Conversations with Matt about Expensing

[otherottawaguy]

Sorry for posting this as "Obamayoumama" was the original author and a few of us believe this should be a posted on its own.

"I spoke to Matt yesterday. He clarified the sell at cost issue. They will be able to include all the cost associated with the plant and equipment into the " cost" of the product. He also reminded me that besides the frozen insulin they have quite a bit of insulin from the Orgegon contract that they were previously contracted to buy. That cost of insulin, even thou expensed will be part of the cost. They will not be including any cost to develop the product. Still the plant and equipment is north of a quarter billion dollars, I memory serves me. One thing that stood out was that Sanofi wanted them to secure their insulin contract before they would sign, because even with all the insulin previously purchased, Sanofi wanted to make sure they had enough product. I bought another 3,200 shares today"

Read more: mnkd.proboards.com/thread/1187/pfeffers-royalty-rate-comparison?page=2#ixzz3B8pnxVrI

Credit on this one goes out again to Obamayoumama.

[dreamboatcruise]

I've been one of the biggest critics of the notion that all past Afrezza development costs were to be rolled into the production cost passed on to the join venture. It appears that they currently have $183.5M in property plant and equipment listed on their balance sheet. So questions would be 1) what portion of that is Danbury and 2) is there potentially some previously expensed Danbury cost (other than the insulin stock) that would be factored in as well. While not believing development money for Afrezza would be included, I could believe that if there were some Danbury items that were expensed that often in manufacturing are not expensed, these might have been agreed as items that would be factored into cost. There is no reason why different accounting couldn't be used for the financial arrangements of the JV vs company's SEC filings... i.e. if previously expensed items were included it would simply show up in future earnings as profit on Afrezza product sale to Sanofi despite the notional idea that the product is sold at cost. I believe the response from Matt clears up that non-Danbury Afrezza development costs, such as the huge dollars spent on clinical trials, is not in the costs passed on to Sanofi.

[hammer]

Dreamboat,

If we receive 250 million built in to COGS sold to SNY at cost as well as the aforementioned milestone payments, then do we get full benefit of the accumulated loss to offset future profits or is accumulated loss somehow reduced?

I just re-read and see that you did answer my question.

[papihoyos]

Well I guess I'm wrong. I thought for sure that MNKD's cost to develop Afrezza (not technophere)and SNY costs to get into the deal (milestone payment) would be amortize into the product sold. Do we know how the milestone payments will be treated? As a cost of the venture or SNY costs?

[papihoyos]

BTW if the plant is included in the product costs, I would imagine they would included the gross costs, not the amortized costs, so some of the previously depreciation and amortization expense could be recoup in the product costs.

[notamnkdmillionaire]

All of this doesn't matter as I just read that Sierra Worldwide now believes that Sanofi will just buy Mannkind out all together! WOO HOO!!!

[kc]

Has Sierra ever been right on any prediction?

[dreamboatcruise]

Aug 22, 2014 14:03:07 GMT -5 hammer said:

Dreamboat,

If we receive 250 million built in to COGS sold to SNY at cost as well as the aforementioned milestone payments, then do we get full benefit of the accumulated loss to offset future profits or is accumulated loss somehow reduced?

I just re-read and see that you did answer my question.

To more directly address that.  I don't see why that would change past accounting for tax purposes.  In my business, I expense certain equipment when purchased.  If for instance we then sell the equipment when we have no more use for it, we don't go back and adjust our previous tax filings... we simply recognize the revenue as new revenue and if the asset had been expensed then that revenue would flow down to the bottom line as profit that year and we'd pay tax.  There are rules with the IRS about what can initially be expensed and there is no problem if you later find somebody willing to pay you something for it... either directly to purchase the thing or other compensation such as built into cost of a product you sell them.

At least that is my understanding.  Caveat... this lizard has no formal training in accounting or taxation, as is often the case with lizards.

[dreamboatcruise]

Aug 22, 2014 14:49:49 GMT -5 papihoyos said:

BTW if the plant is included in the product costs, I would imagine they would included the gross costs, not the amortized costs, so some of the previously depreciation and amortization expense could be recoup in the product costs.

I would think that a reasonable assumption, assuming the intent of the deal between the companies is to include all the costs of production that would be incurred if they started from scratch today and set up a joint venture manufacturing company.

[dreamboatcruise]

Aug 22, 2014 14:47:52 GMT -5 papihoyos said:

Well I guess I'm wrong. I thought for sure that MNKD's cost to develop Afrezza (not technophere)and SNY costs to get into the deal (milestone payment) would be amortize into the product sold. Do we know how the milestone payments will be treated? As a cost of the venture or SNY costs?

That would seem very strange to me if the milestone payments were consider part of the costs.  The clause about sharing costs would logically cover things in the future which are unknown quantities.  There would be no reason to include known items in that unless purposely trying to confuse people about the deal... which would have no purpose I can see.

[notamnkdmillionaire]

Aug 22, 2014 15:13:16 GMT -5 kc said:

Has Sierra ever been right on any prediction?

The website has never been right. But then again, nor has anyone on the yahoo message board.