CMC and pre-approval manufacturing costs

Chemistry, manufacturing, and controls work, including process development, analytical methods, clinical supply, and validation batches, is expensed as R&D until regulatory approval is considered probable. Material that could physically be sold after approval is still expensed if it was made while approval remained uncertain, because at the time it was made it had no probable future economic benefit.

Companies approaching approval face a judgment on pre-launch inventory: once approval is probable and the material meets the specifications expected for commercial sale, subsequent production can be capitalized as inventory. The date that judgment flips, and the evidence behind it, is disclosed and tested. Capitalizing too early inflates assets; capitalizing too late makes the launch-quarter gross margin look strange because the cost of goods was expensed in prior periods.

CDMO contracts also carry reservation fees and take-or-pay commitments that need to be tracked as prepaids, accruals, or disclosed commitments, and the accrual for a batch in progress follows the same activity-based logic as a clinical trial.