HOME Act Helps Biotech Companies Deal with SOX Costs

Bill will help small biotech companies who don't have resources for compliance costs.

The Biotechnology Industry Organization (BIO) on Feb. 29 praised provisions in the HOME Act explaining that the provisions would provide relief to smaller biotechnology companies from unnecessarily burdensome SOX compliance costs, and encourage and maintain economic growth through research and development.

A provision in the HOME Act directs the Securities and Exchange Commission to provide a threshold definition for smaller public companies thereby providing an objective standard as to who is eligible for a scaled audit under the newly adopted Auditing Standard No. 5 (AS-5) and Section 404 of the Sarbanes-Oxley Act of 2003.

"Biotechnology researchers are creating innovative technologies that provide hope to patients worldwide. But most biotech companies are small start-ups, years away from having products on the market," said Jim Greenwood, president and CEO of BIO. "So with little to no product revenue, and an undefined definition of a smaller public company, these companies have been absorbing outsized audit and compliance costs -- revenue that could otherwise go to developing life-saving therapies."

The bill introduced today follows the original recommendation of the SEC Advisory Committee in directing the SEC to define a smaller public company as a company "with a market capitalization of approximately $700 million or less, with reported annual revenue of approximately $250 million or less." Smaller public companies have borne an outsized cost of these "Section 404 audits" without gaining any measurable benefit to the company or to its investors, according to a statement released by BIO.

The U.S. biotechnology industry is very research and development intensive with more than $27 billion in 2006 invested in research for new therapies, cures, and agricultural and environmental applications. The bill enables companies without federal tax liability to increase their capital investments by claiming some portion of their unused R&D and Alternative Minimum Tax (AMT) credits. Under this provision, companies would elect to accelerate R&D and AMT credits in lieu of bonus depreciation. Allowing companies to accelerate the recovery of some portion of unused R&D and AMT credits through new capital investments will help maintain economic growth by encouraging business investments and job creation. The bill also provides for a two-year R&D tax credit extension which expired at the end of 2007.

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