mattkid - i expect that you are right that there are some...

mattkid - i expect that you are right that there are some economies of scale in production - but also in sales and marketing.

However, at this stage my mindset is more focused on the question of building downside scenarios rather than upside ones.

That is the case as I want to be really sure that ACL is trading south of fair value before i am prepared to once again build a personally significant position in the stock.

and if you were to focus on downside scenarios, i think the diseconomies of scale that would be associated with relatively low market share need to be considered. For example - DRR is presumably devoting a certain number of sales reps to selling Fonda. There cost will be pretty much the same whether or not DRR achieves 40% market share or 20%.

Therefore, I think that a downside scenario has to assume:

- lower than expected ultimate market share (possibly 20 - 25% is about right for a downside case)

- deeper than previously expected price cuts (50% is floating around - but I would be very pleased if this proves to be misinformed)

- higher than expected recharges from DRR for production and sales and marketing for two reasons: 1) because costs will truly be higher if marketshare is lower, and 2) because there was always risk around this figure in any event. I say this because we have always relied on Pete Smith's ESTIMATE of what he believes ACL's share of revenue would be - but this depends ultimately, to some degree, on the way in which DRR interprets its contractual limitations around what internal corporate costs are charged against the Fonda product before determining the profitability of the product, and therefore the $$$ to be paid to ACL. I doubt anyone on this board can have full confidence around how watertight the contractual drafting is.