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The JOBS Act Boosts Biotech Community’s Access to Investment

This month marks the second anniversary of President Barack Obama’s Jumpstart Our Business Startups, or JOBS, Act. I got a call this week from BIO, the national biotechnology industry trade organization, to discuss the law’s impact on San Diego’s biotech community and how it helped build the recent explosion of initial public offerings in the nation.

It has rejuvenated the industry, said Faheem Hasnain, CEO of San Diego-based Receptos Inc.

There have been 80 biotech IPOs since the 2012 JOBS act was signed, compared with 32 in the two recession-ridden years previous. Many of these have been in San Diego.

“With almost triple the number of IPOs, it’s a significant jump,” said Charles Crain, senior manager of tax and financial services policy at BIO. “There were lots of factors involved, but the JOBS Act was a big part of that.”

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The biggest impact the JOBS Act has had is allowing companies to file prospectuses confidentially, taking the pressure off of smaller companies that might not have been able to easily drum up investor interest otherwise.

Filing confidentially allowed Receptos (Nasdaq: RCPT) to test out the investment landscape without scrutiny, which has typically been a huge hurdle for smaller companies, Hasnain said. It’s a costly proposition to attempt going public, and if a company finds out they aren’t ready or doesn’t have mature enough data, publicly filing can be a real hindrance for a biotech.

“The regulatory burden can be pretty tough on a small, burgeoning, newly minted public company,” Hasnain said. “The regulatory relief gives us more of a practical road map to get your company to a point where your stocks are compliant.”

Explaining the intricacies of a disease mechanism, and the way a drug attacks it, is far more complex than can easily be described in your typical 30-minute investor presentation given during a road show, Hasnain said. With the privacy clause, he was able to reach out to investors in the weeks and months before announcing Receptos was going public — helping investors of all walks of the financial community to understand the premise and promise of his company.

“Getting access to capital is the lifeblood of industry, especially so given how capital-intense our business is,” Hasnain said.

Biotechs typically have relied on the venture capital model, which helps startups initially get off the ground with smaller investments. But venture capital can’t provide the same sort of funding needed for later-stage trials, which require tens of millions of dollars to start and complete.

“We’ve seen a lot of great companies now be able to have a more sustainable future,” Hasnain said. “I think it will spur innovation overall for our industry, as opposed to drip-feeding capital into companies that obviously have potential for innovation.”

Biotechs now have a much better shot to really see meaningful clinical progress with their medicines, Hasnain said, and to do the right kinds of studies in the right populations.

“From a D.C. perspective, we often hear so much about the political gridlock in Washington — Congress is rarely told they do anything right,” Crain said. “In this case, it’s a resounding ‘yes’ they’ve done something right. It’s had an extraordinary impact on companies and a real-life impact on patients.”

• • •

Zogenix Inc., the San Diego drugmaker embroiled in controversy over its new opioid painkiller Zohydro ER, finally has a win under its belt. It has successfully blocked an order from Massachusetts Gov. Deval Patrick to ban the drug in that state.

Patrick had banned the drug March 27, announcing the state was in a public health emergency for its prevalence of opioid drug abuse.

The U.S. District Court of Massachusetts granted a preliminary injunction against Patrick’s ban, finding that allowing the state to overturn the Food and Drug Administration ruling was an obstruction of the federal agency’s authority.

“We invite concerned officials to engage with us to discuss fair and appropriate safeguards for pain medications like Zohydro ER rather than seeking to ban or restrict one specific treatment,” Zogenix CEO Roger Hawley said in a statement.

The ruling in Zogenix’s favor has helped the stock value, which has fluctuated madly in the past year as the company has battled one criticism after another. The ruling led to a 15 percent stock surge on the day of the announcement for Zogenix (Nasdaq: ZGNX), though it still faces an onerous battle to successfully commercialize a drug so fraught with misconception.

Send news about locally based health care organizations, biotech and clean-tech to Meghana Keshavan at mkeshavan@sdbj.com. She can be reached at 858-277-6359.

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