Replies to post #107774 on Biotech Values

[DewDiligence]

Re: MNTA's tax assets

I assume that the deferred tax asset is just the carryforward losses adjusted by expected tax rate plus a few miscellaneous credits etc?

Right. The miscellaneous items are shown separately in the table on page 83 of the 10K report. The main line item in the table in the amount of $92M is 38.5% of the $239M of cumulative NOL’s (35% for the federal income tax and 3.5% for the Massachusetts income tax).

[zipjet]

Simple question - how many quarters of, say, $65M per quarter of operating income (before taxes) before they use up their tax assets?

In my model they are tax free through 2Q11 with some credit for 3Q.

[biomaven0]

Simple question - how many quarters of, say, $65M per quarter of operating income (before taxes) before they use up their tax assets?

It's actually not a simple question at all. Normally, when a biotech has its first approved product and decent sales for a few quarters, the company and auditors mutually agree that it is more likely than not that there will be enough income to use the balance of the DTA. At that point the previous allowance for the DTA is reversed and the company takes the whole amount into income for that quarter, and then applies a tax rate for subsequent quarters when reporting income.

In this particular situation, with the Teva overhang, I would guess that they will be more cautious about reversing the allowance. But I don't really know how they will decide. From a stock market perspective it's better to never reverse and continue to report untaxed income for as long as possible - the uninitiated don't realize there is no tax being paid, while in the other scenario the company never gets any credit for the one-time huge income jump upon reversal.

(This of course just effects the income statement not the movement of cash - the actual substantive Federal tax payments don't happen until the whole DTA is used up).

Peter