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Overview of the CRO industry
(1) Definition of CRO industry
Contract Research Organization (CRO) refers to an organization or institution that provides professional outsourcing services for pharmaceutical and medical device enterprises and scientific research institutions in the R&D process through contracts. As an external resource that pharmaceutical companies can borrow, CRO can organize a professional and experienced research team in a short period of time after accepting the entrustment of customers, so as to help pharmaceutical companies accelerate the progress of drug research and development, reduce drug research and development costs, and achieve high-quality research.
(2) The business scope of CRO
The business scope of CRO covers the whole process of drug research and development, from drug discovery, preclinical research to clinical research, preclinical CRO is mainly engaged in drug discovery research services and preclinical research services, including but not limited to drug screening, synthesis of lead compounds and active drug intermediates, industrial R&D and safety evaluation research services, etc.; Data management and statistical analysis, subject recruitment, registration and application services, etc. At present, the drug discovery stage is mainly carried out in pharmaceutical manufacturing enterprises, and CROs in the industry mainly provide preclinical research services and clinical research services.
The clinical research services provided by clinical CROs are mainly drug clinical trials, which refer to drug research carried out in humans for the purpose of drug marketing and registration, including phase I-IV clinical trials and bioequivalence trials (BE). Among them, phase I-IV clinical trials are mainly for innovative drugs, improved new drugs, medical devices, biological products and in vitro diagnostic reagents, etc., and bioequivalence tests (BE) are mainly for generic drugs.
Figure 1: Business processes and modules covered by CRO services
Clinical trials of innovative drugs are divided into four phases:
(1) Phase I clinical trials are preliminary clinical pharmacology and human safety evaluation tests to observe the tolerance and pharmacokinetics of new drugs in the human body, and provide a basis for formulating dosing regimens;
(2) Phase II clinical trials are the preliminary evaluation stage of therapeutic effects, the purpose of which is to preliminarily evaluate the therapeutic efficacy and safety of drugs for patients with target indications, and also to provide a basis for the study design and dosing regimen of phase III clinical trials;
(3) Phase III clinical trials are the therapeutic effect confirmation stage, the purpose of which is to further verify the therapeutic efficacy and safety of the drug for patients with target indications, evaluate the relationship between benefits and risks, and provide sufficient basis for the approval of drug registration applications;
(4) Phase IV clinical trial is the application research stage independently conducted by the applicant after the new drug is marketed, with the purpose of investigating the efficacy and adverse reactions of the drug under the conditions of widespread use, evaluating the relationship between benefits and risks of use in the general or special population, and improving the dosage.
Different from the clinical trials of innovative drugs, generic drugs need to conduct bioequivalence tests (BE) in clinical practice, and most of them use pharmacokinetic parameters as evaluation indicators to evaluate bioequivalence, that is, it is necessary to investigate the differences in the degree and absorption speed of generic drugs and original drugs in the human body under similar test conditions through clinical trials. The basic process of equivalence research is to collect biological samples such as blood from subjects taking original drugs and generic drugs, and to test the drug concentration in biological samples in biological samples in biological sample testing laboratories that meet regulatory requirements, so as to evaluate the consistency of the two.
(3) Classification of domestic CRO types
According to the type of R&D target, R&D service content and the completeness of the business chain of CRO enterprises, CRO enterprises can be divided into comprehensive type, subdivided professional type and "pharmacy + clinical" comprehensive type.
Table 1: Types of CRO enterprises
According to the business scope and type of CRO enterprises, this paper intends to discuss the revenue recognition method for the whole process of clinical trial I-IV clinical trials and bioequivalence trials (BE) services provided by clinical CROs. The revenue recognition methods for clinical CRO services provided to customers in a certain part of the clinical trial process, such as clinical trial site management (SMO), data management and statistical analysis, subject recruitment and biological sample analysis, will be discussed in the future.
Revenue recognition for clinical research phase BE and phase I-IV business
(1) Business processes for clinical research services
Figure 2: Business processes for clinical research services
According to the business process of clinical research services, the whole process of clinical research services is mainly divided into three stages:
(1) Clinical trial preparation stage (mainly including: setting up a project team; determining the clinical trial institution of the research unit; organizing the formulation of clinical trial plans, relevant technical documents, data management and statistical analysis plans, determining the research plan; assisting in promoting the review of the ethics committee, clinical registration and filing, and carrying out program training, etc.);
(2) Clinical trial implementation stage (mainly including: holding a kick-off meeting, recruitment and screening of subjects, clinical trial site management and whole-process monitoring, biological sample analysis, data management and statistical analysis, etc.);
(3) The closing stage of clinical trials (mainly including: writing and submitting clinical research reports, assisting in the preparation of drug registration application materials, etc.). In practice, clinical CROs can provide customers with full-process clinical research services, or they can provide one or more services such as clinical trial site management (SMO), clinical trial data management and statistical analysis, subject recruitment, and biological sample analysis.
(2) Comparison between BE business and phase I-IV clinical trial business
The BE business and the phase I-IV clinical trial business are similar in terms of the overall process of trial conduct, but there are significant differences in the purpose of the trial, the type of drug to be tested, the trial period, etc., and the specific comparison is as follows:
Table 1: Comparison of BE business with phase I-IV clinical trial business
Through the above comparison, the BE business is mainly for generic drugs, mainly healthy subjects, and the implementation cycle is usually 6-12 months, unlike phase I-IV clinical trials, the implementation cycle of the BE business is usually relatively short, and most projects are implemented in a full fiscal year, or in the next fiscal year after initiation.
(3) Charging model for clinical research services
The charging mode of CRO enterprises to provide clinical research services is mainly divided into two types: Fee-for-Sevice (FFS) and full-time equivalent service (FTE).
The customer has a clear service demand and signs a service contract with the CRO company, and the business contract signed by the CRO company and the customer includes several research contents, and the contract stipulates the corresponding tasks, objectives and amounts of each research content. The FFS settlement model is usually suitable for projects where customers have clear service needs, such as clearly agreeing on the required experimental results or samples, and agreeing on technical standards. CROs are entrusted with R&D services and submit results. This type of revenue recognition method is what will be discussed in this article.
In the full-time equivalent service model (FTE), CRO enterprises provide a certain number of technical personnel according to customer requirements, complete R&D tasks according to customer requirements, and charge according to the actual working hours recorded multiplied by the full-time equivalent labor rate agreed in the contract. The FTE settlement model is often suitable for exploratory studies with uncertain progress and results. Under this model, the revenue recognition method is relatively clear and straightforward, and the revenue can be settled and recognized on a monthly or quarterly basis according to the full-time equivalent labor rate agreed in the contract and the contracted full-time equivalent labor rate, or the revenue can be measured and recognized according to the contracted rate and agreed period.
(4) Whether the clinical research service business meets the requirements of the time period method for recognizing revenue
According to the new revenue standard, if one of the following conditions is met, the performance obligation is performed within a certain period of time, and the relevant income shall be recognized within the period of performance of the performance obligation: (1) the customer obtains and consumes the economic benefits brought by the performance of the enterprise at the same time as the enterprise performs the contract, (2) the customer can control the goods under construction in the course of the enterprise's performance, and (3) the goods produced by the enterprise in the course of the performance of the contract have irreplaceable uses, and the enterprise has the right to receive payment for the part of the performance that has been completed so far during the entire contract period.
The clinical research service business satisfies the first of the above provisions: the customer obtains and consumes the economic benefits brought by the performance of the enterprise at the same time as the performance of the contract, which is a performance obligation within a certain period of time. The specific analysis is as follows:
Clinical research services are mainly entrusted by the sponsor to participate in the formulation of clinical trial research plans, monitoring the clinical trial research process, biological sample analysis, clinical trial data management and statistical analysis, etc., and assisting in the completion of clinical trial research summary reports.
After undertaking the project entrusted by the customer, the CRO enterprise conducts internal project approval, appoints a project manager, and sets up a project team including monitor (CRA), medical personnel, subject recruiters, clinical coordinators (CRC), analysis and testing personnel, data management personnel, statistical analysts, etc. according to the project requirements. Before the start of the trial, the CRO company drafts the clinical trial protocol and ethical materials, and after the clinical trial protocol and ethical materials are finalized, the clinical trial protocol is submitted to the sponsor, and after the ethical approval is obtained, the ethical approval document is submitted to the sponsor, and the data management plan and statistical analysis plan drafted by the data management and statistical analysis unit are submitted to the sponsor, and the analysis department conducts methodology development and methodology verification. CRA conducts on-site management, CRC assists clinical trial institutions in subject screening, enrollment, trial product distribution, subject follow-up, biological sample collection, trial data collection and entry, subject discharge, trial product recovery and other clinical trial site management, CRA monitors the trial, and reports the test situation through email and other forms during the blood collection process, including blood collection, shedding, abnormal conditions, etc.; Statistical analysis report and trial summary report.
According to the contract signed between the CRO enterprise and the customer, it is generally agreed that the CRO enterprise shall regularly report the progress of the clinical research to the customer, and the relevant written and electronic application materials in the research process shall be submitted to the customer for confirmation in a timely manner, and at the same time, the relevant documents and materials shall also be submitted to the customer when the clinical research service is carried out to an important node or when major issues are encountered, and the customer shall determine whether the current work meets the work requirements agreed in the contract according to the content of the information submitted by the CRO enterprise and the progress of the work, and verify and confirm. As CROs need to report and provide important information related to project progress or work to customers, and continue to deliver the results of clinical research services to customers, customers can understand and obtain information and materials related to project progress and project results throughout the service process.
The outcome of the clinical research services business is a continuous delivery process. The contract usually stipulates that the CRO enterprise shall formulate the trial plan in accordance with the guidelines and regulations issued by the relevant national departments, and shall be responsible for the implementation and overall management of the clinical study in strict accordance with the requirements, and shall regularly report to the customer the progress of the clinical study, the next stage plan and all issues related to the clinical study in accordance with the requirements of the contract. At the same time, according to the contract, the ownership of all case reports and other data obtained by the CRO enterprise during the clinical research period belongs to the customer, and the intellectual property rights formed also belong to the customer.
According to the "Instructions for the Filing and Filling of Generic Drug Consistency Evaluation Tests", "Instructions for the Filing and Filling of Chemical Drug Bioequivalence (BE) Trials" and "Technical Guidelines for Protocol Changes During Drug Clinical Trials (Trial)" issued by the Center for Drug Evaluation of the National Medical Products Administration, the drug applicant needs to re-submit the record for substantive changes in the regimen changes during the BE trial. In addition, if the clinical trial is involved in the implementation of the clinical trial, the drug applicant also needs to resubmit for the record.
In the BE trial service business, if the project is terminated and the customer changes to another CRO company (the "newly hired enterprise") for research and development, the newly hired enterprise can continue to conduct clinical trials on the basis of the work completed by the CRO enterprise without the need to re-file or redesign the plan. At the same time, if there is a substantial change in the protocol during the clinical trial or the clinical trial institution needs to be changed, the drug applicant needs to resubmit the record regardless of whether the CRO company is changed. Similar to the BE trial, if the drug applicant continues to conduct phase I-IV clinical trials with the newly hired enterprise during the CRO company's performance of the contract, the newly hired enterprise can continue to conduct the clinical trial and submit the trial report on the basis of the work already completed by the CRO enterprise, and there is no need to repeat the work that the company has already completed.
Therefore, the clinical trial research business provided by CRO enterprises can meet the needs of customers to obtain and consume the economic benefits brought by CRO enterprises in the process of providing services while performing the contract. The first criterion for revenue recognition during the period of compliance with the new revenue standard is that the customer obtains and consumes the economic benefits of the company's performance at the same time as the enterprise performs.
(5) Methods for determining the progress of the performance of the clinical research service business
1. CRO enterprises need to judge whether the performance progress of the project can be reasonably determined from the business level in combination with the clinical trial contract
Figure 3: Clinical Research Services Fulfillment Progress Determination Decision Tree
If the performance progress can be reasonably determined, the enterprise should consider the nature of the commodity and use the output or input method to determine the appropriate performance progress; Indicators such as completed or delivered products for the value of the customer to determine the performance progress, at this time, it is necessary to consider whether the selected output indicators can faithfully reflect the progress of the transfer of goods to the customer; If the milestone method in the output method is used to determine the performance progress, the project performance process needs to be split into multiple milestone nodes, and the enterprise should judge the milestone nodes of each project, and the determination of the nodes should be in line with the nature and characteristics of the business.
If the performance progress cannot be reasonably determined, it is necessary to determine whether the labor costs incurred can be compensated; if it is expected to be compensated, the revenue shall be recognized according to the amount of the costs incurred until the performance progress can be reasonably determined, and at the same time, the specific basis for the labor costs incurred to be compensated shall be given, and whether the relevant basis shall be objective and sufficient; if it is expected that compensation cannot be obtained, the labor costs that have been incurred shall be included in the profit or loss for the current period, and the income from the provision of labor services shall not be recognized.
2. General methods for the performance progress of clinical research service business
For the clinical research services business, the input method is usually used to estimate the performance progress as a proportion of the accumulated actual costs incurred to the estimated total costs. In the clinical trial protocol formulation stage, the number of trial cases and clinical trial institutions, recruitment and testing institutions, project cycles and project participants have been determined, and the project costs including service procurement, direct labor, direct materials, etc. can be reliably estimated. During the implementation of the project, if the market price of the clinical trial protocol and outsourcing fee changes, the estimated total cost will be adjusted in a timely manner. There is a strong correlation between the occurrence of costs and the completion progress in the process of testing, so it is reasonable and in line with the provisions of accounting standards to estimate the performance progress based on the proportion of the accumulated actual costs incurred in the estimated total cost as the basis for revenue recognition.
In addition, the determination of the completion schedule based on the cumulative actual costs incurred as a percentage of the estimated total costs depends on the company's internal controls. In order to ensure the accuracy of the performance schedule, the company should establish and improve the contract cost budget management system and the contract cost accounting management system, and accurately provide the costs incurred in each period through the effective implementation of the internal control system. The Company shall periodically review the budget of each contract to determine whether the budget cost accurately reflects the costs incurred in the Company's actual services, and if there are factors that will change the progress of future contract services in the review, the Company shall adjust the cost budget accordingly to ensure the accuracy of important parameters such as the estimated total cost, actual cost, and performance progress related to revenue recognition.
(6) Comparison of BE business revenue recognition with the same industry
Table 3: Comparison of BE business revenue recognition with the same industry
Note: The specific method of revenue recognition is derived from the prospectus.
The BE business of companies in the same industry uses the time period method to recognize revenue. For the estimation of the performance progress, the input method shall be used for the project period with a long project period, and if the project period is short, usually not more than one year, and the expected cost can be compensated according to the contract and historical experience, the revenue shall be recognized according to the costs incurred. From the perspective of listed companies since the implementation of the registration system, most of the companies that have adopted the "revenue = cost model" are those that have adopted the "revenue = cost model", such as Sunshine Novo and Baicheng Pharmaceutical.
Analysis of the fact that the BE business of some listed companies does not adopt the milestone method under the output method and the cost method under the input method:
1. Revenue recognition analysis of the milestone method without using the output method:
The recognition of revenue according to the milestone method actually means that when each milestone is completed, the completion progress/performance progress is estimated according to the proportion of the amount of services provided to the total amount of services to be provided.
First, for the BE business, in addition to the CRO company's own employees to provide labor services, it is also necessary to entrust the clinical trial institution to carry out the specific implementation of the plan, and some CRO companies pay more than 50% of the cost of the institutional fee paid by the CRO company to the clinical trial institution, which is relatively low, and its own labor cost accounts for less than 30%, which is relatively low, and the workload method represented by working hours cannot measure the image progress;
Second, there are no professional surveyors at home and abroad to provide corresponding progress measurement services, so professional measurement methods are not suitable for determining the progress of clinical research business image;
Third, there is no industry standard for the reference proportion of the completion progress of each milestone of the BE business, and there is a large estimation component in determining the image progress ratio of each milestone node. Therefore, this method is not applicable to BE business.
2. Analysis of revenue recognition by the cost method without using the input method:
First of all, the implementation period of BE business projects is usually no more than 1 year, and the cycle is relatively short, and most projects are implemented in one full fiscal year, or in the next fiscal year after initiation.
Second, the BE business needs to entrust the clinical trial institution to carry out the implementation of the plan, and the institutional fee paid by some CRO enterprises to the clinical trial institution accounts for more than 50% of the cost.
Therefore, CRO companies need to choose a more prudent approach based on the composition of service costs, the accuracy of budget cost preparation, and their own accounting efficiency and costs.
(7) Comparison of the recognition of business revenue in phases I-IV with the same industry
Table 4: Comparison of revenue recognition in Phase I-IV business with the same industry
Note: The specific method of revenue recognition is derived from the prospectus.
With the development of the CRO industry, companies such as Tigermed and Northgate have projects that adopt the FTE settlement model, which are settled monthly or quarterly and recognize revenue according to the billing standard agreed in the contract, which reduces the estimation component of management's judgment and improves the accounting accuracy compared with the cost method.
When the Phase I-IV trial service uses the cost method to confirm the performance progress, whether the cost of the clinical trial institution paid to the clinical trial institution (supplier) needs to be appropriately adjusted
1. Relevant provisions of accounting standards
According to the Guide to the Application of Accounting Standard for Business Enterprises No. 14 - Revenue, an enterprise may need to make appropriate adjustments to the costs incurred when using the cost method to determine the performance progress under the following circumstances: when the costs incurred by the enterprise are not proportional to the performance progress, the enterprise needs to make appropriate adjustments when using the cost method to determine the performance progress, and usually only recognize revenue to the extent of the costs it has incurred. When the company can expect to meet all of the following conditions on the contract commencement date, the cost method should not include the cost of the project, but should recognize revenue at its cost amount:
(1) The commodity does not constitute a single performance obligation;
(2) the customer obtains control of the product before receiving the service related to it;
(3) the cost of the commodity accounts for a large proportion of the estimated total cost;
(4) The enterprise purchases the commodity from a third party and is not deeply involved in its design and manufacture, and the enterprise is the main responsible person for the performance obligation that includes the commodity.
2. The treatment of the clinical trial institution fee included in the clinical trial service contract signed by the listed company in the same industry and the sponsor
The fee of the clinical trial institution is the service fee paid by the clinical CRO enterprise to the clinical trial institution (generally the medical institution) to carry out clinical trials in the qualified clinical trial institution, which is an important part of the operating cost of the CRO enterprise, including the management fee of the clinical trial institution, the investigator's fee and the subject inspection fee and other related expenses, and the institutional fee paid by some CRO enterprises to the clinical trial institution accounts for more than 50% of the cost The enterprise has made appropriate adjustments when using the cost method to determine the performance progress, and the situation of listed companies in the same industry is as follows:
(1) Tigermed
The income of clinical trial technical services is recognized in two parts: one is recognized as the income of clinical trial hospital management services according to the daily payment of 12% of the hospital fee mark, and the other is that after the total contract amount is deducted from the clinical trial hospital management services, the part of clinical trial technical services is recognized according to the completion percentage method, and the completion progress of the labor service transaction is determined according to the proportion of the costs incurred to the estimated total cost.
In 2012, Tigermed's initial public offering and listing prospectus on the Growth Enterprise Market (GEM) disclosed that "from the perspective of business content, clinical trial hospital management services are derived from the needs of customers in the process of clinical trial technical services, and provide customers with services for selecting, contacting and coordinating hospitals (research centers) with clinical trial qualifications in various places according to customer needs." If the customer needs to provide clinical trial hospital management services, this service is generally included in the clinical trial technical service contract when signing the contract, and the price of clinical trial hospital management services is usually quoted according to the gross profit of about 12%~16% on the basis of the service fee paid to the hospital. "The company separates the clinical trial hospital management service in the clinical trial technical service from the separate accounting, and after the clinical trial hospital management service occurs, it is recognized as the income of the clinical trial hospital management service according to the hospital fee paid by 12% on a daily basis, and after the clinical trial is completed, it is recognized as the revenue at the time of settlement according to the difference between the price of the clinical trial hospital management service and the recognized revenue.
The reasonableness of Tigermed's calculation of the completion progress after deducting the hospital management expenses is as follows: first, the service fees paid to the hospital for inspection and inspection are included in the cost of clinical trial hospital management services, but the progress of the cost is not directly proportional to the service progress provided by the hospital, and the company and the hospital generally adopt the following payment methods: that is, 30% of the contract price is paid in advance after the clinical service procurement contract is signed, 40% of the contract price is paid in the middle of the trial, and the remaining 30% is paid at the end of the trial The contract price is only related to part of the progress of the recruitment and follow-up phase of the subjects (patients) in the clinical trial, not the overall progress of the project; second, the cost of the clinical trial institution is purchased from a third party (hospital), and the service fee is added by 12-16% according to the estimated hospital fee in the contract quotation list If the hospital service fee is merged into the clinical trial technical service cost to determine the completion schedule, the project cost will not match the actual completion schedule due to the incomplete synchronization of the hospital service fee payment schedule in the project accounting process, resulting in the distortion of the overall project progress, revenue and profit recognition.
(2) Northgate
In its initial public offering and GEM listing prospectus, the sponsor entrusts the issuer to pay fees to the clinical trial institution, which will be specifically stipulated in the signed clinical trial operation service contract. In the CO (Phase I-IV clinical trial integrated service) business provided by the issuer, the added value of the issuer's payment to the clinical trial institution is low, and the service provided to the sponsor can usually only charge a small service fee.
From 2019 to 2021, the gross profit margin corresponding to the issuer's payment of clinical trial medical institutions was 4.41%-6.20%, showing a slight downward trend, and the revenue from CO projects paid by the issuer for clinical trial medical institutions was 33.1049 million yuan, 33.0516 million yuan and 46.5077 million yuan, respectively, and other income after deducting the expenses of clinical trial medical institutions was 76.637 million yuan. 68.8924 million yuan and 112.982 million yuan. (Other income = CO project income paid by the issuer for clinical trial medical institutions - income corresponding to clinical trial medical institution expenses, and the gross profit of clinical trial medical institution expenses is the difference between the revenue recognized in the current period for the expenses of clinical trial medical institutions in the main business income and the amount of expenses of clinical trial medical institutions in the current main business costs). When recognizing the revenue from Phase I-IV clinical trial services, Northgate also recognized it in two major parts.
In summary, Tigermed and Northgate recognized the service revenue of phase I-IV clinical trial in two parts, and when calculating the performance progress of the project, the impact of the clinical trial institution fee on the calculation of the performance progress was deducted, and the service project after deducting the clinical trial institution fee was recognized as the service income according to the cost method. Therefore, CRO enterprises need to analyze and judge whether the cost method is used to determine whether the performance progress needs to be appropriately adjusted in accordance with the relevant requirements of accounting standards, taking into account the fees for each service item signed by itself and customers, the proportion of costs paid to upstream suppliers, and the matching degree of cost input with the project performance schedule.
Key points of attention for CRO to carry out clinical research BE, Phase I-IV business revenue recognition review
1. Comprehensively evaluate and analyze whether the time, basis and accounting process related to revenue recognition comply with the relevant provisions of the Accounting Standards for Business Enterprises based on industry norms, project characteristics, research experience over the years and the time point of delivery of results agreed in the contract;
2. The reasons and basis for the use of non-milestone method/non-cost method for BE services, and whether they comply with the accounting standards for business enterprises and relevant regulations;
3. Compare and analyze the revenue recognition accounting method based on the public information of comparable companies in the same industry, and analyze whether there are major differences between the revenue recognition policy and companies in the same industry in combination with the actual business process and contract terms of the enterprise, and whether the revenue recognition policy is consistent with the contract;
4. Understand the specific business content and differences of BE research services and phase I-IV clinical research services, confirm the accuracy and rationality of the division of enterprise business types, understand the implementation cycle of enterprise business, analyze whether there is an agreement on contract change and contract termination, and the accounting treatment of contract change and contract termination;
5. Obtain the project contract ledger and income ledger, understand the specific situation of the implementation of the contract during the reporting period, check the clinical research service contract of the main project, the key document records of the trial process, the test report and the delivery sheet, compare the revenue recognition progress with the cost input progress, spot check the revenue calculation process of the main project, and recalculate the revenue recognition amount of the random inspection project;
6. Understand the internal process and control measures of enterprise budget cost preparation, obtain enterprise budget cost preparation information, review the accuracy of main project budget cost preparation, and confirm that enterprise budget cost preparation is in line with the actual development of the project.
Practical cases
Case: Sunshine Novo
Inquiry: About the revenue recognition method
Issuers are requested to specify: ...... (3) the performance process and nodes of clinical trial research services, and the reasons for estimating the performance progress according to the proportion of labor costs to the estimated total costs......
Reply:
The reason for estimating the progress of performance in terms of the costs incurred as a percentage of the total estimated costs
For phase I-IV clinical trial research services in the clinical trial service business, the Company adopts the performance schedule estimated by the proportion of labor costs to the estimated total costs, for the following reasons:
(3) Phase I.-IV clinical trial program
After the implementation of the new revenue standard, the company recognizes revenue for such items as the proportion of the incurred costs to the estimated total cost as the performance progress, which meets all the conditions of the accounting standards for revenue recognition, as follows:
(1) The performance obligation of such a project contract is to be performed within a certain period of time
Similar to pharmaceutical research projects, if another company is replaced to continue clinical trials in the process of the company's performance, the other enterprises can continue to conduct clinical trials and submit test reports on the basis of the work completed by the company, and there is no need to repeat the work that the company has completed in essence.
(2) The performance progress can be reliably estimated, and the company recognizes revenue according to the performance progress during the performance process
Under the new revenue standard, enterprises should take into account the nature of the goods or services and use the output or input approach to determine the appropriate pace of performance. Among them, the input method is a method to determine the performance progress according to the input of the enterprise to fulfill the performance obligation, and the performance progress can usually be determined by using input indicators such as the number of materials invested, the labor hours or machine hours spent, the costs incurred and the time schedule. Therefore, the company takes the performance progress as the proportion of the project's incurred costs to the estimated total cost, which is in line with the provisions of accounting standards.
and (3) meet the conditions that control has been transferred
The sponsor of the clinical trial project is the customer, not the company, and the clinical trial results belong to the customer. As mentioned above, if another company is replaced to continue the clinical trial in the process of the company's performance, the other company can continue to conduct clinical trials and submit the trial report on the basis of the company's completed work, and there is no need to repeat the company's cumulative completed work, therefore, the customer obtains and consumes the economic benefits brought by the company's performance at the same time as the company's performance, and meets all the conditions for the transfer of control:
A. The parties to the contract have ratified the contract and promised to perform their respective obligations;
B. The contract clarifies the rights and obligations of the parties to the contract related to the provision of labor services;
C. The contract has clear payment terms related to the provision of labor services;
D. The contract has commercial substance, that is, the performance of the contract will change the risk, time distribution or amount of the enterprise's future cash flow;
E. The consideration to which the company is entitled to receive for the provision of services to the customer is likely to be recovered.
(4) Bioequivalence testing (BE) and bioanalysis projects
The revenue recognition method of this type of project is similar to that of a pharmaceutical research project with one-time deliverables, the project period is usually less than one year, and on the balance sheet date before the delivery of the relevant services, the labor costs that have been incurred and are expected to be compensated are included in the current costs and recognized according to the same amount.
Source: Fu Chenggang