>>>swb173....I can't imagine that Vphm would pay 10.5 million in cash in 2005 to Lilly and spread the payments over 25 yrs for accounting purposes. That is a tax losing proposition that doesn't make sense. They do talk about adjusting the goodwill intangibles so maybe...... <<<<
On the other hand, they paid cash for the rights to Vancocin and are spreading that cost over 25 years so why not?
Initially, I had problems with the concept as well but if one looks at it in terms of a portion of the cost of purchase that does not become due until certain sales parameters are met, it makes more sense. VPHM has a ton of tax credits anyway so taxes are not a concern.
Honestly, I have more problems with the 25 year period that they are amortizing the cost of the product over. That seems like an awful l-o-n-g time, particularly in the fast changing world of medicine. But then again, some beady eyed auditors must have come up with this, so I'm going along with it. Also as I recall, even if they cut the life of Vancocin in half to 12.5 years it would not have a dramatic effect on current earnings.
Note- Just checked, Q1 diluted earnings would have been reduced from 36c to 34c if the cost of Vancocin was amortized over 12.5 years instead of 25 years. So not a big issue.
