RX Marketplace Quarterly - Q2 2020

The latest accounting and reporting developments in the pharma & life sciences industry

Get the latest accounting and reporting developments in the pharma & life sciences industry, including updates on COVID-19, SEC comment letter trends, and more.

COVID-19 Considerations

The COVID-19 pandemic, coupled with the current stock market volatility, has created an economic environment likely to have significant accounting consequences. Our COVID-19 resource center, and COVID-19 navigator, provide insight to help you navigate these uncertain times.

In addition, don’t forget to check out our FAQ on COVID-19, which provides guidance on a variety of accounting areas impacted by COVID-19, and our summary of how the pandemic is impacting the financial reporting of Pharmaceutical and Life Sciences companies.

Finally, the Coronavirus Aid, Relief, and Economic Security (CARES) Act became law on March 27. CARES Act: Accounting for the stimulus, answers questions regarding the accounting and disclosure implications of certain of the provisions in the stimulus package.

CFO Pulse Survey

The PwC COVID-19 CFO Pulse Survey is conducted on an ongoing basis to understand the main issues challenging companies in the current environment. Now in its sixth installment, PwC surveyed 330 US CFOs and finance leaders the week of June 8. It was a week when rising infections in a handful of US states signaled that the pandemic will not slow down on a reliable timetable. More states lifted stay-at-home orders, businesses started to reopen and US government data showed a plateau in the number of people seeking unemployment benefits. It was also a week when we learned that (1) the US economy officially entered a recession in February, (2) the Federal Reserve warned of a 6.5% contraction for the year, and (3) the number of confirmed COVID-19 cases in the US topped two million.

Key takeaways from survey

As a result of COVID-19:

  • 63% of CFOs plan changes to products and services; 41% look to alter pricing, among other revenue strategies.

  • Nearly one-third of CFOs (32%) are looking to tech-driven products and services to reinvent their business.

  • 59% of CFOs worry about a rise in COVID-19 infections affecting returns to work.

  • No longer viewed as a productivity drain, 54% of CFOs plan to make remote work a permanent option.

  • CFOs are very confident their company can both provide a safe working environment (71%) and meet customers’ safety expectations (80%).

Key takeaways for PLS companies

According to the health industry findings from the CFO Pulse survey, pharmaceutical and life sciences companies will need to lean on technology to conduct the research and clinical trials that fuel drug and vaccine discovery. The ability to conduct clinical trials virtually was attractive to most consumers responding to a separate HRI survey of hospital finances. When asked which factors would make them more likely to participate, 62% said the ability to participate from home using telehealth was most influential in increasing the likelihood of participating.

Our CFO Pulse survey continues to be refreshed - to view results of the survey and/or take our survey please visit CFO Pulse Survey.

Navigating global tax, legal and economic challenges in response to COVID-19

COVID-19 presents significant challenges to people and organizations around the globe and the disruption continues to evolve. Our Explore the latest COVID-19 tax, legal and economic response by territory tool is intended to enable you to stay abreast of the changes that impact your business by providing you with the latest COVID-19 information by territory. Select a Country/Region from the list to display the latest information. Next, select a topic to refine the information, and then add another Country/Region to compare. This tool will be updated as new data becomes available.

Regulatory update

Updated SEC comment letter trends

Our analysis of SEC comment letters identifies the top ten topics included in comment letters to Health Industries companies through March 31, 2020.

Filer status considerations

The accelerated filer test is performed at the end of a company’s fiscal year. Any change in accelerated filer status is applicable beginning with the annual report for the year-end for which the status is being assessed. This is true even though one element of determining accelerated filer status (i.e., the worldwide public float test) uses information that is as of the end of the most recently completed second fiscal quarter. The reason for using a six-month look-back for the worldwide public float test is to give companies and investors sufficient time to prepare for changes in accelerated filer status.

Calendar year-end companies performing their worldwide public float test as of June 30 should also consider that on March 12, the SEC further tailored its disclosure requirements by expanding the population of companies that are designated as non-accelerated filers. Non-accelerated filers are exempt from the requirement to obtain an auditor’s attestation of their internal control over financial reporting. Under the new rules, many companies with less than $100 million in annual revenue and a public float between $75 million and $700 million will be non-accelerated filers. Prior to the amendment, a company with $75 million or more in public float did not qualify as a non-accelerated filer, regardless of revenue. Non-accelerated filers remain subject to a number of important investor protections, including the requirement to establish and maintain effective internal control over financial reporting and provide CEO/CFO certifications. The amendments were effective April 27, 2020 and apply to annual report filings due on or after the effective date.

SEC adopts amendments to financial disclosures about acquired and disposed businesses  

On May 21, the SEC amended its disclosure requirements applicable to acquisitions and dispositions of businesses, including real estate operations and investment companies. The amendments include, among others, updating the tests used to determine significance and expanding the use of pro forma financial information in measuring significance, conforming the significance threshold and tests for a disposed business to those of an acquired business, revising the pro forma financial information requirements and reducing the maximum number of years for which financial statements under Regulation S-X are required to two years. 

The amendments are intended to improve the financial information about acquired or disposed businesses provided to investors, facilitate more timely access to capital, and reduce the complexity and costs to prepare the disclosures. These amendments are effective on January 1, 2021 with voluntary compliance permitted immediately.

Refer to our In depth for additional details of the changes.

Accounting and financial reporting

Accounting for customer incentives

In the current environment, many companies are providing customer incentives in a variety of forms, including price concessions, free or discounted goods or services, or extended payment terms. While a change to the terms of a customer contract is typically the result of a bilateral negotiation between the parties, these incentives can be unilateral decisions of the vendor, which can make it more challenging to assess the appropriate accounting model. 

To determine the accounting treatment, it is necessary to understand the reasons for the incentive and whether the price or scope (or both) of an existing customer revenue contract has been modified, and should therefore be accounted for by applying the modification framework in the revenue standard. Also, if an entity offers a free or discounted good or service in the future, they need to evaluate if the free good or service represents a material right or a marketing offer. 

For more discussion on customer incentives, check out Question 41 in our FAQ on COVID-19. For additional insight on contract modifications, take a look at Issue 6-10, Accounting for modifications, within our on-line Pharmaceutical and Life Sciences Companies Guide, US GAAP Issues and Solutions for Pharmaceuticals and Life Sciences Companies.

Have a tax accounting question? Our PLS Guide contains a new chapter dedicated to income tax accounting

We are excited to announce the addition of an income tax chapter to our PLS Guide, US GAAP Issues and Solutions for Pharmaceuticals and Life Sciences Companies. We hope you find the new content useful in understanding the tax accounting implications for transactions frequently encountered in the PLS industry. Stay tuned for future updates and please let us know your feedback.

Treasury releases final anti-hybrid regulations and proposes additional new regulations

The US Department of the Treasury recently released new information as outlined in PwC’s Tax Insights, Final and Proposed Section 245A(e) regulations: Additional analysis, and Final Section 267A regulations: Additional analysis, which address anti-hybrid rules enacted by the 2017 Tax Cuts and Jobs Act.

While not unique to the PLS Industry, these regulations may impact ownership structures that are commonly utilized by multinational organizations. As a result, PLS companies will want to ensure they are aware of these regulations in order to evaluate how they may impact their business.

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Laura  Robinette

Laura Robinette

US Pharmaceutical & Life Sciences Assurance Leader, PwC US

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