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The FASB Nightmare

Executive Summary

FASB and the SEC, anxious to harmonize US accounting practices and clarify corporate earnings filings, are proposing reporting changes which will further beleaguer already desperate medical start-ups and rock large company growth plans. They're already tightening the rules on write-offs for in-process R&D following acquisitions and they've proposed eliminating both pooling of interest mergers and off-P&L financing techniques, like SWORDs and SPARCs.

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Will a New Accounting Change Cut Acquisition Values?

Amidst the wave of patent expirations, pennies per share are now a big deal in Pharma-companies are looking to cut marketing and hold R&D more or less flat. And thus the accounting issues that determine what gets expensed and what gets capitalized have grown in importance. That's why a new FASB rule change on expensing of purchased R&D is causing concern: suddenly R&D will look like it's getting more expensive.

Symphony & Guilford Try Out Project Financing

Symphony attempted to re-create an off-P&L financing vehicle for biotech projects that would both pass the much tougher SEC scrutiny applied since the late 1990s and allow biotechs to avoid licensing away what could be important revenue generators. To do so, it had to create a fully independent corporate vehicle with the capacity-through an alliance with an equity-incentivized CRO--to manage its own development. But its first biotech partner, Guilford Pharmaceuticals, didn't feel Symphony had proven the financing could be completely off-P&L. Consolidating the expenses, Guilford sees the deal's value largely in the additional management resources, along with the funding, that Symphony provides a second-priority program. Symphony also has yet to prove it can make its investors money from these projects: in part because the value of late-stage programs has increased since the original off-P&L vehicles were created, Symphony could only get from Guilford a single compound, not a portfolio of projects with which to reduce its investment risk.

Symphony & Guilford Try Out Project Financing

Symphony attempted to re-create an off-P&L financing vehicle for biotech projects that would both pass the much tougher SEC scrutiny applied since the late 1990s and allow biotechs to avoid licensing away what could be important revenue generators. To do so, it had to create a fully independent corporate vehicle with the capacity-through an alliance with an equity-incentivized CRO--to manage its own development. But its first biotech partner, Guilford Pharmaceuticals, didn't feel Symphony had proven the financing could be completely off-P&L. Consolidating the expenses, Guilford sees the deal's value largely in the additional management resources, along with the funding, that Symphony provides a second-priority program. Symphony also has yet to prove it can make its investors money from these projects: in part because the value of late-stage programs has increased since the original off-P&L vehicles were created, Symphony could only get from Guilford a single compound, not a portfolio of projects with which to reduce its investment risk.

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