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The SEC has warned companies about using misleading numbers. Photo: Chip Somodevilla / Getty Images

The largest U.S. pharmaceutical companies are among the most profitable entities in the world, but they also routinely report figures that paint a much rosier picture of their financials, based on a report from the bank Credit Suisse.

Why it matters: The Securities and Exchange Commission has warned companies not to use misleading financial statistics, or else face penalties.

The details: Credit Suisse analyzed financial filings of eight major drug companies by comparing their profits based on generally accepted accounting principles (GAAP) versus their profits that excluded the effects of one-time items like layoffs or merger expenses (or non-GAAP).

The report found "the spread between GAAP and non-GAAP results has widened." A drug company's non-GAAP profits were 80% higher on average than their actual profits over the past four years.

The biggest users of the accounting games were Allergan and Teva, according to Credit Suisse. Over the past 15 quarters:

  • Allergan had a net loss of $13.8 billion, but after taking out amortization and numerous other items, the company reported a non-GAAP profit of $17.3 billion.
  • Teva reported a $229 million net loss and a $17.5 billion non-GAAP profit.

Between the lines: Most of the biggest drug companies are still flush with cash and benefit from the prices of their products, even though they often dress up their numbers.

Get smart: Always look at a company's net income and GAAP numbers first.

Go deeper

Fed revamps rules for officials, restricts trades after controversies

Federal Reserve Chairman Jerome Powell. Photo: Kevin Dietsch/Getty Images

The Federal Reserve on Thursday announced significant changes to its rules regulating officials' financial activities following controversy last month over some officials' past trading practices.

Why it matters: The rule revamp is a coda on the biggest scandal to hit the Fed in recent memory.

Texas urges Supreme Court to leave abortion ban in place

Photo: Emily Elconin/Bloomberg via Getty Images

Texas on Thursday asked the Supreme Court to keep in place a law that bans abortions after an embryo's cardiac activity is detected, which can be as soon as six weeks and before many people know they are pregnant.

Driving the news: Texas Attorney General Ken Paxton is asking the high court to ignore the Justice Department's emergency request that they temporarily block the law while federal courts consider its constitutionality since it "lacks standing because it has not been injured by SB 8."

Felix Salmon, author of Capital
3 hours ago - Economy & Business

Meme stonks lose their appeal to the world of crypto

Data: Cardify; Chart: Axios Visuals

That sucking sound you hear is the outflow of meme-chasing dollars from the stock market.

Why it matters: The caravan has moved on. The dream of getting rich quick still lives, but today it's more often found in the world of crypto, NFTs or even sports betting than it is in the stock market.