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Senate Adds Investor Protection for Crowd Funding to JOBS Act

By Mari Serebrov
Washington Editor

WASHINGTON – A new capital formation environment for small biotechs on their way to going public could be just days away, if the House agrees to the Senate's investor protections for crowd funding.

The Senate voted 73 to 26 Thursday for the Jumpstart Our Business Startups (JOBS) Act. The House had already passed H.R. 3606, which is intended to benefit emerging growth companies by providing a five-year on-ramp to the public market, raising the SEC's Regulation A cap to $50 million, increasing the SEC registration shareholder threshold to 1,000 and opening the door to crowd funding. (See BioWorld Today, March 7, 2012, March 9, 2012, and March 19, 2012.)

But the JOBS Act the Senate passed isn't quite the same one the House approved. The Senate added an amendment intended to bring accountability to the bill's crowd-funding provision. As passed by the House, that provision is "a pathway to predatory scams," Sen. Jeff Merkley (D-Ore.) said on the Senate floor as he pushed for the amendment he sponsored.

The House version would allow companies to hire people to "pump and dump stock" in crowd-funding offerings and has no requirement to disclose information about the company or ensure the accuracy of information given to potential investors. The Senate amendment changes that.

"Crowd funding has the potential to unleash a wave of new economic opportunity by letting small businesses and start-up companies use the Internet to harness the 'wisdom of the crowd' to fund new investments. . . . For this new investment market to thrive, however, investors must have confidence in provisions that block predatory practices," Merkley said following the vote.

Rep. Eric Cantor (R-Va.), House majority leader, said he plans to schedule a House vote on the amended bill early this week so it can be sent to the president without delay. President Barack Obama has indicated he will sign it.

The reforms that make up the JOBS Act are especially important to biotechs that are forced to spend investor dollars on compliance when they don't yet have product revenue, said Jim Greenwood, president and CEO of the Biotechnology Industry Organization.

Faced with the high cost of bringing a new drug from discovery to approval, small biotechs constantly struggle to find working capital. But "if burdens on public financing were removed, private investors would have greater certainty that the companies they help take public will have the chance to succeed," Greenwood said, adding that the increased confidence could lead to greater investment.

Regulus Therapeutics Inc., which has annual revenues of about $10 million, is one of the emerging growth companies that could benefit immediately from the bill if it becomes law. Although Regulus is a small private company, 60 percent of it is owned by two public firms, Alnylam Pharmaceuticals Inc., of Cambridge, Mass., and Isis Pharmaceuticals Inc., of Carlsbad, Calif.

Thus, Regulus must comply with Sarbanes-Oxley reporting requirements. That compliance costs the La Jolla, Calif.,-based biotech $1 million to $2 million each year, Regulus CEO Kleanthis Xanthopoulos told BioWorld Today. That's not counting opportunity costs, which are significant because management must spend a tremendous amount of time on compliance instead of other activities.

When the opportunity cost is added in, the total cost of compliance accounts for up to 10 percent of Regulus' total annual budget of $25 million to $30 million. Under the JOBS Act, Regulus' wouldn't face those stringent reporting requirements and could use that money instead for R&D in microRNA therapies, Xanthopoulos said.

He also expects Regulus to benefit from other provisions in the act in the future. For instance, the JOBS Act would impact how the company could talk with investors, making life much easier once Regulus becomes a public company, Xanthopoulos said.

House Votes to Repeal IPAB

As the Affordable Care Act (ACA) turns 2 years old, the House voted 223 to 181 to repeal the Independent Payment Advisory Board (IPAB) the act created.

Although repeal of the controversial board has enjoyed bipartisan support, the bill the House passed last week did not. Only seven Democrats voted for it, and 10 Republicans voted against it, because it linked the repeal, H.R. 452, to health care tort reform, H.R. 5.

Both Republicans and Democrats have objected to the nonelected board charged with cutting Medicare costs when Congress won't. Made up of presidential appointments confirmed by the Senate, IPAB's policies would automatically be implemented and not be subject to judicial review or public comment. (See BioWorld Today, Feb. 14, 2012, March 2, 2012, and March 19, 2012.)

H.R. 5 now heads to the Democrat-controlled Senate where it is not considered likely to pass.

FDA Looks for New Drug Paradigm

As technology continues to empower consumers, the FDA is grappling with how to harness that power in making some drugs more readily available to patients without them having to go through the prescription process.

The agency got an ear full at a two-day public hearing last week as doctors, pharmacists, drugmakers and patient advocacy groups voiced their opinions on a proposed drug paradigm that would bridge between prescription drugs and over-the-counter (OTC) products by using technology to enable patients to self-diagnose and "prescribe." The new OTC path with conditions for safe use could be open to contraceptives, emergency-use medicines such as epi pens and drugs for common conditions like high cholesterol and blood pressure.

While supportive of the concept, Paul Brown, of the National Research Center, urged the FDA to proceed cautiously. He suggested a pilot program with products that "are the most likely to help and the least likely to harm."

The agency will continue taking comments on the idea through May 7. If it decides to proceed with the proposal, the FDA would likely take the concept through its rulemaking process, said Jane Axelrad, associate director for policy at the agency's drug center.