Valuing In-Process R&D

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.