Series 79 practice questionhardIPO Process
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
- CRespond to the SEC comment letter by revising the disclosure, providing additional context for non-GAAP measures, and reconciling them to GAAP figures✓ Correct answer
- DSwitch from an S-1 to an S-3 registration to avoid SEC review
Explanation
Why C — Respond to the SEC comment letter by revising the disclosure, providing additional context for non-GAAP measures, and reconciling them to GAAP figures
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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