WASHINGTON, D.C. (December 8, 2005) – The Biotechnology Industry Organization (BIO) and a coalition of biotechnology, healthcare technology, high-technology and venture capital industries today submitted a letter to an SEC advisory committee requesting reform to Section 404 (internal controls) of the Sarbanes-Oxley Act of 2002.
“We’re not proposing to change a single word of the Sarbanes-Oxley legislation. But, complying with the Sarbanes-Oxley external auditor requirement can cost upwards of $1 million, often doubling a small firm’s operating costs,” said Jim Greenwood, BIO’s president and CEO. “Unintended consequences of the cost burdens associated with a ‘one-size-fits-all’ approach to Section 404 continues to hamper small companies’ ability to invest in research and development and to gain access to public capital markets.”
The coalition wants the Securities and Exchange Commission (SEC) to ease disproportionate financial burdens on small public companies. Sarbanes-Oxley, the corporate governance law, requires publicly traded companies to adhere to standards that broaden board members’ roles in overseeing financial transactions and auditing procedures.
Coalition members working with BIO include the National Venture Capital Association, TechNet, Advanced Medical Technology Association, California Healthcare Institute and SEMI. The coalition represents more than 5,300 companies from 50 states and around the world.
“We do not oppose government oversight, rather, we want to ensure that oversight is conducted in a manner that is fair to small biotech or high-tech businesses. Some of these cost burdens threaten to jeopardize the competitiveness of smaller companies that are the growth engines of the U.S. economy,” said Morrie Ruffin, BIO’s executive vice president of capital formation and business development.
The SEC formed the Advisory Committee on Smaller Public Companies to consider ways of improving the impact of Sarbanes-Oxley on small public companies. The committee has been holding public hearings to seek recommendations from stakeholders and will meet Wednesday, Dec. 14, 2005 to review those recommendations and prepare draft proposals for the SEC. The meeting will be held in Multi-Purpose Room L006 of the SEC’s headquarters, located at 100 F Street, NE, Washington DC, 20549.
The coalition recommends that smaller public companies be:
· Defined as the bottom 6 percent (based on a quarterly average) of the total U.S. public market capitalization or by a revenue threshold set by the average revenues of companies at the bottom 6 percent of total market capitalization;
· Exempt from having external auditors attest to internal controls. This would not exempt small public companies from complying with Sarbanes-Oxley as a whole.
· Allowed to take a risk-based approach to prioritizing their key financial controls and be allowed to alternate the frequency of control testing to every second or third year.
A copy of the letter can be viewed by clicking on http://www.bio.org/tax/issues/LettertoSEC.pdf (PDF).
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.