Mr. Peter Culpepper CPA, MBA

GLG News^SM Analyses by Peter Culpepper(?)

Accounting Errors Drive Support for SOX Section 404

May 3, 2006

Analysis of:Restatements Deliver Fuel for Reform | www.cfo.com

The key implication of the article is that Section 404 of the Sarbanes-Oxley Act appears to be strongly supported by the SEC chairman and other former regulators which means that Section 404 appears to be here to stay even though smaller companies oppose the law in its current form for them.  The reason against regulatory breaks for smaller cap companies is the recent announcement that two smaller companies had accounting errors that led to restatements.

The key implication for investment analysts is that the question of whether smaller cap companies will need to fully comply with Section 404 will be unclear in the foreseeable future.  And furthermore, the lack of direction in the resolution of the regulatory burden for smaller cap companies will likely continue up to the deadline for full compliance, which is 31 December 2007.

SOX before the Supreme Court?

May 3, 2006

Analysis of:U.S. Supreme Court may consider Sarbanes-Oxley anti-fraud law | www.chron.com

The key implication of this article is that the Sarbanes-Oxley law is under growing pressure for some type of revision.  Aside from the effort to deem the law unconstitutional by Kenneth Starr and the Free Enterprise Fund, there is also the effort for small companies to have regulatory exemptions and for lawmakers to legislate changes to SOX.   

The implication to investment analysts is that small companies are increasingly pressured to deal with the mounting regulatory burdens as SOX impacts them at an increasing level of cost.  So, smaller companies are struggling with the SOX cost burden, which impacts earnings.  And, other companies are not going public which means that capital formation in the US is not as favorable as it was because of the additional burden that SOX is creating.

Smaller-cap biotech companies increasingly in demand

May 2, 2006

Analysis of:Emerging Biopharmaceutical Companies | www.genengnews.com

The key implication of the article is that investment analysts can follow the smaller-cap companies in the biotech space to determine if large-cap biotechs and big pharma will be attracted to any of these companies. Smaller-cap companies attract the attention of large-cap biotechs and big pharma if the smaller companies can demonstrate positive clinical results, which the article implies is happening.

In particular, the article implies that an investment analyst will be able to profile companies that have various combinations of strengths to determine which ones will be able to continue to grow and attract market interest. These strengths include positive clinical developments in particular, followed by being well funded and having strong pipelines.

Small Companies target of Big Pharma to fill pipelines

April 26, 2006

Analysis of:Big Pharma thinks small | money.cnn.com

The key implication in the article is that investment analysts can focus on the licensing activity that is expected to increase for Big Pharma Companies such as Pfizer and Merck. These large Companies need to fill their pipelines of new drugs since the industry as a whole is losing $100 billion worth of its branded drugs as they come off patent.

Investments analysts can also expect that licensing deals will become more common than acquisitions since licensing is less costly for Big Pharma, at least initially, and it is simpler and less risky since an entire target Company is not being acquired. Since the pipeline that Big Pharma needs to fill in the next five years is so large, the implication is that this will be a very active area for investment analysts to cover.

FAS 123R surprise: a new look at getting the most from equity incentives

April 21, 2006

Analysis of:FAS 123R's Golden Opportunity: Performance-based equity compensation comes into its own | www.deloitte.com

The key implication of the article is that the Financial Accounting Standards Board (FASB) Statement No. 123R, Share-Based Payment (FAS 123R) is allowing Companies the potential opportunity, intended or not, to now go back and reconsider the performance-based equity incentive designs for equity compensation rather than the fixed option awards that were in vogue before FAS 123R became a reality.

Investment analysts can now use the advent of FAS 123R to see which Companies understand how to motivate their employees and how they are using equity compensation to do so.  Furthermore, investment analysts can see how top executives are responding to any changes in their equity compensation.  And, it will become apparent if a Company's critical employees will be given equity compensation under FAS 123R.  The implication is that the Companies that do well will reward their critical employees with performance-based equity incentives.  Investment analysts will be able to see how high performance Companies get high performance output from their employees by focusing on performance-based equity incentives. 

This new potential opportunity created by FAS 123R is a reality now because all Companies need to recognize all stock option expense on their income statements, whereas previously under Accounting Principles Board Opinion 25 (APB 25), Companies were penalized for performance-based equity incentives versus fixed option award designs. Now, the implication is that it's all about performance.

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