INTANGIBLE ASSETS AND GOODWILL

12 Months Ended

Dec. 31, 2012

12. INTANGIBLE ASSETS AND GOODWILL

Intangible Assets

The major components of intangible assets as of December 31, 2012 and 2011 were as follows:

	Weighted-
	Average	2012							2011(1)
	Useful Lives (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Finite-lived intangible assets:
Product brands	10	$	7,968,318	$	(1,345,367	)	$	6,622,951	$	6,428,304	$	(737,876	)	$	5,690,428
Corporate brands	16	284,287		(25,336		)	258,951		179,752		(10,630		)	169,122
Product rights	8	2,110,350		(525,186		)	1,585,164		1,302,140		(306,936		)	995,204
Partner relationships	4	187,012		(44,230		)	142,782		135,095		(15,633		)	119,462
Out-licensed technology and other	7	209,452		(57,507		)	151,945		174,873		(38,915		)	135,958
Total finite-lived intangible assets	10	10,759,419		(1,997,626		)	8,761,793		8,220,164		(1,109,990		)	7,110,174
Indefinite-lived intangible assets:
Acquired IPR&D(2)	NA	546,876		—			546,876		531,304		—			531,304
		$	11,306,295	$	(1,997,626	)	$	9,308,669	$	8,751,468	$	(1,109,990	)	$	7,641,478

(1) The 2011 amounts have been revised. For further details, see note 2 titled “SIGNIFICANT ACCOUNTING POLICIES”.

(2) In the fourth quarter of 2012, the Company recognized an IPR&D impairment charge of $24.7 million related to a Xerese® life-cycle product (U.S. Dermatology segment) due to higher projected development spend and revised timelines for potential commercialization. In the third quarter of 2012, the Company wrote off an IPR&D asset of $133.4 million, relating to the IDP-107 program (U.S. Dermatology segment), which was acquired in September 2010 as part of the Merger described in note 3. Through discussion with various internal and external Key Opinion Leaders, the Company completed its analysis of the Phase 2 study results for IDP-107 during the third quarter of 2012. This led to the Company’s decision in the third quarter of 2012 to terminate the program and fully impair the asset. As attempts to identify a partner for the program were not successful, the Company does not believe the program has value to a market participant. In addition, in the second quarter of 2012, the Company wrote off $4.3 million relating to the termination of the MC5 program (U.S. Dermatology segment) acquired as part of the Ortho Dermatologics acquisition in 2011 described in note 3. The write offs of the IPR&D assets were recorded in In-process research and development impairments and other charges in the consolidated statements of (loss) income for the year ended December 31, 2012.

In addition, a $12.0 million payment in the third quarter of 2012 to terminate a research and development commitment with a third party was included in In-process research and development impairments and other charges in the consolidated statements of (loss) income.

In the fourth quarter of 2011, the Company recognized impairment charges on IPR&D assets of $105.2 million in the fourth quarter of 2011, relating to the A002, A004, and A006 programs (U.S. Neurology and Other segment) acquired as part of the Aton acquisition in 2010 described above in note 3, as well as the IDP-109 and IDP-115 programs (U.S. Dermatology segment). The impairment charges were triggered in the fourth quarter of 2011 due to unfavorable study results, feedback received from the FDA which would result in the incurrence of higher costs to perform additional studies, reassessment of risk and the probability of success, and/or pipeline prioritization decisions resulting in the re-allocation of Company resources to other research and development programs. The impairment charges on IPR&D assets were recorded in In-process research and development impairments and other charges in the consolidated statements of (loss) income for the year ended December 31, 2011.

For information related to finite-lived intangible asset impairment charges, see note 7 titled “FAIR VALUE MEASUREMENTS”.

The increase in intangible assets in 2012 primarily reflects the acquisition of the Medicis, OraPharma, Gerot Lannach, QLT, J&J North America, University Medical, Atlantis, J&J ROW and Probiotica identifiable intangible assets (as described in note 3) and the positive impact of foreign currency exchange, partially offset by the IPR&D impairments and write-offs described above.

For the years ended December 31, 2012, 2011 and 2010, amortization expense related to intangible assets was recorded as follows:

	2012		2011		2010
Alliance and royalty revenue	$	—	$	1,072	$	1,072
Cost of goods sold	2,557		8,103		8,103
Amortization expense	928,885		557,814		219,758
	$	931,442	$	566,989	$	228,933

Estimated aggregate amortization expense for each of the five succeeding years ending December 31 is as follows:

	2013		2014		2015		2016		2017
Amortization expense	$	1,050,614	$	1,035,678	$	1,015,956	$	980,340	$	934,136

Goodwill

The changes in the carrying amount of goodwill for years ended December 31, 2012 and 2011 were as follows:

	U.S. Dermatology			U.S. Neurology and Other		Canada and Australia			Emerging Markets			Total
Balance, December 31, 2010(1)	$	481,441		$	1,354,955	$	398,815		$	766,165		$	3,001,376
Additions(2)	11,648			—		138,152			446,527			596,327
Adjustments(3)	(338		)	187,248		(32,963		)	(37,481		)	116,466
Foreign exchange and other	(1,100		)	—		(11,005		)	(120,552		)	(132,657		)
Balance, December 31, 2011(1)	491,651			1,542,203		492,999			1,054,659			3,581,512
Additions(4)	1,464,539			—		2,145			49,908			1,516,592
Adjustments(5)	2,020			—		(16,651		)	—			(14,631		)
Foreign exchange and other(6)	(174		)	—		10,063			48,004			57,893
Balance, December 31, 2012	$	1,958,036		$	1,542,203	$	488,556		$	1,152,571		$	5,141,366

(1) Effective in the first quarter of 2012, the Company has four reportable segments: U.S. Dermatology, U.S. Neurology and Other, Canada and Australia and Emerging Markets. Accordingly, the Company has restated prior period segment information to conform to the current period presentation. For further details, see note 26 titled “SEGMENT INFORMATION”. In addition certain 2011 amounts have been revised. For further details, see note 2 titled “SIGNIFICANT ACCOUNTING POLICIES”.

(2) Primarily relates to the PharmaSwiss, Sanitas, Dermik, Ortho Dermatologics, Afexa, and iNova acquisitions (as described in note 3).

(3) Reflects the impact of measurement period adjustments related to the Merger (as described in note 3).

(4) Primarily relates to the Medicis, OraPharma, Probiotica and Gerot Lannach acquisitions (as described in note 3).

(5) Primarily reflects the impact of measurement period adjustments related to the iNova, Dermik and Afexa acquisitions (as described in note 3).

(6) Includes an impairment charge of $12.8 million related to the allocation of goodwill to the carrying amounts of certain suncare and skincare brands primarily sold in Australia, which are classified as held for sale as of December 31, 2012. Refer to note 7 titled “FAIR VALUE MEASUREMENTS”, for additional details regarding these impairment charges.

As described in note 3, the allocation of the goodwill balance associated with the Medicis, J&J ROW and J&J North America, acquisitions is provisional and subject to the completion of the valuation of the assets acquired and liabilities assumed.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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