Pharma Firms Get SEC Revenue Guidance on Sales to Government

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By Denise Lugo

Manufacturers that adopt new revenue rules in January must account for sales to the federal government of vaccines and bioterror countermeasures, once they are placed into the government’s stockpile programs, the SEC said.

Under the new revenue recognition rules, control of the enumerated vaccines—ones for childhood diseases, influenza, and bioterror countermeasures—will have been transferred to the customer at that point. Therefore the criteria to recognize revenue in a bill-and-hold arrangement will have been met, the Securities and Exchange Commission said in an Aug. 18 staff accounting bulletin.

Only Sales to Government

The guidance applies only to vaccines sold to the federal government for the strategic national stockpile.

The SAB also updates interpretive guidance on how “bill-and-hold” transactions—typical to sales of vaccines to the federal government for its national strategic stockpile—should be addressed when pharmaceutical companies adopt the new rules.

Bill-and-hold transactions are contracts under which a company bills a customer for a product, but the company retains physical possession of the product until it is transferred to the customer at a point in time in the future.

New Revenue Rules Supersede All Others

The new rules, Revenue from Contracts with Customers, ASC 606, take effect Jan. 1, but can be adopted this year. The standard supersedes all industry-specific guidance and some SEC staff accounting guidance.

Companies would no longer look to 2005 staff interpretations or Release No. 108, In the Matter of Stewart Parness, to account for and audit bill-and-hold arrangements once they’ve applied ASC 606, the SEC said. However, if they haven’t yet adopted ASC 606, those staff interpretations continue to apply.

The 2005 staff accounting bulletin addressed concerns that current rules would delay revenue recognition and therefore cause some vaccine manufacturers to decline to participate in critical government stockpile programs.

Stockpile Efforts Critical

Government vaccine stockpile programs are unique because the primary objective of buying the vaccines isn’t to take delivery for ultimate use, but to be able to require immediate delivery on notice.

Another unique characteristic of those transactions is the vaccines’ limited shelf life.

Companies like Emergent BioSolutions Inc. have contracted with agencies like the Center for Disease Control and Prevention for provisions of vaccines to the Strategic National Stockpile. Last year Emergent BioSolutions signed a $911 million contract with the CDC to supply approximately 29.4 million doses of BioThrax(R)—Anthrax Vaccine Adsorbed—through September 2021, the company disclosed in its annual filing with the SEC.

Under ASC 606, companies are required to use the five-model indicators for booking revenue:

• identify the contract with a customer;

• identify the performance obligations in the contract;

• determine the transaction price;

• allocate the transaction price to the performance obligations in the contract; and,

• recognize revenue when the entity satisfies a performance obligation by transferring a promised good or service to a customer.

Under the same release, the SEC’s Division of Corporation Finance also issued staff accounting bulletin (SAB) No. 116 that updates current staff guidance so that it aligns with rules under ASC 606.

SAB 116 modifies SAB Topic 13, Revenue Recognition, SAB Topic 8, Retail Companies, and Section A, Operating-Differential Subsidies of SAB Topic 11, Miscellaneous Disclosure, to align with the new revenue rules.

To contact the reporter on this story: Denise Lugo in New York at

To contact the editor responsible for this story: S. Ali Sartipzadeh at

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