March 28, 2013
I am the Senior Vice President and Chief Financial Officer of Achillion Pharmaceuticals, Inc. (NASDAQ-GS: ACHN), a biopharmaceutical company that has been NASDAQ-traded since its initial public offering in 2006. I am writing to comment on NASDAQ's proposed rule requiring, on or before December 31, 2013, that all listed companies establish and maintain an internal audit function.
NASDAQ states that the proposed rule will ensure listed companies have a mechanism in place to review their system of internal control, identify any weaknesses and develop remedial measures. NASDAQ also states that the rule change will ensure management and the audit committee are provided with information about risk management and the system of internal control. I submit that these objectives are already being fully met under existing laws and regulations. The proposed additional requirement does not meaningfully expand the protections already afforded to investors and the public and, therefore, represents an unnecessary burden and expense for many issuers.
Since the commencement of our listing as a public company, we, like the vast majority of other NASDAQ-listed companies, have consistently maintained a robust and active program of internal controls management, including compliance with both the management provisions and the integrated audit provisions of the Public Company Accounting Reform and Investor Protection (Sarbanes-Oxley) Act of 2002. I believe our control environment, which is already assessed regularly, our program of control activities, which occur on a daily, weekly and monthly basis and which are assessed and tested quarterly, and our risk assessments, which are on-going and reviewed with both our independent auditors and our audit committee quarterly, are adequate to ensure accurate, timely and fully transparent reporting. Both I and our chief executive officer certify this on a quarterly basis. Our audit committee, including our experienced chairman, and our independent external auditors, each agree with this assessment that our existing program of internal controls is adequate. To reiterate only briefly, this program includes top-down risk assessment, key business cycle documentation, identification of critical controls, testing of those controls, as well as continuous review of our general control environment. This program is fully comprehensive and highly functional as it already exists.
The time and cost associated with an unnecessary and additional layer of financial oversight could be extensive, particularly for a non-revenue-generating company like Achillion Pharmaceuticals which is putting almost all resources toward our critical drug development programs. Under the proposal, we would be required (i) to hire new internal audit employees, or alternatively, to engage a new auditor/contractor, neither of whom would be fully utilized, (ii) to compensate our Audit Committee for additional meetings, (iii) to pay for on-going oversight of the internal auditor, perhaps by Audit Committee members who do not currently have supervisory responsibilities, and (iv) to provide for the management and coordination time required to integrate an internal auditor into our existing framework of controls assessments and testing both by existing employees and independent auditors. Together, these costs could be extensive and may detract from the work already being performed by existing employees, management and audit committee members.
Finally, proposals that limit the pending change to large-filers-only do not satisfy our objections, because Achillion, like many life sciences companies, is a large filer by virtue of our market capitalization and not our cash resources and revenue. As a small drug developer, our current and future value is derived substantially from the intellectual property inherent in our pipeline of drug candidates. Like many of our bioscience peers, we are a small company of sixty employees, a manageable operating infrastructure and only $50 million of annual operating expense, the majority of which is paid to independent clinical research organizations. All our efforts are focused on product development we have no sales revenue and generate substantial operating losses at this stage of our development. We believe that our operating controls are appropriate for our business as currently configured, especially when overseen by our management, our board of directors and our independent auditors. Adding additional layers of auditor responsibility will not only be redundant, but impractical given our size and operating objectives.
Thank you for your consideration of Achillion's position.
Mary Kay Fenton