The End of Accounting and the Path Forward for Investors and Managers

Chapter 14Strategic Resources & Consequences Report: Case No. 3—Pharmaceutics and Biotech

Drug companies hold the record for research and development (R&D) spending: 12–15 percent of sales for large companies, and 15–20 percent for smaller biotech entities. In addition to such substantial in-house innovation, large and medium drug companies often acquire smaller outfits to bolster their in-line, and particularly R&D capabilities. The only GAAP-based information currently provided by pharma companies on their vital R&D activities is the innocuous R&D expense. The major strategic resources of drug and biotech companies are in-line products and their underlying patents, the product development pipeline, trademarks and other intellectual property, and key human resources. Drug companies provide certain information on products and pipeline in supplements to financial reports and presentations accompanying earnings calls, but such non-GAAP disclosure is often haphazard and inconsistent from period to period, and across companies, and hence of limited value to investors. Enter the Strategic Resources & Consequences Report.

As in the preceding case study of insurance companies, practically everyone is a customer of drug or biotech companies. Few, though, are satisfied customers. Many complain about exorbitant drug prices, and the socially conscious question the justification for extended patent protection of essential drugs, particularly in Third World countries. If that's not ...