What is 'in-process R&D' (IPR&D) and how is it treated?
IPR&D (in-process R&D) is the target's research and development projects that are not yet complete at the acquisition date but already have value. Under IFRS 3 they are capitalized as identifiable intangible assets at fair value (typically via multi-period excess earnings or a cost approach).
the expected discounted cash flow after successful completion × the probability of success.
| Phase | Probability of success |
|---|---|
| Phase 1 | ~10% |
| Phase 3 | ~50–70% |
| NDA filing | ~85% |
Deep diveShow more details
- Before 'completion': IPR&D is NOT amortized but is impairment-tested annually.
- After 'completion' (market launch): reclassified to 'developed technology'; amortized over the commercial life.
- On 'failure' (a phase-3 failure, loss of a patent): a full write-off as an impairment.
Bayer-Monsanto included IPR&D of ~$5bn (various Crop Science pipeline projects).
high IPR&D is an indicator of pipeline risk — for pharma or tech targets the DD workstream focuses on pipeline probabilities and competitive position.
'The target's PPA includes $200m of IPR&D representing 3 phase-2 pipeline assets — at a 60% probability of success and a 5-year time to market: PV = $80m; show an impairment sensitivity in the DD valuation output'.