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Biotech Industry Overview - Accounting Principles, Information Systems, & Industry Operating Procedures

LMSB-04-0207-019

"This document is not an official pronouncement of the law or the position of the Service and cannot be used, or cited, or relied upon as such."

5. Accounting Principles - The industry uses standard U.S. accounting GAAP.  Foreign Controlled Companies may use Organization of Economic Community Development guidelines for their transfer pricing policies.  They may also follow International Accounting Standards (IAS), which is becoming more popular.

6. Information Systems - There is no information at this time.

7.  Industry Operating Procedures - Companies in the Biotech Industry draw heavily upon research in genetic engineering or recombinant DNA technology to produce biological compounds (such as human insulin or vaccines) in large quantities for commercial use.  These biotech companies range in size from small start-ups to multi billion dollar firms. One of the most important requirements facing these firms in order to bring a product to market is access to capital to fund their research activities.  Patents are critical in this endeavor.  For the young biotech just starting up, capital is acquired through seed money from venture capitalists and private investors. Once a firm has a promising new product candidate it may team up with a major pharmaceutical or biotechnology company.  The large company will provide capital in the form of up front fees, R&E funding, milestone payments after each phase of clinical trial, and royalties in return for receiving the marketing rights to the product once it’s commercialized.  The larger partner often provides needed production facilities and sales organizations as well for new product launches in return for the marketing rights under various licensing agreements.  Many of the approved biotech products in the marketplace today have been developed through this process.  In recent years however, some well-capitalized biotechs have leveraged their resources to develop and commercialize drugs on their own or through more lucrative 50/50 co-promotion agreements.  This trend is continuing currently; it allows the biotech to realize significantly higher percentages of earnings from product sales compared to smaller firms who continue to be satisfied with only royalties or small co-promotion percentages.

Chapter 4 | Table of Contents | Chapter 8

Page Last Reviewed or Updated: 03-Mar-2014