Abbott Laboratories 2012 Annual Report Download - page 45

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Abbott 2012 Annual Report
At December 31, 2012, Abbott’s long-term debt rating was A+ by
Standard & Poor’s Corporation and A1 by Moody’s Investors Service.
In the third quarter 2012, Abbott replaced unused lines of credit of
$3.0 billion and $3.7 billion that were to expire in October 2012 and in
2013, respectively, with two five-year credit facilities totaling $7.0 billion
that support commercial paper borrowing arrangements. One of the
credit facilities totaling $2.0 billion will support AbbVie commercial paper
borrowings after separation and expired for Abbott at the separation of
AbbVie from Abbott on January 1, 2013. Abbott’s weighted-average
interest rate on short-term borrowings was 0.4% at December 31,
2012, 2011 and 2010.
Note 10 — Business Combinations, Technology Acquisitions
and Related Transactions
On September 8, 2010, Abbott acquired Piramal Healthcare Limited’s
Healthcare Solutions business, a leader in the Indian branded generics
market, for $2.2 billion, in cash, plus additional payments of $400 mil-
lion annually in 2011, 2012, 2013 and 2014. Abbott recorded a
$1.6 billion liability for the present value of the additional payments at
the acquisition date. The acquisition was financed with cash. The allo-
cation of the fair value of the acquisition resulted in the recording of
$2.7 billion of deductible acquired intangible assets and $1.0 billion
of deductible goodwill. Acquired intangible assets consist primarily of
trade names, customer relationships and associated rights and are
amortized over an average of 19 years.
In February 2010, Abbott acquired Solvay’s pharmaceuticals business
(Solvay Pharmaceuticals) for approximately $6.1 billion, in cash, plus
additional payments of up to EUR 100 million per year if certain sales
milestones are met in 2011, 2012 and 2013. Contingent consideration
of approximately $290 million was recorded. The acquisition of Solvay
Pharmaceuticals provided Abbott with a large and complementary
portfolio of pharmaceutical products and expands Abbott’s presence
in key global emerging markets. Abbott acquired control of this busi-
ness on February 15, 2010 and the financial results of the acquired
operations are included in these financial statements beginning on
that date. Net sales for the acquired operations for 2010 were approxi-
mately $3.1 billion. Pretax loss of the acquired operations, including
acquisition, integration and restructuring expenses, for 2010 was
approximately $395 million. The acquisition was funded with cash and
short-term investments. The allocation of the fair value of the acquisi-
tion resulted in the recording of $2.2 billion of non-deductible goodwill,
$4.1 billion of non-deductible intangible assets, $500 million of non-
deductible acquired in-process research and development assets, net
tangible assets of $700 million and deferred income taxes of $1.1 bil-
lion. Acquired intangible assets consist primarily of product rights for
currently marketed products and are amortized over 2 to 14 years
(average of 11 years). Acquired in-process research and development
projects are accounted for as indefinite lived intangible assets until reg-
ulatory approval or discontinuation. The net tangible assets acquired
consist primarily of trade accounts receivable of approximately $675 mil-
lion, inventory of approximately $390 million, property and equipment
of approximately $725 million, net of assumed liabilities, primarily trade
accounts payable, accrued compensation and other liabilities.
Had the acquisition of Solvay Pharmaceuticals taken place on
January 1, 2010, unaudited pro forma net sales, net earnings and
diluted earnings per share for 2010 would have been $35.8 billion,
$4.6 billion and $2.96, respectively. The pro forma information includes
adjustments for amortization of intangible assets and fair value adjust-
ments to acquisition-date inventory as well as acquisition, integration
and restructuring expenses. The pro forma financial information is not
necessarily indicative of the results of operations as they would have
been had the transaction been effected on the assumed date.
In March 2010, Abbott acquired STARLIMS Technologies for approxi-
mately $100 million, in cash, net of cash held by STARLIMS, providing
Abbott with leading products and expertise to build its position in
laboratory informatics. A substantial portion of the fair value of the
acquisition has been allocated to goodwill and amortizable intangible
assets. In April 2010, Abbott acquired the outstanding shares of Facet
Biotech Corporation for approximately $430 million, in cash, net of
cash held by Facet. The acquisition enhanced Abbott’s early- and
mid-stage pharmaceutical pipeline, including a biologic for multiple
sclerosis and compounds that complement Abbott’s oncology
program. A substantial portion of the fair value of the acquisition was
allocated to acquired in-process research and development that is
accounted for as an indefinite-lived intangible asset until regulatory
approval or discontinuation.
Except for the acquisition of Solvay Pharmaceuticals, had the above
acquisitions taken place on January 1 of the previous year, consoli-
dated net sales and income would not have been significantly different
from reported amounts.
Abbott’s Proprietary Pharmaceutical Products segment has entered into
various collaboration research and development agreements. In 2012,
Abbott acquired AP214, a drug under development for the prevention
of acute kidney injury associated with major cardiac surgery in patients
at increased risk, and as a result of this transaction, Abbott recorded a
charge to acquired in-process and collaborations research and develop-
ment of $110 million. In addition, in 2012, Abbott entered into a global
collaboration to develop and commercialize an oral, next-generation
JAK1 inhibitor in Phase II development with the potential to treat multiple
autoimmune diseases, and as a result of this transaction Abbott
recorded a charge to acquired in-process and collaborations research
and development of $150 million. Additional payments of approximately
$1.2 billion could be required for the achievement of certain develop-
ment, regulatory and commercial milestones under this agreement.
Under another collaboration, Abbott was granted the rights in 2012 to
utilize up to three antibody-drug conjugate compounds and Abbott
recorded a charge to acquired in-process and collaborations research
and development of $28 million. Additional payments of approximately
$220 million for each licensed compound could be required for the
achievement of certain development, regulatory and commercial mile-
stones under this agreement. In connection with the acquisition of
Solvay Pharmaceuticals, the achievement of a certain sales milestone
resulted in a payment of approximately $134 million in the first quarter
of 2012 for which a liability was previously established.
During 2010 and 2011, Abbott entered into a series of transactions
with Reata Pharmaceuticals which included (1) a collaboration agree-
ment for the joint development and commercialization of second
generation oral antioxidant inflammation modulators resulting in a charge
to acquired in-process and collaborations research and development of
$400 million in 2011, (2) an agreement to acquire licensing rights outside
the U.S., excluding certain Asian markets, to bardoxolone methyl, a
product in development for the treatment of chronic kidney disease
resulting in a charge to acquired in-process and collaborations research
Notes to Consolidated Financial Statements