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EITF Issue No. 08-9 Appendix 08-9A EXAMPLES The following examples are provided to illustrate the application of the various views under Issue 2 of Issue Summary No. 1, Supplement No. 1. Fact Pattern - Biotech License and R&D Contract Biotech Company (Biotech) enters into an agreement with Pharmaceutical Company (Pharma) on January 1, 20X1. The agreement includes Biotech (a) licensing certain intellectual property rights to Pharma and (b) providing research and development (R&D) services to Pharma with the objective of developing a viable drug candidate and receiving U.S. Food and Drug Administration (FDA) approval of the drug candidate. Arrangement consideration is as follows:
• •

Biotech receives $5 million in licensing fees upon signing the agreement Biotech receives $250,000 per year for each full-time equivalent (FTE) that performs R&D activities



Milestone Events: 1. Biotech receives $2 million upon identification of a viable drug candidate 2. Biotech receives $3 million upon successful Phase II clinical trial completion 3. Biotech receives $5 million upon FDA approval.

The license and FTE fees are comparable to rates charged by Biotech in other arrangements and are also considered comparable to rates charged by Biotech's competitors and contract research organizations. None of these payments, once received, are refundable, even if FDA approval is never received. In addition, while Biotech must perform on a best-efforts basis, it is not obligated to achieve the milestones. Biotech’s analysis of its other R&D arrangements indicates that R&D projects usually terminate (a) at five years if no viable drug candidate is identified, (b) at nine years if the drug candidate is successful in reaching FDA approval, or (c) at seven years in most other instances (that is, when

EITF Issue No. 08-9

Appendix to Issue Summary No. 1, Supplement No. 1, p. 28

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