NOTE B – ACQUISITIONS AND STRATEGIC INVESTMENTS

2018 Acquisitions

Augmenix, Inc.

On October 16, 2018, we announced the closing of our acquisition of Augmenix, Inc. (Augmenix), a privately-held company which has developed and commercialized the SpaceOAR™ Hydrogel System to help reduce common and debilitating side effects that men may experience after receiving radiotherapy to treat prostate cancer. The transaction price consists of an upfront cash payment of $500 million and up to $100 million in payments contingent upon revenue-based milestones. We are in the process of integrating Augmenix into our Urology and Pelvic Health business.

VENITI, Inc.

On August 8, 2018, we announced the signing of an agreement to acquire VENITI, Inc. (VENITI), a privately-held company that has developed and commercialized the VICI VENOUS STENT™ System (VICI stent system) for treating venous obstructive disease. We have been an investor in VENITI since 2016 and held an interest of approximately 25 percent immediately prior to the acquisition date. The transaction price to acquire the remaining stake consists of an upfront cash payment of $108 million and up to $52 million in payments contingent upon a regulatory-based milestone. The acquisition closed in the third quarter of 2018. We are in the process of integrating VENITI into our Peripheral Interventions business.

Claret Medical, Inc.

On August 2, 2018, we announced the closing of our acquisition of Claret Medical, Inc. (Claret), a privately-held company that has developed and commercialized the Sentinel™ Cerebral Embolic Protection System. The device is used to protect the brain during certain interventional procedures, predominately in patients undergoing transcatheter aortic valve replacement (TAVR). The transaction price consists of an upfront cash payment of $220 million and an additional $50 million payment for reaching a reimbursement-based milestone that was achieved in the third quarter. We are in the process of integrating Claret into our Interventional Cardiology business.

Cryterion Medical, Inc.

On July 5, 2018, we announced the closing of our acquisition of Cryterion Medical, Inc. (Cryterion), a privately-held company developing a single-shot cryoablation platform for the treatment of atrial fibrillation. We have been an investor in Cryterion since 2016 and held an interest of approximately 35 percent immediately prior to the acquisition date. The transaction price to acquire the remaining stake consists of an upfront cash payment of $202 million. We are in the process of integrating Cryterion into our Electrophysiology business.

NxThera, Inc.

On April 30, 2018, we announced the closing of our acquisition of NxThera, Inc. (NxThera), a privately-held company that developed the Rezûm™ System, a minimally invasive therapy in a growing category of treatment options for patients with benign prostatic hyperplasia (BPH). We held a minority interest immediately prior to the acquisition date. The transaction price to acquire the remaining stake consists of an upfront cash payment of approximately $240 million and up to approximately $85 million in payments contingent upon commercial milestones over the next four years. We are in the process of integrating NxThera into our Urology and Pelvic Health business.

nVision Medical Corporation

On April 16, 2018, we announced the closing of our acquisition of nVision Medical Corporation (nVision), a privately-held company focused on women’s health. nVision developed the first and only device cleared by the U.S. Food and Drug Administration (FDA) to collect cells from the fallopian tubes, offering a potential platform for earlier diagnosis of ovarian cancer. The transaction price consists of an upfront cash payment of $150 million and up to an additional $125 million in payments contingent upon clinical and commercial milestones over the next four years. We are in the process of integrating nVision into our Urology and Pelvic Health business.

In addition, we completed other individually immaterial acquisitions in the first nine months of 2018 for total consideration of $50 million in cash at closing plus aggregate contingent consideration of up to $10 million.

We recorded gains of $142 million in the third quarter of 2018 and $182 million in the first nine months of 2018 within Other, net on our unaudited condensed consolidated statements of operations based on the difference between the book values and the fair values of our previously-held investments immediately prior to the acquisition dates, which aggregate to $250 million. We remeasured the fair value of each previously-held investment based on the implied enterprise value and allocation of purchase price consideration according to priority of equity interests.

Purchase Price Allocation

We accounted for these acquisitions as business combinations, and in accordance with FASB ASC Topic 805, Business Combinations, we recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition dates. The components of the aggregate preliminary purchase prices are as follows:



(in millions)
Payments for acquisitions, net of cash acquired	$	969
Fair value of contingent consideration	190
Fair value of prior interests	250
	$	1,409

The following summarizes the preliminary purchase price allocations for the acquisitions as of September 30, 2018:



(in millions)
Goodwill	$	619
Amortizable intangible assets	707
Indefinite-lived intangible assets	213
Other assets acquired	99
Liabilities assumed	(14		)
Deferred tax liabilities	(215		)
	$	1,409

We allocated a portion of the preliminary purchase prices to specific intangible asset categories as follows:



	Amount Assigned (in millions)		Amortization Period (in years)	Risk-Adjusted Discount Rates used in Purchase Price Allocation
Amortizable intangible assets:
Technology-related	$	697	10 - 14	17% - 23%
Other intangible assets	10		6 - 13	13% - 15%
Indefinite-lived intangible assets:
In-process research and development (IPR&D)	213		N/A	15%
	$	920

2017 Acquisitions

Symetis SA

On May 16, 2017, we announced the closing of our acquisition of Symetis SA (Symetis), a privately-held Swiss structural heart company focused on minimally-invasive transcatheter aortic valve replacement devices. The transaction price consists of an upfront cash payment of approximately $430 million. We are in the process of integrating Symetis into our Interventional Cardiology business.

Purchase Price Allocation

We accounted for the acquisition of Symetis as a business combination, and in accordance with FASB ASC Topic 805, we recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. The purchase price was comprised of the following component:



(in millions)
Payment for acquisition, net of cash acquired	$	391

The following summarizes the purchase price allocation for the Symetis acquisition as of September 30, 2018:



(in millions)
Goodwill	$	183
Amortizable intangible assets	278
Other assets acquired	25
Liabilities assumed	(95		)
	$	391

We allocated a portion of the purchase price to specific intangible asset categories as follows:



	Amount Assigned (in millions)		Amortization Period (in years)	Risk-Adjusted Discount Rates used in Purchase Price Allocation
Amortizable intangible assets:
Technology-related	$	268	13	24%
Other intangible assets	10		2 - 13	24%
	$	278

Our technology-related intangible assets consist of technical processes, intellectual property and institutional understanding with respect to products and processes that we will leverage in future products or processes and will carry forward from one product generation to the next. We used the multi-period excess earnings method, a form of the income approach, to derive the fair value of the technology-related intangible assets and are amortizing them on a straight-line basis over their assigned estimated useful lives.

Goodwill was primarily established due to synergies expected to be gained from leveraging our existing operations as well as revenue and cash flow projections associated with future technologies and has been allocated to our reportable segments based on the relative expected benefit. Based on preliminary estimates updated for applicable regulatory changes, the goodwill recorded relating to our 2018 and 2017 acquisitions is not deductible for tax purposes.

Our IPR&D intangible assets that are not subject to amortization (indefinite-lived intangible assets) represent technical processes, intellectual property and/or institutional understanding acquired through business combinations that are fundamental to the ongoing operations of our business and have no limit to their useful life.

Contingent Consideration

Changes in the fair value of our contingent consideration liability were as follows:



(in millions)
Balance as of December 31, 2017	$	169
Amounts recorded related to current year acquisitions	190
Purchase price adjustments related to prior year acquisitions	(22		)
Contingent consideration expense (benefit)	(12		)
Contingent consideration payments	(21		)
Balance as of September 30, 2018	$	305

As of September 30, 2018, the maximum amount of future contingent consideration (undiscounted) that we could be required to pay was approximately $780 million. The maximum amount of future contingent consideration (undiscounted) decreased approximately $540 million compared to the amount as of December 31, 2017 due primarily to the expiration of certain contingent consideration arrangements in the third quarter of 2018.

The recurring Level 3 fair value measurements of our contingent consideration liability include the following significant unobservable inputs:



Contingent Consideration Liability	Fair Value as of September 30, 2018	Valuation Technique	Unobservable Input	Range
R&D, Regulatory and Commercialization-based Milestones	$201 million	Discounted Cash Flow	Discount Rate	3	%	-	4%
			Probability of Payment	17	%	-	99%
			Projected Year of Payment	2018		-	2022
Revenue-based Payments	$104 million	Discounted Cash Flow	Discount Rate	11	%	-	15%
Revenue-based Payments	$104 million	Discounted Cash Flow	Projected Year of Payment	2018		-	2026

Projected contingent payment amounts related to some of our research and development (R&D), commercialization-based and revenue-based milestones are discounted back to the current period using a discounted cash flow model. Projected revenues are based on our most recent internal operational budgets and strategic plans. Increases or decreases in projected revenues, probabilities of payment, discount rates or the time until payment is made may result in significantly lower or higher fair value measurements.

Strategic Investments

On January 24, 2018, we closed an investment and entered into an acquisition option agreement with Millipede, Inc. (Millipede), a privately-held company that has developed the IRIS Transcatheter Annuloplasty Ring System for the treatment of severe mitral regurgitation. Under the terms of the agreements, we have purchased a portion of the outstanding shares of Millipede along with newly issued shares of the company for a total consideration of $90 million. We also have the option to acquire the remaining shares of the company at any time prior to the completion of a first-in-human clinical study that meets certain parameters. Upon the completion of the clinical study, Millipede has the option to compel us to acquire the remaining shares of the company. Each company’s option period expires by the end of 2019. Completion of this acquisition would result in an additional $325 million payment by us at closing with an additional $125 million becoming payable upon achievement of a commercial milestone.

The aggregate carrying amount of our strategic investments were comprised of the following categories:



	As of
(in millions)	September 30, 2018		December 31, 2017
Equity method investments	$	291	$	209
Measurement alternative investments	73		81
Publicly-held securities	1		15
Notes receivable	19		47
	$	384	$	353

These investments are classified as Other long-term assets within our accompanying unaudited condensed consolidated balance sheets, in accordance with U.S. GAAP and our accounting policies.

As of September 30, 2018, the carrying amount of our aggregated equity method investments exceeded our share of the underlying equity in net assets by approximately $321 million, which represents amortizable intangible assets, IPR&D, deferred tax liabilities and goodwill.