Intangible Assets, Earn-Outs in BioPharma Acquisitions

Sorbus Advisors LLC studied purchase price allocations in biopharmaceutical industry titled “Valuation of Goodwill and Intangibles in 2015 BioPharmaceutical Transactions.” The study focused on recognition, valuation, and determination of useful lives of pertinent intangible assets, contingent considerations and goodwill.

While no two acquisitions are the same, common themes in the valuation of intangibles and goodwill can be found along industry lines. Biopharmaceutical companies with the focus on drug development rely on such identifiable intangible assets as developed technology, in-process research and development (in-process R&D), and marketed products. Fair value analysis may be required for less common non-compete agreements and trade names.

Contingent considerations, or earn-outs, often account for a substantial portion of the purchase consideration. It is recorded as a liability. Fair value estimation is performed as of the transaction date and marked to market at the end of each consecutive reporting period. Similarly, in-process R&D has to be valued (or tested for impairment) each reporting period until reclassified into developed product or abandoned.

Relative valuations of goodwill and identifiable intangibles are also consistent within the biopharmaceutical industry. It is common to find a significant portion of excess consideration to be ascribed to goodwill. Marketed products, developed technology and in-process R&D will dependent on the state of therapeutic product pipeline, platform technology and extent of commercial operations.

Download the paper to see the results: HERE.

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