Retail wagging the dog

A recent move by NASDAQ to scrutinize what qualifies as a "public offering" could increase the cost of capital for smaller biotech companies and leave some banks scrambling to find ways to reach retail investors. At issue are overnight follow-ons, which have been a key to public equity financing for small and mid-cap biotechs in recent years.

The exchange wants to ensure there is outreach to retail investors. It sounds simple, but banks and companies are being caught between two contradictory requirements: marketing to retail to meet the definition of a public offering while avoiding marketing to inappropriate investors. Indeed, because biotech is a high-risk investment, many banks do not market biotech offerings to the retail segment...