Johnson and Johnson 2009 Annual Report Download - page 59

Inc. had been tendered by stockholders. Excluding shares that
were tendered subject to guaranteed delivery procedures, 90.2%
of the outstanding shares of Common Stock had been tendered.
On December 30, 2008 the Company completed the acquisition
of Omrix Biopharmaceuticals, Inc.
The IPR&D charge related to the acquisition of Amic AB was
$40 million and is associated with point-of-care device and 4CAST
Chip technologies. 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 20%.
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 inher-
ent 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 identi-
fied 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 flow projections
discounted for the risk inherent in such projects. The discount rate
applied was 19%.
Supplemental pro forma information for 2009, 2008 and 2007
in accordance with U.S. GAAP standards related to business combi-
nations, and goodwill and other intangible assets, is not provided, as
the impact of the aforementioned acquisitions did not have a mate-
rial 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 2009, 2008 and 2007 did not have a
material effect on the Company’s results of operations, cash flows
or financial position.
Note 21 — 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 to drugs and medical devices. The damages
claimed are substantial, and while the Company is confident of the
adequacy of the warnings and instructions for use that accompany
such products, it is not feasible to predict the ultimate outcome 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 subject to numerous product liability claims and lawsuits.
There are a significant number of claimants who have pending
lawsuits or claims regarding injuries allegedly due to ORTHO
EVRA®, RISPERDAL®, LEVAQUIN®, DURAGESIC®, the CHARITÉ™
Artificial Disc and CYPHER® Stent. These claimants seek sub-
stantial 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 reactions to RISPERDAL®, civil fines or penalties, punitive
damages, or other relief. The Attorney General 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 Attorneys General of more than 40 other states
have indicated a potential interest in pursuing similar litigation
against the Company’s subsidiary, Janssen Pharmaceutica Inc.
(Janssen) (now Ortho-McNeil-Janssen Pharmaceuticals Inc.
(OMJPI)), and have obtained a tolling agreement staying the run-
ning of the statute of limitations while they inquire into the issues.
In addition, there are six cases filed by union health plans seeking
damages for alleged overpayments for RISPERDAL®, several of
which seek certification as class actions. In the case brought by the
Attorney General of West Virginia, based on claims for alleged con-
sumer fraud as to DURAGESIC® as well as RISPERDAL®, Janssen
(now OMJPI) was found liable and damages were assessed at
$4.5 million. OMJPI has filed an appeal.
Numerous claims and lawsuits in the United States relating
to the drug PROPULSID®, withdrawn from general sale by the
Company’s Janssen (now OMJPI) subsidiary in 2000, have been
resolved or are currently enrolled in settlement programs with an
aggregate cap below $100 million. Similar litigation concerning
PROPULSID® is pending in Canada, where a national class action of
persons alleging adverse reactions to the drug has been certified
and a settlement program instituted with an aggregate cap below
$10 million.
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 court entered judgments, including interest, in the amounts
of $702 million and $521 million against Boston Scientific and
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