Case Study: Financial & Strategic Advisory Services
Revenue Recognition Allocation – ASU 2009-13 (EITF 08-1)
Our Client
A successful development stage biotechnology company with multiple license agreements established with a large pharmaceutical company across multiple indications and geographies.
Situation
Under new accounting guidance, the company elected to early adopt the new revenue recognition procedures and was required to establish the best estimated selling price (“BESP”) of multiple deliverables identified in each of the company’s license agreements. The establishment of the BESP served as the foundation for the recognition of revenue from the license agreements and was critical to obtaining audited financial statements. Based on our research and discussions with various members of the audit community, this was one of the first revenue recognition analyses completed for a pure play therapeutics company.
Key Issues/Services
- Identifying the relevant deliverables underlying each of the company’s license agreements
- Considering the effect of ASU 2009-13 in determining the BESP of standard industry licensing deliverables such as technology licenses, options on additional technologies, manufacturing services and other R&D services
- Developing the analytical frameworks to determine the BESP for the seller of the deliverables in each agreement including income, market and cost based approaches
- Matching pre-tax and after-tax cash flows to pre-tax and after-tax discount rates, as appropriate in various applications of the income approach
- Rendering an opinion of the BESP of the deliverables in the agreements and establishing consensus with the company and its auditor
Salter Group’s Role & Outcome
- We developed preliminary indications of the BESP for the identified deliverables across multiple licensing arrangements.
- We rendered an independent opinion of the BESP of the arrangements to be used by the company for its internal planning and accounting purposes.
