Johnson and Johnson 2006 Annual Report Download - page 70

68 JOHNSON & JOHNSON 2006 ANNUAL REPORT
The value of the IPR&D was calculated using cash flow projec-
tions discounted for the risk inherent in such projects. A proba-
bility of success factor of 95% was used to reflect inherent
regulatory risk and the discount rate applied was 11%.
The Company is in the process of completing the analysis of
integration plans, pursuant to which the Company will incur costs
primarily related to the elimination of certain duplicate selling,
general and administrative functions between the two companies
in areas such as global business services, corporate staff and
go-to-market support, as well as excess manufacturing capacity.
In addition to the acquisition of the Consumer Healthcare
business of Pfizer Inc., 2006 acquisitions included: Animas Cor-
poration, a leading maker of insulin infusion pumps and related
products; Hand Innovations LLC, a privately held manufacturer of
fracture fixation products for the upper extremities; Future Med-
ical Systems S.A., a privately held company that primarily devel-
ops, manufactures and markets arthroscopic fluid management
systems; Vascular Control Systems, Inc., a privately held com-
pany focused on developing medical devices to treat fibroids and
to control bleeding in obstetric and gynecologic applications;
Groupe Vendôme S.A., a privately held French marketer of adult
and baby skin care products; ColBar Lifescience Ltd., a privately
held company specializing in reconstructive medicine and tissue
engineering and Ensure Medical, Inc., a privately held company
that develops devices for post-catheterization closure of the
femoral artery.
Excluding the acquisition of the Consumer Healthcare busi-
ness of Pfizer Inc., the excess of purchase price over the esti-
mated fair value of tangible assets acquired amounted to $1,209
million and has been assigned to identifiable intangible assets,
with any residual recorded to goodwill. Approximately $239 mil-
lion has been identified as the value of IPR&D primarily associ-
ated with the acquisitions of Hand Innovations LLC, Future
Medical Systems S.A., Vascular Control Systems, Inc., ColBar
Lifescience Ltd. and Ensure Medical, Inc.
The IPR&D charge related to the acquisition of Hand Inno-
vations LLC was $22 million and is associated with fracture
repair technologies. 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 ranging from 38-95%
was used to reflect inherent clinical and regulatory risk and the
discount rate applied was 17%.
The IPR&D charge related to the acquisition of Future Med-
ical Systems S.A. was $15 million and is associated with the
NEXTRA and DUO PUMP product technologies. 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 90% for both technologies was used to reflect inherent clinical
and regulatory risk and the discount rate applied was 22%.
The IPR&D charge related to the acquisition of Vascular
Control Systems, Inc. was $87 million and is associated with the
FLOSTAT system technology. The value of the IPR&D was calcu-
lated using cash flow projections discounted for the risk inherent
in such projects. A probability of success factor of 75% was used
to reflect inherent clinical and regulatory risk and the discount
rate applied was 21%.
The IPR&D charge related to the acquisition of ColBar
Lifescience Ltd. was $49 million and is associated with the
EVOLENCE family of products, which are biodegradable dermal
fillers. 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 ranging from 70-80% was used to
reflect inherent clinical and regulatory risk and the discount rate
applied was 21%.
The IPR&D charge related to the acquisition of Ensure
Medical, Inc. was $66 million and is associated with the femoral
artery closure device. 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 75% was used to
reflect inherent clinical and regulatory risk and the discount rate
applied was 22%.
Certain businesses were acquired for $987 million in cash
and $141 million of liabilities assumed during 2005. These acqui-
sitions 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 acquisitions.
The 2005 acquisitions included: TransForm Pharmaceuti-
cals, Inc., a company specializing in the discovery of superior for-
mulations and novel crystalline forms of drug molecules; Closure
Medical 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 REM-
BRANDT®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 IPR&D primarily associated with the
acquisitions of TransForm Pharmaceuticals, Inc., Closure Medical
Corporation and Peninsula 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 for-
mulations. 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 regula-
tory 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.
Aprobability 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