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US GAAP—Issues and Solutions for the Pharmaceuticals and Life Sciences Industries
63.Useful economic lives of intangibles
Relevant guidance
As part of a business combination, Company A has acquired a
license to manufacture and sell a newly approved pharmaceutical
drug. As part of the acquisition, Company A will record an
intangible asset for the acquired license.
The useful life of an intangible asset to an entity is the period over
which the asset is expected to contribute directly or indirectly to
the future cash flows of that entity [ASC 350–30–35–2].
What factors should
Company A consider in its
assessment of the useful life
of the intangible asset? 
An entity shall evaluate the remaining useful life of an intangible
asset that is being amortized each reporting period to determine
whether events and circumstances warrant a revision to the
remaining period of amortization. If the estimate of an intangible
asset’s remaining useful life is changed, the remaining carrying
amount of the intangible asset shall be amortized prospectively
over that revised remaining useful life [ASC 350–30–35–9].
When determining the useful life of an intangible asset, Company A should consider the factors included in ASC 350–30–35–3.
Some of these factors include: the expected use of the asset, historical experience with similar arrangements, and the expected
future cash from the asset.
In addition to these factors, pharmaceutical and life sciences companies should consider industry-specific factors, such as
the following:
• Duration of the patent right or license of the product;
• Redundancy of a similar medication/device due to changes in market preferences;
• Unfavorable court decisions on claims related to product liability or patent ownership;
• Regulatory decisions over patent rights or licenses;
• Development of new drugs treating the same disease;
• Changes in the environment that make the product ineffective (e.g., a mutation in the virus that is causing a disease, which
renders it stronger);
• Changes or anticipated changes in participation rates or reimbursement policies of insurance companies; and
• Changes in government reimbursement or policies (e.g., Medicare, Medicaid) for drugs and other medical products.
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