South Korea’s financial authorities have decided to relax accounting guidelines for R&D items in listed pharmaceutical and biotech companies, allowing capitalization of research expenses given the nature of huge capital needed for novel drug development.

According to the new guidelines, eligible companies can capitalize research expenses to occur after regulatory approval of a phase III study for a novel drug and approval of a phase I study for a biosimilar. In addition, the capitalization of research expenses for generics is possible after regulatory approval of bioequivalence testing and for diagnostic reagents after the product validation process. The Financial Supervisory Service said on Wednesday the new guidelines were reported to the Securities and Futures Commission that supervise unfair accounting practices of listed firms.

However, when capitalizing their R&D expenses, companies are required to submit objective data to help financial authorities judge their technological feasibility.

By Cho Hee-young and Minu Kim

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