Main Subject - Business

Not only is an independent valuation a good idea when getting involved in a transaction, it is also a sta

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

tutory requirement in many circumstances that involve Employee Stock Ownership Plans, Estate/Gift Taxes,

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

haritable Contributions or, most recently, the granting of Stock Options. And, in most circumstances, a

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

solid independent valuation can be an insurance policy against tax assessments and accuracy-related pena

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

ties.

Background – The Omnibus Budget Reconciliation Act (OBRA) consolidated i

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

to one Internal Revenue Code section (IRC §6662) several different accuracy-related taxation penalties:

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

(1) the negligence penalty
(2) the substantial understatement of income tax penalty
(3) the sub

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

tantial valuation overstatement penalty
(4) the substantial estate or gift tax valuation understatem

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

ent penalty
(5) the substantial overstatement of pension liabilities penalty

The accuracy-relat

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

d penalty is applied to the portion of any underpayment of tax that is attributable to one or more of the

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

above five issues. All accuracy-related penalties apply to tax returns due, without regard to extension

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

s, after December 31, 1989.

In controversies with the IRS which concern valuation issues, it is not unco

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

mon for the IRS to assess accuracy-related penalties.

Impact of an Independent Valuation
cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
ong> – Even though the IRS attempts to assess accuracy-related penalties in valuation cases, the Tax
tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
Court has consistently refused to allow these assessments when the tax payer has acted “reasonably” by e
t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
gaging a valuation professional who has obtained proper training in valuation theory.

Therefore, it is e
ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust
xtremely important that the person performing your valuation not only be independent, but also qualified
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
o perform such a valuation. If the person performing your valuation, whether or not they are a CPA, does
.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
not regularly perform valuations as part of their practice, for purposes above and beyond your engagemen
elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip
, chances are they are not qualified to perform the valuation as it relates to accuracy-related penalties

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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Main Subject - The Importance of an Independent Valuation

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