A biotech company plans to IPO with a pre-money valuation of $800 million, offering 20 million shares. The company has only two Phase II drug candidates and no revenue. During the SEC review, the staff issues a comment letter questioning the company's use of non-GAAP financial measures. What is the most appropriate response?
- AIgnore the comment letter and proceed with the offering
- BWithdraw the registration statement and refile after the drugs receive FDA approval
- CRevise the disclosure, add context, and reconcile the non-GAAP measures to GAAP✓ Correct answer
- DSwitch from an S-1 to an S-3 registration to avoid SEC review
Why C — Revise the disclosure, add context, and reconcile the non-GAAP measures to GAAP
The company must respond to SEC comment letters by revising its registration statement to address the staff's concerns, including providing proper reconciliation of non-GAAP measures to GAAP figures as required by Regulation G and SEC guidance. Ignoring comment letters would prevent the registration statement from becoming effective. Pre-revenue biotech companies commonly use non-GAAP measures, but must present them in compliance with SEC rules, including clear reconciliation and disclosure of why management believes the measures are useful.
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