Sorry, I know this questions was asked to Fortuno.

Sorry, I know this questions was asked to Fortuno. I am an accountant, but haven't worked on the public side in years and by no means am I an inventory expert (but have a knowledgeable accounting background). I have a close friend (that has a position in CYDY also) and is a CPA. He used to work for Merck, so I'll ask him if he knew how they accounted for inventory along the trial and approval statuses. He was primarily in the state tax field for them, but I imagine he stills knows.

To try and explain the difference based on my understanding is that their is no inventory value assigned to the product until it qualifies for the pre-launch inventory status at BLA filing and thus is not an asset. This is because it has no value unless approved. The same theory applies if/once capitalized whether that be as pre-launch inventory or normal inventory post approval. Say some of it expires or another drug is approved and it no longer has the same value.....during these periodic reassessments they would determine the new value and adjust as necessary. While inventory values can go up, it would be a result of increased quantity inventory or replacement inventory with a higher cost basis....given status quo inventory quantity and costs, these periodic reassessments should only be able to result in same value or a write down if expired or something that causes the fair market value to become lower than the cost basis. Inventory value does not go up because leronlimab is approved (unless not already capitalized). I would agree that the patent value will likely increase upon approval, but inventory is a tangible thing that the asset basis is determined by the LOWER of the cost or fair market value. The increased value of approved inventory will be accounted for when they sell it as then it becomes revenue.....as cash or receivable....you can see this by the high profit margin in biotechs.....high drug prices - low cost basis = high profits. It is not worthless after BLA as that is the trigger point (as long as it meets the reasonable guidance expectation for approval...safety, efficacy) where it obtains value.

This differs from normal business inventory as typical raw materials have a value right away. It is not waiting on multiple phases of trials over years in hopes of getting FDA approval. Say for example a company buys computer parts to build computers. Each part has a value upon receipt of good and thus recorded as an asset (same basis determined by the lower of cost or fair market value). They can also write these inventories down....say a computer part they had excess stock of becomes obsolete...during one of their periodic reassessments that this was determined, they would write down to the lower of either the fair market value or cost basis...in this case likely fair market value would likely be lower than cost as it would only be salvage value at best. Similarly if a biotech capitalizes its pre-launch inventory and then the drug is not approved, they write this down to fair market value...which would likely be zero. If they write down the basis due to maybe looking less likely of approval or some inventory expired (worth zero) then the rule states these later cannot be increased....once lowered that becomes the new basis.

Fortuno and I agree to disagree and like he said, hopefully it doesn't matter anyway. I do think it could come into play, but hopefully isn't a 'must have' asset. I hope this help clarify somewhat the differences between biotech and normal industry inventory basis.

Please do your own due diligence. All my posts and comments are not to be considered investment advice.