I just watched a commercial for a new R.A. drug, Cimzia. Drug companies spend years on R&D, then $ Millions
on marketing (from TV commercials to
young, attractive sales reps providing drug samples, informational pamphlets,
dinner for the staff, concert tickets…) to providers. All of these expenditure are meant to
increase the value of the new drug. So, should all of these costs be
capitalized and recorded as an asset on the balance sheet? Perhaps these costs could be amortized over
the life of the patent (that artificial monopoly right given to drug makers by
the laws of a country that frowns upon monopoly).
To further entice arthritis sufferers, the manufacturer (UCB, Inc.) is promising a six month money-back
guarantee. So, the firm will need to
record an estimated liability. I wonder how they will calculate the amount?
What about the class action law suit that is sure to follow? At some point, someone will die of something
and some attorney will get things going.
Everyone knows this will happen (it’s probable), so UCB should
recognize the liability now. To determine the amount, just take the last drug
class-action law suit amount and double it.
This would be much like the accounting for land reclamation - recording the liability when the project begins...
You can’t make an omelet without breaking a few eggs and you can’t
make a good drug without killing off a few people.
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