Originally
Published MX March/April 2002

FINANCE

Valuing In-Process
R&D

E.
W. (Sandy) Purcell (Houlihan Lokey Howard & Zukin)

Expect the lab
to get a little hotter. Medical technology executives should anticipate heightened
scrutiny of in-process research and development (IPR&D) acquired in mergers
and acquisitions and reflected in the allocation of purchase price to tangible
and intangible assets.



Last year, the accounting arbiters scrapped pooling in favor of purchase accounting.
They also did away with goodwill amortization. Company executives and their
appraisers now must devote more attention than ever to how acquirers allocate
the price of buyouts to intangible assets and how much of that price ends up
as goodwill. This holds doubly true for IPR&D, an intangible asset that
has historically drawn intense review by the Securities and Exchange Commission
(SEC).



The stakes for medical technology manufacturers are great. Many medtech companies
must roll out new products as the life cycles of their existing products reach
maturity. Each year, the medtech industry invests billions of dollars in R&D.