{
  "docId": "019dd923-622c-750b-8b97-6463cf2ae738",
  "docSlug": "be088263ccbf",
  "documentTitle": "Chinook Therapeutics Inc (KDNY)",
  "authorId": "51_Muddy_Waters",
  "authorName": "Carson C. Block",
  "documentKindSlug": "research-note",
  "documentKindLabel": "Research note",
  "sourceTypeSlug": "short_seller",
  "sourceTypeLabel": "Short seller",
  "presentationDate": "2023-06-07 00:00:00",
  "orientation": "portrait",
  "aspectRatio": 0.77272725,
  "pageNumber": 9,
  "pageCount": 10,
  "prevPage": 8,
  "nextPage": 10,
  "slideType": "expose_contradiction",
  "function": "expose_contradiction",
  "density": "overcrowded",
  "nDataPoints": 12,
  "notes": "The slide uses a table to adjust reported revenue and then provides a qualitative argument citing FASB standards to challenge the company's accounting method.",
  "elementsJson": [
    "data_table",
    "paragraph",
    "footnote"
  ],
  "metadataConfidence": 1,
  "imagePath": null,
  "slideHref": "/slides/019dd923-622c-750b-8b97-6463cf2ae738/9",
  "deckHref": "/decks/019dd923-622c-750b-8b97-6463cf2ae738",
  "deckJsonHref": "/decks/019dd923-622c-750b-8b97-6463cf2ae738.json",
  "deckAnchorHref": "/decks/019dd923-622c-750b-8b97-6463cf2ae738#slide-9",
  "components": [
    {
      "bbox": null,
      "kind": "callout",
      "text": "Chinook, improperly in our view, avoids consolidating losses from SanReno by accounting for the JV as investment securities at fair value rather than using the equity method. We suspect that this is intentionally misleading.",
      "attrs": null,
      "subkind": null,
      "toolName": "Visual emphasis",
      "toolSlug": "visual-emphasis",
      "confidence": null,
      "componentId": "019dd953-2b61-7647-86f5-6d64d171960f",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.084,
        "w": 0.35,
        "x": 0.176,
        "y": 0.709
      },
      "kind": "list",
      "text": "a. Representation on the board of directors\nb. Participation in policy-making processes\nc. Material intra-entity transactions\nd. Interchange of managerial personnel\ne. Technological dependency",
      "attrs": null,
      "subkind": "bullet",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "9796ec1c-0e57-43af-a4b7-806f5b24990f",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": null,
      "kind": "metric",
      "text": "Collaboration and license revenue: 1,928",
      "attrs": null,
      "subkind": "primary",
      "toolName": "Quantification",
      "toolSlug": "quantification",
      "confidence": null,
      "componentId": "019dd953-2b61-7647-86f5-7386c0bec471",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.025,
        "w": 0.764,
        "x": 0.118,
        "y": 0.093
      },
      "kind": "paragraph",
      "text": "In the table below, we present the collaboration and license revenues adjusted to remove the problematically reported top line revenues.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "14dd1ada-a483-4e40-982f-89ff43864af5",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.076,
        "w": 0.764,
        "x": 0.118,
        "y": 0.493
      },
      "kind": "paragraph",
      "text": "Chinook uses the fair value method to book and indeed mischaracterize non-cash investment income and cost reimbursements as revenue while isolating itself from SanReno’s losses. Were Chinook to use the equity method, it would have recognized only 50% of the (non-cash) payment, which would simultaneously have been offset by a 50% share of SanReno’s losses. Instead, Chinook reported significant revenue with a 100% operating profit margin.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "223bcfe5-f4b3-489d-9d6b-54271e2857ba",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.042,
        "w": 0.764,
        "x": 0.118,
        "y": 0.431
      },
      "kind": "paragraph",
      "text": "Chinook, improperly in our view, avoids consolidating losses from SanReno by accounting for the JV as investment securities at fair value, rather than using the equity method. We suspect that this is intentionally misleading.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "29ae9289-2264-4060-abb7-f3961b9b95bc",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.042,
        "w": 0.764,
        "x": 0.118,
        "y": 0.651
      },
      "kind": "paragraph",
      "text": "FASB lays out the criteria for “significant influence” as follows: Ability to exercise significant influence over operating and financial policies of an investee may be indicated in several ways, including the following (emphasis added):",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "3d8fddd9-6ba5-4eb1-ac3f-abeeb5443d96",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.042,
        "w": 0.764,
        "x": 0.118,
        "y": 0.588
      },
      "kind": "paragraph",
      "text": "We believe that according to FASB standards and even those its auditor, PwC, Chinook’s relationship with SanReno meets the criteria for significant influence. It should therefore be reported according to equity method:",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "6e30c1b6-ceba-4277-846d-c1ea2c7b198f",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.042,
        "w": 0.764,
        "x": 0.118,
        "y": 0.334
      },
      "kind": "paragraph",
      "text": "In 2022, Chinook reported that it had resolved issues with material weaknesses in internal controls over financial reporting. Yet these instances of intentional – albeit clumsy – financial manipulation have not been restated.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "cc055e54-7d22-4447-b6ec-d6c22980bf2a",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.076,
        "w": 0.764,
        "x": 0.118,
        "y": 0.818
      },
      "kind": "source-note",
      "text": "53 Chinook 2022 10-K, pg. 38\n54 Chinook 2022 10-K pg. 112\n55 https://asc.fasb.org/323/showallinonepage/323-10-15-6, Significant Influence: 323-10-15-6\n56 https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/equity_method_of_accounting/Equity_method_account/chapter1/11_overview_of.html",
      "attrs": null,
      "subkind": null,
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "20f4b7d4-0a82-4a46-ad74-b8b811269593",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.156,
        "w": 0.764,
        "x": 0.118,
        "y": 0.143
      },
      "kind": "table",
      "text": "Chinook's Revenue 2020-2022: Reported vs Adjusted",
      "attrs": null,
      "subkind": "data",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "aff9fbee-f26f-4bcb-a2e2-171f3eb0fb93",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.025,
        "w": 0.764,
        "x": 0.118,
        "y": 0.397
      },
      "kind": "title",
      "text": "Reducing Losses through Improper Application of Fair Value Accounting for the SanReno JV",
      "attrs": null,
      "subkind": "headline",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "445bb258-97c1-48a5-8a12-978b71861ea9",
      "frameworkName": null,
      "frameworkSlug": null
    }
  ],
  "metrics": [],
  "tools": [],
  "frameworks": [
    {
      "name": "FASB Significant Influence Criteria",
      "slug": null,
      "matchId": "8b98fcef-7248-43f3-8338-643faa76214e",
      "evidence": "FASB lays out the criteria for “significant influence” as follows",
      "confidence": 1
    }
  ],
  "arcBeats": [
    {
      "to": 10,
      "from": 9,
      "beatId": "66573638-e0af-43ce-97c2-fc8164d379de",
      "arcName": "Overcoming the Monster",
      "arcSlug": "overcoming-monster",
      "beatName": "The Victory",
      "beatSlug": "overcoming-monster-the-victory",
      "evidence": "Chinook's Revenue 2020-2022: Reported vs Adjusted; Extent of ownership by an investor",
      "position": 2,
      "confidence": 0.8,
      "parentBeatName": "Turn",
      "parentBeatSlug": "turn"
    }
  ],
  "loops": [
    {
      "to": 9,
      "from": 2,
      "name": "The Reveal",
      "slug": "05-the-reveal",
      "bestFor": "Product launches, strategic pivots, unexpected findings",
      "matchId": "009545be-21ff-414e-af6c-ab96f9e3c507",
      "evidence": "Comparison of reported and adjusted revenue",
      "position": 0,
      "objective": "Reveal the true financial performance of Chinook Therapeutics",
      "structure": "Setup the Question -> Build Suspense -> The Big Reveal",
      "confidence": 0.7,
      "description": "Build mystery and anticipation, then deliver a surprising or powerful conclusion"
    },
    {
      "to": 10,
      "from": 2,
      "name": "Cost Of Inaction",
      "slug": "27-cost-of-inaction",
      "bestFor": "Urgent budget requests, compliance, risk mitigation",
      "matchId": "6849d576-3f2a-4af6-a2ad-5069a2d1b999",
      "evidence": "Implications for investors",
      "position": 1,
      "objective": "Highlight the risks of not addressing accounting practices",
      "structure": "The Status Quo -> The Hidden Costs Accumulating -> The Future State of Inaction -> The Tipping Point",
      "confidence": 0.6,
      "description": "Quantify what happens if the audience does nothing"
    }
  ],
  "imagePathAlt": null,
  "thumbSrc": null,
  "thumbSrcAlt": null,
  "locked": true
}