Observations of Biotech and Pharmaceutical Industry Merger and Acquisition Acquired In-Process Research and Development Impairment Indicators

The Financial Accounting Standards Board (FASB) released a revised version of Statement of Financial Accounting Standards No. 141 (SFAS No. 141(R)) in December 2007. Accounting treatments of acquired in-process research and development (IPR&D) in a business combination change from expensing to capitalizing as an indefinite-life intangible asset, and need to perform annual impairment test subsequently. Combining the above changes with the thriving M&A activities trend in U.S. biotech and pharmaceutical industry, we will focus on the industry, summarize M&A transactions including acquired IPR&D capitalization happened in the period of 2009-2012 and examine the association between impairment indicators and write-offs of acquired IPR&D. Empirical results reveal that five impairment indicators are significantly correlated with acquired IPR&D impairment recognition in the sample of 98 observations. We also collect possible reasons that result in the impairment recognition