IFRS - Issues and Solutions for the Pharmaceuticals and Life Sciences Industries - Vol III

Accounting for licensing and development agreements

One of the big problems life science and biotechnology companies face in order to flourish is the lack of adequate and appropriate long term financing. At the same time, the pharmaceutical industry had been dealing with a number of challenges related to the loss of patent protection and the need to adjust to the new ways of performing research. Often the solution to these problems has been to partner with another company.

Each agreement is unique and may contain very complex clauses. While both US Generally Accepted Accounting Principles (US GAAP) and International Financial Reporting Standards (IFRS) provide guidance on revenue recognition, as yet there is no specific industry guidance as to how these agreements should be accounted for.

This third publication of IFRS Issues and Solutions for the Pharmaceutical and Life Sciences industries has been prepared to stimulate discussion and represents a first step in trying to establish a common platform or framework. Principally written from a revenue recognition standpoint, it considers how both parties can reach an agreement. However, the paper does not intend to provide a formulaic approach to evaluating contracts as each solution should reflect the facts and circumstances of each agreement.