Exact Sciences Corporation, 47657-47659 [2018-20408]
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Federal Register / Vol. 83, No. 183 / Thursday, September 20, 2018 / Notices
be submitted on or before October 11,
2018.
FOR FURTHER INFORMATION CONTACT:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–20438 Filed 9–19–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
33228; File No. 812–14875]
Rochelle Kauffman Plesset, Senior
Counsel, at (202) 551–6840, or Nadya B.
Roytblat, Assistant Chief Counsel, at
(202) 551–6825 (Division of Investment
Management, Chief Counsel’s Office).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
website by searching for the file
number, or applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
Applicant’s Representations
1. Formed in 1995, Applicant is a
Delaware corporation that is in the
September 14, 2018.
business of developing, clinical testing,
AGENCY: Securities and Exchange
marketing and commercializing cancer
Commission (‘‘Commission’’).
and pre-cancer screening and diagnostic
ACTION: Notice.
tests. Applicant currently manufactures
Notice of application for an order
a non-invasive, patient-friendly
under Section 3(b)(2) of the Investment
screening test called Cologuard and
Company Act of 1940 (‘‘Act’’).
provides it to patients on a prescriptionApplicant: Exact Sciences
only basis through its clinical
Corporation.
laboratory. Applicant is also currently
Summary of Application: Applicant
working on the development of
seeks an order under Section 3(b)(2) of
additional tests for other types of
the Act declaring it to be primarily
cancers.
engaged in a business other than that of
2. Applicant states that companies in
investing, reinvesting, owning, holding
the heathcare sector such as itself
or trading in securities. Applicant is in
generally need significant liquid capital
the business of producing and
to finance their operations and meet
developing screening and diagnostic
high production, commercialization and
tests for the early detection and
regulatory costs. Such companies often
prevention of certain cancers.
spend a significant proportion of their
Filing Dates: The application was
revenues on research and development
filed on January 30, 2018 and amended
(‘‘R&D’’) in order to bring a product to
on June 1, 2018, July 6, 2018 and August market and to bring products through
24, 2018.
the Food and Drug Administration’s
Hearing or Notification of Hearing: An (‘‘FDA’’) approval process.
order granting the requested relief will
3. Applicant states that it currently
be issued unless the Commission orders depends on raised capital to finance
a hearing. Interested persons may
operations and continued growth but
request a hearing by writing to the
ultimately seeks to generate cash from
Commission’s Secretary and serving
its operations to support its business.
applicant with a copy of the request,
Applicant states that it has successfully
personally or by mail. Hearing requests
raised capital to finance its operations
should be received by the Commission
and commercialization of Cologuard in
by 5:30 p.m. on October 10, 2018 and
large part through various public
should be accompanied by proof of
offerings of its debt and equity
service on Applicant, in the form of an
securities. Applicant seeks to preserve
affidavit or, for lawyers, a certificate of
its capital and maintain liquidity,
service. Hearing requests should state
pending the use of such capital to
the nature of the writer’s interest, the
support its business operations, by
reason for the request, and the issues
investing in short-term investment grade
contested. Persons who wish to be
and liquid fixed income and money
notified of a hearing may request
market instruments that earn
notification by writing to the
competitive market returns and provide
Commission’s Secretary.
a low level of credit risk (‘‘Capital
Preservation Investments’’). Applicant
ADDRESSES: Secretary, Securities and
Exchange Commission, 100 F Street NE, also, to a limited extent, makes strategic
investments in companies that are
Washington, DC 20549–1090.
complementary to its core business.
Applicant, 441 Charmany Drive,
Applicant’s board of directors oversees
Madison, Wisconsin 53719.
Applicant’s investment practices and
16 17 CFR 200.30–3(a)(12).
defines the parameters for investment
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Exact Sciences Corporation
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activities. Applicant does not invest in
securities for short-term speculative
purposes.
Applicant’s Legal Analysis
1. Applicant seeks an order under
Section 3(b)(2) of the Act declaring that
it is primarily engaged in a business
other than that of investing, reinvesting,
owning, holding or trading in securities
and therefore is not an investment
company as defined in the Act.
2. Section 3(a)(l)(A) of the Act defines
the term ‘‘investment company’’ to
include an issuer that is or holds itself
out as being engaged primarily, or
proposes to engage primarily, in the
business of investing, reinvesting or
trading in securities. Section 3(a)(l)(C) of
the Act further defines an investment
company as an issuer that is engaged or
proposes to engage in the business of
investing, reinvesting, owning, holding
or trading in securities, and owns or
proposes to acquire investment
securities having a value in excess of
40% of the value of the issuer’s total
assets (exclusive of Government
securities and cash items) on an
unconsolidated basis. Section 3(a)(2) of
the Act defines ‘‘investment securities’’
to include all securities except
Government securities, securities issued
by employees’ securities companies,
and securities issued by majority-owned
subsidiaries of the owner which (a) are
not investment companies and (b) are
not relying on the exclusions from the
definition of investment company in
Section 3(c)(1) or Section 3(c)(7) of the
Act. While Applicant states that it does
not hold itself out as being engaged
primarily in the business of investing,
reinvesting or trading in securities,
Applicant states that it consistently
holds investment securities that exceed
40% of its total assets on an
unconsolidated basis (exclusive of
Government securities and cash items).
Applicant states that it therefore falls
within the definition of investment
company under Section 3(a)(l)(C) of the
Act.
3. Rule 3a–8 under the Act provides
an exclusion from the definition of
investment company if, among other
factors, a company’s R&D expenses are
a substantial percentage of its total
expenses for the last four fiscal quarters
combined. While Applicant believes
that it complies with the conditions of
Rule 3a–8, Applicant is concerned that
its R&D expenses, while substantial in
absolute terms, may not be substantial
as a ratio of overall expenses,
particularly given the expense increase
in connection with the
commercialization of Cologuard.
Applicant’s R&D expenses as a ratio of
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Federal Register / Vol. 83, No. 183 / Thursday, September 20, 2018 / Notices
total expenses have declined from a
high of 74% of total expenses in 2012
to approximately 11% of total expenses
for year-end 2017 and 12% as of March
31, 2018. Applicant explains that since
the FDA’s approval of Cologuard,
Applicant has devoted more resources
to sales and marketing. Although
Applicant’s R&D expenses have
generally increased or remained steady
overtime, its overall expenses have
disproportionately increased, causing a
decline in the ratio of R&D expenses to
overall expenses. While Applicant
expects to increase funding for R&D for
other products, it also expects to
increase funding with respect to the
commercialization of Cologuard. Thus,
Applicant does not expect its additional
funding for R&D to cause a significant
increase in the ratio of R&D funding to
overall expenses.
4. Section 3(b)(2) of the Act provides
that, notwithstanding Section 3(a)(l)(C)
of the Act, the Commission may issue
an order declaring an issuer to be
primarily engaged in a business other
than that of investing, reinvesting,
owning, holding, or trading in securities
directly, through majority-owned
subsidiaries, or controlled companies
conducting similar types of businesses.
Applicant requests an order under
Section 3(b)(2) of the Act declaring that
it is primarily engaged in a business
other than that of investing, reinvesting,
owning, holding or trading in securities,
and therefore is not an investment
company as defined in the Act.
5. In determining whether an issuer is
‘‘primarily engaged’’ in a noninvestment company business under
Section 3(b)(2) of the Act, the
Commission considers the following
factors: (a) The company’s historical
development, (b) its public
representations of policy, (c) the
activities of its officers and directors, (d)
the nature of its present assets, and (e)
the sources of its present income.1
6. Applicant submits that it satisfies
the criteria for issuance of an order
under Section 3(b)(2) of the Act because
Applicant is primarily engaged in the
business of developing, testing,
marketing and commercializing cancer
and pre-cancer diagnostic screening
tests and not in the business of
investing, reinvesting, owning, holding
or trading in securities.
a. Historical Development. Applicant
states that since its inception in 1995 it
has operated in the healthcare sector to
develop and commercialize cancer and
pre-cancer screening and diagnostic
tests. Applicant has focused its strategic
1 Tonopah Mining Company of Nevada, 26 SEC
426, 427 (1947).
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opportunities in developing a screening
test for colorectal cancer, culminating in
the development of Cologuard, which
received FDA approval in 2014. Since
2014, Applicant has been engaged in
sales and marketing Cologuard and has
begun research and development on
testing related to other types of cancers.
Applicant has nine wholly-owned
subsidiaries, each of which is an
operating company integrally related to
Applicant’s business. Applicant has
never sold any of its subsidiaries since
inception.
b. Public Representations of Policy.
Applicant states it has never made any
public representations that would
indicate that it is in any business other
than developing and commercializing
cancer screening technologies.
Applicant represents that it has never
held and does not now hold itself out
as an investment company within the
meaning of the Act. Applicant states
that all annual reports, web postings,
press releases and written
communications issued by Applicant
have related to its business as a cancer
screening and diagnostics company.
Applicant further states that its public
representations make clear that
shareholders invest in the Applicant’s
securities with the expectation of
realizing gains from Applicant’s
development and commercialization of
cancer-screening and diagnostic
technologies and not from returns on an
investment portfolio. Applicant’s only
public representations regarding its
investment securities are those required
to be disclosed in public filings with the
Commission.
c. Activities of Officers and Directors.
Applicant represents that its board of
directors and officers devote
substantially all of their time managing
Applicant’s business as a cancer
screening and diagnostics company.
Applicant states that its management
and corporate governance structure is
comprised of professionals with
expertise in technology, science,
medicine, life science/biotechnology,
and government. Applicant states that
day-to-day management of the Capital
Preservation Investments is handled by
external asset managers consistent with
investment guidelines adopted by the
Applicant’s board of directors on an
annual basis. Applicant states that while
the board of directors may review
strategic investments in companies that
are complementary to the Applicant’s
business, these reviews are made for
long-term business, not speculative
investment strategies. None of the
members of management or the board of
directors, even when reviewing strategic
investments, spends or proposes to
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spend more than 1% of his or her time
on any securities investment activities
on behalf of the Applicant. They, along
with the Applicant’s approximately
1,268 full-time employees, are dedicated
to the production and
commercialization of Cologuard and the
development of new cancer screening
and diagnostic products.
d. Nature of Assets. Applicant states
that as of March 31, 2018, Applicant’s
investment securities constituted
approximately 79% of its total assets
(excluding Government securities and
cash items) on an unconsolidated basis.2
Furthermore, more than 99% of its
investment securities consisted of
Capital Preservation Investments.
Applicant’s remaining investment
securities consist of a strategic
investment in a company whose
business is complementary to the
Applicant’s business. Applicant
anticipates that its investment securities
other than Capital Preservation
Investments will not exceed 10% of its
total unconsolidated assets (excluding
Government securities and cash items)
in the future. Applicant uses current
assets, including its Capital Preservation
Investments, to finance its continued
R&D program and operations in
connection with the commercialization
of Cologuard.
e. Sources of Income and Revenue.
Applicant represents that since its
inception it has had net operating
losses. It does, however, derive income
from its investment securities.
Applicant states that, particularly
given its commercialization of
Cologuard, a review of its current
sources of revenues provides a more
accurate picture of its operating
company status. Applicant states that,
for the year ended December 31, 2017,
Applicant had approximately $266
million of revenues attributable to
Cologuard. For the three months ended
March 31, 2018, Cologuard revenues
were approximately $90.3 million. In
contrast, Applicant earned $3.9 million
in net investment income in 2017, and
$3.7 million for the three months ended
March 31, 2018, all derived from Capital
Preservation Investments.3 Applicant
states that if investment income were
compared to its revenues from
Cologuard, it would account for less
than 2%. Applicant states it does not
expect its net investment income to
exceed 2% of its revenues over the long
term.
2 Applicant states that none of its subsidiaries
owns investment securities.
3 Applicant states that it has not, and does not
expect to, earn investment income from its strategic
investment.
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7. Applicant asserts that its historical
development, its public representations
of policy, the activities of its officers
and directors, the nature of its assets
and its sources of income and revenue,
as discussed in the application,
demonstrate that it is engaged primarily
in a business other than that of
investing, reinvesting, owning, holding
or trading securities. Applicant thus
asserts that it satisfies the criteria for
issuing an order under Section 3(b)(2) of
the Act.
Applicant’s Conditions
Applicant agrees that any order
granted pursuant to the application will
be subject to the following conditions:
1. Applicant will continue to allocate
and use its accumulated cash and
investment securities for bona fide
business purposes; and
2. Applicant will refrain from
investing or trading in securities for
short-term speculative purposes.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–20408 Filed 9–19–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84143; File No. SR–
CboeBZX–2018–019]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Order Granting
Approval of a Proposed Rule Change,
as Modified by Amendment No. 3, To
List and Trade Shares of Eighteen
ADRPLUS Funds of the Precidian ETFs
Trust Under Rule 14.11(i), Managed
Fund Shares
September 14, 2018.
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I. Introduction
On March 5, 2018, Cboe BZX
Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to list and trade shares
(‘‘Shares’’) of eighteen ADRPLUS Funds
of the Precidian ETFs Trust (‘‘Trust’’),
under Exchange Rule 14.11(i)
(‘‘Managed Fund Shares’’). The
proposed rule change was published for
comment in the Federal Register on
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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March 21, 2018.3 On April 25, 2018, the
Commission extended the time period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to approve or
disapprove the proposed rule change.4
Also on April 25, 2018, the Exchange
filed Amendment No. 1 to the proposed
rule change.5 On May 17, 2018, the
Exchange filed Amendment No. 2 to the
proposed rule change.6 On June 19,
2018, the Commission instituted
proceedings under Section 19(b)(2)(B) of
the Act 7 to determine whether to
approve or disapprove the proposed
rule change.8 On August 14, 2018, the
Exchange filed Amendment No. 3 to the
proposed rule change.9 The Commission
3 See Securities Exchange Act Release No. 82881
(March 15, 2018), 83 FR 12449.
4 See Securities Exchange Act Release No. 83102,
83 FR 19126 (May 1, 2018).
5 Amendment No. 1, which amended and
replaced the proposed rule change in its entirety,
is available at: https://www.sec.gov/comments/srcboebzx-2018-019/cboebzx2018019-3551361162325.pdf.
6 Amendment No. 2, which amended and
replaced the proposed rule change in its entirety,
is available at: https://www.sec.gov/comments/srcboebzx-2018-019/cboebzx2018019-3665011162423.pdf.
7 15 U.S.C. 78s(b)(2)(B).
8 See Securities Exchange Act Release No. 83467,
83 FR 29589 (June 25, 2018).
9 In Amendment No. 3, which amended and
replaced, in its entirety, the proposed rule change
as modified by Amendment No. 2, the Exchange: (a)
Specified that the derivatives in which the Funds
may invest are over-the-counter (‘‘OTC’’) currency
swaps; (b) corrected references to, and specified
with greater particularity, the Exchange
requirements the Funds would not meet; (c) deleted
a representation that the Funds may not meet the
requirement of Exchange Rule 14.11(i)(4)(C)(iv)(b)
that the aggregate gross notional value of listed
derivatives based on any single underlying
reference asset shall not exceed 30% of the weight
of the portfolio (including gross notional
exposures); (d) modified a trading halt
representation to state that the Exchange will also
halt trading in the Shares where a market-wide
trading halt is declared in the associated Unhedged
ADR (as defined herein) and that trading in the
Shares will remain halted until trading in the
Unhedged ADR resumes; (e) represented that Shares
of the Funds would meet and be subject to
Exchange Rule 14.11(i)(2)(C); (f) stated that each
Fund expects to invest in excess of 95% of its net
assets in the Unhedged ADRs, and each Fund
expects that the gross notional value of the
Currency Hedge (as defined herein) would be equal
to the value of the Unhedged ADRs, which would
be approximately 50% of the weight of the portfolio
(including gross notional exposures); (g) addressed
policy concerns related to the Currency Hedge held
by the Funds in excess of the limit as provided in
the Exchange Rule 14.11(i)(4)(C)(v); (h) modified a
representation to state that the Exchange will
suspend trading and commence delisting
proceedings pursuant to Exchange Rule 14.12 for
the Shares if the Unhedged ADR held by a Fund
has been suspended from trading or delisted by the
Unhedged ADR’s listing exchange; (i) stated that the
Exchange or Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’), on behalf of the
Exchange, are able to access, as needed, trade
information for certain fixed income instruments
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47659
has received no comments on the
proposed rule change. This order grants
approval of the proposed rule change, as
modified by Amendment No. 3.
II. The Exchange’s Description of the
Proposal, as Modified by Amendment
No. 3 10
The Exchange proposes to list and
trade the Shares under Exchange Rule
14.11(i), which governs the listing and
trading of Managed Fund Shares. The
Funds are a series of, and the Shares
will be offered by, the Trust.11 Precidian
Funds LLC (‘‘Adviser’’) will serve as the
investment adviser to the Funds.12
A. Description of the ADRPLUS Funds
According to the Exchange, each
Fund seeks to provide investment
results that correspond generally, before
fees and expenses, to the price and yield
performance of a particular American
Depositary Receipt, hedged against
reported to the Trade Reporting and Compliance
Engine (‘‘TRACE’’); (j) clarified a criterion regarding
when an order to redeem creation units of a Fund
would be deemed received by the distributor; (k)
specified that the Information Circular (as discussed
herein) will discuss how information regarding the
Disclosed Portfolio (as defined in Exchange Rule
14.11(i)(3)(B)) is disseminated; and (l) made other
non-substantive, technical, and clarifying
corrections to the proposal. Because Amendment
No. 3 clarifies the derivatives in which the Funds
may invest, adds specificity to certain requirements,
made additional representations, and otherwise
does not materially alter the substance of the
proposed rule change or raise unique or novel
regulatory issues under the Act, Amendment No. 3
is not subject to notice and comment. Amendment
No. 3 to the proposed rule change is available at:
https://www.sec.gov/comments/sr-cboebzx-2018019/cboebzx2018019-4290642-173190.pdf.
10 Additional information regarding the Funds,
the Trust, and the Shares can be found in
Amendment No. 3 and the Registration Statement.
See supra note 9 and infra note 11.
11 The Trust is registered under the Investment
Company Act of 1940 (‘‘1940 Act’’). See
Registration Statement on Form N–1A for the Trust,
dated June 14, 2017 (File Nos. 333–171987 and
811–22524) (‘‘Registration Statement’’). In addition,
the Exchange states that the Commission has issued
an order granting certain exemptive relief to the
Trust under the 1940 Act. See Investment Company
Act Release No. 32622 (May 2, 2017) (File No. 812–
14584).
12 The Exchange represents that the Adviser is not
a registered broker-dealer and is not affiliated with
a broker-dealer. In addition, Adviser personnel who
make decisions regarding a Fund’s portfolio are
subject to procedures designed to prevent the use
and dissemination of material nonpublic
information regarding the Fund’s portfolio. The
Exchange states that in the event that (a) the
Adviser becomes registered as a broker-dealer or
newly affiliated with a broker-dealer, or (b) any new
adviser or sub-adviser is a registered broker-dealer
or becomes affiliated with a broker-dealer, it will
implement and maintain a fire wall with respect to
its relevant personnel or such broker-dealer
affiliate, as applicable, regarding access to
information concerning the composition and/or
changes to the portfolio, and will be subject to
procedures designed to prevent the use and
dissemination of material non-public information
regarding such portfolio.
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]]>Agencies
[Federal Register Volume 83, Number 183 (Thursday, September 20, 2018)]
[Notices]
[Pages 47657-47659]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-20408]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 33228; File No. 812-14875]
Exact Sciences Corporation
September 14, 2018.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
-----------------------------------------------------------------------
Notice of application for an order under Section 3(b)(2) of the
Investment Company Act of 1940 (``Act'').
Applicant: Exact Sciences Corporation.
Summary of Application: Applicant seeks an order under Section
3(b)(2) of the Act declaring it to be primarily engaged in a business
other than that of investing, reinvesting, owning, holding or trading
in securities. Applicant is in the business of producing and developing
screening and diagnostic tests for the early detection and prevention
of certain cancers.
Filing Dates: The application was filed on January 30, 2018 and
amended on June 1, 2018, July 6, 2018 and August 24, 2018.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicant with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on October 10, 2018 and should be accompanied by proof of
service on Applicant, in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street
NE, Washington, DC 20549-1090. Applicant, 441 Charmany Drive, Madison,
Wisconsin 53719.
FOR FURTHER INFORMATION CONTACT: Rochelle Kauffman Plesset, Senior
Counsel, at (202) 551-6840, or Nadya B. Roytblat, Assistant Chief
Counsel, at (202) 551-6825 (Division of Investment Management, Chief
Counsel's Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's website by searching for the file number, or applicant
using the Company name box, at https://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicant's Representations
1. Formed in 1995, Applicant is a Delaware corporation that is in
the business of developing, clinical testing, marketing and
commercializing cancer and pre-cancer screening and diagnostic tests.
Applicant currently manufactures a non-invasive, patient-friendly
screening test called Cologuard and provides it to patients on a
prescription-only basis through its clinical laboratory. Applicant is
also currently working on the development of additional tests for other
types of cancers.
2. Applicant states that companies in the heathcare sector such as
itself generally need significant liquid capital to finance their
operations and meet high production, commercialization and regulatory
costs. Such companies often spend a significant proportion of their
revenues on research and development (``R&D'') in order to bring a
product to market and to bring products through the Food and Drug
Administration's (``FDA'') approval process.
3. Applicant states that it currently depends on raised capital to
finance operations and continued growth but ultimately seeks to
generate cash from its operations to support its business. Applicant
states that it has successfully raised capital to finance its
operations and commercialization of Cologuard in large part through
various public offerings of its debt and equity securities. Applicant
seeks to preserve its capital and maintain liquidity, pending the use
of such capital to support its business operations, by investing in
short-term investment grade and liquid fixed income and money market
instruments that earn competitive market returns and provide a low
level of credit risk (``Capital Preservation Investments''). Applicant
also, to a limited extent, makes strategic investments in companies
that are complementary to its core business. Applicant's board of
directors oversees Applicant's investment practices and defines the
parameters for investment activities. Applicant does not invest in
securities for short-term speculative purposes.
Applicant's Legal Analysis
1. Applicant seeks an order under Section 3(b)(2) of the Act
declaring that it is primarily engaged in a business other than that of
investing, reinvesting, owning, holding or trading in securities and
therefore is not an investment company as defined in the Act.
2. Section 3(a)(l)(A) of the Act defines the term ``investment
company'' to include an issuer that is or holds itself out as being
engaged primarily, or proposes to engage primarily, in the business of
investing, reinvesting or trading in securities. Section 3(a)(l)(C) of
the Act further defines an investment company as an issuer that is
engaged or proposes to engage in the business of investing,
reinvesting, owning, holding or trading in securities, and owns or
proposes to acquire investment securities having a value in excess of
40% of the value of the issuer's total assets (exclusive of Government
securities and cash items) on an unconsolidated basis. Section 3(a)(2)
of the Act defines ``investment securities'' to include all securities
except Government securities, securities issued by employees'
securities companies, and securities issued by majority-owned
subsidiaries of the owner which (a) are not investment companies and
(b) are not relying on the exclusions from the definition of investment
company in Section 3(c)(1) or Section 3(c)(7) of the Act. While
Applicant states that it does not hold itself out as being engaged
primarily in the business of investing, reinvesting or trading in
securities, Applicant states that it consistently holds investment
securities that exceed 40% of its total assets on an unconsolidated
basis (exclusive of Government securities and cash items). Applicant
states that it therefore falls within the definition of investment
company under Section 3(a)(l)(C) of the Act.
3. Rule 3a-8 under the Act provides an exclusion from the
definition of investment company if, among other factors, a company's
R&D expenses are a substantial percentage of its total expenses for the
last four fiscal quarters combined. While Applicant believes that it
complies with the conditions of Rule 3a-8, Applicant is concerned that
its R&D expenses, while substantial in absolute terms, may not be
substantial as a ratio of overall expenses, particularly given the
expense increase in connection with the commercialization of Cologuard.
Applicant's R&D expenses as a ratio of
[[Page 47658]]
total expenses have declined from a high of 74% of total expenses in
2012 to approximately 11% of total expenses for year-end 2017 and 12%
as of March 31, 2018. Applicant explains that since the FDA's approval
of Cologuard, Applicant has devoted more resources to sales and
marketing. Although Applicant's R&D expenses have generally increased
or remained steady overtime, its overall expenses have
disproportionately increased, causing a decline in the ratio of R&D
expenses to overall expenses. While Applicant expects to increase
funding for R&D for other products, it also expects to increase funding
with respect to the commercialization of Cologuard. Thus, Applicant
does not expect its additional funding for R&D to cause a significant
increase in the ratio of R&D funding to overall expenses.
4. Section 3(b)(2) of the Act provides that, notwithstanding
Section 3(a)(l)(C) of the Act, the Commission may issue an order
declaring an issuer to be primarily engaged in a business other than
that of investing, reinvesting, owning, holding, or trading in
securities directly, through majority-owned subsidiaries, or controlled
companies conducting similar types of businesses. Applicant requests an
order under Section 3(b)(2) of the Act declaring that it is primarily
engaged in a business other than that of investing, reinvesting,
owning, holding or trading in securities, and therefore is not an
investment company as defined in the Act.
5. In determining whether an issuer is ``primarily engaged'' in a
non-investment company business under Section 3(b)(2) of the Act, the
Commission considers the following factors: (a) The company's
historical development, (b) its public representations of policy, (c)
the activities of its officers and directors, (d) the nature of its
present assets, and (e) the sources of its present income.\1\
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\1\ Tonopah Mining Company of Nevada, 26 SEC 426, 427 (1947).
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6. Applicant submits that it satisfies the criteria for issuance of
an order under Section 3(b)(2) of the Act because Applicant is
primarily engaged in the business of developing, testing, marketing and
commercializing cancer and pre-cancer diagnostic screening tests and
not in the business of investing, reinvesting, owning, holding or
trading in securities.
a. Historical Development. Applicant states that since its
inception in 1995 it has operated in the healthcare sector to develop
and commercialize cancer and pre-cancer screening and diagnostic tests.
Applicant has focused its strategic opportunities in developing a
screening test for colorectal cancer, culminating in the development of
Cologuard, which received FDA approval in 2014. Since 2014, Applicant
has been engaged in sales and marketing Cologuard and has begun
research and development on testing related to other types of cancers.
Applicant has nine wholly-owned subsidiaries, each of which is an
operating company integrally related to Applicant's business. Applicant
has never sold any of its subsidiaries since inception.
b. Public Representations of Policy. Applicant states it has never
made any public representations that would indicate that it is in any
business other than developing and commercializing cancer screening
technologies. Applicant represents that it has never held and does not
now hold itself out as an investment company within the meaning of the
Act. Applicant states that all annual reports, web postings, press
releases and written communications issued by Applicant have related to
its business as a cancer screening and diagnostics company. Applicant
further states that its public representations make clear that
shareholders invest in the Applicant's securities with the expectation
of realizing gains from Applicant's development and commercialization
of cancer-screening and diagnostic technologies and not from returns on
an investment portfolio. Applicant's only public representations
regarding its investment securities are those required to be disclosed
in public filings with the Commission.
c. Activities of Officers and Directors. Applicant represents that
its board of directors and officers devote substantially all of their
time managing Applicant's business as a cancer screening and
diagnostics company. Applicant states that its management and corporate
governance structure is comprised of professionals with expertise in
technology, science, medicine, life science/biotechnology, and
government. Applicant states that day-to-day management of the Capital
Preservation Investments is handled by external asset managers
consistent with investment guidelines adopted by the Applicant's board
of directors on an annual basis. Applicant states that while the board
of directors may review strategic investments in companies that are
complementary to the Applicant's business, these reviews are made for
long-term business, not speculative investment strategies. None of the
members of management or the board of directors, even when reviewing
strategic investments, spends or proposes to spend more than 1% of his
or her time on any securities investment activities on behalf of the
Applicant. They, along with the Applicant's approximately 1,268 full-
time employees, are dedicated to the production and commercialization
of Cologuard and the development of new cancer screening and diagnostic
products.
d. Nature of Assets. Applicant states that as of March 31, 2018,
Applicant's investment securities constituted approximately 79% of its
total assets (excluding Government securities and cash items) on an
unconsolidated basis.\2\ Furthermore, more than 99% of its investment
securities consisted of Capital Preservation Investments. Applicant's
remaining investment securities consist of a strategic investment in a
company whose business is complementary to the Applicant's business.
Applicant anticipates that its investment securities other than Capital
Preservation Investments will not exceed 10% of its total
unconsolidated assets (excluding Government securities and cash items)
in the future. Applicant uses current assets, including its Capital
Preservation Investments, to finance its continued R&D program and
operations in connection with the commercialization of Cologuard.
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\2\ Applicant states that none of its subsidiaries owns
investment securities.
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e. Sources of Income and Revenue. Applicant represents that since
its inception it has had net operating losses. It does, however, derive
income from its investment securities.
Applicant states that, particularly given its commercialization of
Cologuard, a review of its current sources of revenues provides a more
accurate picture of its operating company status. Applicant states
that, for the year ended December 31, 2017, Applicant had approximately
$266 million of revenues attributable to Cologuard. For the three
months ended March 31, 2018, Cologuard revenues were approximately
$90.3 million. In contrast, Applicant earned $3.9 million in net
investment income in 2017, and $3.7 million for the three months ended
March 31, 2018, all derived from Capital Preservation Investments.\3\
Applicant states that if investment income were compared to its
revenues from Cologuard, it would account for less than 2%. Applicant
states it does not expect its net investment income to exceed 2% of its
revenues over the long term.
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\3\ Applicant states that it has not, and does not expect to,
earn investment income from its strategic investment.
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[[Page 47659]]
7. Applicant asserts that its historical development, its public
representations of policy, the activities of its officers and
directors, the nature of its assets and its sources of income and
revenue, as discussed in the application, demonstrate that it is
engaged primarily in a business other than that of investing,
reinvesting, owning, holding or trading securities. Applicant thus
asserts that it satisfies the criteria for issuing an order under
Section 3(b)(2) of the Act.
Applicant's Conditions
Applicant agrees that any order granted pursuant to the application
will be subject to the following conditions:
1. Applicant will continue to allocate and use its accumulated cash
and investment securities for bona fide business purposes; and
2. Applicant will refrain from investing or trading in securities
for short-term speculative purposes.
For the Commission, by the Division of Investment Management,
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-20408 Filed 9-19-18; 8:45 am]
BILLING CODE 8011-01-P
