Subject: File No. SR-NASDAQ-2013-032
From: Roger Hawley
Affiliation: CEO, Zogenix

March 20, 2013

I am the founder and CEO of a small pharmaceutical company. I was dismayed to receive the update from the NASDAQ regarding the potential requirement to have all listed companies have an internal audit function. We chose to list on the NASDAQ exchange because of their outreach to and support of emerging growth companies. We are a small company with less than $40m in annual revenues, not yet profitable and employee 155 people, mainly in the US. We have raised over $150m as a NASDAQ listed company to fund our ongoing RD and commercial efforts to bring new drug products to patients.
We incur approximately $5m annually to comply with public company rules and requirements. These include a fully staffed finance function, SEC reporting personnel, legal costs, Board of Director fees, public company DO insurance fees, annual audit fees, etc. The list and the costs are significant, particularly for a company like ours that is investing heavily in new product development and approval. While we exceeded the hurdle for an accelerated filer based on market cap, we have not yet posted a profitable year.
My concern regarding the proposal is that it would put a second layer of regulations in place for risk assessment and internal controls at small companies. We, like most other NASDAQ listed companies, are required to comply with Section 404 of the Sarbanes Oxley Act. This provision requires our internal team to assess our risk environment, and design effective internal controls over our financial reporting. We then have to pay our external auditor to attest to and report on our assessment of internal controls. While there is an additional burden placed on small companies to comply with this requirement, I can see how it would provide investors with a greater sense of assurance as to the internal control environment. The new proposal however, is like requiring a belt and suspenders. This would be not one but two requirements essentially targeting the same concern.
I would suggest a better use of the SECs time in this regard is to do the following:
(1) Resolve the inequities created by the JOBS Act for compliance with the SOX 404 provision. There is a double standard for which companies are subject to SOX 404 reporting. The threshold for being an accelerated filer is $75m in market cap yet the JOBS Act exempts recent public companies with market caps of $1B.

(2) Review the upcoming results of the GAO study required by Dodd Frank as to whether 404 exempt issuers have more restatements or a different cost of capital.
As a small company, we need to focus on growing our companies, employing more US workers and creating shareholder value, not adhering to and paying for duplicative government mandated regulations.