SEC comments and trends: Life sciences

  • Share

This supplement to EY’s 2016 SEC Comments and Trends publication gives insights into the Securities and Exchange Commission (SEC) staff’s areas of focus involving life sciences companies. Every year, we closely monitor the SEC staff’s comments on public company filings to provide you with insights on its areas of focus. However, each life sciences registrant’s facts and circumstances are different and while this publication highlights areas where the SEC staff may comment, life sciences registrants should carefully consider their disclosures based on whether the information is material to investors.

Comment areas
Revenue recognition
Management’s discussion and analysis
Signatures, exhibits and agreements
Fair value measurements*
Segment reporting
Acquisitions, mergers and business combinations
Income taxes
Non-GAAP financial measures
Intangible assets
Internal controls over financial reporting
Collaboration arrangements

*This category includes SEC staff comments related to fair value measurements in acquisitions, mergers and business combinations and intangible asset impairment analyses. Therefore, the SEC staff comments on fair value measurements are discussed within those sections of this supplement.

The SEC continues to encourage life sciences registrants to streamline disclosures and make them more meaningful. Over the past year, the SEC has advanced its disclosure effectiveness initiatives by issuing a request for comment on certain items in Regulation S-X, a concept release on Regulation S-K, and a proposal on eliminating redundant, outdated or superseded disclosures. In light of this initiative, and these releases, life sciences registrants should consider the following points when evaluating the trends in staff comments we highlight in this publication and whether to adjust their disclosures:

  • The SEC staff often issues comments to obtain additional information when it believes that a company may not have complied with requirements, omitted information that may be material or provided disclosures that appear misleading to investors. That does not mean the staff has reached a conclusion that the requested information is material. Registrants should consider the materiality of additional disclosures before including them solely to clear an SEC staff comment.
  • Registrants should regularly evaluate whether their disclosures continue to be material to investors as their facts and circumstances change. That is, they may eliminate immaterial disclosures even if they were included in prior filings in response to an SEC staff comment.
  • Registrants should improve their disclosures by eliminating repetition and focusing on more meaningful discussion. For example, management’s discussion and analysis (MD&A) disclosure of critical accounting estimates often repeats disclosure from the significant accounting policies footnote without providing additional insight into the judgments and uncertainties underlying management’s estimates.

You can use this publication to identify topics where the SEC staff may challenge the accounting treatment or request enhanced disclosure. In all cases, we encourage companies to include a disclosure only when it is material to users.

The SEC staff continues to focus on many of the same topics that we highlighted last year. The following chart summarizes the most frequent comment areas for life sciences companies.

While over the past 12 months we have seen the SEC staff’s focus shift to challenging the use of non-GAAP financial measures, the staff continues to question life sciences registrants’ disclosures related to significant judgments and estimates, including those related to revenue recognition, segment reporting, income taxes, and intangible assets . Life sciences registrants are spending significant time addressing SEC staff comments on these topics. The SEC staff requests additional information to support life sciences registrants’ conclusions and additional disclosures about the facts and circumstances that support significant judgments.

While the main section of this publication discusses recent matters that concern all life sciences registrants, the appendix highlights emerging trends related to life sciences companies filing initial public offering (IPO) registration statements. Click here to read the complete report.

See also: