The exposure draft will require the amount of donated nonfinancial assets to be disclosed on a separate line in the statement of activities. Some additional disclosures will be required. The main new disclosure is the technique and inputs used to value the GIK along with the principal market for the items.
How much does it cost for a pharmaceutical company to get one new drug onto the market? As with all variations of “what does it cost” questions the answer is complicated. Any such answer requires explanation of what the calculation means.
Other posts discussing this issue:
- 3/1/12: What does it cost to invent a new drug?
- 6/2/14 – Another explanation why meds cost so much; this ties into the GIK valuation issue
According to a 2016 study by Tufts Center for the Study of Drug Development, here is their calculation of what it takes to get one compound to the point of where it is approved for sale:
- $1.395 billion – out-of-pocket costs – actual cash expended at the point approval is obtained to sell the compound
- +$1.163 billion – “time costs”, in other words the capitalization of having to invest more than a billion dollars over many years – this represents the opportunity cost of having otherwise been able to invest that money in something else that would have produced a return earlier
- =$2.558 billion – total capitalized cost at point of receiving approval to sell one compound
- +0.312 billion – costs incurred for follow-up required by FDA as a condition of obtaining approval – this includes factors such as monitoring long-term side effects, monitoring safety, looking at new formulations or dosage strength
- =$2.870 billion – total lifecycle costs to develop one new medicine that is approved by the FDA for sale
The study was based on a random selection of 106 drugs from 10 pharmaceutical companies. Since that is a random selection presumably the calculation would apply to all medicines.
On 12/31/19 the IRS published the reference amounts for mileage rates for 2020. Their announcement:
FASB update presentation today (12/19/19) indicated the GIK disclosures project is moving forward as previously outlined.
An exposure draft is expected to be released in January 2020. There will be a 60 day comment period.
Previous post described the outline and limited scope of the project as approved by FASB:
In condensed form, the project will require separate disclosure of donated goods on the face of the statement of activities and require some additional disclosures in the notes. There will not be any change in valuation of donated medicine.
Nicola White, writing at Bloomberg Tax, has several articles following up on the GIK valuation issue after the veto of California AB 1181 by the governor. If you have been following the issue, you will want to check her recent writing.
End of this post discusses the departure from FASB of a project manager long involved with nonprofit rulemaking.
The articles, with a few highlights:
11/4/19 – Bloomberg Tax – Small Fixes Eyed for Charity Accounting as California Backs Off – Article describes why FASB is strongly resistant to any change in GIK valuation.
On November 6, 2019, FASB discussed the GIK valuation project.
Back on August 21, 2019, FASB set the scope for the project to include only nonfinancial GIK with measurement (that means valuation) off the table. Staff was directed to work toward an exposure draft (ED) that would address only presentation and disclosure. That means an ED will only describe how GIK is presented on the statement of activity and what information is explained in the notes.
According to minutes of the 11/6/19 meeting, available here, FASB ratified that previous scope.
This post updates the previous estimate of the volume of donated medicine for the relief & development community of the nonprofit world.
There are a few charities receiving big volumes of medicine donated by the pharmaceutical companies. Those charities then get all those meds distributed to charity clinics and hospitals around the world. That is incredible work which is improving the lives of millions upon millions of poor people around the world.
Following is an estimate of the size of that sector, with subtotal of charities with over $20 million of donated medicine and supplies, under $20 million, and zero reported meds: