AFT Pharmaceuticals (NZX.AFT, ASX.AFP) announces it expects to book a one-off non-cash gain of $9.8 million following its previously-announced acquisition of full control of its Pascomer assets.
AFT’s forecast of underlying operating profits before this accounting change is $9m to $12m for the year to 31 March 2020. However, the one-off gain now lifts that forecast to between $18.8m and $21.8m.
As part of a series of agreements announced on 5 July 2019 this year, AFT acquired the outstanding 50% share in its DSLP partnership, which was set up for the development of Pascomer, a topical treatment for Facial Angiofibromas in Tuberous Sclerosis.
Prior to this acquisition AFT accounted for its 50% stake in DSLP using the principles of equity accounting and the asset was held as an investment in AFT’s balance sheet at a valuation of $2.7 million.
The acquisition now requires AFT to account for DSLP using the principles of NZ IFRS 3 Business Combinations, which requires AFT to account for the business combination using the acquisition method.
Under this accounting principle, the Pascomer IP assets are now required to be carried at fair value. AFT has recently received an independent valuation report which it has used in conjunction with its own analysis of fair value and other publicly available valuations.
As a result, it has assessed the fair value of DSLP at $12.5m, all of which is now carried on the AFT balance sheet.