Johnson and Johnson 2008 Annual Report Download - page 63

The IPR&D charge related to the acquisition of SurgRx, Inc. was
$7 million and is associated with vessel cutting and sealing surgical
devices. The value of the IPR&D was calculated using cash flow pro-
jections discounted for the risk inherent in such projects. Probability
of success factors ranging from 90 – 95% were used to reflect inher-
ent clinical and regulatory risk. The discount rate applied was 18%.
The IPR&D charge related to the acquisition of HealthMedia,
Inc. was $7 million and is associated primarily with process
enhancements to software technology. 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%
was used to reflect inherent risk. The discount rate applied was 14%.
Certain businesses were acquired for $1,388 million in cash and
$232 million of liabilities assumed during 2007. 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 2007 acquisitions included: Conor Medsystems, Inc., a
cardiovascular device company, with new drug delivery technology;
Robert Reid, Inc., a Japanese orthopedic product distributor; and
Maya’s Mom, Inc., a social media company.
The excess of purchase price over the estimated fair value
of tangible assets acquired amounted to $636 million and has
been assigned to identifiable intangible assets, with any residual
recorded to goodwill. Approximately $807 million has been
identified as the value of IPR&D associated with the acquisition of
Conor Medsystems, Inc.
The IPR&D charge related to the acquisition of Conor
Medsystems, Inc. was $807 million and is associated with research
related to the discovery and application of the stent technology.
The value of the IPR&D was calculated using cash flowprojections
discounted for the risk inherent in such projects. The discount rate
applied was 19%.
Certain businesses were acquired for $18.0 billion in cash and
$1.3billion of liabilities assumed during 2006. These acquisitions
were accounted for by the purchase method and, accordingly,
results of operations have been included in the financial statements
from their respectivedates of acquisition except as noted below.
On December 20, 2006, the Company completed the
acquisition of the Consumer Healthcare business of Pfizer Inc. for
a purchase price of $16.6 billion in cash. The operating results of
the Consumer Healthcare business of Pfizer Inc. were reported in
the Company’s financial statements beginning in 2007, as 2006
results subsequent to the acquisition date were not significant.
In order toobtain regulatory approval of the transaction, the
Company agreed to divest certain overlapping businesses. The
Company completed the divestiture of the ZANTAC® product
on December 20, 2006 and the divestitures of KAOPECTATE®,
UNISOM®, CORTIZONE®, BALMEX® and ACT® products on
January 2, 2007.
The following table provides proforma results of operations
for the fiscal year ended December 31, 2006, as if the Consumer
Healthcare business of Pfizer Inc. had been acquired as of the begin-
ning of the period presented. The pro forma results include the
effect of divestitures and certain purchase accounting adjustments
such as the estimated changes in depreciation and amortization
expense on the acquired tangible and intangible assets. However,
pro forma results do not include any anticipated cost savings or
other effects of the planned integration of the Consumer Healthcare
businessof Pfizer Inc. Accordingly, such amounts are not necessar-
ily indicative of the results if the acquisition had occurred on the
dates indicated or which may occur in the future.
(Unaudited) Pro forma results
Year ended
December 31,
(Shares in Millions Except Per Share Data) 2006
Net sales $57,115
Net earnings $10,770
Diluted net earnings per share $ 3.64
The IPR&D charge related to the acquisition of the Consumer
Healthcare business of Pfizer Inc. was $320 million on a pre-tax
basis and $217 million on an after-tax basis and is primarily associ-
ated with rights obtained to the switch of ZYRTEC® from U.S.
prescription to over-the-counter status. The switch was approved
by the FDA effective November 2007. 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 95%
was used to reflect inherent regulatory risk as of the acquisition
date and the discount rate applied was 11%.
The Company completed the analysis of integration plans,
pursuant to which the Company is incurring costs primarily related
to the elimination of certain duplicate selling, general and adminis-
trative 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 tothe acquisition of the Consumer Healthcarebusi-
ness of Pfizer Inc., 2006 acquisitions included: Animas Corporation,
aleading maker of insulin infusion pumps and related products;
Hand Innovations LLC, a privately held manufacturer of fracture
fixation products for the upper extremities; Future Medical Systems
S.A., a privately held company that primarily develops, manufac-
tures and markets arthroscopic fluid management systems; Vascu-
lar Control Systems, Inc., a privately held company 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
reconstructivemedicine and tissue engineering and EnsureMedical,
Inc., a privately held company that develops devices for post-
catheterization closure of the femoral artery.
Excluding the acquisition of the Consumer Healthcare business
of Pfizer Inc., the excess of purchase price over the estimated fair
value of tangible assets acquired in 2006 amounted to $1,209 million
and has been assigned to identifiable intangible assets, with any
residual recorded to goodwill. Approximately $239 million has been
identified as the value of IPR&D primarily associated with the acquisi-
tions 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
Innovations LLC was $22 million and is associated with fracture
repair technologies. The value of the IPR&D was calculated using
cash flowprojections discounted for the risk inherent in such
projects. Probability of success factors ranging from 38 – 95% were
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 Medical
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 inher-
ent 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 rateapplied 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 calculated using cash
flow projections discounted for the risk inherent in such projects.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 61