Advice You - Business

There are several ways to determine the value of your inventory and each type of valuation has benefits. The most

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

common type used by small businesses is average cost or weighted average costing. This is based on the average cos

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

Examples of combination products may in

t of identical units. Using the total actual cost of all similar items available for sale divided by the number of

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

units available for sale would result in a weighted average cost per unit. Multiplying the weighted average cost

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

per unit times the number of units unsold gives you the value of your inventory.

First-In, First-Out Costing (FIF

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

Combination pro

O) assumes that the first goods purchased are the first goods sold and therefore that the last goods purchased are

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

the ones remaining in inventory. This system is used frequently because whenever the flow of inventory can be con

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

trolled it makes sense that the oldest items are sold first satisfying the accounting convention that inventory sh

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

ould be shown on the balance sheet at the most current cost possible. Also because this method has been used for s

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

uch a long time, continued use assures consistency for income calculations comparability.

Last-In, First-Out Cost

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

ng (LIFO) assumes that the most recent purchases are the first to be sold leaving the older items remaining in inv

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

Following aspects would a

entory. One argument for using this method is that it matches the most current cost of items purchased against the

dd to the challenges in developing combination products:

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

current sales revenue. Also when prices are rising net income calculated by this method is smaller than the amoun

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

t determined from using other methods resulting in a smaller income tax. This would be reversed if pricing were fa

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

lling.

One other, however uncommon, method is specific identification costing which requires that each item that

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

is sold and each item remaining in inventory is separately identified in respect to it’s purchase cost. This metho

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

d is not practical for most businesses. Only those businesses that sell items where the cost is relatively high, a

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

nd sales volume is low and it is easy to identify the cost and sale price of each item separately would find this

.

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

method useful.

When choosing a method consider the practical issues of how the valuation can be accomplished accu

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

rately and with the least amount of effort, and be sure to consult your tax preparer for tax return considerations

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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