SEC Rule Change Will Ease Audit Requirements for Smaller Companies

SEC emblem on side of building

Mark Van Scyoc /

A new rule proposal from the U.S. Securities and Exchange Commission will benefit the bank accounts of many small biotech and pharma companies that post revenues of less than $100 million.

The SEC announced amendments to its accelerated filer and large accelerated filer definitions. The new rules would exempt companies making less than $100 million from having to undergo regular outside audits. The move would save companies a significant expense associated with the annual audits. The SEC estimated that annual costs related to outside audits are higher, around $225,000 per company.

“Many of these smaller companies – including biotech and health care companies – will be able to redirect the savings into growing their companies by investing in research and human capital,” SEC Chairman Jay Clayton said in a statement.

The change in the SEC’s formulary is intended, in part, to entice more companies to file for an initial public offering, the Wall Street Journal noted. In its report of the changes, the Journal noted that the SEC’s proposed changes provide these companies with “greater leeway to discuss their IPO plans privately with potential investors before announcing their intentions.”

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While the number of companies listed on the various stock exchanges has actually declined over the past 20 years, there are a number of high-profile companies set to announce IPOs this week or in the coming weeks. In the biotech and pharma world, a number of companies have rushed to list on the Nasdaq and other exchanges. Just this week, four biotech companies listed on the Nasdaq exchange. The companies, Maryland-based NextCure, South San Francisco-based Cortexyme, Canada-based Milestone Pharmaceuticals and Cambridge, Mass.-based Axcella all began listing on the exchange this week. The listing from these four companies followed nine companies that listed on the exchange in April, as well as seven in March. Still, the pace of biotech companies listing on the Nasdaq or other exchanges is not as robust as the previous year.

Prior to those four biotechs going public earlier this week, Trevi Therapeutics and TransMedics both launched IPOs this month.

More companies are soon to list though. Germany-based BioNTech is maneuvering for a possible future IPO following the acquisition of San Diego-based MabVax, which was already listed on the exchange.

The latest proposal from the SEC has not yet gone into effect. There is a required 60-day public comment period before the rule change will be implemented.

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