There are many companies that have regular material investments in R&D each year that as-reported financial statements treat as expenses. This violates one of the core principles of accounting, which is that expenses should be recognized in the period when the related revenue is incurred. R&D investment is an investment in the long-term cash flow generation of the company, which is especially true for biotech companies where research work can take years to bear fruit.
Because as-reported metrics treat R&D investment as an expense, as opposed to an investment, net income is artificially decreased. Net income is then materially understated relative to UAFRS-based Earnings. As a result of this distortion, as-reported ROAs end up looking significantly lower than Adjusted ROA, showing a consistent variance. Investors may therefore believe that a company has less success with their R&D investments than they actually are. This leads to investors and management believing that the company has weaker performance than is justified, resulting in poorer valuations.