SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Biotech / Medical : Biotech Valuation
CRSP 52.51+2.7%Nov 14 9:30 AM EST
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: tom pope who wrote (2247)12/7/2000 1:17:35 PM
From: Biomaven  Read Replies (2) of 52153
 
tom,

Yes, this is quite significant. Basically this will serve to retain the principle benefit of the present pooling accounting.

Biotechs are perhaps the poster-boy for why the old purchase accounting system was unfair. Basically the same R&D would get expensed twice - once when it was first performed, the second time when the company was purchased and the fruits of the R&D get classed as goodwill which has to be amortized over time all over again.

Companies used to try to overcome this by writing-off the goodwill immediately as "in-process R&D." (People tend to ignore immediate write-offs that are part of the merger itself in valuing a company). However the SEC stopped this, and forced companies to justify their write-offs, leading to some goodwill remaining on the books to be amortized.

What seems to be proposed now is to allow the goodwill to remain on the books unless the acquiring company decides it is no longer worth its book value. The argument against this is that it gives too much flexibility to management. However, nobody really gives much weight to these write-downs of intangibles anyhow. Hence this flexibility is not too dangerous.

Note incidentally that this is approximately what I've been suggesting should be done for all R&D expenses. The difference here is that the value of the acquired goodwill (or capitalized R&D) is being initially re-affirmed by an arms-length transaction - the acquisition itself.

It remains to be seen whether the SEC will bless this version. Given that we likely will have a Republican administration, they are perhaps less likely to quibble.

BTW, here's a letter from the FASB illustrating how politics was entering into their decisionmaking:

rutgers.edu

(Spencer Abraham incidentally is one of the very conservative Republican senators that will not be returning to the Senate).

Peter
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2025 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News