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US GAAP—Issues and Solutions for the Pharmaceuticals and Life Sciences Industries
13.Single market impairment accounting
Background
Relevant guidance
Company A acquired the rights to market a topical fungicide
cream in Europe. The acquired rights apply broadly to the
entire territory and, as such, Company A determined that it
would account for the acquired right as one unit of account. For
unknown reasons, patients in Country X prove far more likely
to develop blisters from use of the cream, causing Company A
to withdraw the product from that country. As fungicide sales
in Country X were not expected to be significant, the loss of the
territory, taken in isolation, does not cause the overall value from
sales of the drug to be less than its carrying value.
A long-lived asset (asset group) shall be tested for recoverability
whenever events or changes in circumstances indicate that its
carrying amount may not be recoverable [ASC 360–10–35–21].
An impairment loss shall be recognized only if the carrying
amount of a long-lived asset (asset group) is not recoverable
and exceeds its fair value. The carrying amount of a longlived asset (asset group) is not recoverable if it exceeds the
sum of the undiscounted cash flows expected to result from
the use and eventual disposition of the asset (asset group)
[ASC 360–10–35–17].
For purposes of recognition and measurement of an impairment
loss, long-lived asset or assets shall be grouped with other assets
and liabilities at the lowest level for which identifiable cash flows
are largely independent of the cash flows of other assets and
liabilities [ASC 360–10–35–23].
How should Company A account
for the withdrawal of a drug from a
specific territory? 
Solution
Company A acquired the rights to market the fungicide cream over a broad territory and not specifically in Country X. Therefore,
the entire territory would likely represent the lowest level of identifiable cash flows for testing impairment of the marketing rights.
Because revenues from product sales in Country X were not significant, the withdrawal of the product from Country X’s market
would not be considered a triggering event that would require an impairment analysis to be performed.
However, Company A should carefully consider whether the development of blisters in patients in Country X is indicative of
potential problems in other territories. If the issue cannot be isolated, a triggering event would be considered to have occurred
and a broader impairment analysis should be performed, including the consideration of the potential for more wide-ranging
decreases in sales.
14
PwC
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