CASE STUDY

BIOCON
INTRODUCTION
● During the year ended March 31, 2011, Biocon SA entered into an Agreement with Pfizer
Pharmaceuticals for the development and commercialization of Insulin products for various
markets. Pursuant to the said arrangement, cost of the development of the products of `
[b]
319,581 have been considered as the contract expenses.
● Under the terms of the agreement Pfizer will make upfront payments totalling USD 200
million. Biocon is also eligible to receive development and regulatory milestone payments of
up to USD 150 million and will receive additional payments linked to Pfizer’s sales of its four
insulin biosimilar products across global markets.[b]
● The end of the fiscal 2011-2012 witnessed the amicable dissolution of our commercialization
partnership with Pfizer over divergent biosimilar priorities. As a company, Biocon stays
committed to taking its biosimilar insulin and analogs to the global markets. [c]
● Share price of Biocon
○ October 2010 High- Rs 455.00, Low - Rs 365.90 [c]
○ March 2012 High - Rs 282, Low - Rs 231 [b]
● Current share price
○ September 2021 High – Rs 379, Low – Rs 357.5 [d]
Evaluate Biocon’s accounting for the fee received from Pfizer.

 It was a $350 million deal between BIOCON & PFIZER, but when the contract got terminated,
[a]
BIOCON received Compensation from Pfizer $164 million.
[a]
 Biocon Recognized $34 million based on percentage completion method.
 The Remaining $130 million is not recognized in quarterly results.[a]
 They recorded the retained payment in balance sheet.
 The company has mentioned the amount received from Pfizer in P&L account under licensing
and development fee in incomes.
 The company has recorded the deferred revenue in consolidated balance sheet in the
liabilities section under the sub- heading of other current liabilities and other long- term
[b]
liabilities.
 Biocon’s net sales grew by 17% to ₹13,250,660 in 2010-11 while the licensing and
development fees grew by 490% to ₹ 2,064,963. [c]
 [b]
• Consolidate balance sheet
● Other Long-term liabilities [b]

● Other current liabilities [b]

What do you think of the brokerage’s view of the company’s
accounting? Specifically, is Biocon’s accounting “aggressive”?
 Brokerage's view on the company's accounts is unreasonable according to me. Furthermore, I
do not consider BIOCON's accounting treatment to be aggressive.
 Firstly, Biocon has defended the allegations put on its accounting treatment by stating that it
has done so as per the legal and regulatory requirements, i.e. in this case requirements of
GAAP.
 The upfront fee received by BIOCON though is received at once, will be put to use on a
regular basis. Since, it is put to use on a huge project which would take years of progress to
complete, it is unreasonable to recognize it as an exceptional item at once. Thus, deferring
the upfront amount to the future periods is more reasonable.
 Development of a product/project takes years of time and lot of funds, so upfront amount
received shall be recognized for the entire duration.
 Post the termination of the agreement with PFIZER, BIOCON has obligations to continue the
development and accordingly has treated the retained fees as deferred revenues to be set off
against development expenses to be incurred up to regulatory approval in various global
markets.
Comment on the auditor’s position on the matter
 It is the responsibility of the auditor to form an opinion.
 The opinion can be a clear opinion or a qualified opinion.
 The auditors opinion will be based on the audit procedures applied and audit evidence
obtained.
 In this scenario the auditor had passes a non qualifying opinion.
 Further, the auditor drew the attention of the stakeholders to note 41 by mentioning the same.
 This indicates that the auditor does not consider that the accounting treatment done by
Biocon is inappropriate. But, since the matter mentioned in note 41 is significant and could
have big impact on the company, the auditor had decided to bring the stakeholders attention
to it.
 “The licensing agreement with Pfizer was not an outright licensing deal, but a development
licensing deal that mandated Biocon to incur development costs for obtaining regulatory
approvals.”
 The accounting method followed in the case of fees received from Pfizer is in compliance with
GAAP and appropriate disclosures have been provided.
Bibliography
[a]. https://www.moneycontrol.com/news/business/cnbc-tv18-comments/-1828001.html
[b]. https://www.bseindia.com/bseplus/AnnualReport/532523/5325230312.pdf
[c]. https://www.bseindia.com/bseplus/AnnualReport/532523/5325230311.pdf
[d]. https://www.nseindia.com/get-quotes/equity?symbol=BIOCON