Replies to post #84341 on Biotech Values

[DewDiligence]

Re: Solvay accounting quiz

By which you mean, the most important consequences of the acquisition is that ABT no longer has to pay the substantial royalties to Solvay it was paying.

Right.

However, I am not clear on why that does not generate an equal boost to financial accounting income, because I would have guessed that the avoided payment of the royalties was a expense deductible in computing ABT's earnings.

ABT is creating an intangible asset representing the royalty stream formerly paid to Solvay on the fenofibrate (TriCor/TriLipix) franchise. The boost in ABT’s cash flow from not having to pay these royalties will be exactly offset in each reporting period by a GAAP amortization charge against the newly created intangible asset, resulting in no net change to GAAP income relative to the pre-acquisition period.