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Post by hammer on Aug 16, 2014 14:37:40 GMT -5
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Also stated in the conference call was a brief insight into the cost structure of the product. The cost structure reimbursed will also include some prior items, in fact the bulk of cost associated with the production facilities at Danbury. Therefore over time MNKD will be reimbursed for 65% of all prior Afrezza related activities within the cost structure of Afrezza to SNY
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What makes it more interesting is Matt’s statement that MNKD would be made whole. You seem to contradict yourself in the first section I've quoted. Yes, costs associated with the production facilities at Danbury may indeed be included in costs of goods passed on to the joint venture. Perhaps even some costs that were previously considered expensed. However, Danbury costs leave out a bulk of Mannkind's R&D expenses over the years. Regarding the second, unless you care to point out where, I listened to both calls and do not recall Matt ever having made a statement regarding being "made whole". He stated early in setting the stage for announcing the details that the deal "recognizes" the value that both parties had built up and are bringing to the partnership. "Recognizing" is not the same as "reimbursing". As you point out Sanofi has agreed to close to a billion dollars in payments beyond the profit split. A billion dollars beyond the profit split is certainly recognizing something of value. As I've stated before I think that statement by Matt was really to tell Mannkind shareholders that despite the deal having profits split to advantage of Sanofi, this is in "recognition" of the fact that Sanofi is a powerhouse in diabetes space and is bringing that marketing/sales muscle to Afrezza... perhaps with 35% of profit with Sanofi being better than 50% split with a weaker partner. Why am I spending so much effort trying to disabuse people of this wishful thinking of "hidden" payments? Because the details are to become known in less than 3 months and I don't want another sell off when a bunch of shareholders wake up to reality. If you'd like to make a contrary case, I will certainly give it close consideration. However... please listen to the conference call and transcribe the actual statements from Mannkind. Right now you seem to be engaging in the game of telephone where statements get passed around and rephrased until they mean something entirely different than what was originally said. I will try to point out the relevant exchanges which occur in the JV Conference call. From the Mannkind site recording at about or just after the 28 minute mark, Matt has an exchange with Jason Butler and he explicitly answers the question about R&D being moved into the cost structure of Afrezza.
The exchange that Matt eludes to MNKD being made whole is at the suggestion from Josh Shimmer from Piper Jaffrey which starts at about the 33 minute mark. Listen to the complete exchange.
As for hidden payments, I am not suggesting any hidden payments other than what is explicitly stated in the agreement that has been presented to us. Admittedly, it is my theory based upon managements explanation that 65% percent of all Afrezza costs will be reimbursed by Sanofi as product and the milestone payments by coincidence equal to about the other 35%.
I hope this helps.
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Post by dreamboatcruise on Aug 16, 2014 15:31:54 GMT -5
I will try to point out the relevant exchanges which occur in the JV Conference call. From the Mannkind site recording at about or just after the 28 minute mark, Matt has an exchange with Jason Butler and he explicitly answers the question about R&D being moved into the cost structure of Afrezza.
The exchange that Matt eludes to MNKD being made whole is at the suggestion from Josh Shimmer from Piper Jaffrey which starts at about the 33 minute mark. Listen to the complete exchange.
As for hidden payments, I am not suggesting any hidden payments other than what is explicitly stated in the agreement that has been presented to us. Admittedly, it is my theory based upon managements explanation that 65% percent of all Afrezza costs will be reimbursed by Sanofi as product and the milestone payments by coincidence equal to about the other 35%.
I hope this helps.
These are indeed segments of the call I've listened to multiple times and yes it helps me to be more confident that I don't agree with your assessment if there is nothing more than those exchanges. In the first the analyst specifically asks about Accounting related to Danbury manufacturing facility. You have to keep the question in mind to evaluate the answer. Matt's response is that their financial statements will be changing dramatically and that things that in the past were R&D will be coming out of Expense. In accounting the Expense is on the income statement not the balance sheet. Expenses in regard to the topic at hand (future financial statement changes) mean future expenses. You can't take anything from Expense in the past. There was no hint that they could/would restate past financial statements... that isn't what he meant by changes in the financial statements. The question and the setup to the answer makes clear it is about their financial statements going forward. Further to support this is the discussion of what is not included where Matt's response contains no hint of past tense. He does NOT state that there WERE expenses that were not Afrezza related. Likewise at the 33 min mark the discussion is about costs and the repeated use of "WILL BE" is indicative of talking about future costs, not past. In summary - You seem to be ignoring the context that only Danbury is being discussed, which even if past expenses somehow are brought into COGS would not include vast amounts related to clinical trials. There is much to Mannkind not associated with Danbury. - You also seem to be ignoring the wording and context which strongly suggests this is based on expenses related to future financial statements not expenses on past financial statements. - You seem to be ignoring why a deal term that if you are correct has hundreds of millions of dollar consequence would be totally ignored in the initial presentation of the deal and only brought out reading between the lines of subsequent responses to questions. |
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Post by hammer on Aug 16, 2014 16:33:38 GMT -5
Once again accounting is not my specialty. However, there a few exemptions in which R&D cost can be capitalized. I will defer this to an accountant familiar with startup research biomedical companies such as MNKD is. It appears that MNKD may satisfy the exception in transitioning R&D from expensed to capital. I believe the R&D then become intangible assets.
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Post by hammer on Aug 16, 2014 16:36:24 GMT -5
As example: Research and Development Costs
Generally research and development costs under GAAP are expensed as incurred. However, if it can be shown that these costs have future alternate uses, then a company may capitalize the cost. In this case, the company would capitalize the cost as an asset and then depreciate the asset over the expected life. It is important to note that personnel, indirect and contract costs can never be capitalized, regardless of whether a future alternative use exists or not.
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Post by gwb on Aug 16, 2014 18:52:40 GMT -5
I will try to point out the relevant exchanges which occur in the JV Conference call. From the Mannkind site recording at about or just after the 28 minute mark, Matt has an exchange with Jason Butler and he explicitly answers the question about R&D being moved into the cost structure of Afrezza.
The exchange that Matt eludes to MNKD being made whole is at the suggestion from Josh Shimmer from Piper Jaffrey which starts at about the 33 minute mark. Listen to the complete exchange.
As for hidden payments, I am not suggesting any hidden payments other than what is explicitly stated in the agreement that has been presented to us. Admittedly, it is my theory based upon managements explanation that 65% percent of all Afrezza costs will be reimbursed by Sanofi as product and the milestone payments by coincidence equal to about the other 35%.
I hope this helps.
These are indeed segments of the call I've listened to multiple times and yes it helps me to be more confident that I don't agree with your assessment if there is nothing more than those exchanges. In the first the analyst specifically asks about Accounting related to Danbury manufacturing facility. You have to keep the question in mind to evaluate the answer. Matt's response is that their financial statements will be changing dramatically and that things that in the past were R&D will be coming out of Expense. In accounting the Expense is on the income statement not the balance sheet. Expenses in regard to the topic at hand (future financial statement changes) mean future expenses. You can't take anything from Expense in the past. There was no hint that they could/would restate past financial statements... that isn't what he meant by changes in the financial statements. The question and the setup to the answer makes clear it is about their financial statements going forward. Further to support this is the discussion of what is not included where Matt's response contains no hint of past tense. He does NOT state that there WERE expenses that were not Afrezza related. Likewise at the 33 min mark the discussion is about costs and the repeated use of "WILL BE" is indicative of talking about future costs, not past. In summary - You seem to be ignoring the context that only Danbury is being discussed, which even if past expenses somehow are brought into COGS would not include vast amounts related to clinical trials. There is much to Mannkind not associated with Danbury. - You also seem to be ignoring the wording and context which strongly suggests this is based on expenses related to future financial statements not expenses on past financial statements. - You seem to be ignoring why a deal term that if you are correct has hundreds of millions of dollar consequence would be totally ignored in the initial presentation of the deal and only brought out reading between the lines of subsequent responses to questions. There are many factors in R&D : again from the 10 Q. Tax Credits can play into (expense vs capitalization ), there are many variables : 5. State research and development credit exchange receivable
The State of Connecticut provides certain companies with the opportunity to exchange certain research and development income tax credit carryforwards for cash in exchange for forgoing the carryforward of the research and development income tax credits. The program provides for an exchange of research and development income tax credits for cash equal to 65% of the value of corporation tax credit available for exchange. There were no current estimated amounts receivable under the program at June 30, 2014 and December 31, 2013, respectively. Long-term estimated amounts receivable under the program were $463,000 and $298,000 at June 30, 2014 and December 31, 2013, respectively.
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Post by gwb on Aug 16, 2014 19:01:13 GMT -5
Hammer thank you for you posts , they are always thought full and thought provoking . Some of the other accounting stuff was discussed to a limited extent in the latest 10 Q . Matt , the auditors and Sanofi will have a number of possible calculations due to tax credits and expenses . I am not a specialist , but we may find out that to get the most value , a partnership may hold more total value with a buyout to follow .  |
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Post by beardawg on Aug 16, 2014 20:34:00 GMT -5
I will try to point out the relevant exchanges which occur in the JV Conference call. From the Mannkind site recording at about or just after the 28 minute mark, Matt has an exchange with Jason Butler and he explicitly answers the question about R&D being moved into the cost structure of Afrezza.
The exchange that Matt eludes to MNKD being made whole is at the suggestion from Josh Shimmer from Piper Jaffrey which starts at about the 33 minute mark. Listen to the complete exchange.
As for hidden payments, I am not suggesting any hidden payments other than what is explicitly stated in the agreement that has been presented to us. Admittedly, it is my theory based upon managements explanation that 65% percent of all Afrezza costs will be reimbursed by Sanofi as product and the milestone payments by coincidence equal to about the other 35%.
I hope this helps.
These are indeed segments of the call I've listened to multiple times and yes it helps me to be more confident that I don't agree with your assessment if there is nothing more than those exchanges. In the first the analyst specifically asks about Accounting related to Danbury manufacturing facility. You have to keep the question in mind to evaluate the answer. Matt's response is that their financial statements will be changing dramatically and that things that in the past were R&D will be coming out of Expense. In accounting the Expense is on the income statement not the balance sheet. Expenses in regard to the topic at hand (future financial statement changes) mean future expenses. You can't take anything from Expense in the past. There was no hint that they could/would restate past financial statements... that isn't what he meant by changes in the financial statements. The question and the setup to the answer makes clear it is about their financial statements going forward. Further to support this is the discussion of what is not included where Matt's response contains no hint of past tense. He does NOT state that there WERE expenses that were not Afrezza related. Likewise at the 33 min mark the discussion is about costs and the repeated use of "WILL BE" is indicative of talking about future costs, not past. In summary - You seem to be ignoring the context that only Danbury is being discussed, which even if past expenses somehow are brought into COGS would not include vast amounts related to clinical trials. There is much to Mannkind not associated with Danbury. - You also seem to be ignoring the wording and context which strongly suggests this is based on expenses related to future financial statements not expenses on past financial statements. - You seem to be ignoring why a deal term that if you are correct has hundreds of millions of dollar consequence would be totally ignored in the initial presentation of the deal and only brought out reading between the lines of subsequent responses to questions. Dream, Why does the "made whole" have to involve reversing the accounting done in the past? Couldn't Sanofi just make payments to MannKind based on the amounts they incurred in the past, with the reimbursements as just normal payments? It seems as if most objections to this lean on the idea that the past accounting would have to be changed retroactively. I'm not seeing why it does. It seems to me that (if true) it could be just a regular payment just like the milestone payments. |
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Post by dreamboatcruise on Aug 16, 2014 21:23:33 GMT -5
Dream, Why does the "made whole" have to involve reversing the accounting done in the past? Couldn't Sanofi just make payments to MannKind based on the amounts they incurred in the past, with the reimbursements as just normal payments? It seems as if most objections to this lean on the idea that the past accounting would have to be changed retroactively. I'm not seeing why it does. It seems to me that (if true) it could be just a regular payment just like the milestone payments. My comment about reversing accounting done in the past was in reference to Matt's statements about taking R&D Expense and moving it to the product... and it was within comments clearly about financial statements. That is not the segment where he used the phrase "made whole", but that comment was also in the context of a question as to whether all the PRODUCTION costs of Afrezza would be passed on to the joint venture. Everything in the segment as I pointed out used future tense about what would and wouldn't be included. It was not referring to past expenses. Sure Sanofi could agree to pay them anything. In fact they have agreed to pay nearly a billion in addition to the profit split. The argument against some extra huge amount of past expenses (some have said a billion) being thrown into Afrezza cost passed onto the joint venture is not arguing against "just normal payment"... we know what the normal payments are. The argument against making up things based on reading between the lines in the question and answer portion of the call for a huge new aspect of the deal that wasn't included when the deal terms were announced is that it appears that is wishful thinking. I've listened to the call many times now. You said "I'm not seeing why it does. It seems to me that (if true) it could be just a regular payment just like the milestone payments." They announced a billion dollars in payments. Why do you suppose they wouldn't have also stated any other "regular payment" that was part of the deal when the deal terms were first presented? |
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Post by beardawg on Aug 16, 2014 22:34:22 GMT -5
You said "I'm not seeing why it does. It seems to me that (if true) it could be just a regular payment just like the milestone payments." They announced a billion dollars in payments. Why do you suppose they wouldn't have also stated any other "regular payment" that was part of the deal when the deal terms were first presented? It is assumed that that's what they meant when they said something to the effect of "we will be reimbursed for all costs associated with production." If they are selling Afrezza at cost to Sanofi, wouldn't that cost include everything that went into making it, including research dollars (albeit it would be a small percentage per unit sold)? So, they wouldn't need to specify that separately as a regular payment since it was specified with the statement. I only used the term "regular payment" to distinguish between that and the reversal of accounting concept. |
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Post by babaoriley on Aug 17, 2014 0:10:10 GMT -5
Hammer, your original post above was a nice recap. One thing you wrote, "On top of this MNKD will receive 35% of the proceeds of sale of Afrezza," I think should be "35% of the profits from the sale of Afrezza."
Cruise makes some good points, too. There are still many, many twists and turns to this story, hopefully they will mostly be enjoyable.
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Post by dreamboatcruise on Aug 17, 2014 2:46:01 GMT -5
You said "I'm not seeing why it does. It seems to me that (if true) it could be just a regular payment just like the milestone payments." They announced a billion dollars in payments. Why do you suppose they wouldn't have also stated any other "regular payment" that was part of the deal when the deal terms were first presented? It is assumed that that's what they meant when they said something to the effect of "we will be reimbursed for all costs associated with production." If they are selling Afrezza at cost to Sanofi, wouldn't that cost include everything that went into making it, including research dollars (albeit it would be a small percentage per unit sold)? So, they wouldn't need to specify that separately as a regular payment since it was specified with the statement. I only used the term "regular payment" to distinguish between that and the reversal of accounting concept. In ordinary accounting, no that is never done. R&D is never then rolled into COGS in any ordinary type of accounting. Given that Mannkind has spent hundreds of millions, or possibly over a billion, related to Afrezza R&D, it would not be "a small percentage" unless of course it were factored in over a 20 year period. Of course that is another reason why this would have been discussed explicitly rather than slipped into the Q&A... if you think they are using some bizarre method of accounting past R&D as part of cost of production... over what period are you thinking that gets factored in. Is it counted fully as quickly as possible yielding no profit until its been burned off? Is it some "small percentage" for a very, very long time period. I suppose those of you that believe you can read this between the lines of the Q&A probably can discern those details... or do they not matter in this dream? Bear in mind... I am a long time shareholder in MNKD. I am NOT saying this is a bad investment. In fact I'm looking to buy more shares when I think we've stabilized. I just think it serves no good purpose to hang our hats on unfounded dreams rather than the reality of a game changing drug (Afrezza) and a technology (Technosphere) that will undoubtedly yield a sustained pipeline of significant value for shareholders. |
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Post by rak5555 on Aug 17, 2014 8:16:55 GMT -5
Question: What does the market hate more than bad news? Answer: Uncertainty.
I have to believe Matt and AL know this. Is it possible that MNKD is willing to endure the pain (i.e share price drop caused by uncertainty) of a 90 day quiet period in order to get to the ultimate goal line (a buyout or other M&A type deal)? The strongest argument against this scenario is whatever deal they do has to preserve MNKD's NOL carryforward (tax deductions from prior losses). As of now, the tax loss carryforward is in tact.
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Post by ezrasfund on Aug 17, 2014 9:46:03 GMT -5
"In ordinary accounting, no that is never done. R&D is never then rolled into COGS in any ordinary type of accounting."
A poster over at SA who is an accountant made the point that this is "Business 101" not "Accounting 101", and he gave the following example. Your company buys a car and after 7 years it has been fully depreciated and is listed with zero value on your books. When you go to trade it in and the dealer offers you $5000, do you say "You don't have to give me anything for it because its value on my books is $0" or "I won't accept $5000, it's worth at least $6000."? These are business questions not accounting questions.
Beyond that to the question of wishful thinking, it is hard to believe that there is a major component of the deal that is still so obscure, but I keep going back to this part of Matt's prepared opening remarks at the CC:
"There's also a retrospective aspect as well. It recognizes Sanofi for the substantial investment and involvement has made building a market-leading commercial infrastructure and also recognizes MannKind's investment in the product today [to date]."
This might say there is more to come, but while the parameters for valuing the contribution of Sanofi's marketing infrastructure and MannKind's investments to date have been determined, the actual numbers have not been finalized. In this regard, while it may seem that the $150 million upfront and milestone payments would cover MannKind's investments to date (and the high risk associated with them) the market agrees they are not generous. And it would be reasonable that if Sanofi charges costs for clinical trials and regulatory filings as shared expenses going forward, MannKind's similar past expenses should be shared.
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Post by alethea on Aug 17, 2014 12:19:59 GMT -5
Admittedly, it is my theory based upon managements explanation that 65% percent of all Afrezza costs will be reimbursed by Sanofi as product and the milestone payments by coincidence equal to about the other 35%.
I hope this helps.
These are indeed segments of the call I've listened to multiple times and yes it helps me to be more confident that I don't agree with your assessment if there is nothing more than those exchanges. In the first the analyst specifically asks about Accounting related to Danbury manufacturing facility. You have to keep the question in mind to evaluate the answer.
Matt's response is that their financial statements will be changing dramatically and that things that in the past were R&D will be coming out of Expense. In accounting the Expense is on the income statement not the balance sheet. Expenses in regard to the topic at hand (future financial statement changes) mean future expenses. You can't take anything from Expense in the past. There was no hint that they could/would restate past financial statements... that isn't what he meant by changes in the financial statements. The question and the setup to the answer makes clear it is about their financial statements going forward. Further to support this is the discussion of what is not included where Matt's response contains no hint of past tense. He does NOT state that there WERE expenses that were not Afrezza related. In summary - You also seem to be ignoring the wording and context which strongly suggests this is based on expenses related to future financial statements not expenses on past financial statements. - You seem to be ignoring why a deal term that if you are correct has hundreds of millions of dollar consequence would be totally ignored in the initial presentation of the deal and only brought out reading between the lines of subsequent responses to questions.Well stated Hammer. Thanks for the voice of reason. As said before it is nonsense to believe MNKD will be reimbursed for past costs incurred prior to the signing of the deal. And talk about materiality, disclosure and litigation potential. If MNKD were indeed to be so reimbursed, such reimbursement would be a huge amount of money. Much larger than the 150 million upfront payment. Retained earnings are about a negative 2.3 Billion. Assume about 1.5 B of this related to product development. If MNKD were reimbursed at 35%, well that would be more than one-half of a Billion dollars. And they are not disclosing this? Talk about the mother of all lawsuits! |
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Post by ezrasfund on Aug 17, 2014 12:57:47 GMT -5
"Assume about 1.5 B of this related to product development. If MNKD were reimbursed at 35%, well that would be more than one-half of a Billion dollars. And they are not disclosing this? Talk about the mother of all lawsuits!
But if that half a billion dollars is offset to some degree by "the substantial investment and involvement [Sanofi] has made building a market-leading commercial infrastructure," then the amount could easily be in the $100 million range, and subject to some wrangling about the final number.
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