Biotech start-ups may soon be able to travel a repaved Regulation A route to raise up to $50 million.

In its third rulemaking under the Jumpstart Our Business Startups (JOBS) Act, the SEC voted unanimously Wednesday to propose a rule that sets up a two-lane approach to Reg A. The first lane would be limited to offerings of up to $5 million and would pretty much follow the course of the current Reg A, which is seldom used. The second lane, dubbed Reg A+, would lift the cap to $50 million, preempt state securities reviews and impose stricter investor protections.

Developed years ago as the middle course between private and public offerings, Reg A was intended to help small companies raise early capital, Commissioner Daniel Gallagher said before the vote. Although Reg A allows widespread solicitation, requires no purchaser qualifications and permits the unlimited resale of securities, it has become the road less traveled. Only one Reg A offering was conducted in 2011, Gallagher pointed out.

“Today’s proposal puts us on the right track,” he said, adding that he hopes the disclosure requirements for the second lane don’t prove overly burdensome. Those proposed requirements include audited financial statements, SEC reviews, and annual and semiannual reports. While Reg A+ investors don’t have to be accredited, the rule would limit their investments to 10 percent of their net worth.

Citing a Government Accountability Office report that found the cost and burden of the current Reg A outweighed its benefits, Gallagher said the $5 million limit and the fact that companies have to comply with state “blue sky” reviews, which can delay an offering by an average of seven months, are two big reasons Reg A hasn’t been a popular route.

The JOBS Act allows Reg A preemption only if companies are traded on a national exchange or the offerings are to qualified purchasers. Most small biotechs aren’t likely to be traded on national exchanges, given the high cost of doing so, the Equity Formation Task Force said in a report submitted last month to the U.S. Treasury Department. In that report, the task force urged the SEC to preempt state reviews for Reg A. (See BioWorld Today, Nov. 13, 2013.)

That also was a concern for the Biotechnology Industry Organization (BIO), which optimistically welcomed the proposed rule Wednesday. By defining a qualified purchaser as any purchaser in a Reg A+ offering, “the proposed rule effectively balances investor protection with the need for a commonsense regulatory burden for growing innovators,” BIO spokeswoman Tracy Cooley told BioWorld Today.

Kenneth Moch, CEO and president of Chimerix Inc. and a member of the Equity Formation Task Force, also was happy with the proposed rule. Increasing the cap to $50 million makes Reg A+ a pathway that has meaning for biotechs, which have a voracious appetite for capital, he told BioWorld Today. And by preempting state review, the rule creates a national standard, he added.

Since the Durham, N.C.-based Chimerix went public last year, it’s unlikely to travel the Reg A+ road. But Moch, a veteran of the biotech industry, wants the route open for other biotechs that face a high barrier to success.

Whether the changes are enough to bring traffic back to Reg A remains to be seen, as what emerges in a final rule could differ from the proposal. Some of the commissioners indicated they’d like to see more investor protections and questioned the wisdom of removing the states from Reg A+.

Commissioner Luis Aguilar voiced concerns about the lack of transparency Reg A offerings might have on the secondary market. Noting the potential for volatility on the resale market for several JOBS Act avenues, Aguilar said the SEC “needs to get in front of the problem and not wait until investors are harmed.”

Reg A is the last JOBS Act provision requiring rulemaking. The SEC finalized the rule to allow general solicitation under Regulation D in September. An accompanying rule on Reg D disclosure requirements is pending, and the commission is still accepting comments on a proposed rule for crowdfunding. (See BioWorld Today, Sept. 24, 2013, and Oct. 25, 2013.)

SENATE PASSES BUDGET DEAL

Following in the wake of a House vote last week, the Senate passed a two-year budget agreement Wednesday on a vote of 64-36.

By increasing the discretionary spending caps for fiscal 2014 and 2015, the budget compromise wards off deeper sequestration cuts that would have kicked in next month and paves the way for spending bills to replace the continuing resolution that has been funding the government at sequestered fiscal 2013 levels. That resolution expires Jan. 15. (See BioWorld Today, Dec. 12, 2013.)

The House approved the agreement Thursday before adjourning for the holidays. (See BioWorld Today, Dec. 13, 2013.)