There are about 170 million people in the world that have hepatitis C and of those four million live in the United States. It is sad to know that of those four million people with hepatitis C in the United States only one million have been diagnosed. The current medication for a person with hepatitis C is to take weekly injections of interferon and twice-daily ribavirin pills. This combination of drugs leads to harsh side effects and they must take the medications for up to a year. It would be nice to cure everyone after taking these drugs but in reality only about 50% of those threated are actually cured. Therefore, it is very important to find a cure that is effective and convenient for the patients to take.
Pharmasset is a small company from Princeton, NJ that is developing a compound that can be used to make an all-oral treatment for hepatitis C. There are many companies that were interested in buying the company for its research. Resources expect the hepatitis C market to reach $16 billion in 2015; in 2010 the hepatitis C market was only $1.7 billion.
Looking at this from an accounting perspective, we can see that Gilead is purchasing Pharmasset at a premium. On Gilead’s books, the amount that is paid over the worth of the Pharmasset will be included in Goodwill. This difference will not be expensed out at put under the purchase of Pharmasset to depreciate. On the other hand, the Goodwill will be tested annually for impairment and recorded as such. Annual testing for impairment is required by GAAP on intangible assets such as Goodwill. By recording it this way, the company can maintain a proper idea of the worth of Pharmasset and show how much is it impair, if any, each year.
Purchasing Pharmasset is a great way to invest in something that has potential. When making a purchase like this a company must do their research on the industry and consider all the possibilities for the future. In the case of Pharmasset, they are making a new drug that many people will be able to use and be cured not only in the United States but globally. The market is estimated to increase drastically. The fact that the new drug will be taken for a shorter amount of time, will include less side effects, and be much more effective are all great achievements to take into account. This product will be a hot item for many people and they should expect to have many sales.
Many times presidents of companies make decisions to purchase companies, equipment, other assets, but they don’t take into account the importance of cost accounting. It is very important to think like an accountant when making a purchase because this way you have the ability to see the future benefits and what the opportunity costs are. People without an accounting background can make choices from information that we call “sunk costs,” costs that have already occurred and cannot be recovered. When making decisions like this sunk costs cannot be used to make decisions.
No comments:
Post a Comment