Question

Discuss the nature of new drug development that may necessitate specific accounting guidance, explaining where clarity is most needed.

Answer 1

Any drug development process must proceed through several stages in order to produce a product that is safe, efficacious, and has passed all regulatory requirements.

Pacific BioLabs can assist you through all stages of drug developoment. Our scientists can help you to determine your testing needs, and our experienced staff can perform the critical tests and studies that are necessary to win FDA approval.

Detailed Stages of Drug Development

1. Discovery
2. Product Characterization
3. Formulation, Delivery, Packaging Development
4. Pharmacokinetics And Drug Disposition
5. Preclinical Toxicology Testing And IND Application
6. Bioanalytical Testing
7. Clinical Trials

Legal Standards for Drug:

The effectiveness requirement for drug approval was added to the Federal Food, Drug, and Cosmetic Act (the Act or the FDC Act) in 1962. Between passage of the Act in 1938 and the 1962 amendments, drug manufacturers were required to show only that their drugs were safe.

Research phase
It is impossible to demonstrate whether or not a product or service at the research stage will generate any probable future economic benefit. As a result, IAS 38 states that all expenditure incurred at the research stage should be written off to the income statement as an expense when incurred, and will never be capitalised as an intangible asset.

Development phase
Under IAS 38, an intangible asset arising from development must be capitalised if an entity can demonstrate all of the following criteria:

• the technical feasibility of completing the intangible asset (so that it will be available for use or sale)
• intention to complete and use or sell the asset
• ability to use or sell the asset
• existence of a market or, if to be used internally, the usefulness of the asset
• availability of adequate technical, financial, and other resources to complete the asset
• the cost of the asset can be measured reliably.

If any of the recognition criteria are not met then the expenditure must be charged to the income statement as incurred. Note that if the recognition criteria have been met, capitalisation must take place.