology industry and elsewhere, Congress can unburden these innovators and job creators while maintaining important investor protections. The JOBS Act has the potential to stimulate important capital formation which will allow entrepreneurs to continue working toward delivering the next generation of medical breakthroughs to patients who need them.