In wake of Biogen's skirmish with the SEC, pharma giants are changing the way they do quarterly reports
After receiving complaints from the SEC last spring, Biogen changed the way it reports upfront payments to collaborators in its quarterly updates. But it appears Biogen wasn’t the only one who got the message.
Several pharma giants — including Eli Lilly, Merck, Bristol Myers Squibb, AbbVie and Pfizer — are making similar changes in this year’s Q1 results, according to Market Watch, which first reported the news. The changes revolve around certain figures that don’t comply with Generally Accepted Accounting Principles, also known as non-GAAP measures.
Last March, the SEC expressed concern over Biogen’s exclusion of upfront payments and premiums paid for equity stakes from its non-GAAP R&D expense and net income reports. In its response, Biogen said it excluded those figures to “better reflect our core operating performance.”
“We believe that material upfront payments and premiums paid for the acquisition of related common stock associated with significant collaborative and licensing arrangements differ from the normal, recurring, cash expenses necessary to operate our business,” Biogen wrote in a letter back to the SEC.
The company added that non-GAAP metrics are merely supplements to GAAP statements, and that it does not believe its presentation of non-GAAP information was misleading.
A month later, the SEC responded that Biogen’s exclusion of certain payments was “inconsistent” with SEC guidance, and beginning in the second quarter of 2021, the company began including those figures. Just this past quarter, Biogen also began including material payments made on the acquisition of in-process R&D assets in its determination of non-GAAP net income.
Prior period non-GAAP results have been updated to reflect these changes, according to Biogen.
“This has been a topic long discussed in the industry. At the end of the day, it’s a more conservative accounting methodology and the right call by the SEC for investors, as upfront payments and collaborations have become a norm in the industry,” Salim Syed, a Mizuho analyst, told Endpoints News in an email.
“While it introduces perhaps some additional lumpiness in the quarterly non-GAAP EPS numbers, it puts all companies on a level playing field, and it also levels how each company treats external vs internal R&D spend,” he continued.
Other companies aren’t waiting around for a complaint to make the necessary changes.
Merck also announced this year that it will no longer exclude expenses for upfront and milestone payments from its non-GAAP results, in order to “align with views expressed by the U.S. Securities and Exchange Commission.” That resulted in a full $0.65 shaved off its 2021 full-year earnings per share figure, according to the company.
Eli Lilly wasn’t affected quite as much, announcing just ahead of its Q1 results this year that it expected a $0.15 impact on its earnings per share as a result of similar changes.
Bristol Myers, meanwhile, saw a $0.10 reduction in earnings per share in Q1 upon making the changes. AbbVie saw an $0.08 impact on earnings per share last quarter, while Pfizer saw a mere $0.05 change.
