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To complete the case analysis successfully, you must identify the role you are playing; assess the financial reporting landscape, considering the user needs, constraints, and
To complete the case analysis successfully, you must identify the role you are playing; assess the financial reporting landscape, considering the user needs, constraints, and business environment; identify the issues; analyze the issues qualitatively and quantitatively; and provide a recommendation and conclusion
Mandrake Pharmaceutical Ltd
Mandrake Pharmaceutical LtdMPL is a biotech company that is involved in research and commercialization of products to treat a variety of human diseases and to boost human health. The company issued an IPO in the current year, and is traded on the Toronto Stock Exchange under the ticker MPL The company also has bonds issued in the public market, which are currently yielding
Given the recent market volatility and global economic conditions, the share price of MPL has been under significant pressure. During its first year on the TSX MPLs stock price has performed as follows:
The stock price peaked at around $ per share but has steadily declined since the company announced secondquarter earnings that missed analysts expectations. Thirdquarter earnings met analysts expectations; however, this did not prove to be a catalyst for share price appreciation.
Shareholders were upset with the weak IPO issuing and are again becoming restless with the slumping share price. Shareholders are looking for management to generate shareholder wealth and there have been rumblings that a shareholder activist group is looking to change top management at the upcoming annual meeting. The low share price has also led to speculation that MPL will be taken over by a larger biotech company through a hostile bid.
The CFO is now preparing the annual financial statements for the year ended December and considering the following transactions during the most recent quarter:
MPL recently attracted two new researchers to the company. The researchers were paid an upfront signing bonus of $ each. The researchers come from a larger company and have a proven track record of developing profitable products. For example, the researchers recently developed in their previous employment a highly profitable testing procedure that detects early stages of prostate cancer. The procedure is estimated to generate in excess of $ million in discounted cash flows. The researchers must work for MPL for a minimum of three years, or else the bonus must be repaid.
MPL purchased a patented pharmaceutical drug for $ million from a smaller company that does not have the resources to commercialize the product. The product treats kidney disease and is named BlockXs. Generally, drug patents last for years. However, the patent was applied for three years ago when clinical trials began.
The product has been recently approved by both Health Canada and the US Food and Drug Administration FDA and will be available to the market next year. BlockXs is expected to earn the following net cash flows:
Fiscal $
Fiscal $
Fiscal $
Fiscal $
Fiscal $
Fiscal $
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Fiscal $
During the most recent quarter, MPL had a breakthrough in its research and development of a new protein supplement called Protein Protein successfully merges the benefits of whey and casein proteins in an ultra absorptive formula. The following costs were incurred on the project during the past quarter:
ProteinCosts Incurred
Costs incurred in order to obtain government approvals and patents: $
Purchase of equipment to be used to manufacture the protein supplement:
Materials and services consumed in development of formula:
Payroll and consulting expenses incurred in the design of a logo and packaging:
Marketing of the product in fitness magazines:
Cost of efforts to refine, improve, and enhance the formula:
Materials used in preproduction pilot testing:
$Management is excited to launch this product as the protein supplement industry is large, and growing. Both Health Canada and the US FDA have approved the product, and a patent for the formula has been filed and approved. Protien is expected to generate net cash flows of $ per year over the next five years.
MPL purchased a nontransferable right to distribute its products through a directtodoctor sales company. The company visits doctors and hospitals and directly promotes the benefits of the products in order to sell the product. MPL paid $ million to acquire the distribution rights for a fouryear period, and must pay a royalty of of all products sold through this outlet.
Management expects that there is a chance that this new distribution arrangement will increase total sales by Total revenue in the current fiscal year is $ However, there is a probability that sales could increase by as much as and a probability that sales
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