Pharma R&D in FCF?
Hey guys,
I am totally new to valuation of pharma companies and have to do it for the university. Do you have a idea, why companies have R&D expenses on the income statement and does not involve them on the free cash flow statement as capex for example? Our team has no clue and we searched for it for quite a bit now..
Thank you!
I had to deal with this during my summer internship and what I understood was that they liked to call it an expense in the same manner as SG&A or whatever and not as capex because , while capex ties in to certain types of investments, they are not treating drug development as an investment but rather as some form of business expense. If they were to invest in, say real estate, it would be treated as an actual investment. R&D has no guarantee of any return and a pharma or biotech cant really survive without it, so they treat it as a business expense. but sometimes they dont lol I saw them do both. what company(s) are you looking at
Thank you very much for your answer. I think i got the problem here, but not 100% for sure.
I think US Gaap has R&D as expense. Hower, IFRS has R as expense but capitalizes D under some circumstances (as intangible asset) and is amortising it over a period.
I hope i am right, pretty tricky :D
you might be right - i didnt do much regarding ifrs. is the line item giving you any issues in valuation/modeling/whatever youre doing for this project?
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