Johnson and Johnson 2005 Annual Report Download - page 58

PAGE 56 JOHNSON & JOHNSON 2005 ANNUAL REPORT
redirect his or her investment. In 1990, to establish the ESOP,
the Company loaned $100 million to the ESOP Trust to purchase
shares of the Company stock on the open market. In exchange,
the Company received a note, the balance of which was
recorded as a reduction of shareholders’ equity. The remaining
shares held by the ESOP trust were allocated to participant
accounts by the end of February 2005. From March 2005, and
going forward, all company match will be made in cash and will
follow the individual employee’s investment elections.
Total Company contributions to the plans were $148 million
in 2005, $143 million in 2004 and $128 million in 2003.
17. MERGERS, ACQUISITIONS AND DIVESTITURES
Certain businesses were acquired for $987 million in cash and
$141 million of liabilities assumed during 2005. These acquisi-
tions were accounted for by the purchase method and, accord-
ingly, results of operations have been included in the financial
statements from their respective dates of acquisition.
The 2005 acquisitions included: TransForm Pharmaceuticals,
Inc., a company specializing in the discovery of superior formula-
tions and novel crystalline forms of drug molecules; Closure Med-
ical Corporation, a company with expertise and intellectual
property in the biosurgicals market; Peninsula Pharmaceuticals,
Inc., a biopharmaceutical company focused on developing and
commercializing antibiotics to treat life-threatening infections;
and rights to all consumer and professionally dispensed
REMBRANDT®Brand of oral care products, such as whitening
toothpastes, strips, systems and mouth rinses.
The excess of purchase price over the estimated fair value of
tangible assets acquired amounted to $720 million and has been
assigned to identifiable intangible assets, with any residual
recorded to goodwill. Approximately $362 million has been
identified as the value of in-process research and development
(IPR&D) primarily associated with the acquisitions of TransForm
Pharmaceuticals, Inc., Closure Medical Corporation and Penin-
sula Pharmaceuticals, Inc.
The IPR&D charge related to the acquisition of TransForm
Pharmaceuticals, Inc. was $50 million and is associated with
research related to the discovery and application of superior
formulations. The value of the IPR&D was calculated using
cash flow projections discounted for the risk inherent in such
projects. The discount rate applied was 10%.
The IPR&D charge related to the acquisition of Closure
Medical Corporation was $51 million and is associated with the
OMNEX™ Surgical Sealant in vascular indications outside
Europe and in other potential indications worldwide. The value
of the IPR&D was calculated using cash flow projections dis-
counted for the risk inherent in such projects. A probability of
success factor of 90% for vascular indications and 60% for all
other indications was used to reflect inherent clinical and regu-
latory risk. The discount rate applied to both vascular and
other indications was 15%.
The IPR&D charge related to the acquisition of Peninsula
Pharmaceuticals, Inc. was $252 million and is associated with
the development of doripenem, which is in Phase III clinical
trials. The value of the IPR&D was calculated using cash flow
projections discounted for the risk inherent in such projects.
A probability of success factor of 80% was used to reflect
inherent clinical and regulatory risk and the discount rate
applied was 14%.
The remaining $9 million in IPR&D was associated with
the acquisition of international commercial rights to certain
patents and know-how in the field of sedation and analgesia
from Scott Lab, Inc. The value of the IPR&D was calculated
using cash flow projections discounted for the risk inherent in
such projects. The discount rate was 17%.
Certain businesses were acquired for $455 million in cash
and $15 million of liabilities assumed during 2004. These
acquisitions were accounted for by the purchase method and,
accordingly, results of operations have been included in the
financial statements from their respective dates of acquisition.
In addition, per the terms of the 2003 acquisition agreement
with the Link Spine Group, Inc., $125 million in cash was paid
to the owners of the Link Spine Group, Inc. in 2004 based on
the date the U.S. Food and Drug Administration (FDA)
approved the CHARITÉ™ Artificial Disc. Thus, the 2004 total
cash expenditures related to acquisitions were $580 million.
The 2004 acquisitions included: Merck’s 50% interest in the
Johnson & Johnson-Merck Consumer Pharmaceuticals Co.
European non-prescription pharmaceutical joint venture
including all of the infrastructure and brand assets managed by
the European joint venture; Egea Biosciences, Inc. through the
exercise of the option to acquire the remaining outstanding
stock not owned by Johnson & Johnson, which has developed a
proprietary technology platform called Gene Writer, that allows
for the rapid and highly accurate synthesis of DNA sequences,
gene assembly, and construction of large synthetic gene
libraries; Artemis Medical, Inc., a privately held company with
ultrasound and x-ray visible biopsy site breast markers as well
as hybrid markers; U.S. commercial rights to certain patents
and know-how in the field of sedation and analgesia from Scott
Lab, Inc.; Biapharm SAS, a privately held French producer and
marketer of skin care products centered around the leading
brand BIAFINE®; the assets of Micomed, a privately owned
manufacturer of spinal implants primarily focused on supply-
ing the German market; and the acquisition of the AMBI®skin
care brand for women of color.
The excess of purchase price over the estimated fair value
of tangible assets acquired amounted to $425 million and has
been assigned to identifiable intangible assets, with any residual
recorded to goodwill. The $125 million related to the U.S. FDA
approval of the CHARITÉ™ Artificial Disc was recorded as addi-
tional goodwill associated with the 2003 Link Spine Group, Inc.
acquisition. Thus, total additions to intangibles and goodwill in
2004 were $550 million. Approximately $18 million has been
identified as the value of IPR&D associated with the Scott Lab,
Inc. acquisition. The value of the IPR&D was calculated using
cash flow projections discounted for the risk inherent in such
projects. The discount rate was 25%.
Certain businesses were acquired for $2.8 billion in cash
and $323 million of liabilities assumed during 2003. These
acquisitions were accounted for by the purchase method and,
accordingly, results of operations have been included in the
financial statements from their respective dates of acquisition.
The 2003 acquisitions included: Link Spine Group, Inc., a
privately owned corporation with exclusive worldwide rights