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Catalyst - Fall 2012 - Impact of the JOBS Act of 2012: Going Public is a Real Option for Young Life Science & Biotech Companies

Combine one part great idea, two parts determination and hard work from an experienced team, a sprinkle of luck, and what often seems like 97 parts of “never-ending” supply of capital. What do you have? If you are in the right place at the right time, you just may get your drug or device out of the lab, into trials and maybe even the marketplace.

But, in this economy, if you’re trying to serve up something to entice investors in New Jersey and the Delaware Valley at-large, even the very best recipe for success may not be enough.

As such, young life science entrepreneurs, according to Peter Bible, partner at EisnerAmper and leader of the firm’s Public Companies Group, have been wondering if they should leave New Jersey and head for greener pastures and deeper pockets in Silicon Valley or Boston. Bible_Peter

Bible is clear: “Not so fast.”

When President Obama signed the JOBS Act in April 2012, Bible said the legislation put in place a new, potentially significant, source of capital available to companies in the life sciences sectors by incentivizing them to do something long considered to be difficult, costly and time-consuming.

“Going public is now a real option for small companies who need to raise capital but have considered the IPO process to be beyond reach,” explained Bible. The JOBS Act cuts through the red tape of going public and, he said, provides a  real incentive for New Jersey’s best and brightest to stay put and keep Garden State-grown intellectual property right here where it belongs.

When signed, the JOBS Act promised to increase the number of U.S. public offerings after a steady decline over the course of the last decade and to facilitate capital raising by smaller companies.

“When Obama signed the JOBS Act, he essentially reopened the American capital markets after a multi-year dry spell. The Act effectively reduces both the regulatory burden and cost of accessing capital through the public markets for emerging growth companies,” Bible added.

The Jobs Act, explained Bible, simplifies the process by reducing many of the primary regulatory burdens imposed on private and public capital raising transactions conducted by smaller companies, thereby potentially facilitating quicker and more cost efficient capital formation by these companies.

Of course, commentators on the subject of the JOBS Act, including Bible, knew that the only thing permanent about wide-sweeping legislation is the SEC’s inclination to change it.

One of the elements of the JOBS ACT eliminated the prohibition against solicitation and general advertising in offerings of private placement securities, including private funds. On Aug. 29, the SEC proposed amendments to the rules to implement that portion of the JOBS Act. The rules, which among other things loosen marketing restrictions, are out for comment.

Time will tell how that and likely many other attempts to amend the Act will impact the marketplace. For now, however, you owe it to your company – and the marketplace that is waiting for your game-changing technology or drug or device – to find out how your
company may benefit from the JOBS Act. Then, you must work closely with advisors – both accountants and lawyers – to determine the best course of action for your company. As with any legislation, there are benefits and potential pitfalls.

In addition to the aforementioned solicitation and advertising rules, the most important provisions of the JOBS Act are:

 

  1. The Creation of the “Emerging Growth Company” - The JOBS Act created a new category of equity issuers, an “emerging growth company” (EGC). To qualify, your company must be privately held and have less than $1 billion in revenues. It can retain the EGC status for up to five years or until gross revenues exceed $1 billion.
  2. Crowdfunding - Now investors with an annual income or net worth of $100,000 can invest up to the greater of $2,000 or 5 percent of their annual income or net worth while investors with an annual income or net worth greater than $100,000 can invest up to the greater of 10 percent of their annual income or net worth – together, in one company.
  3. Increasing the Shareholder Limit - Companies looking to go public can now have up to 2,000 shareholder before registration with the SEC is required, up from the 500 shareholder limit. Think Facebook and you can quickly see the advantages of this one.


The bottom line is that any way you look at it, the JOBS Act opens the playing field for smaller companies to access the public markets so they can grow and, hopefully, create more jobs. That’s good.

But with the good, there’s always the bad. Risks Abound. Consult your advisory team and proceed with caution.
Lopez, Michael
“While there are still many questions to be asked and answered surrounding this new and groundbreaking legislation, it is clear that those looking to raise up to a million dollars to jump start their company will have reduced barriers and time constraints to entry into this market place for precious capital,” said Michael Lopez, a member of the EisnerAmper’s Technology Group.

EisnerAmper's Catalyst: Fall 2012

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