Johnson and Johnson 2014 Annual Report Download - page 61

with any residual recorded to goodwill. Of this amount, approximately $1,913 million has been identified as the value of
IPR&D associated with the acquisitions of Covagen AG and Alios BioPharma, Inc. The value of the IPR&D was calculated
using cash flow projections discounted for the inherent risk in the projects.
The IPR&D related to the acquisition of Alios BioPharma, Inc. (Alios) of $1,688 million is associated with Alios’ lead
compound AL-8176, an orally administered antiviral therapy for treatment of infants with respiratory syncytial virus (RSV).
A probability of success factor of 60.0% was used to reflect inherent clinical and regulatory risk. The discount rate applied
was 11.4%. The IPR&D related to the acquisition of Covagen AG of $225 million is associated with Covagen’s lead
compound COVA-322, currently in Phase 1b study for psoriasis and holding potential as a treatment for a broad range of
inflammatory diseases including rheumatoid arthritis. A probability of success factor of 26% was used to reflect inherent
clinical and regulatory risk. The discount rate applied was 12.5%.
Certain businesses were acquired for $835 million in cash and $193 million of liabilities assumed during 2013. These
acquisitions were accounted for using the acquisition method and, accordingly, results of operations have been included
in the financial statements from their respective dates of acquisition.
The assumed liabilities primarily represent the fair value of the contingent consideration which may be payable related to
the acquisition of Aragon Pharmaceuticals, Inc. As per terms of the agreement, additional payments of up to $350 million
may be paid in the future based on reaching predetermined milestones.
The 2013 acquisitions included: Flexible Stenting Solutions, Inc., a leading developer of innovative flexible peripheral
arterial, venous and biliary stents; Shanghai Elsker Mother & Baby Co., Ltd, a baby care company in China and Aragon
Pharmaceuticals, Inc., a privately-held, pharmaceutical discovery and development company focused on drugs to treat
hormonally-driven cancers.
The excess of purchase price over the estimated fair value of tangible assets acquired amounted to $941 million and has
been assigned to identifiable intangible assets, with any residual recorded to goodwill. Of this amount, approximately $831
million has been identified as the value of IPR&D associated with the acquisitions of Aragon Pharmaceuticals, Inc. and
Flexible Stenting Solutions, Inc.
The IPR&D related to the acquisition of Aragon Pharmaceuticals, Inc. of $810 million is associated with Aragon’s
androgen receptor antagonist program for treatment of hormonally-driven cancers. The value of the IPR&D was calculated
using cash flow projections discounted for the inherent risk in such projects. Probability of success factors ranging from
37%-52.0% were used to reflect inherent clinical and regulatory risk. The discount rate applied was 15.5%. The IPR&D
related to the acquisition of Flexible Stenting Solutions, Inc. of $21 million is associated with the approval for peripheral
vascular indications, including the superficial femoral artery indication. A probability of success factor of 100% was used
and a discount rate ranging between 16.5%-17.5% was applied.
Certain businesses were acquired for $17,821 million in cash and stock and $1,204 million of liabilities assumed during
2012. These acquisitions were accounted for using the acquisition method and, accordingly, results of operations have
been included in the financial statements from their respective dates of acquisition.
The 2012 acquisitions included: Synthes, Inc., a global developer and manufacturer of orthopaedics devices; Guangzhou
Bioseal Biotech Co., Ltd., a developer of biologic combinations addressing moderate to severe hemostasis; Angiotech
Pharmaceuticals, Inc., intellectual property and know how related to the QuillTM Knotless Tissue-Closure Device;
CorImmun GmbH, a developer of a phase II treatment for CHF; Calibra Medical, Inc., a developer of a unique, wearable
three-day insulin patch for convenient and discreet mealtime dosing for people with diabetes who take multiple daily
injections of insulin; Spectrum Vision LLC, a full service distributor of contact lenses serving Russia with facilities in the
Ukraine and Kazakhstan; and marketing authorizations, trademarks, and patents extending ZYRTEC®related market rights
in Australia and Canada.
The excess of purchase price over the estimated fair value of tangible assets acquired amounted to $15,785 million and
has been assigned to identifiable intangible assets, with any residual recorded to goodwill. Of this amount, approximately
$208 million has been identified as the value of IPR&D associated with the acquisitions of CorImmun GmbH and Synthes,
Inc.
The IPR&D related to the acquisition of Synthes, Inc. of $63 million is associated with orthopaedic devices, and the IPR&D
associated with CorImmun of $145 million is related to a CHF treatment. These IPR&D values were calculated using the
cash flow projections discounted for the risk inherent in such projects. Synthes, Inc. had a probability of success factor of
100%, discounted using a 14% rate. CorImmun had a probability of success factor of 38%, discounted using a 25% rate.
During 2013, the Company recorded a charge of $0.2 billion for the impairment of the in-process research and
development associated with CorImmun.
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