Pre-launch inventory

Launching a new medicine requires months of manufacturing before the first prescription: active ingredient, finished product, packaging for each market. Waiting for approval before starting would delay patients' access and lose valuable patent life. But making product before approval means carrying a risk that the regulator says no. This guide covers when pre-launch inventory is capitalised, what happens on rejection or delay, shelf life, launch with expensed stock and disclosure.

By Hamza Fida, Chartered Accountant. Reviewed by Mirza Fahad Baig, Chartered Accountant. 3 minute read.

Short answer

Pre-launch inventory is product a drug company manufactures before regulatory approval so that it can launch as soon as approval arrives. IAS 2 does not stop it being capitalised, and most companies capitalise it once approval is probable, typically after positive pivotal trial results and acceptance of the filing, with no significant concerns raised by the regulator. Before that point, manufacturing costs are research and development expense. If approval is delayed or refused, the inventory is written down to net realisable value, often nil, also considering shelf life. Product expensed earlier is not reinstated on approval, so early launch sales can carry little or no cost. In this guide's example, US$ 20 million of capitalised launch stock is fully written off when the regulator rejects the drug, while 8 million made earlier was already expensed.

At a glance

Before approval is probable
R&D expense
Once approval is probable
Capitalise under IAS 2
Typical point
Positive pivotal data, filing accepted
Approval refused
Write down, often to nil
Delay
Watch shelf life
Previously expensed stock
Not reinstated
Pre-launch inventoryBefore approval is probable: R&D expense; Once approval is probable: Capitalise under IAS 2; Typical point: Positive pivotal data, filing accepted; Approval refused: Write down, often to nil; Delay: Watch shelf life; Previously expensed stock: Not reinstated.KEY FACTS AT A GLANCEPre-launch inventoryBefore approval is probableR&D expenseOnce approval is probableCapitalise under IAS 2Typical pointPositive pivotal data,filing acceptedApproval refusedWrite down, often to nilDelayWatch shelf lifePreviously expensed stockNot reinstatedTax BakersPre-launch inventoryBefore approval is probable: R&D expense; Once approval is probable: Capitalise under IAS 2; Typical point: Positive pivotal data, filing accepted; Approval refused: Write down, often to nil; Delay: Watch shelf life; Previously expensed stock: Not reinstated.KEY FACTS AT A GLANCEPre-launch inventoryBefore approval is probableR&D expenseOnce approval is probableCapitalise under IAS 2Typical pointPositive pivotal data, filing acceptedApproval refusedWrite down, often to nilDelayWatch shelf lifePreviously expensed stockNot reinstatedTax Bakers
Key facts at a glance, as set out in this guide.

When is pre-launch inventory capitalised?

Inventory is an asset when the company controls it and expects to sell it in the ordinary course of business. For a medicine not yet approved, that expectation depends on approval. Companies therefore set a policy: costs are capitalised as inventory once regulatory approval and commercial launch are probable, judged on evidence such as successful pivotal trials, a filing accepted for review, the regulator's feedback, the approval record for similar products and any manufacturing inspection outcomes. Before that point, costs of producing material are research and development, including material used in trials. See IAS 2 inventories.

Pre-launch inventory: approved or rejected

A company makes US$ 8 million of product while its Phase III trial is still running, then 20 million more after positive results, once the regulator accepts its filing and it judges approval probable. The product has a shelf life of 24 months.

Pre-launch inventory under two outcomesPre-launch inventory under two outcomesTOPICApprovedRejectedMade during the trialExpensedExpensedMade after approval probableInventoryWritten downLaunch gross marginFlattered earlyNot applicableShelf life riskWatch expiryNot applicable
Capitalising launch stock carries the risk of a write-down.
US$ millionDrug approvedDrug rejected
Product made during the trial8 expensed as R&D, not reinstated8 expensed as R&D
Product made after approval became probable20 inventory, to cost of sales when sold20 written down to net realisable value
Cost of early launch salesLow for the expensed stockNot applicable

If the drug is approved, the expensed product is sold at little or no cost, which flatters gross margins in the first months after launch; companies disclose this so that margins are not misread. If the regulator rejects the drug, the 20 million is written down, usually to nil unless the product can be used in further trials or sold elsewhere.

What if approval is delayed?

A delay, such as a request for more data, does not by itself mean write-down, but the company reassesses whether approval is still probable and whether the inventory will be sold before it expires. Product that will pass its expiry date before it can be sold is written down. Active ingredient often has a longer shelf life than finished product, so companies sometimes hold stock in that form to manage the risk.

How is net realisable value assessed before launch?

By estimating the expected selling price, net of rebates and other deductions, less costs to complete and sell, with the probability and timing of approval considered in deciding whether the inventory will be sold at all. Where the expected launch price is uncertain, companies use the pricing assumptions in their launch plans and test them for reasonableness. See net realisable value.

What about new indications and new markets?

Inventory of an approved drug that is being built up for a new indication or a new market is already saleable in its approved use, so it is normally inventory. The risk is that it expires before demand materialises, which is assessed through net realisable value and shelf life.

What should be disclosed?

The policy for capitalising pre-launch inventory, the amount held at the reporting date and the products it relates to, the judgements behind the probability of approval, and any material write-downs. Investors watch these amounts closely around regulatory decisions. See pharma accounting and when pharma capitalises R&D.

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Questions people ask

Can pharma companies capitalise inventory before regulatory approval?

Yes, under IAS 2, once approval is probable, typically after positive pivotal results and acceptance of the filing.

What happens to pre-launch inventory if the drug is rejected?

It is written down to net realisable value, which is often nil.

Is product expensed before approval reinstated as inventory when approved?

No. It stays expensed, so early launch sales of that stock carry little or no cost.

How does shelf life affect pre-launch inventory?

Product expected to expire before it can be sold is written down, so delays increase the risk.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IAS 2 Inventories

Rules and fees change. If you are reading this long after October 8, 2026, confirm the figures with the source before you rely on them.

PharmaPharma accounting: the key IFRS issuesIAS 2IAS 2 inventories explainedIAS 2Net realisable value and inventory write-downs

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