Collaborative Arrangements With Steering Committees: Recent SEC View May Affect Revenue Recognition

We wanted to alert you to an accounting position taken by the SEC for a few registrants that could be more broadly applied to other registrants in the biotechnology industry. The SEC’s interpretation potentially impacts revenue recognition under new as well as existing collaborative arrangements that contain joint steering committee obligations. We are advising our clients to carefully review and consider the issues raised in this Cooley Alert in order to avoid a potential restatement and to consider appropriate accounting treatment for collaboration payments in advance of an initial public offering.

Under Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition, the company generally performs an analysis regarding how it will recognize the various elements of revenue under the agreement. Under SAB No. 104, the criteria for revenue recognition is based upon the following: (a) persuasive evidence of an arrangement exists; (b) delivery has occurred or services have been