The physical/electronic transfer of cash from NVS to MNTA to cover MNTA’s share of 3Q10 Lovenox profits occurs during 4Q10; however, as zipjet mentioned in his reply about accrual accounting, NVS books this amount as a 3Q10 item. It shows up on the Cost of goods sold line on NVS’ income statement and the Accounts payable line on NVS’ balance sheet. Similarly, MNTA books the amount as Collaboration revenue on its 3Q10 income statement and as Accounts receivable (but not as cash) on its 3Q10 balance sheet.
The reason you are seeing such a high operating margin for Lovenox (using your admittedly crude method involving lots of moving parts) is twofold:
1. Lovenox is a highly profitable product; NVS is on record that it has the highest operating margin of any product in the Sandoz division.
2. NVS’ operating margin on Lovenox is artificially high during the temporary period in which NVS is entitled to recoup its Lovenox development costs. I’m pretty sure NVS’ true operating margin on Lovenox is at least 60%, but it’s the temporary recouping of NVS’ development costs that causes your method to yield a number as high as 80%+.
Regards, Dew
“The efficient-market hypothesis may be the foremost piece of B.S. ever promulgated in any area of human knowledge!”
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.