Johnson and Johnson 2008 Annual Report Download - page 64

Aprobability 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. Probability of success factors ranging
from 70 – 80% were 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%.
With the exception of the Consumer Healthcare business of
Pfizer Inc., supplemental pro forma information for 2008, 2007 and
2006 per SFAS No. 141, Business Combinations, and SFAS No. 142,
Goodwill and Other Intangible Assets, is not provided, as the impact of
the aforementioned acquisitions did not have a material effect on
the Company’s results of operations, cash flows or financial position.
With the exception of the divestiture of the Professional
Wound Care business of Ethicon, Inc., which resulted in a gain of
$536 million before tax, and is recorded in other (income) expense,
net, in 2008, divestitures in 2008, 2007 and 2006 did not have a
material effect on the Company’s results of operations, cash flows
or financial position.
18. Legal Proceedings
PRODUCT LIABILITY
The Company’s subsidiaries are involved in numerous product
liability cases in the United States, many of which concern alleged
adverse reactions todrugs and medical devices. The damages
claimed aresubstantial, and while the Companyis confident of the
adequacy of the warnings and instructions for use that accompany
such products, it is not feasible topredict the ultimateoutcome of
litigation. However, the Company believes that if any product liabil-
ity results from such cases, it will be substantially covered by exist-
ing amounts accrued in the Company’s balance sheet and, where
available, by third-party product liability insurance.
Multiple products of Johnson & Johnson subsidiaries are sub-
ject tonumerous product liability claims and lawsuits, including
ORTHO EVRA®, RISPERDAL®, DURAGESIC®, CYPHER® Stent and
the CHARITÉ™ Artificial Disc. There are approximately 900
claimants who have pending lawsuits or claims regarding injuries
allegedly due to ORTHO EVRA®, 507 with respect to RISPERDAL®,
267with respect toCHARITÉ™, 85 with respect toCYPHER® and
65 with respect to DURAGESIC®. These claimants seek substantial
compensatory and, where available, punitive damages.
With respect to RISPERDAL®, the Attorneys General of eight
states and the Office of General Counsel of the Commonwealth of
Pennsylvania have filed actions seeking reimbursement of Medicaid or
other public funds for RISPERDAL® prescriptions written for off-label
use, compensation for treating their citizens for alleged adverse reac-
tions to RISPERDAL®, civil fines or penalties, punitive damages, or
other relief. The AttorneyGeneral of Texas has joined a qui tam action
in that state seeking similar relief. Certain of these actions also seek
injunctive relief relating to the promotion of RISPERDAL®. The Attor-
neys General of more than 40 other states have indicated a potential
interest in pursuing similar litigation against the Company’s Janssen
subsidiary (now Ortho-McNeil-Janssen Pharmaceuticals Inc.)
(OMJPI), and have obtained a tolling agreement staying the running of
the statuteof limitations while theyinquireinto the issues. In addition,
there are six cases filed by union health plans seeking damages for
alleged overpayments for RISPERDAL®, several of which seek certifi-
cation as class actions. In the case brought by the Attorney General
of West Virginia, based on claims for alleged consumer fraud as
to DURAGESIC® as well as RISPERDAL®, Janssen was found liable
on motion, and damages are likely to be assessed at less than
$20 million. Janssen intends to seek to appeal.
Numerous claims and lawsuits in the United States relating
to the drug PROPULSID®, withdrawn from general sale by the
Company’s Janssen subsidiary in 2000, have been resolved or are
currently enrolled in settlement programs with an aggregate cap
below $100 million. Litigation concerning PROPULSID® is pending
in Canada, where a class action of persons alleging adverse
reactions to the drug has been certified.
AFFIRMATIVE STENT PATENT LITIGATION
In patent infringement actions tried in Delaware Federal District
Court in late 2000, Cordis Corporation (Cordis), a subsidiary of
Johnson & Johnson, obtained verdicts of infringement and patent
validity, and damage awards against Boston Scientific Corporation
(Boston Scientific) and Medtronic AVE, Inc. (Medtronic) based on
a number of Cordis vascular stent patents. In December 2000, the
jury in the damage action against Boston Scientific returned a ver-
dict of $324 million and the jury in the Medtronic action returned a
verdict of $271 million. The Court of Appeals for the Federal Circuit
has upheld liability in these cases, and on September 30, 2008,
the district courtentered judgments, including interest, in the
amounts of $702 million and $521 million against Boston Scientific
and Medtronic, respectively.Medtronic paid $472 million in Octo-
ber 2008, representing the judgment, net of amounts exchanged in
settlement of a number of other litigations between the companies.
The net settlement of $472million was recorded as a credit to other
(income) expense, net in the 2008 consolidated statement of earn-
ings. The $702 million judgment against Boston Scientific is not
reflected in the 2008 financial statements as Boston Scientific has
appealed the judgments, and no amounts have been received.
Cordis also has two arbitrations against Medtronic seeking
royalties for the sale of stent products introduced by Medtronic
subsequent toDecember 2000 pursuant to a 1997 cross-license
agreement between Cordis and Medtronic. The hearing on the first
of these arbitrations will take place in March 2009.
In January 2003, Cordis filed a patent infringement action
against Boston Scientific in Delaware Federal District Court accus-
ing its Express2™, Taxus® and Liberte® stents of infringing the
Palmaz patent that expired in November 2005. The Liberte® stent
was also accused of infringing Cordis’ Gray patent that expires in
2016. In June 2005, a jury found that the Express2™, Taxus® and
Liberte® stents infringed the Palmaz patent and that the Liberte®
stent also infringed the Gray patent. Boston Scientific has appealed
to the U.S. Court of Appeals for the Federal Circuit.
Cordis has filed several lawsuits in New Jersey Federal District
Courtagainst Guidant Corporation (Guidant), Abbott Laboratories,
Inc. (Abbott), Boston Scientific and Medtronic alleging that the
Xience V™ (Abbott), Promus™ (Boston Scientific) and Endeavor®
(Medtronic) drug eluting stents infringe several patents owned by
or licensed to Cordis. In October 2008, Cordis filed suit against
Boston Scientific in Delaware Federal Court accusing the Taxus
Liberte® stent of infringing the Gray patent.
PATENT LITIGATION AGAINST VARIOUS
JOHNSON & JOHNSON SUBSIDIARIES
The products of various Johnson & Johnson subsidiaries are the
subject of various patent lawsuits, the outcomes of which could
potentially adversely affect the ability of those subsidiaries to
62 JOHNSON & JOHNSON 2008 ANNUAL REPORT