Why should biotech operators care about equipment depreciation? Because it quietly influences everything from tax strategy to runway modeling.
In this post, we’ll break down what depreciation really means in a biotech context—and why it’s more strategic than it seems.
The Overlooked Cost Hiding in Plain Sight
If you’re running a biotech startup, you’re probably thinking about runway, headcount, and clinical timelines—maybe all before lunch. But one line item that rarely gets much airtime outside of board meetings or tax season? Depreciation.
That’s a miss.
Depreciation isn’t just a checkbox on your accountant’s to-do list. It plays directly into how you model burn, plan for infrastructure upgrades, and tell your financial story to investors. Whether you’re ramping up in-house R&D, outfitting a new lab, or managing capex across multiple programs, understanding how your fixed assets lose value over time helps you optimize how cash flows—and when.
In biotech, the stakes are high and the margins for error are tight. Capital equipment often represents a major chunk of early spend, and once those purchases hit your balance sheet, they don’t just sit there. They shape your financials for years to come—through depreciation schedules, income statement impacts, and the ripple effects on valuation and future decision-making.
This isn’t about becoming a CPA. It’s about giving yourself a sharper lens on how asset-heavy decisions affect your financial health. And in a field where every dollar of non-dilutive runway counts, that lens can make all the difference.
What Counts as Depreciable—and Why It Matters
Not everything you spend money on in biotech can be depreciated. That’s an important distinction—and one that has real consequences for how you plan, budget, and justify infrastructure costs over time.
So, what qualifies?
In short: tangible assets with a useful life longer than one year. Think centrifuges, biosafety cabinets, chromatography systems, -80°C freezers, and the HVAC upgrades you made to keep everything running. These are depreciable assets—capitalized on your balance sheet and expensed gradually through a depreciation schedule.
On the other hand, intangible assets and operational expenses aren’t depreciated (though some may be amortized). That includes your licensing deals, IP filings, outsourced sequencing, consultant fees, and—yes—most of your R&D payroll.
Understanding this distinction matters because it shapes your financial reporting and tax posture. Capitalizing a $250,000 mass spectrometer means spreading its cost over its useful life, rather than taking a one-time hit. That’s good for smoothing your financial statements, but it also affects how much you can deduct and when.
In practice, this means every time you invest in infrastructure—whether you’re building out a lab from scratch or upgrading for a new program—you’ll want to know which pieces of the project are depreciable, and how to structure them accordingly. That can influence:
- How your CFO models spend vs. burn
- Whether a purchase qualifies for tax credits
- How asset-heavy your balance sheet looks to investors
- What you can reclaim if a program pivots or is paused
In a capital-intensive sector like biotech, these details are rarely just accounting trivia. They’re part of the strategic blueprint that determines how long your runway stretches—and how flexible your operations can be along the way.
Useful Life, Wear and Tear, & the Cost of R&D Infrastructure
In biotech, lab equipment doesn’t just sit on a spreadsheet—it gets used, often aggressively. And that usage has real implications for how long the asset retains value on your books.
Useful life is the accounting estimate of how many years a piece of equipment will provide value before it's considered obsolete or no longer functional. It’s not just about mechanical failure—it also accounts for scientific obsolescence, evolving workflows, and regulatory changes that render older instruments less viable.
For example:
- A -80°C freezer might have a useful life of 10 years.
- A qPCR machine might be depreciated over 5 years.
- A high-throughput sequencer might technically last 8 years, but if new platforms make it functionally outdated after 4, your accounting should reflect that reality.
These timeframes matter because they directly affect your depreciation schedule and the salvage value you assign. Misjudging useful life can distort your financial statements—either by inflating short-term profitability or misrepresenting your asset value in later years.
And while depreciation is meant to capture the economic cost of wear and tear, real-world usage varies wildly in biotech. A startup running round-the-clock assays on a single instrument will burn through its useful life faster than a clinical-stage company with sporadic need for the same tool. It’s essential to calibrate your estimates to actual usage, not generic tables.
What this means for you:
- When planning a new lab buildout, think in lifecycles—not just sticker prices.
- Don’t assume your accountant or controller is making “conservative” estimates automatically.
- If your equipment is likely to be upgraded or repurposed sooner than expected, account for that upfront.
The more realistic you are about how long each piece of equipment will stay relevant and productive, the better you can manage depreciation—and align it with your company’s broader R&D and financing timelines.
Depreciation Methods: What They Mean for Cash Flow
Once you’ve identified a depreciable asset and estimated its useful life, the next question is: how do you actually depreciate it?
This is where the method matters—and in biotech, the choice can affect everything from your cash flow visibility to how much taxable income you report in early years.
The two most common approaches:
- Straight-line depreciation: The asset’s value is expensed evenly over its useful life. Simple, predictable, and widely used for financial reporting.
- Accelerated depreciation: Front-loads the expense into the early years of the asset’s life. Methods like double declining balance or Section 179 bonus depreciation fall into this category and are often favored for their short-term tax advantages.
Let’s say you buy a $200,000 liquid handler with a five-year useful life and no salvage value:
- With straight-line, you’d record $40,000 in depreciation expense each year.
- With double declining balance, you might expense $80,000 the first year, $48,000 the second, and so on—reflecting a steeper curve.
Why does this matter?
- Early-stage biotech companies—especially those pre-revenue or operating on grant funding—might benefit from accelerated depreciation methods to maximize tax deductions sooner, even if cash isn't yet flowing in.
- Later-stage companies preparing for IPO or major financing events may prefer the optics of smoother, more stable financial statements via straight-line depreciation.
- If you’re leasing equipment, these dynamics can shift again, depending on whether your lease is classified as an operating lease or a finance lease (more on that later).
Choosing the right method isn’t just a compliance decision—it’s a strategic one. Depreciation method affects your income statement, taxable income, and even your eligibility for R&D tax credits. It can also impact how your runway looks to outside investors who are modeling capital efficiency and long-term viability.
The bottom line? Don’t treat depreciation method selection as boilerplate. For biotech operators, it’s one of the few levers you can legally and strategically pull to shape how expenses hit your books—and when.
How Depreciation Flows Through the Financials
Depreciation may be a non-cash expense, but it leaves very real fingerprints on your financial statements. Understanding where it shows up—and how it affects the way your business is perceived—can help you navigate fundraising, financial planning, and internal reporting with more clarity.
Income statement—reducing taxable income
On your income statement, depreciation appears as an operating expense. It reduces your earnings before tax and, by extension, your taxable income. That’s a win for cash conservation, especially if you’re generating revenue or expect to soon.
For pre-revenue biotech startups, this may feel irrelevant. But down the line—when you're booking milestone payments, service revenue, or commercial sales—depreciation can meaningfully lower your tax liability and help preserve cash. Even before then, it affects how you calculate and report EBITDA—a key metric in VC due diligence and pharma M&A.
Balance Sheet—reducing asset value over time
On the balance sheet, depreciation steadily reduces the book value of your fixed assets. This matters because it changes how your company’s overall value is presented. Accumulated depreciation offsets the original capitalized value of an asset, offering a snapshot of where you are in the lifecycle of your lab infrastructure.
It also affects how your liabilities and equity balance out, and informs financial ratios that investors, lenders, and acquirers may track—like return on assets or asset turnover. If you’ve ever heard a CFO refer to “cleaning up the balance sheet,” depreciation is often part of that process.
Financial Health—signals for operators and investors
For operators, depreciation helps model maintenance cycles, capex forecasts, and equipment replacement timing. For investors, it provides a window into how capital-intensive your model is—and how effectively you’re managing those assets.
This is especially relevant in biotech, where infrastructure investments can be lumpy. A company with $4M of lab equipment and a depreciation schedule that ramps down in three years may look very different than one capitalizing $500K of equipment every quarter. It’s not just optics—it’s operational strategy expressed in accounting terms.
Buying vs. Leasing Through the Lens of Depreciation
Depreciation doesn’t just apply after the purchase—it can influence the purchasing decision itself. For biotech startups managing finite capital and uncertain timelines, the choice between buying and leasing lab equipment often hinges on how depreciation affects budgeting, burn, and long-term flexibility.
Buying: own the asset, manage the depreciation
When you purchase equipment outright, you capitalize the full purchase price on your balance sheet. That means you can depreciate the asset over its useful life, claiming depreciation expense each year to reduce taxable income (once you're generating revenue). It also gives you full control over the asset’s resale, repurposing, or write-off if plans change.
But here’s the catch: capital purchases are upfront expenses. They hit your cash reserves immediately and tie you to the full lifecycle of the asset, whether it ends up being the right tool for the long haul or not.
If that same instrument becomes obsolete in three years instead of five? You’re still carrying the cost on your books. You may be able to accelerate depreciation, but that won’t recover the lost flexibility—or liquidity.
Leasing: Lower upfront cost but no depreciation benefit
With a lease, the dynamic flips. You don’t own the asset, so you can’t depreciate it—but you also don’t have to tie up capital or make assumptions about long-term use. Instead, you classify payments as operating expenses, spreading cost across the lease period without adding fixed assets to your books (assuming it's a true operating lease under ASC 842).
This can be a powerful lever for early-stage biotechs, particularly those optimizing for:
- Runway preservation
- Minimal asset entanglement
- Faster upgrade cycles
However, leasing also means giving up the depreciation-related tax advantages that come with ownership—unless your lessor passes some of those savings through in the form of lower monthly payments.
Depreciation should be a part of the conversation
The key is not just asking “Can we afford it?” but “How does this fit into our depreciation and capex strategy?”
If your company is preparing for a financing round or major valuation event, a well-managed asset base—reflected in a clean depreciation schedule—can strengthen your financial story. If you're still in discovery or rapidly iterating workflows, leasing may keep your infrastructure light and your depreciation math simple.
Either way, depreciation should be part of the budgeting conversation, not an afterthought. It informs how you invest, how you report, and how agile your operations can stay in a capital-constrained environment.
Where the Lines Blur: R&D Capitalization & Amortization
For biotech startups, few categories are as financially significant—or as misunderstood—as research and development. It’s the heartbeat of the business, yet its accounting treatment isn’t always intuitive—especially when you start comparing depreciation and amortization.
Here’s the crux: capital equipment used for R&D is typically depreciated. But R&D expenses themselves—your experiments, salaries, CRO fees, clinical trial costs—are usually expensed as incurred, not capitalized. That means they hit your income statement immediately, with no amortization or depreciation unless very specific criteria are met.
But what if you're building long-term value?
There are cases where R&D costs can be capitalized—particularly in the pharmaceutical industry, where regulatory frameworks and development stages are clearly defined. If your company internally develops intellectual property, software, or manufacturing processes that have a clearly identifiable future benefit, you might be able to capitalize those development costs and amortize them over time.
The bar, however, is high.
Accounting standards (under both GAAP and IFRS) generally prohibit capitalization of early-stage research costs. Only when technical feasibility is established—often post-proof-of-concept—does capitalization become an option. And even then, the rules vary across regions and sectors.
Why does this matter?
- It affects how R&D-heavy your income statement looks—especially if you’re trying to benchmark operational efficiency or compare cost structures.
- It creates challenges in modeling ROI on programs where infrastructure investments and scientific development are tightly intertwined.
- It can confuse investors or board members unfamiliar with how amortization of intangible assets (like software or patents) differs from depreciation of tangible assets (like lab equipment).
For operators and finance leads, it’s important to maintain a clear internal distinction: what’s being depreciated (hardware), what’s being amortized (intangible value), and what’s being fully expensed (ongoing R&D). Clarity here helps ensure your financial statements, tax returns, and investor updates reflect the true picture—and that you’re not leaving value on the table.
If you’re working with external accountants or controllers, don’t assume they’ll know how to bucket complex biotech workflows by default. Capitalization decisions should be driven by both accounting standards and operational insight into how your programs are evolving.
Depreciation in the Era of Rapid Obsolescence
In biotech, technology doesn’t age gracefully—it ages fast. Equipment that once set the gold standard for throughput or precision can become outdated in just a few product cycles. That reality isn’t just a challenge for your scientists. It has financial implications, too—especially when it comes to how you model depreciation.
Useful life is getting shorter—even if the hardware still works
Let’s say you purchase a next-gen sequencing system with an expected useful life of 7 years. On paper, you’ll depreciate that cost gradually. But what happens if two years in, a new model arrives that cuts run time in half and integrates directly with your LIMS? The old system may still function—but strategically, it’s obsolete.
This kind of functional obsolescence is accelerating across categories:
- Imaging platforms with AI-enhanced analysis pipelines
- Automated liquid handlers that cut down sample prep time
- Mass specs with cloud-native control software
- qPCR systems that integrate real-time remote access and diagnostics
As product innovation cycles speed up, depreciation schedules need to reflect economic reality, not just manufacturer specs. Otherwise, your books may overstate the value of assets that are no longer competitive—or understate the cost of staying current.
The upgrade trap
Here’s where it gets tricky. A company that purchases equipment and depreciates it over a long timeline may find itself locked in, justifying sunk costs instead of upgrading when it makes scientific sense. On the other hand, overly aggressive depreciation can distort your financials, lowering reported profitability and confusing stakeholders.
To navigate this, biotech operators and finance teams should:
- Reassess depreciation schedules regularly based on market and scientific trends
- Align useful life assumptions with actual replacement cycles, not accounting boilerplate
- Evaluate leasing when flexibility is more valuable than ownership or tax benefit
Obsolescence doesn’t just affect what’s in your lab—it affects how quickly you can adapt. And in a space where speed to insight or speed to IND can define success, depreciation models should support agility, not constrain it.
Depreciation is a Planning Tool, Not a Footnote
In biotech, it’s easy to view depreciation as something your accountant deals with at year-end—or as a tax line item that only matters once you're generating revenue. But if you’re treating it as an afterthought, you're missing one of the few levers you do have in a capital-intensive business model.
Depreciation is more than compliance—it’s a planning tool. It helps you understand how long your equipment will stay relevant, when you'll need to upgrade, how to pace your capital allocation, and what your financial story looks like over time. It connects what’s happening at the bench with what’s being reported to investors, lenders, and internal decision-makers.
When you model your infrastructure strategy, consider these questions:
- Are your depreciation schedules aligned with how long your team actually uses equipment?
- Does your choice between leasing and buying reflect how depreciation affects your burn and balance sheet?
- Are you using accelerated depreciation or Section 179 to optimize your tax position in high-spend years?
- Do your financial statements reflect asset turnover in a way that builds confidence with partners and investors?
Whether you're building your first lab or managing multiple programs across geographies, understanding depreciation gives you a clearer view of your runway, flexibility, and long-term capital strategy.
It’s not just about writing things off—it’s about writing your next chapter with better foresight.