Rare policy sanity in Washington with JOBS Act ignites biotech boom
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Reaction to President Trump's decision to cut two regulations for every new one added is a great political Rorschach Test. If you free-associate words like job-killing, compliance burdens, legal bills and “sea of paperwork,” you’re probably a Republican. If you worry about corruption, pollution, safety or “too big to fail,” you’re most likely a Democrat.

When it comes to regulating the biopharmaceutical industry, partisans have been known to earnestly invoke life and death in their arguments. Regulations are necessary to prevent unsafe products from killing people; regulations are killing small life sciences companies and the patients they might have otherwise saved. Both sides have a point, yet common ground is seldom found.

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That is what makes today’s anniversary worth celebrating. Exactly five years ago, the JOBS Act became law after an overwhelming bipartisan vote in Congress. It was a rare triumph of compromise and regulatory sanity in the nation’s capital — a law that recognized regulations are both necessary and frequently overbroad.

 

The legislative acronym stands for Jumpstart Our Business Startups, and in the biotech industry, the JOBS Act did just that. Its capital market reforms produced a genuine biotechnology boom — a startup explosion that solidified America as the undisputed leader of a trillion-dollar global industry transforming medicine, farming and energy production.

Biotech startups are unusual. Their leaders must seek venture capital or a public offering to fund their research, as they have no revenue-generating product yet. These entrepreneurs are selling the hope of a breakthrough to investors. The ability to go public becomes even more important in the later stages of drug development when hundreds of millions of dollars are required to fund human clinical trials.

Today, the Biotechnology Innovation Organization released new data on how the JOBS Act has impacted the industry after five years on the books. It has produced an unprecedented 212 biotech IPOs, compared to just 55 in the five years prior to enactment.  It has led to a surge of financing for early-stage research: Biotech companies have raised $17 billion through five years of IPOs, $33 billion if you count follow-on offerings.

The Food & Drug Administration (FDA) has approved 18 new treatments developed by these companies, which have a total of 696 therapies in development today because of the capital they were able to raise. A quarter of these companies are in the oncology field, searching for new treatments for cancer. Life-and-death regulatory reform indeed.

The genius of the JOBS Act is that it found ways to incentivize going public without unraveling important protections.

I chaired the Enron hearings as a member of Congress, so I understand the need for the accounting protections codified in the Sarbanes-Oxley Act. But the costly audits mandated by the law ought to be limited to larger companies that require more sophisticated financial controls. Small biotechs are research outfits with simple corporate structures; often, only the CEO or CFO has the authority to spend money. The JOBS Act gives small firms a five-year Sarbanes-Oxley exemption. Scrappy biotech startups have saved a fortune in compliance costs — money they can spend on scientists instead of lawyers.

On Wall Street, when companies file paperwork to go public, that information immediately becomes available for investors to see. This can telegraph plans before company leaders are ready to pull the trigger. It’s like homeowners not wanting their house to be listed for six months if they’re not yet ready to sell, lest buyers think there’s a structural problem. The JOBS Act allows confidential filing for small firms. This way, they don’t send the wrong signal to investors or foreclose other financing options.

Historically, gun-jumping regulations have protected investors from being sold a bill of goods by preventing company contact until their filing is approved. However, this made it harder for biotech entrepreneurs to make vital connections. The JOBS Act included “testing the waters” provisions, which relaxed those requirements for small companies with less than $1 billion in revenue. This has allowed biotech entrepreneurs enough time to explain complicated science to investors, rather than rely on rushed elevator pitches during a hurried road show.

New York-based Intercept Pharmaceuticals was one of the first biotech startups to take advantage of the JOBS Act. The company launched to develop a new treatment for primary biliary cholangitis — an autoimmune liver disease prevalent in older women that can lead to liver failure and death.

It took CEO Mark Pruzanski, a board member of the Biotechnology Innovation Organization, a decade to raise $50 million in venture capital to fund his company’s research. Utilizing several JOBS Act provisions, he raised $1.1 billion in less than five years and his company grew from 20 employees to nearly 500. The FDA approved Intercept’s Ocaliva last year, and 20,000 Americans who have no other treatment options now have hope because of this law.

As Congress looks for areas of consensus in this hyper partisan environment, they should continue to champion startups:

  • Enhanced short selling transparency would shine a light on manipulative trading behaviors that discourage long-term investment in innovation.

  • Reps. Kyrsten Sinema (D-Ariz.) and Trey Hollingsworth (R-Ind.) have a bill to relax Sarbanes-Oxley accounting rules for 10 years on smaller, emerging growth companies.

  • Key provisions of House Financial Services Chairman Jeb Hensarling’s Financial Choice Act would help ensure capital formation for the decades-long, billion-dollar timeline faced by small biopharma companies with new products in the pipeline.

With so much uncertainty coming out of Washington these days, Congress should once again forgo reflexive partisanship and support smart policy that gives startups and patients a new lease on life.

Jim Greenwood is the president and CEO of the Biotechnology Innovation Organization (BIO) in Washington, DC. He served Pennsylvania's 8th Congressional District from 1993 to 2005.


The views of contributors are their own and not the views of The Hill.