Life after Enron and ImClone: Special concerns for the biotechnology company

Abstract

The recent enactment of federal legislation and the ongoing adoption of comprehensive regulations by the Securities and Exchange Commission (SEC) and stock exchanges create a new era for corporate governance. For public biotechnology companies, these new laws and regulations create specific concerns and significant criminal and civil sanctions. Private companies considering a public offering should also consider the implications of these statutes and regulations. In the future, investors are expected to reward both public and private companies that enact strong corporate governance practices.

Biotechnology companies will need to carefully review and modify document retention, disclosure, compensation and stock trading policies to comply with the following new requirements:

• Document retention policies will need to address complex recordkeeping requirements imposed both by the Sarbanes–Oxley Act of 2002 (SOA) as well as a myriad of regulations imposed by the Food and Drug Administration and the Environmental Protection Agency.

• Severe penalties for improper certification by senior officers of SEC reports places added pressure on public biotechnology companies. Officers will need to establish systems to regularly review the accuracy of disclosures involving all intellectual property, regulatory and healthcare reimbursement disclosures in these periodic reports

• Compensation plans for officers and directors must prevent future loans (and modifications to existing loans) and address corporate governance concerns now raised by institutional investors and the media.

• New reporting requirements for insider sales require that corporations develop systems to accurately track insider sales and to establish systems to prevent insiders and their family members from trading during critical periods preceding Food and Drug Administration and other regulatory actions.