Stock Option Expensing Will Harm Small Biotech Companies

WASHINGTON, D.C. (November 12, 2003) — During testimony today before the Senate Subcommittee on Securities and Investment, Walter K. Moore, vice president for government affairs at Genentech Inc., said that proposed accounting rules mandating that companies expense employee stock options will be detrimental to biotechnology firms — particularly small, biotech start-up companies, which often use stock options as an enticement for employee recruitment.

Under current accounting standards, companies are permitted but are not required to expense employee stock options. The Financial Accounting Standards Board (FASB), however, is considering a proposal that would require all companies to expense the options.

Such a proposal would "greatly impact all companies that use broad-based employee stock options without providing investors with consistent, comparable and reliable financial information," Moore stated in testimony submitted to the Senate panel.

Proponents of the proposed changes in the FASB accounting standards argue that stock option expensing will provide investors with a clearer understanding of a company's financial health. However, the proposal would seriously hinder small, start-up biotechnology companies, which frequently offer stock options as part of an employee's overall compensation package

Moore told Senate panel members that existing problems with current option valuation methods applied by the FASB must be addressed or new models must be developed before wide scale accounting changes are implemented.

BIO represents more than 1,000 biotechnology companies, academic institutions, state biotechnology centers and related organizations in all 50 U.S. states and 33 other nations. BIO members are involved in the research and development of health-care, agricultural, industrial and environmental biotechnology products.