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Why Deal Accounting Matters

Executive Summary

The pharmaceutical industry is well past the time when licensing was seen as merely a supplement to the internal R&D program. Now, it often plays a more important role than the company's internal R&D. As dealmaking becomes a bigger part of the overall pipeline building program, investors will require greater clarity from companies who now can bury external dealmaking costs in one-time write-offs or aggregated clash flow numbers.

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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.

Bristol's Bid for Revival

Without the revenue increases to fuel R&D budget growth, Bristol-Myers' new CSO James Palmer must make more of existing assets. As he describes it in this interview, his conservative approach is symbolic of an entire industry waking up to its over-reliance on internal discovery and unvalidated targets. And as part of his risk-lowering strategy, he will continue to move the company away from low-acuity primary-care markets to far more specialized, higher-acuity segments where safety is less of a concern with regulators than efficacy.

Bristol's Bid for Revival

Without the revenue increases to fuel R&D budget growth, Bristol-Myers' new CSO James Palmer must make more of existing assets. As he describes it in this interview, his conservative approach is symbolic of an entire industry waking up to its over-reliance on internal discovery and unvalidated targets. And as part of his risk-lowering strategy, he will continue to move the company away from low-acuity primary-care markets to far more specialized, higher-acuity segments where safety is less of a concern with regulators than efficacy.

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