SEC comment letter trends for Health industries

The SEC Division of Corporation Finance's filing review process is a key function utilized by the SEC staff to monitor the critical accounting and disclosure decisions applied by registrants. Our analysis of SEC comment letters identifies the frequency of topical areas addressed by the SEC staff and how their focus areas changed over time. In addition to providing our insights on the nature of the SEC staff comments, we provide sample text from the SEC staff’s comments and links to where you can learn more about the accounting and disclosure requirements addressed in each topical area.

Revenue recognition

The new revenue standard (ASC 606) requires more quantitative and qualitative disclosure than prior guidance. The following areas have been addressed in the SEC staff's comments:

  • Performance obligations – the nature of performance obligations, why goods or services are distinct, and disclosure of remaining performance obligations. Also, comments related to information provided in other parts of the filing that appear inconsistent with the number of performance obligations in a contract.
  • Variable consideration – the determination of the transaction price and how a company estimates variable consideration.
  • Recognizing revenue – the timing of when control transfers, the method of recognizing revenue over time, and accounting for licensing arrangements.
  • Costs to obtain a contract – the determination of the appropriate costs to capitalize, the amortization period, and related disclosures (including election of practical expedients).
  • Gross versus net presentation – judgments related to gross versus net presentation of revenue, including an assessment of whether the company controls the good or service being provided to the end customer.
  • Disaggregated revenue – disaggregation disclosures that appear inconsistent with information provided in other parts of the filing or in other forums, such as investor presentations.

  • You indicate that you do not have any future performance obligations under your license or collaboration agreement. Please reconcile this statement with your disclosures that imply that you may be obligated to perform some tasks including joint development, commercialization and selling.
  • Please tell us how you considered the requirements in ASC 606-10-50-13 through 50-15 to disclose information about remaining performance obligations or application of optional exemptions.
  • It appears from your description of the contract that you perform a variety of activities under a customer contract. Please tell us your consideration of ASC 606-10-50-17 related to the disclosure of significant judgments involved in determining that all of the contracts have a single performance obligation.
  • Please explain to us, in detail, how you account for variable consideration when determining the transaction price. In your response please address each specific circumstance that causes variability in the consideration; how you estimate variable consideration; and your basis for concluding that it is probable a significant revenue reversal will not occur. Refer to ASC 606-10-32-11.
  • We note you recognize royalty revenue upon the underlying sale in your collaboration agreement. Please explain how the royalty relates predominantly to the license of intellectual property as stipulated in ASC 606-10-55-65A when it appears from disclosure that you led discovery, preclinical and early clinical development under the collaboration agreement.
  • We note that you utilized the practical expedient to avoid capitalizing incremental costs of obtaining the contract. Given your disclosure that you sell product to your largest customer under a long term contract and other customers under contracts that could be one to two years in duration, please further tell us how you considered the guidance under ASC 340-40-25-4.
  • Please explain to us your consideration of the guidance in ASC 606-10-55-36 through 55-40 when determining whether you are acting as a principal or as an agent when providing your products / services. 
  • We note your disclosure of sales disaggregated by each reportable segment. How did you consider your discussions of sales by end market within your investor presentation and earnings call.

Form compliance and exhibits

Compliance-related comments do not typically require significant effort to address, however, the resolution of such comments may require a registrant to amend previous filings. The SEC staff has focused on:

  • The omission of required disclosures (e.g., management’s report on internal control over financial reporting);
  • The omission of signatures from all appropriate officers;
  • Errors in items incorporated by reference; and
  • The submission of material graphics or agreements.

  • Please amend your Form 10-K to provide management's report on internal control over financial reporting, as required by Item 308(a) of Regulation S-K.
  • Please amend this filing to include a properly signed certification of the Chief Executive Officer and Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a). Additionally, revise the title of this certification as it pertains to section 302 of The Sarbanes-Oxley Act of 2002.
  • We note that you incorporate by reference your Form 10-K, which in turn incorporates by reference Part III information from a proxy statement that you have not yet filed. Prior to seeking effectiveness for the registration statement, please either (i) file your proxy statement or (ii) amend your Form 10-K to include the Part III information. Please refer to Question 123.01 of Securities Act Forms Compliance and Disclosure Interpretations for guidance.
  • To the extent that you intend to include graphics in the forepart of your filing document, please supplementally provide us with copies of any pending graphics or artwork you intend to use. Upon review of such materials, we may have further comments. For guidance, consider Question 101.02 of our Securities Act Forms Compliance and Disclosure Interpretations.

Non-GAAP measurements

Non-GAAP financial measures result in frequent comments regarding compliance with Item 10(e) of Regulation S-K and the related compliance and disclosure interpretations, sometimes resulting in requests to remove or substantially modify non-GAAP metrics. Focus areas have included:

  • Presentation with equal or greater prominence of the most directly comparable GAAP financial measure;
  • Reconciliation to the most comparable GAAP financial measure;
  • Appropriateness of adjustments to eliminate or smooth items identified as non-recurring, infrequent or unusual; and
  • Disclosure of why management believes the non-GAAP presentation provides useful information to investors regarding the financial condition or results of operations of the registrant.

  • You disclose non-GAAP measures without presenting the comparable GAAP measures with equal or greater prominence. Please ensure any discussion regarding non-GAAP measures is preceded by an equal or more prominent discussion of the comparable GAAP measure.
  • Please include a reconciliation of core earnings that begins with the most directly comparable GAAP measure. Your revised reconciliation should provide disaggregated disclosure of all the adjustments necessary to arrive at core earnings from the most directly comparable GAAP measure.
  • The disclosure characterizes restructuring charges and impact of foreign currency translation as unusual, though these items appear to be recurring. Please revise your disclosures as appropriate as Item 10(e) prohibits adjusting a non-GAAP financial performance measure to eliminate or smooth items identified as unusual when the nature of the charge or gain is such that it is reasonably likely to recur within two years or there was a similar charge or gain within the prior two years.
  • Your current disclosure discusses management’s use, but not how the presentation of the measure is useful to investors. Please revise your disclosure to include a discussion of investor’s use of these measures.

Fair value measurement

Fair value measurements often require the application of significant judgment. The SEC staff has focused on the quality of disclosure around those significant judgments and estimates, frequently commenting on:

  • The valuation techniques and key inputs used to determine the fair value for each significant class of asset or liability, whether determined by management or a third party (e.g., independent pricing service).
  • The quantitative information provided for significant unobservable inputs used in Level 3 fair value measurements, including the sensitivity of the fair value measurement to changes in those significant unobservable inputs.
  • The sufficiency of disclosure related to non-recurring fair value measurements, such as impairments.

Certain of the fair value disclosure requirements, and consequently the nature of the SEC staff’s comments may be impacted by ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurements, which can be early adopted.


  • You indicate the securities included in Level 2 of the fair value hierarchy are valued utilizing inputs obtained from an independent pricing service. Please tell us what consideration was given to disclosing a description of the valuation techniques and inputs used in the fair value measurements. In addition, tell us what consideration you gave to separately disclosing the valuation techniques and inputs for each class of assets. We refer you to ASC 820-10-50-2 and ASC 820-10-50-2(bbb).
  • Please disclose quantitative information about the significant unobservable inputs used in developing the fair value of your Level 3 assets and liabilities. Also, tell us what consideration was given to providing a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs. Please refer to ASC 820-10-50-2(bbb) and (g).
  • Please tell us how you complied with the non-recurring fair value measurement disclosures related to the impairment charge, as required by ASC 820-10-50-2(a). Also refer to the example of these disclosures at ASC 820-10-55-100.

Terrorist nation sponsor reporting

SEC staff comments asked registrants to disclose quantitative and qualitative information about business knowingly conducted with state sponsors of terrorism. For all such business activity, the SEC staff has requested disclosure of:

  • The nature and extent of the activity;
  • The related gross revenues and net profits; and
  • Whether the company intends to continue the activity.

The list of countries that are subject to US sanctions and/or are identified as state sponsors of terrorism is dynamic and subject to change. Registrants can reference the US Department of State and the Office of Foreign Assets Control websites for the most recent listing of such countries. 


  • Your website has a list of time zone abbreviations, which includes information for Iran Standard Time and Tehran, and for Syria Standard Time and Damascus. Iran and Syria are designated by the State Department as state sponsors of terrorism and are subject to US economic sanctions and export controls. You do not provide disclosure about those countries. Please describe to us the nature and extent of any past, current, and anticipated contacts with Iran and Syria, whether through subsidiaries, affiliates, partners, customers, or other direct or indirect arrangements.
  • You should describe any products, technology or services you have provided, directly or indirectly, and any agreements, arrangements or other contacts you have had with the governments of state sponsors of terrorism or entities they control.

Research and development

Companies incur significant research and development expenses in order to remain competitive through innovation. The SEC staff has focused on the quality of disclosures related to total research and development costs charged to expense in each reporting period, commenting frequently on:

  • The disaggregation of research and development costs by each major product/project category; and
  • The allocation of costs to research and development and other individual financial statement line items.

  • Please disclose a break out of research and development expense by project, activity or in whatever fashion you believe will provide more transparency as to the magnitude and direction of your research and development activities.
  • Please tell us the research and development expenses incurred by types of costs that were not directly charged to programs, such as facilities, depreciation, stock-based compensation and research and development support services.

Business combinations

Business combinations are a consistent area of focus for the SEC staff, with frequent comments related to:

  • Purchase price allocations, including questions about how fair value was determined and the key assumptions used;
  • The completeness of disclosures when the purchase price allocation is preliminary;
  • Why the registrant omitted the pro forma financial information required by ASC 805; and
  • Compliance with the Regulation S-X Article 11 pro forma financial information requirements for significant business combinations disclosed on Form 8-K and in certain registration statements.

  • Tell us how you determined the fair value of the significant intangible assets acquired, including the significant assumptions utilized.
  • You disclose that the purchase price allocation for the acquisition is preliminary. Please disclose the information required by ASC 805-20-50-4A.
  • Please tell us why you did not include pro forma financial information reflecting the acquisition, as required by ASC 805-10-50-2(h).
  • It does not appear to us that the pro forma adjustment is directly attributable to the transaction. Please revise your pro forma financial statements to remove this adjustment or tell us how this adjustment complies with Article 11-02(b)(6).

Goodwill and other intangibles

The SEC staff has focused on the quality of the disclosure around significant judgments and estimates associated with goodwill and intangible assets, including impairment assessments, frequently commenting on:

  • The identification of reporting units, including factors considered when multiple components have been combined into a single reporting unit due to economic similarities;
  • At risk reporting units, including information about the amount of goodwill and headroom at the reporting unit, discussion of the key assumptions used to determine the reporting unit’s fair value and their associated degrees of uncertainty, and a description of potential events or changes in circumstances that could negatively affect the key assumptions; and
  • The timing of goodwill and intangible asset impairment charges.

  • Please clarify for us if you aggregate multiple components into your reporting units. If so, tell us the components you have aggregated and provide us with your analysis that supports aggregation is appropriate pursuant to ASC 350-20-35-35.
  • Please tell us whether you have any reporting units with material goodwill at risk of failing your goodwill impairment test. For each such reporting unit, please provide the following disclosures: 
    • Percentage by which fair value exceeded carrying value as of the date of the most recent test; 
    • Amount of goodwill allocated to the reporting unit;
    • Description of the methods and key assumptions used and how the key assumptions were determined;
    • Discussion of the degree of uncertainty associated with the key assumptions. The discussion regarding uncertainty should provide specifics to the extent possible (e.g., the valuation model assumes recovery in a particular business from a downturn within a defined period of time); and
    • Description of the potential events and/or changes in circumstances that could reasonably be expected to negatively affect the key assumptions.
  • In light of the current year interim period results of your reportable segment, which appear to be negatively impacted by the referenced business unit, management changes, and a shift in the primary focus of the business unit, please help us further understand how you determined that none of the impairment indicators outlined in ASC 350-20-35-3 existed in the current year interim period.

Disclosure controls and ICFR

The focus of the SEC staff’s comments on Internal Control over Financial Reporting (ICFR) has not changed significantly from prior years. They continue to focus on:

  • The identification and disclosure of material weaknesses. Specifically, the SEC staff continues to question why a restatement or revision did not result in the reporting of a material weakness;
  • Management's disclosure around the effectiveness of ICFR and disclosure controls and procedures (DC&P).The SEC staff has questioned registrants when there is no explicit conclusion about the effectiveness of DC&P or when management has concluded that ICFR is ineffective while DC&P is effective; and
  • Management's documentation of the changes in ICFR that have materially affected, or are reasonably likely to materially affect the registrant’s ICFR as required by Item 308 of Regulation S-K. Such changes may include updates to internal controls made in the process of (a) remediating previously identified material weaknesses, (b) as a result of the integration of significant acquisitions, (c) due to the implementation of new information technology systems, or (d) implementation of a new accounting standard.

  • Please provide us with a detailed explanation of how you considered the identification and correction of the error in your evaluation of internal control over financial reporting and disclosure controls and procedures. In doing so, please tell us how you evaluated the control deficiency(s) that led to this error, whether this control deficiency(s) posed a substantial risk of a material restatement, and the reason(s) for your conclusion.
  • Tell us whether you made any changes to your internal control over financial reporting in response to the correction described under this note. If so, explain to us how you considered disclosing this change under Controls and Procedures of your filing. If not, explain to us your basis for concluding no change was necessary.
  • Please tell us how you determined that the material weakness identified did not impact your conclusion regarding the effectiveness of your disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Please refer to SEC Release No. 33-8238, Final Rule: Management’s Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports.
  • Please file an amended Form 10-K to specifically state your assessment of internal control over financial reporting as either effective or not effective. Refer to the guidance in Item 308(a)(3) of Regulation S-K.
  • Please revise future filings to clarify which version, 1992 or 2013, of the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission's Internal Control -- Integrated Framework you utilized when performing your assessment of internal control over financial reporting.

Management's discussion and analysis

The SEC staff's comments on management’s discussion and analysis have emphasized the requirements in Item 303 of Regulation S-K and the related disclosure objectives, including a focus on:

  • The discussion and analysis of results of operations, including the description and quantification of unusual or infrequent events or any significant economic changes;
  • Critical accounting estimates, including the judgments made in the application of significant accounting policies, and the likelihood of materially different reported results if different assumptions or conditions were to prevail; and
  • Liquidity and capital resources, including clear discussion of drivers of cash flows and the trends and uncertainties related to meeting known or reasonably likely future cash requirements.

  • In future filings, please provide additional information about the components of operating expenses, such as quantifying the components and the factors driving the increase and the extent to which you expect this trend to continue.
  • To the extent any of your reporting units have estimated fair values that are not substantially in excess of their carrying values, please provide the following:
    • Amount of goodwill allocated to the reporting unit;
    • Description of the methods and key assumptions used;
    • Discussion of the degree of uncertainty associated with the key assumptions; and
    • Description of events or changes in circumstances that could reasonably be expected to negatively affect the assumptions.
  • Revise future filings to disclose the amount of cash and cash equivalents held by foreign subsidiaries and quantify any amounts that would not be available for use in the United States without incurring US income taxes. Provide a discussion of any known trends, demands or uncertainties relating to your liquidity as a result of your policies of indefinitely reinvesting earnings outside the United States.

Contact us

Tim Weld

US Health Industries Assurance Leader, PwC US

Laura Robinette

US Pharmaceutical & Life Sciences Assurance Leader, PwC US

Jeroen van Paassen

Partner, National Professional Services Group, PwC US

Follow us