Washington, D.C. (July 26, 2012) – Today, the House Subcommittee on Capital Markets held a hearing entitled “The 10th Anniversary of the Sarbanes-Oxley Act.” On behalf of the Biotechnology Industry Organization (BIO), Jeff Hatfield, President and CEO of Vitae Pharmaceuticals, presented testimony at the hearing on the effect the regulatory burdens in Sarbanes-Oxley (SOX) have had on emerging biotech companies.
“Small biotech companies face numerous obstacles on the road to finding breakthrough therapies, including severe uncertainty in the lab and an extremely high cost of conducting research,” said Jim Greenwood, President and CEO of the Biotechnology Industry Organization (BIO). “Also standing in the way are onerous regulations that stifle progress without providing any real benefit to the investors they purport to protect. By unburdening growing biotech companies, Congress has the opportunity to inspire scientific breakthroughs that could lead to the discovery of important medicines and treatments.”
Hatfield testified about the cost burden associated with Sarbanes-Oxley Section 404(b) compliance, which SEC studies have found can cost small companies more than $1 million per year. Hatfield spoke in support of Rep. Mike Fitzpatrick’s (R-PA) Fostering Innovation Act (H.R. 6161), which would amend the filing status definitions under SEC Rule 12b-2 to provide regulatory relief to small companies with a low public float or little product revenue.
In his testimony, Hatfield stated the following:
“The story of biotech drug development is one of advancement. As a given molecule moves through the development process, it requires an ever increasing amount of resources to progress the drug candidate closer to a stage where it could save a patient’s life…the science involved gets ever more complex, and the clinical stakes get higher as companies move closer to a cure. However, while the science is increasingly intricate, our corporate structure remains essentially the same. After all, over 90% of biotech companies have fewer than 100 employees. Vitae has just 55. As scientists, we are innovators expanding the world’s understanding of human life. As a corporation, we strive to stay as simple as possible so that the maximum amount of investment dollars can flow directly to our R&D.
“[Sarbanes-Oxley] Section 404(b) requires an expensive external attestation of a public company’s internal controls, to be disclosed to investors on an annual basis. The true value of a biotech company is found in scientific milestones and clinical trial advancement toward FDA approvals rather than financial disclosures of losses incurred during protracted development terms.
“In fact, spending capital on regulatory burdens can actually slow the development process, increasing the time it takes to reach the important milestones that trigger new investments. Without product revenue, biotech companies on the public market are forced to ask investors to pay for SOX reporting rather than scientific research. The cost burden of these regulations, and therefore the amount of capital diverted from R&D, is significant.
“Despite their simple corporate structure and lack of product revenue, many biotechs have a relatively high public float. Biotechs often find themselves grouped with the accelerated filers [under SEC Rule 12b-2] and obliged to comply with the numerous regulatory burdens attendant to that definition, including SOX.
“The most damaging facet of SOX for the biotech industry has been the diversion of investment funds from science to compliance in the absence of product revenue. Rep. Fitzpatrick’s bill reflects this reality by classifying low-revenue companies as non-accelerated filers. If enacted, H.R. 6161 will ensure that critical innovation capital is spent on groundbreaking research and development rather than regulatory burdens.
“When regulatory requirements exceed or do not align with the primary needs of the public or investors, that regulation becomes an unnecessary expense burden, meaningfully and directly subtracting from the investment capital driving the discovery and advancement of potential scientific breakthroughs. Some of the regulatory requirements imposed by Sarbanes-Oxley fit that definition. Those regulations increase bureaucracy and operating costs for biotech companies, taking away money from research, blocking job creation, and slowing the overall development of science in our labs. If Congress can relax this regulatory burden on small companies like those found in the biotech industry, it will allow innovators and entrepreneurs to continue working toward delivering the next generation of medical breakthroughs – and, one day, cures – to patients who need them.”
For more information on the Fostering Innovation Act, please click here.
Vitae Pharmaceuticals is a clinical‐stage biopharmaceutical company discovering and developing a portfolio of novel, small molecule, best‐in‐class compounds that address important disease areas, including: chronic kidney disease, diabetes, Alzheimer’s disease and atherosclerosis. Vitae’s lead compound, VTP‐27999, is a wholly owned, novel, potent and selective renin inhibitor offering the potential for superior renal protection in patients suffering from chronic kidney disease. The compound is expected to enter Phase 2b in early 2012. Vitae is expert in structure‐based drug discovery and combines a proprietary technical platform with the experience and insight of world class scientists to advance best‐in‐class compounds for high value, hard‐to‐drug targets. Vitae’s proprietary, discovery platform as clear advantages in creating and analyzing novel drug candidates that meet pre‐defined physicochemical and biochemical characteristics. The accuracy and speed of this system has enabled Vitae to solve challenging targets in multiple therapeutic areas – discovering and advancing attractive compounds in a rapid and highly capital efficient manner. Vitae Pharmaceuticals is financed by leading corporate and venture capital investors; its last venture round was in 2004.
Vitae’s 45 scientists are located in Fort Washington, Pennsylvania. For additional information, please visit the company’s website, www.vitaepharma.com.