Driving Value: Bridging GAAP Gaps in R&D Treatment

For many healthcare innovators, GAAP-reported EBITDA understates true performance, not due to weak fundamentals, but because accounting rules often fail to fully reflect the economics underpinning growth.

Where the Disconnect Happens

Digital Health - GAAP permits capitalization of software development costs once technical feasibility is reached, yet many companies default to expensing all R&D, missing a legitimate opportunity to match costs with the revenues they generate.

MedTech & Biotech - GAAP requires R&D to be fully expensed. For businesses with early commercial traction, this can artificially suppress earnings, obscuring operational leverage. In these cases, presenting non-GAAP adjusted EBITDA, with clearly defined R&D capitalization, can provide a truer economic view, provided it’s transparent, consistent, and defensible.

Why It Matters

This is not “financial engineering.” It’s cost-revenue alignment; enabling investors, acquirers, and strategic partners to better assess early earnings power.

What Sophisticated Founders Are Doing

Capitalizing eligible R&D in digital health per GAAP allowances.

Presenting clear EBITDA bridges that separate accounting convention from operating reality.

Making transparent adjustments that illuminate growth drivers rather than obscure them.

Illustrative Bridge

$M

GAAP EBITDA 5.0

+ Capitalized R&D 3.0

– Amortization (0.6)

R&D-Adjusted EBITDA 7.4

Buyers and investors will run this math themselves; the most effective founders help them get there faster.

Bottom Line

If you’re preparing for M&A or capital raising, ensure your EBITDA tells the economic story, not just the GAAP story. In competitive processes, clarity on true earnings power can materially influence valuation and deal terms.