WASHINGTON, D.C. (May 17, 2006) -- Jim Greenwood, President and CEO of the Biotechnology Industry Organization (BIO), joined a press conference on Capitol Hill today at which Senator Jim DeMint (SC), Representative Tom Feeney (FL), Representative Gregory Meeks (NY), Senator Mel Martinez (FL), Representative Candice Miller (MI) and Representative Pete Sessions (TX) announced the bipartisan introduction of the Competitive and Open Markets that Protect and Enhance the Treatment of Entrepreneurs “COMPETE” Act. This legislation would provide needed relief from the provisions of Section 404 of the Sarbanes-Oxley Act for smaller public companies.
As the recent GAO report found, the one-size-fits-all approach of Section 404 is particularly burdensome for smaller companies. This is the case for smaller biotechnology companies that have limited resources to deal with the high implementation costs related to Section 404. This often means redirecting funds from research and development – delaying cutting-edge research into the therapies and cures of tomorrow – in order to cover the costs of auditing fees.
“I support strong laws to deter fraud and reinforce good corporate governance and confidence in our capital markets,” Greenwood stated. “However, Section 404 of SOX is placing a considerable unintended cost burden on smaller public companies. In the biotechnology industry, this means that companies are forced to divert their limited resources away from research on innovative therapies to reduce human suffering and into auditing fees which are unnecessarily burdensome for small companies.”
Under the COMPETE Act, companies with product revenue of less than $125 million would be allowed to voluntarily opt-out of the burdensome and cost-prohibitive internal control requirements of Section 404. This legislation recognizes that product revenues drive the complexity of corporate structures and the corresponding need for controls to protect against financial fraud. The COMPETE Act will begin to address the disproportionate cost burdens of section 404 requirements that continue to hamper smaller companies’ ability to invest in research and development, to gain access to public capital markets, and to remain competitive.
“In many cases the benefits to investors do not outweigh the costs to companies and their investors,” stated Senator DeMint, lead Senate sponsor of the COMPETE Act. “By allowing small companies to live by auditing standards that fit their needs and by providing some clarity for businesses struggling to comply, the COMPETE Act would make it much easier to grow a business in America and attract capital to American markets.”
“The high burden of regulation and compliance is outsourcing America's lead in world capital markets. More companies are increasingly turning to London or Luxembourg instead of New York to raise capital,” stated Representative Feeney, lead House sponsor. “It is time to review the effects of Sarbanes-Oxley and keep that which is a net advantage to the investor and reform those provisions that put investors, companies, and the American economy at a disadvantage.”
BIO represents more than 1,100 biotechnology companies, academic institutions, state biotechnology centers and related organizations across the United States and 31 other nations. BIO members are involved in the research and development of healthcare, agricultural, industrial and environmental biotechnology products.