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65
Medtronic, Inc.
cryotherapy products to treat cardiac arrhythmias. CryoCath’s
Arctic Front product is a minimally invasive cryo-balloon catheter
designed specifically to treat atrial fibrillation and is currently
approved in certain markets outside the U.S. In addition, the
Arctic Front system was approved in the U.S. in the third quarter
of fiscal year 2011.
In connection with the acquisition of CryoCath, the Company
acquired $57 million of technology-based intangible assets with
an estimated useful life of 11 years. Also as part of the acquisition,
the Company recorded $72 million and $184 million of IPR&D and
goodwill, respectively. The IPR&D was expensed on the date of
acquisition and primarily relates to the future launch of Arctic
Front into the U.S. market. For purposes of valuing the acquired
IPR&D, the Company estimated total costs to complete of
approximately $3 million. The establishment of goodwill was
primarily due to the expected revenue growth that is attributable
to increased market penetration from future products and
customers. The goodwill is not deductible for tax purposes.
The Company has accounted for the acquisition of CryoCath
as a business combination. The purchase price has been allocated
as follows:
(in millions)
Current assets $ 24
Property, plant, and equipment 2
IPR&D 72
Other intangible assets 57
Goodwill 184
Long-term deferred tax assets 61
Total assets acquired 400
Current liabilities 30
Long-term deferred tax liabilities 15
Total liabilities assumed 45
Net assets acquired $ 355
Restore Medical, Inc. In July 2008, the Company acquired Restore
Medical, Inc. (Restore). Restore’s Pillar Palatal Implant System
provides the Company with a minimally invasive, implantable
medical device used to treat the soft palate component of sleep
breathing disorders, including mild to moderate obstructive sleep
apnea and snoring. The Company accounted for the acquisition
as a business combination. Restore shareholders received $1.60
per share in cash for each share of Restore common stock that
they owned. Total consideration for the transaction, net of cash
acquired, was approximately $29 million. In connection with the
acquisition of Restore, the Company acquired $17 million of
technology-based intangible assets with an estimated useful life
of 10 years, $8 million of net tangible assets, and $5 million of
goodwill. The goodwill is not deductible for tax purposes.
Other Acquisitions and Acquisition-Related Items In February 2009,
the Company recorded an IPR&D charge of $307 million related to
the asset acquisition of privately-held Ventor Technologies Ltd.
(Ventor), a development stage company focused on transcatheter
heart valve technologies for the treatment of aortic valve disease.
This acquisition adds two technologies to the Company’s
transcatheter valve portfolio: a minimally invasive, surgical
transapical technology and a next generation percutaneous,
transfemoral technology. Total consideration for the transaction,
net of cash acquired, was approximately $308 million. Of the $308
million, $307 million was expensed as IPR&D since technological
feasibility of the underlying project had not yet been reached and
such technology has no future alternative use and $1 million
related to other net assets acquired. These amounts were recorded
within acquisition-related items in the consolidated statement
of earnings.
During the second and fourth quarters of fiscal year 2009, the
Company recorded IPR&D charges of $22 million related to the
purchase of certain intellectual property for use in the Spinal and
Diabetes businesses. These payments were expensed as IPR&D
since technological feasibility of the underlying products had not
yet been reached and such technology has no future alternative
use. These amounts were recorded within acquisition-related items
in the consolidated statements of earnings.
Contingent Consideration Certain of the Company’s business
combinations or purchases of intellectual property involve the
potential for the payment of future contingent consideration
upon the achievement of certain product development milestones
and/or various other favorable operating conditions. Payment of
the additional consideration is generally contingent on the
acquired company reaching certain performance milestones,
including attaining specified revenue levels, achieving product
development targets, or obtaining regulatory approvals. As a
result of the Company adopting new authoritative guidance in
fiscal year 2010 related to business combinations, contingent
consideration is recorded at the acquisition date estimated fair
value of the contingent milestone payments for all acquisitions
subsequent to April 24, 2009. The fair value of the contingent