Johnson and Johnson 2010 Annual Report Download - page 65

NOTES TO CONSOLIDATED FINANCIAL ST A TEMENTS63
The excess of purchase price over the estimated fair value of
tangible assets acquired amounted to $2,940 million and has been
assigned to identifiable intangible assets, with any residual recorded
to goodwill. Of this amount, approximately $1,737 million has been
identified as the value of IPR&D primarily associated with the
acquisitions of Cougar Biotechnology, Inc. and substantially all of
the assets and rights of Elan’s Alzheimer’s Immunotherapy Program.
Additionally, approximately $1,107 million has been identified as the
value of other intangible assets, including patents & technology and
customer relationships primarily associated with the acquisition of
Mentor Corporation.
The IPR&D related to the acquisition of Cougar Biotechnology,
Inc. was $971 million and is associated with abiraterone acetate, a
late stage, first-in-class compound for the treatment of prostate can-
cer. The value of the IPR&D was calculated using cash flow projec-
tions discounted for the risk inherent in such projects. Probability of
success factors ranging from 60–85% were used to reflect inherent
clinical and regulatory risk. The discount rate applied was 23.5%.
During 2009, the Company acquired substantially all of the
assets and rights of Elan’s Alzheimer’s Immunotherapy Program
through a newly formed company, Janssen Alzheimer Immunother-
apy (JAI), of which the Company owns 50.1% and Elan owns 49.9%.
In addition, the Company purchased approximately 107 million
newly issued American Depositary Receipts (ADRs) of Elan, repre-
senting 18.4% of Elan’s outstanding ordinary shares. As part of this
transaction, the Company paid $885 million to Elan and committed
to fund up to $250 million of Elan’s share of research and develop-
ment spending by JAI. Of this total consideration of $1,135 million,
$793 million represents the fair value of the 18.4% investment in
Elan based on Elan’s share price in an actively traded market as of
the date of this transaction. The IPR&D related to this transaction
was $679 million and is associated with bapineuzumab, a potential
first-in-class treatment that is being evaluated for slowing the pro-
gression of Alzheimer’s Disease. The value of the IPR&D was calcu-
lated using cash flow projections discounted for the risk inherent in
such projects. Probability of success factors ranging from 40–50%
were used to reflect inherent clinical and regulatory risk. The dis-
count rate applied was 26%. The non-controlling interest related to
this transaction was $590 million, which the Company has recorded
in other non-current liabilities.
Certain businesses were acquired for $1,214 million in cash and
$114 million of liabilities assumed during 2008. 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 2008 acquisitions included: Amic AB, a privately held
Swedish developer of in vitro diagnostic technologies for use in
point-of-care and near-patient settings; Beijing Dabao Cosmetics
Co., Ltd., a company that sells personal care brands in China;
SurgRx, Inc., a privately held developer of the advanced bipolar
tissue sealing system used in the ENSEAL® family of devices;
HealthMedia, Inc., a privately held company that creates web-based
behavior change interventions; LGE Performance Systems, Inc., a
privately held company known as Human Performance Institute™,
which develops science-based training programs to improve
employee engagement and productivity and Omrix Biopharmaceuti-
cals, Inc., a fully integrated biopharmaceutical company that devel-
ops and markets biosurgical and immunotherapy products.
The excess of purchase price over the estimated fair value of
tangible assets acquired amounted to $891 million and has been
assigned to identifiable intangible assets, with any residual recorded
to goodwill. Approximately $181 million has been identified as the
value of IPR&D associated with the acquisitions of Omrix Biophar-
maceuticals, Inc., Amic AB, SurgRx, Inc. and HealthMedia, Inc.
The IPR&D charge related to the acquisition of Omrix Biophar-
maceuticals, Inc. was $127 million and is associated with stand-
alone and combination biosurgical technologies used to achieve
hemostasis. 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 60–90% were used to
reflect inherent clinical and regulatory risk. The discount rate
applied was 14%.
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
inherent in such projects. A probability of success factor of 90%
was used to reflect inherent risk. The discount rate applied was 14%.
Supplemental pro forma information for 2010, 2009 and 2008
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
material effect on the Company’s results of operations, cash flows
or financial position.
With the exception of the divestiture of the Breast Care
Business of Ethicon Endo-Surgery Inc., for which the gain is recorded
in other (income) expense in 2010, and the divestiture of the Profes-
sional 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 2010, 2009 and 2008 did not
have a material effect on the Company’s results of operations, cash
flows or financial position.