The Financial Supervisory Service’s recent guidelines for research and development accounting are expected to have a positive impact on biosimilar manufacturers, an analyst said.

The FSS in September said pharmaceutical firms could capitalize their research spending from phase-3 trials, but biosimilar makers could do so from the phase-1 stage.

As biosimilar companies tend to capitalize much of their research expenses, the FSS’ guidelines have boosted the investment sentiment for biosimilar firms, said Kim Jae-ik, an analyst at Hi Investment & Securities.

“Concerns over biosimilar firms’ accounting emerged in January when Deutsche Bank said in a report that Celltrion recorded 60 percent operating margin because it capitalized R&D spending too much,” Kim said in a report on Tuesday. “The guidelines of the FSS have fully addressed market concerns regarding their accounting.”

However, companies with early-stage clinical pipelines to develop new drugs could suffer a continuous burden in R&D spending, Kim noted.

He said biosimilar makers would benefit the most from the accounting guidelines. “Celltrion and Samsung Bioepis were capitalizing 73 percent and 20.5 percent of R&D expenses, respectively, which raised concerns for a worsening of profitability. But the latest measure will allow them to capitalize research spending from phase-1 trials, brushing off such concern,” Kim said.

The clear standards for R&D accounting will also help the biosimilar industry secure transparency in the long term, he added.

The FSS said biosimilar makers could capitalize R&D spending from phase-1 studies because they would find it difficult to objectively verify their asset value in the absence of the government’s review for the similarity of biosimilar products to the original drugs.

In contrast, new drug developers could capitalize research spending from phase-3 trials because it would be difficult to objectively verify their asset value in the absence of the confirmation on the investigational drug’s safety and efficacy in a large number of patients in the long term, the FSS said.

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