Amgen 2011 Annual Report Download - page 135

AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The aggregate acquisition date consideration to acquire BioVex consisted of (in millions):
Cash paid to former shareholders of BioVex ........................................ $407
Fair value of contingent consideration obligations .................................... 190
Total consideration .......................................................... $597
In connection with this acquisition, we are obligated to make additional payments to the former shareholders
of BioVex of up to $575 million contingent upon the achievement of various regulatory and sales milestones with
regard to talimogene laherparepvec, including the filing of a Biologics License Application with the U.S. Food
and Drug Administration (FDA); the first commercial sale in each of the United States and the European Union
(EU) following receipt of marketing approval, which includes use of the product in specified patient populations;
and upon achieving specified levels of sales. The estimated fair values of the contingent consideration obligations
aggregated $190 million as of the acquisition date and were determined using a combination of valuation
techniques. The contingent consideration obligations to make regulatory milestone payments were valued based
on assumptions regarding the probability of achieving the milestones and making the related payments, with such
amounts discounted to present value based on our credit risk. The contingent consideration obligations to make
sales milestone payments were valued based on assumptions regarding the probability of achieving specified
product sales thresholds to determine the required payments, with such amounts discounted to present value
based on our credit risk.
We allocated the total consideration to the acquisition date fair values of assets acquired and liabilities
assumed as follows (in millions):
Intangible assets — IPR&D ..................................................... $675
Goodwill ................................................................... 170
Deferred tax liabilities ......................................................... (246)
Other assets (liabilities) acquired, net ............................................. (2)
Total consideration .......................................................... $597
Intangible assets are composed of the estimated fair value of acquired IPR&D related to talimogene
laherparepvec. The estimated fair value was determined using a probability-weighted income approach, which
discounts expected future cash flows to present value. The estimated net cash flows were discounted to present
value using a discount rate of 11%, which is based on the estimated weighted-average cost of capital for
companies with characteristics similar to those of BioVex. This is comparable to the estimated internal rate of
return on BioVex operations and represents the rate that market participants would use to value the intangible
assets. The projected cash flows from talimogene laherparepvec were based on certain key assumptions,
including estimates of future revenue and expenses and taking into account the stage of development of
talimogene laherparepvec at the acquisition date, the time and resources needed to complete development and the
probabilities of obtaining marketing approval from the FDA and other regulatory agencies. IPR&D intangible
assets acquired in a business combination are considered to be indefinite-lived until the completion or
abandonment of the associated R&D efforts.
The estimated incremental R&D costs to be incurred to obtain necessary regulatory approvals for
talimogene laherparepvec are not material. The major risks and uncertainties associated with the timely and
successful completion of development and commercialization of this product candidate include our ability to
confirm its safety and efficacy based on data from clinical trials, our ability to obtain necessary regulatory
approvals and our ability to successfully complete these tasks within budgeted costs. We are not able to market a
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