Navigating Financial Statements for Life Sciences

If you're a biotech founder or CFO, here's something you already know in your bones: your books don't look like anyone else's. You're not managing a Shopify store or running a SaaS dashboard—you’re neck-deep in clinical trials, scientific milestones, and regulatory hurdles. And guess what? That means your financial statements? They aren’t just numbers on a page. They’re your storytelling toolkit.

Used right, these statements help you paint a picture for investors, sync up with your board, and most importantly—keep the cash flowing until you hit that next big scientific breakthrough.

So let’s get into it.

Income Statement: Your R&D-Fueled Financial Story

Also known as the Profit and Loss (P&L) statement, this report shows your financial performance over a specific period. But if you’re in biotech, let’s be real—it often just looks like a spending tracker for R&D.

What to Highlight:

●     Revenue (or the lack thereof): Not unusual if there’s not much to see here yet. Many biotech startups operate for years without product revenue. Instead, you may be logging grants, licensing income, or milestone payments from collaborations. In fact, over 80% of early-stage biotechs in the U.S. report little or no revenue prior to regulatory approval (https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6683690/).

●     R&D Expenses: This is your big-ticket item. And under ASC 730, you expense it all as it happens. No capitalizing here. That means high costs and negative profits are expected. According to Deloitte, R&D costs for new drug development can average between $1.3 to $2.5 billion depending on trial complexity (https://www2.deloitte.com/uk/en/pages/life-sciences-and-healthcare/articles/measuring-the-return-from-pharmaceutical-innovation.html).

●     General & Administrative (G&A) Expenses: These are the costs of running your business that aren’t tied directly to R&D—think HR, legal, IT, and executive salaries. Keep them separated from R&D to show exactly where your spend is going. Investors want to see capital efficiency—not just a burn rate.

Founder's Tip: Create a custom chart of accounts with distinct categories—like preclinical, clinical, regulatory, and manufacturing development. It'll help you communicate better with stakeholders and make audits way less painful.

Cash Flow Statement: The Lifeline

Your income statement might tell a tale of burn, but your cash flow statement shows what’s keeping the lights on. In biotech, cash is everything. It’s how you buy lab time, pay your scientists, and extend your runway.

Here’s the breakdown:

●     Operating Activities: This includes cash going in and out related to R&D. Think clinical trial costs, payroll, consultants.

●     Investing Activities: Buying lab equipment? Leasing a clean room? It’s all here.

●     Financing Activities: This is where your funding lives—grants, convertible notes, SAFEs, venture capital infusions.

According to BioCentury, the average Series A funding round for biotech companies reached $36 million in 2022, and most startups raise 2–3 rounds before commercialization (https://www.biocentury.com/biotech-finance).

Some grants show up here too, depending on how they’re structured. But be warned: grants can get tricky. Some are booked as income. Others reduce R&D expenses. Whatever the case, the golden rule is to track every dollar with the precision of a pipette.

Bonus Tip: Use your cash flow statement to model burn rate. Track it monthly. Project it quarterly. And always know how much runway you have left.

Balance Sheet: The Big-Picture Snapshot

Want to know what your company is worth at a moment in time? This is your go-to.

Focus on:

●     Assets: Cash (duh), lab gear, prepaid insurance, IP/patents, and deferred tax assets if you’re running a loss carryforward.

●     Liabilities: Accounts payable, deferred revenue, debt. Bonus: watch out for milestone-related liabilities if you’ve taken upfront payments.

●     Equity: This reflects your cap table—stock issued, retained earnings, and that stack of preferred shares from investors.

Biotech balance sheets often look heavy on cash and burn with little product-based revenue. That’s okay. According to EY’s 2023 Biotechnology Report, 67% of U.S.-based biotech companies listed on the NASDAQ are pre-revenue and rely entirely on equity financing and grant funding (https://www.ey.com/en_gl/life-sciences/ey-biotechnology-report-2023).

What matters is clarity and context. You’re telling a story, remember?

Biotech-Specific Accounting Considerations

Accounting in biotech isn’t just financial hygiene—it’s strategic. Here’s where things get extra nuanced:

R&D Tracking: The Detail is in the Data

If your books don’t break down your R&D spend, you’re flying blind. Not only does granular tracking help with budgeting, but it also:

●     Keeps grant compliance on track

●     Helps report scientific milestone progress

●     Makes your spend story easier to explain to investors and auditors

Set up sub-categories for clinical ops, CMC, regulatory affairs, and more.

Grant Management: Free Money Comes with Homework

Grants are non-dilutive, but they’re not no-strings-attached. You’ll need to:

●     Track fund allocation precisely

●     Store receipts and justifications for expenses

●     Report regularly on progress (and sometimes results)

According to the NIH, over $32 billion in research grants were awarded in 2022, with strict compliance requirements for financial reporting and drawdown tracking (https://grants.nih.gov/grants/about_grants.htm).

Don’t have systems in place for this? That’s a red flag for both auditors and future funding.

Milestone Reporting: Marrying Science and Finance

Biotech is milestone-driven. You raise capital and earn partnerships based on key scientific breakthroughs. That means you need to:

●     Sync your financials with scientific progress

●     Recognize revenue from milestone payments at the right time

●     Deconstruct complex licensing agreements into separate performance obligations (hello ASC 606!)

And here's a kicker: According to McKinsey, milestone-based payments are a key part of over 60% of biotech partnership deals, especially those involving licensing and co-development agreements (https://www.mckinsey.com/industries/life-sciences/our-

insights/partnering-in-the-biotech-era).

Wrapping Up: Financials Are More Than Just Compliance

In biotech, your numbers aren’t just numbers. They’re a narrative. They tell investors how far you’ve come, how smart your spend is, and how close you are to the next breakthrough.

At Achieve Accounting, we turn complex, high-growth biotech financials into clear, compliant, and compelling narratives. We help founders and CFOs breathe easier—because your science deserves financials as precise as your research."[1] [2] 

Need your financials to speak the language of biotech and investors alike? Let’s build that together.