Johnson and Johnson 2011 Annual Report Download - page 60

58 JOHNSON & JOHNSON 2011 ANNUAL REPORT
The IPR&D related to the acquisition of RespiVert Ltd., was
$100 million and is associated with narrow spectrum kinase
inhibitors with a unique profile of anti-inflammatory activities as
treatments for moderate to severe asthma, Chronic Obstructive
Pulmonary Disease (COPD) and Cystic Fibrosis (CF). 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 10–12% were used to reflect inherent clinical and
regulatory risk. The discount rate applied was 17%.
The IPR&D related to the acquisition of Micrus Endovascular
Corporation was $38 million and is associated with ischemic and
flow diverter technologies. 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 50–75% were
used to reflect inherent clinical and regulatory risk. The discount
rate applied was 14%.
Certain businesses were acquired for $2,470 million in cash
and $875 million of liabilities assumed and non-controlling interests
during 2009. These acquisitions were accounted for by the pur-
chase method and, accordingly, results of operations have been
included in the financial statements from their respective dates
of acquisition.
The 2009 acquisitions included: Mentor Corporation, a leading
supplier of medical products for the global aesthetics market;
Cougar Biotechnology, Inc., a development stage biopharmaceutical
company with a specific focus on oncology; Finsbury Orthopaedics
Limited, a privately held UK-based manufacturer and global dis-
tributor of orthopaedic implants; Gloster Europe, a privately held
developer of innovative disinfection processes and technologies to
prevent healthcare-acquired infections and substantially all of the
assets and rights of Elan’s Alzheimer’s Immunotherapy Program
through a newly formed company, of which the Company owns
50.1% and Elan owns 49.9%.
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 acqui-
sitions 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 and technol-
ogy 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
cancer. 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 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.
Supplemental proforma information for 2011, 2010 and 2009 in
accordance with U.S. GAAP standards related to business combina-
tions, 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.
During 2011, the Company divestitures included, the Animal
Health Business to Elanco, a Division of Eli Lilly, MONISTAT® in
Canada, the U.S. and its territories (including Puerto Rico), assets
of the Ortho Dermatologics division in the U.S. to subsidiaries of
Valeant Pharmaceuticals International, Inc. and the Surgical Instru-
ments Business of Codman & Shurtleff, Inc. In 2011, the gains on
the divestitures of businesses were $1.0 billion. During 2010, the
Company divestitures included the Breast Care Business of Ethicon
Endo-Surgery Inc. The gains on the divestitures were recognized in
Other (income) expense, net.
21. Legal Proceedings
Johnson & Johnson and certain of its subsidiaries are involved in
various lawsuits and claims regarding product liability, intellectual
property, commercial and other matters; governmental investiga-
tions; and other legal proceedings that arise from time to time in
the ordinary course of their business.
The Company records accruals for such contingencies when it
is probable that a liability will be incurred and the amount of the loss
can be reasonably estimated. As of January 1, 2012, the Company
has determined that the liabilities associated with certain litigation
matters are probable and can be reasonably estimated. The
Company has accrued for these matters and will continue to moni-
tor each related legal issue and adjust accruals for new information
and further developments in accordance with ASC 450-20-25. For
these and other litigation and regulatory matters currently disclosed
for which a loss is probable or reasonably possible, the Company is
unable to determine an estimate of the possible loss or range of
loss beyond the amounts already accrued. These matters can be
affected by various factors, including whether damages sought in
the proceedings are unsubstantiated or indeterminate; scientific and
legal discovery has not commenced or is not complete; proceedings
are in early stages; matters present legal uncertainties; there are
significant facts in dispute; or there are numerous parties involved.
In the Company’s opinion, based on its examination of these
matters, its experience to date and discussions with counsel, the
ultimate outcome of legal proceedings, net of liabilities accrued in the
Company’s balance sheet, is not expected to have a material adverse
effect on the Company’s financial position. However, the resolution
in any reporting period of one or more of these matters, either alone
or in the aggregate, may have a material adverse effect on the
Company’s results of operations, and cash flows for that period.