Re: VNDA liability balance sheet entries
Below is what the 10Q says about the large entry on the liability side ("deferred revenue"). Here is a short version, hopefully accurate. They got $200m for license of Fanapt in US and Canada for life of patent. Now they are amortizing it, meaning that every year they reduce the liability and show corresponding income. Cash flow wise it is neutral. If it was Enron accounting they would just have shown it all as profit when received.
They still have possible royalty sale to Europe and Asia for Fanapt.
there is also an entry for deferred rent. I suppose that means that their lease has a low rent rate at the beginning and higher later, but that for accounting purposes they consider rent ratable, and so build up this entry. This does indicate there will be higher cash expense in the future.
Everyone has different perceptions of risk and value. I bought a small position in the company, but my recommendation, unlike the tout sheets sold at racetracks, has no warranty.
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Revenue Recognition
The Company’s revenues are derived primarily from the amended and restated sublicense agreement with Novartis and include an up-front payment, product sales and future milestone and royalty payments. Revenue is considered both realizable and earned when each one of the following four conditions is met: (1) persuasive evidence of an arrangement exists, (2) the arrangement fee is fixed or determinable, (3) delivery or performance has occurred and (4) collectability is reasonably assured. Pursuant to the amended and restated sublicense agreement, Novartis has the right to commercialize and develop Fanapt tm in the U.S. and Canada. Under the amended and restated sublicense agreement, the Company received an upfront payment of $200.0 million in December of 2009. Pursuant to the amended and restated sublicense agreement, the Company and Novartis established a Joint Steering Committee (JSC) following the effective date of the amended and restated sublicense agreement. The Company expects to have an active role on the JSC and concluded that the JSC constitutes a deliverable under the amended and restated sublicense agreement and that revenue related to the upfront payment will be recognized ratably over the term of the JSC; however, the delivery or performance has no term as the exact length of the JSC is undefined. As a result, the Company deems the performance period of the JSC to be the life of the U.S. patent of Fanapt tm , which the Company expects to last until May 15, 2017. This includes the Hatch-Waxman extension that provides patent protection for drug compounds for a period of up to five years to compensate for time spent in development and a six-month pediatric term extension. This term is the Company’s best estimate of the life of the patent. Revenue will be recognized ratably from the date the amended and restated sublicense agreement became effective (November 27, 2009) through the expected life of the U.S. patent for Fanapt tm (May 15, 2017). Revenue related to product sales is recognized upon delivery to Novartis. The Company recognizes revenue from Fanapt tm royalties and commercial and development milestones from Novartis when realizable and earned. |
