ASC 730 (research and development costs)

ASC 730 requires research and development costs to be expensed as incurred. Salaries of scientists, CRO and CDMO fees, lab supplies, preclinical studies, and clinical trials all hit the income statement immediately. There is no capitalizing a drug candidate on the balance sheet the way a manufacturer capitalizes a factory, which is why a clinical-stage company shows large accumulated deficits and almost no intangible assets.

The exceptions matter. Nonrefundable advance payments for future R&D services are recorded as prepaid assets and expensed as the services are performed. Equipment and facilities with alternative future uses are capitalized and depreciated, with the depreciation charged to R&D. Intellectual property bought in an asset acquisition is expensed as acquired in-process R&D unless it has an alternative future use, while the same asset bought in a business combination is capitalized.

For the finance team, ASC 730 turns the R&D line into the place where estimates live. What was incurred but not yet invoiced by the CRO, what portion of a CDMO batch is complete, and whether a milestone paid to a licensor is R&D or an intangible are the questions that decide the number.