AMIRA PHARMACEUTICALS, INC. ACQUISITION

9 Months Ended

Sep. 30, 2011

Business Combinations [Abstract]

Acquisition [Text Block]

Note 5. AMIRA PHARMACEUTICALS, INC. ACQUISITION

On September 7, 2011, the Company acquired 100% of the outstanding shares of Amira Pharmaceuticals, Inc. (Amira) for $325 million in cash plus three separate, contingent $50 million payments due uponachievement of certain development and sales-based milestones. The fair value of the total contingent considerationwas $58 million, which was recorded in other liabilities.

Amira was a privately-held biotechnology company primarily focused on the discovery and development of therapeutic products for the treatment of cardiovascular and fibrotic inflammatory diseases. The acquisition provides the Company with: 1) full rights to develop and commercialize AM152which has completed Phase I clinical studies and the remainder of the Amira lysophosphatidic acid1 receptor antagonist program; 2) researchers with fibrotic expertise; and 3) a pre-clinical autotaxin program. Goodwill generated from the acquisition was primarily attributed to acquired scientific expertise in fibrotic diseases allowing for the expansion of the Company's pipeline into a new therapeutic class.

The purchase price allocation,which is preliminary pending final post-acquisition adjustments, was as follows:

Purchase price:		Dollars in Millions
Cash	$	325
Fair value of contingent consideration		58
Total purchase price		383
Identifiable net assets:
Cash		15
In-process research and development		160
Accrued expenses		(16)
Deferred tax liabilities		(43)
Total identifiable net assets		116
Goodwill	$	267

The fair value of the acquired IPRD was estimated utilizing the income method which risk adjusted the expected future net cash flows estimated to be generated from the compound based upon estimated probabilities of technical and regulatory success. The cash flows were then adjusted to present value utilizing a 12.5% discount rate which reflects the risk factors associated with the cash flow streams. The projected cash flows assumed initial positive cash flows to commence shortly after the receipt of expected regulatory approvals, subject to trial results, among other things, which are not estimated to occur for a number of years. Actual cash flows attributed to the acquiredIPRDare likely to be different than those assumed.

The contingent liability was estimated utilizing amodel that assessed the probability of achieving each milestone and discounted the amount of each potential payment based on the expected timing. Estimates used in evaluating the contingent liability were consistent with those used in evaluating the acquired IPRD.The discount rate for each payment was consistent with market debt yields for the Company's non-callable, publicly-traded bonds with similar maturities to each of the estimated potential payment dates. This fair value measurement was based on significant inputs not observable in the market and therefore represents a Level 3 measurement.

The results of Amira's operations are included in the Company's consolidated financial statements starting on September 7, 2011. Pro forma supplemental financial information is not provided as the impact of the acquisition was not material to operating results. Goodwill, IPRD and all other intangible assets valued in this acquisition are non-deductible for tax purposes. Total acquisition costsapproximated $1 million and were included in other (income)/expense.