Friday, March 14, 2014

A Tiny Little GAAP Primer: When A $44 Billion A Year Public Company Ends Up Owning 3% Of A Tiny Company. . .

Well. . . . that, under GAAP, is a divestiture -- from the perspective of Mother Merck.

Overnight, the folks at The Motley Fool (Todd Campbell, at the keyboard) are offering the story that Merck. . . owns a big chunk of Alnylam.

I do understand, from Alnylam's point of view, it is quite beneficial to say Merck is an equity holding believer in RNAi. However, as we made clear in January 2014 -- Merck actually exited this line of research, with the deal. So take this with a grain of salt:
. . . .In exchange for those assets, Merck got $25 million in cash and a more substantial 2.5 million share stake in Alnylam, amounting to a 3% ownership position.

It's unclear whether Merck will sell the shares or hang on to them. Roche received a 10% equity stake in Arrowhead in their deal, but based on SEC filings appears to have worked out of the stake in 2012.

If Merck does hold onto those shares, it will join Sanofi as a deep-pocketed big pharma partner in Alnylam. . . .

My observation would be that Merck isn't very likely to immediately sell the shares (as they are a mere rounding error to Merck) -- but that doesn't make it a "partner" in any real sense -- at 3 per cent equity stake, either. Watch next -- for a similar GlycoFi deal. Word.

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