Executive Summary: SEC Comment Letter Trends Among Life Sciences Companies
In 2024, the life sciences sector experienced cautious growth driven by strategic acquisitions and collaborations, despite economic headwinds and the uncertainty of the new US presidential administration.
The number of 2024 life sciences initial public offerings increased compared to 2023, reflecting a growing but cautious investor confidence in the sector’s growth potential, although this was far from the record IPO volumes in 2020–2021 and historical trends.
The adoption of generative AI is set to revolutionize drug discovery and development, with significant investment in 2024 and several pivotal clinical results on AI-developed drug candidates planned during 2025. This will serve as validation for AI approaches in drug development leading to significant cost savings and expediting the time from research to commercialization.
The incoming Trump administration is creating uncertainty in the life sciences sector, which will take some time to understand. While market participants anticipate lower taxes and expedited FDA approvals, potential changes in drug pricing and healthcare policy may also present challenges to drug development and commercialization.
Regardless of regulatory and economic uncertainty, life sciences IPOs are set to rebound in 2025 providing the needed funding for companies to advance their clinical trials. For companies looking to take advantage of the IPO window through a first-time registration statement or existing filers making continuous public filings and preparing their next Forms 10-K or 10-Q, insight into past SEC comment letters can help ensure SEC compliance.
We analyzed SEC comments on Forms S-1, 10-K, 10-Q, and 20-F filings made by life sciences companies during the period from May 1, 2023, to April 30, 2024 (2023–2024). These comments were analyzed by frequency to identify the most prominent SEC comment letter topics and trends compared to prior year. Leveraging this analysis will promote proactive readiness, assist companies in steering clear of similar issues, and potentially save both time and money.
Key Findings
As in previous years, R&D continued to be the area with the highest number of SEC comments in 2023–2024 with increases from the prior year. The SEC continues to place a heavy emphasis on disclosures surrounding companies’ clinical trials and in-process product development.
SEC reporting, or process compliance, and management’s discussion and analysis followed, both with increases from the prior year, while IPO-related findings dropped considerably. We would expect that this will increase as life sciences IPO market activity increases.
Comment Categories
The SEC had 727 comments related to Forms S-1, 10-K, 10-Q, and 20-F during 2023–2024 period. This is an increase of 5% against the 693 comments in the same comparable 2022–2023 period.
Four core specific categories represented over half of the SEC comments, with R&D comments leading at 20% of all comments. Similar to previous years, the SEC concentrated on ensuring thorough disclosure of clinical trials and studies, while also requiring clarity and objectivity regarding developmental products and pipelines.
SEC reporting was the next major comment category with 15% of all comments. This category had the most comments requiring companies to make requisite disclosures throughout their prospectus, including filing all relevant material information.
These two categories were followed by comments requiring disclosure of the following:
- Management’s discussion and analysis (MD&A) 13%
- Entity background 11%
- Details on the actual offering and use of proceeds 9%
- Current and anticipated risks related to the business 6%
The following infographic depicts a breakdown of the total 727 comments analyzed, according to category and frequency.
Significant Shifts
As a percentage of total comments, five categories experienced notable shifts compared to 2022–2023 as seen below:
R&D, SEC reporting and MD&A all experienced increases from the prior year. These are perennial hot buttons of the SEC and registrants would be wise to evaluate these carefully before filing.
IPO comments dropped by five percentage points reflecting an overall decline of IPO comments relative to the total number of comments.
Lastly, risk disclosures dropped by two percentage points and is now below resale offerings—details on the actual offering and use of proceeds—in total comments.
Looking Forward
The SEC takes into account both the broader economic environment and specific business factors when guiding their review. Although topics such as SEC reporting were generally prevalent across the entire life sciences sector, other issues varied among subindustries, with research and development being particularly emphasized in pharmaceutical companies. As was borne out in IPO comments, certain topics receive more attention in some years.
Companies should consider factors in their specific situation, subsector and the broader environment in preparation for their next periodic filing or registration statement. Incorporating considerations from current SEC comments can increase compliance, reduce the likelihood of receiving similar SEC comments, and may save time and effort.
We’re Here to Help
For more information on current SEC and life sciences reporting trends and how your business can leverage them, contact your Moss Adams professional.