Deregulating Innovation Capital: The Effects of the JOBS Act on Biotech Startups

Review of Corporate Finance Studies, forthcoming

74 Pages Posted: 15 Jul 2020 Last revised: 15 Nov 2022

See all articles by Craig M. Lewis

Craig M. Lewis

Vanderbilt University - Finance

Joshua T. White

Vanderbilt University - Finance

Date Written: November 13, 2022

Abstract

We examine real outcomes for biotech startups going public around the Jumpstart Our Business Startups (JOBS) Act. Reduced compliance costs associate with greater innovation capital formation as biotech IPO volume and proceeds increase after the JOBS Act. Biotechs, which conduct over 30% of IPOs since 2012, go public with products earlier in the FDA approval process and more frequently target rare diseases and cancer. Consistent with our survey evidence that managers use compliance savings to invest in R&D, we link the JOBS Act to post-IPO increases in project-level development, such as new patents, clinical trials, and staffing of laboratories. Post-JOBS Act product candidates are more likely to reach key milestones in the FDA approval process and these startups fail at lower rates. Benefits accrue to shareholders without sacrificing financial reporting quality. Our results demonstrate how tailoring regulations for startups can provide economic and societal benefits.

Keywords: Innovation, drug development, R&D, initial public offerings, SEC

JEL Classification: G32, G34, G38, K22, M48, O31

Suggested Citation

Lewis, Craig M. and White, Joshua T., Deregulating Innovation Capital: The Effects of the JOBS Act on Biotech Startups (November 13, 2022). Review of Corporate Finance Studies, forthcoming, Available at SSRN: https://ssrn.com/abstract=3640852 or http://dx.doi.org/10.2139/ssrn.3640852

Craig M. Lewis (Contact Author)

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States

Joshua T. White

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States

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