Research and development costs comprise the costs of research departments and process development, the costs of clinical trials as well as the expenses incurred as a result of research and development collaborations.
The costs of research cannot be capitalized and are expensed in full in the period in which they are incurred. As internally generated intangible assets, it is necessary to capitalize development expenses if the cost of the internally generated intangible asset can be reliably determined and the asset can be expected to lead to future economic benefits. The condition for this is that the necessary resources are available for the development of the asset, technical feasibility of the asset is given, its completion and use are intended, and marketability is given. Owing to the high risks up to the time that pharmaceutical products are approved, these criteria are not met in the pharmaceutical business. Costs incurred after regulatory approval are usually insignificant and are therefore not recognized as intangible assets. Owing to the risks existing up until market launch, development expenses in the Performance Materials and Merck Millipore divisions can likewise not be capitalized.
In addition to own research and development, Merck is also a partner in collaborations aimed at developing marketable products. These collaborations typically involve payments for the achievement of certain milestones. Here, assessments are made as to whether these upfront or milestone payments represent compensation for services rendered (research and development expense) or whether the payments represent the acquisition of an asset that has to be capitalized. Reimbursements for R & D are offset against research and development costs.
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