Mannkind - Afrezza sales revenue recorgnition
Nov 20, 2017 15:06:10 GMT -5
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Post by compound26 on Nov 20, 2017 15:06:10 GMT -5
This is may be a little boring. So anyone who is not interested in accounting probably can skip this thread.
Note what Mannkind management stated in the last CC:
seekingalpha.com/article/4122005-mannkinds-mnkd-ceo-michael-castagna-q3-2017-results-earnings-call-transcript?part=single
I thought it would be prudent to spend a little bit of time describing our revenue recognition model as it is different from most other pharma companies at this time. We are on a sell through model which means that we recognize revenue for most of ourselves when the patient buys Afrezza from a pharmacy not when we ship to wholesalers. Before the patient buys Afrezza there is a right of return that exists for the wholesale and retail channels. Once the patient gets a prescription filled, the right of return ceases to exist. Current GAAP says that if we can't reliably estimate expected returns at the time shipment we must defer revenue until such time as that rate ceases to exist. So if you're following along the slide, MannKind sells Afrezza to wholesalers who sell on to retailers before dispensing to patients. Revenue is deferred until patient buys Afrezza. We recognize revenue based on simply prescription data which is an estimate of prescriptions filled in the marketplace. We enhance this data by trying to understand how much Afrezza is sitting in the wholesale and retail channels which is what should be deferred. Please note that we don't have complete visibility into the retail channel at this time.
In addition there are other factors which impact the revenue recognized for shipments to the wholesale and retail channels such as price increases and vouchers for free product. Once we determine the gross revenue to recognize and defer, we adjust the revenue and deferred revenue for our gross to net which represents fees, discounts, and rebates such as wholesaler fees, patient co-pays, and managed care and government rebates. So as you can see this is extremely complicated and subject to estimates and showed us what estimates and actual don't match. I hope that we have laid this out in sufficient detail for you to understand our revenue recognition model that will be used through quarter four of 2017.
How the New Revenue Recognition Guidelines Will Affect Life Sciences Companies
by Scott Ehrlich, Founder and Managing Director, Mind the GAAP, and Trevor Gillespie, Partner, Life Sciences Practice
7/2014
www.mossadams.com/articles/2014/july/new-revenue-recognition-rules-for-life-sciences
www.mossadams.com/getmedia/a69e39f0-34d4-41ca-a09d-ea4def21e460/17-TEC-1427-TIF-Life-Sciences-Rebrand_RGB
After years of debate the Financial Accounting Standards Board (FASB) has issued final new guidelines on revenue recognition. The rules, which total 700 pages and represent a fundamentally new model for recognizing revenue, become effective in 2017 for public companies and the following year for nonpublic entities.
The new revenue rules may effectively eliminate the sell-through method. This may concern some life sciences companies that currently prefer this approach.
These companies might be able to continue recognizing revenue in this manner by changing the nature of their business arrangements with customers. For example, they could seek to amend customer contracts to make them more akin to a consignment arrangement. In most consignment arrangements, control over a product isn’t transferred to the customer until it’s sold through to the end user. Therefore, revenue wouldn’t be recognized until the “second sale” occurs, similar to the accounting outcome under today’s sell-through model.
Also read the following for an in-depth discussion of sell-through vs sell-to by KPMG:
home.kpmg.com/content/dam/kpmg/pdf/2016/05/IFRS-practice-issues-revenue.pdf
Note what Mannkind management stated in the last CC:
seekingalpha.com/article/4122005-mannkinds-mnkd-ceo-michael-castagna-q3-2017-results-earnings-call-transcript?part=single
I thought it would be prudent to spend a little bit of time describing our revenue recognition model as it is different from most other pharma companies at this time. We are on a sell through model which means that we recognize revenue for most of ourselves when the patient buys Afrezza from a pharmacy not when we ship to wholesalers. Before the patient buys Afrezza there is a right of return that exists for the wholesale and retail channels. Once the patient gets a prescription filled, the right of return ceases to exist. Current GAAP says that if we can't reliably estimate expected returns at the time shipment we must defer revenue until such time as that rate ceases to exist. So if you're following along the slide, MannKind sells Afrezza to wholesalers who sell on to retailers before dispensing to patients. Revenue is deferred until patient buys Afrezza. We recognize revenue based on simply prescription data which is an estimate of prescriptions filled in the marketplace. We enhance this data by trying to understand how much Afrezza is sitting in the wholesale and retail channels which is what should be deferred. Please note that we don't have complete visibility into the retail channel at this time.
In addition there are other factors which impact the revenue recognized for shipments to the wholesale and retail channels such as price increases and vouchers for free product. Once we determine the gross revenue to recognize and defer, we adjust the revenue and deferred revenue for our gross to net which represents fees, discounts, and rebates such as wholesaler fees, patient co-pays, and managed care and government rebates. So as you can see this is extremely complicated and subject to estimates and showed us what estimates and actual don't match. I hope that we have laid this out in sufficient detail for you to understand our revenue recognition model that will be used through quarter four of 2017.
How the New Revenue Recognition Guidelines Will Affect Life Sciences Companies
by Scott Ehrlich, Founder and Managing Director, Mind the GAAP, and Trevor Gillespie, Partner, Life Sciences Practice
7/2014
www.mossadams.com/articles/2014/july/new-revenue-recognition-rules-for-life-sciences
www.mossadams.com/getmedia/a69e39f0-34d4-41ca-a09d-ea4def21e460/17-TEC-1427-TIF-Life-Sciences-Rebrand_RGB
After years of debate the Financial Accounting Standards Board (FASB) has issued final new guidelines on revenue recognition. The rules, which total 700 pages and represent a fundamentally new model for recognizing revenue, become effective in 2017 for public companies and the following year for nonpublic entities.
The new revenue rules may effectively eliminate the sell-through method. This may concern some life sciences companies that currently prefer this approach.
These companies might be able to continue recognizing revenue in this manner by changing the nature of their business arrangements with customers. For example, they could seek to amend customer contracts to make them more akin to a consignment arrangement. In most consignment arrangements, control over a product isn’t transferred to the customer until it’s sold through to the end user. Therefore, revenue wouldn’t be recognized until the “second sale” occurs, similar to the accounting outcome under today’s sell-through model.
Also read the following for an in-depth discussion of sell-through vs sell-to by KPMG:
home.kpmg.com/content/dam/kpmg/pdf/2016/05/IFRS-practice-issues-revenue.pdf
