Legislation would ease compliance costs for bioscience startups

Legislation would ease compliance costs for bioscience startups
Stephen Rapundalo, president and CEO of MichBio

New federal legislation aims to ease the regulatory burden for startup companies in the scientific and medical research industry.

Co-sponsored by Sen. Gary Peters, D-Mich, and Sen. Thom Tillis, R-N.C., the Senate legislation mirrors a House bill from earlier this year that would help publicly-traded emerging growth companies by exempting them from financial compliance reporting under the Sarbanes-Oxley Act.

While the companies currently have a five-year compliance exemption after their IPOs, the new bills would extend the grace period for another five years. The extension is a recognition that bioscience companies typically require significant capital investments into their products, which often delays profitability until well after the initial five-year period as innovations make their way through clinical trials.

The legislation, known as the Fostering Innovation Act, drew praise from MichBio, the statewide association for bioscience companies.

“If enacted, the legislation would reduce the significant costs that small pre-revenue companies, like those in Michigan’s biosciences industry, incur to comply with Sarbanes-Oxley regulations as they go into public markets,” MichBio President and CEO Stephen Rapundalo said in a statement. “Relieving them of that burden would encourage more of them to commercialize, grow their companies, create new jobs and be impactful to both the Michigan and national economies.”

The bills apply to companies that have average annual revenues of less than $50 million and that have less than $700 million of their shares held by public investors. If enacted, the exemption would “ease the regulatory reporting burden for small startups that have not fully realized their earnings or recouped their research and development costs,” according to a joint statement from Peters and Tillis.

“Michigan is a growing hub for bio-technology startups that are creating jobs and developing cutting-edge cures. Many cures take years of trials and testing to reach patients in need, tying up precious resources for these small businesses,” Peters said in a statement. “This bipartisan, commonsense legislation would cut red tape for emerging bio-technology companies so they can focus their resources on the critical research and development that will provide innovative treatments and save lives.”

More than 600 bioscience companies and research/clinical centers have operations in Michigan. The industry supported about 150 startups from 2004 to 2009.

“By allowing innovative small businesses to focus their investment capital on science rather than compliance, the Fostering Innovation Act would allow these emerging innovators to remain focused on delivering groundbreaking cures and treatments to patients,” said Jim Greenwood, the president and CEO of BIO, a global biotechnology trade group. “The targeted nature of the Fostering Innovation Act, which would only benefit pre-revenue companies, represents an important move away from one-size-fits-all regulations.”

Similar legislation in the U.S. House, sponsored by U.S. Rep. Kyrsten Sinema, D-Ariz., and U.S. Rep. Trey Hollingsworth, R-Ind., was reported out of the Committee on Financial Services on a 48-12 vote on Oct. 12.