Effects of COVID-19 on Financial Reporting in the U.S. Life Science Industry

Abstract

The COVID-19 pandemic posed unprecedented challenges for financial reporting, especially in the U.S. life sciences industry. This study analyzes how pharmaceutical, biotechnology, and medical device companies navigated financial disclosure obligations from 2019 to 2022 during the pandemic. We examine SEC filings (10-Ks and 10-Qs) and corporate disclosures to identify changes in risk factor reporting, liquidity management, corporate governance, internal controls, non-GAAP measures, critical accounting judgments, and potential earnings management. The findings reveal that life science firms responded with greater transparency regarding pandemic risks, proactive capital management (including substantial debt and equity financing in 2020), governance adaptations (more frequent board oversight and virtual meetings), maintained internal controls despite remote work, and cautious use of non-GAAP adjustments (most firms did not treat COVID-19 costs as one-time exclusions). Additionally, there was a trend of taking significant discretionary write-offs in 2020, with reversals noted in 2021. These actions indicate that, even amidst extreme uncertainty, companies aimed to uphold the integrity of financial reporting and meet stakeholder information needs. The industry’s experience offers valuable insights for enhancing the resilience of financial reporting in future crises.