By Bill Flook
Trade groups representing the biotechnology and venture capital industries are throwing their support behind a bill to extend certain disclosure benefits afforded to Emerging Growth Companies (EGCs) under the JOBS Act for an additional five years. The National Venture Capital Association (NVCA) and the Biotechnology Innovation Organization (BIO) are among a cluster of industry organizations to back H.R. 4918, the Helping Startups Continue to Grow Act. Sec. 1 of pl112-106
Also supporting the measure are the U.S. Chamber of Commerce and the Securities Industry and Financial Markets Association (SIFMA). Rep. Bryan Steil of Wisconsin and five other Republican lawmakers introduced the bill on October 30, 2019.
Steil touted the groups’ support in a November 14 news release announcing the measure.
NCVA, in its letter to Steil, said the bill expands on “a successful provision from the JOBS Act which streamline certain regulatory and disclosure requirements for Emerging Growth Companies (EGCs).”
BIO, in its own letter, noted that EGC status runs out after five years, while most biotechs still are without revenue.
“Every dollar spent on regulatory burdens that do not provide useful information to investors is therefore a dollar diverted from the lab,” BIO wrote. “A five-year extension of EGC provisions will enable small public biotechs to continue to prioritize research and innovation, and will free up more capital to hire scientific and technical talent, invest further in R&D and clinical development, and enhance their ability deliver product candidates to patients suffering from various diseases.”
The measure is part of a broader campaign to extend the benefits of the 2012 JOBS Acts for companies aging out of their EGC status and facing the loss of a series of accounting and disclosure exemptions.
Today, in addition to an exemption from the auditor attestation requirements in Section 404(b) of the Sarbanes-Oxley Act, EGCs are afforded a host of disclosure benefits, including an exemption from the Dodd-Frank Act’s pay ratio disclosure rules issued by the SEC in 2015 in Release No. 33-9877, Pay Ratio Disclosure, which require companies to disclose a ratio comparing the chief executive’s pay to that of the median employee. EGCs are also freed from the so-called “say-on-pay” advisory votes on executive compensation, and can take advantage of other scaled disclosure requirements, among other benefits.PL111-203
Several conditions can trigger the loss of EGC status. If a company surpasses $1 billion in annual revenue or reaches the five-year anniversary of its initial public offering (IPO) date, it will no longer qualify as an EGC after the end of the fiscal year in which it reached that milestone. A company will also shed its EGC designation if it issues more than $1 billion in non-convertible debt over a three-year period, or reaches a public float of $700 million.
Under Steil’s bill, companies that age out of EGC status would gain an addition five years of exemption from pay ratio disclosure and other disclosure requirements on executive compensation and other issues.
Cosponsoring the bill are Republican Reps. French Hill of Arkansas, Steve Stivers of Ohio, Lance Gooden of Texas, Trey Hollingsworth of Indiana, and Scott Tipton of Colorado.
A version of the bill last year advanced out of a GOP-controlled House Financial Services Committee on a 32-24 vote.
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