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Acquisitions | 12 Months Ended
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Dec. 31, 2019
Business Combinations [Abstract] |
Business combinations | Acquisitions Otezla® (apremilast) On November 21, 2019, we acquired worldwide rights to Otezla®, the only oral, non-biologic treatment for psoriasis and psoriatic arthritis, along with certain related assets and liabilities, from Celgene Corporation (Celgene). Otezla® is used primarily for the treatment of patients with moderate-to-severe plaque psoriasis for whom phototherapy or systemic therapy is appropriate and is approved in more than 50 markets outside the United States, including the European Union and Japan. The acquisition was accounted for as an asset acquisition under GAAP because substantially all the value of the assets acquired was concentrated in the global intellectual property rights of Otezla®. Otezla®’s operations have been included in our consolidated financial statements commencing on the acquisition date. The following table summarizes the consideration transferred and the allocation of the estimated accumulated cost, including tax adjustments, to the assets acquired and liabilities assumed (in millions):
|  | Amounts
Cash purchase price |  | $ | 13,400 |
Transaction costs |  | 40 |
Accumulated cost (consideration transferred) |  | $ | 13,440 |
Intangible assets: |  |
Developed-product-technology rights |  | $ | 13,007 |
Marketing-related rights |  | 195 |
Inventory |  | 367 |
Deferred tax liability, net |  | (24 | )
Deferred credit |  | (96 | )
Other liabilities, net |  | (9 | )
Total assets acquired, net |  | $ | 13,440 |
Amgen allocated the accumulated cost of the acquisition to the assets acquired based on their relative fair values. The accumulated cost of the acquisition includes direct acquisition-related costs and applicable taxes. Goodwill is not recognized in the accounting for an asset acquisition. Rather, the excess of the accumulated cost over the fair value of the net assets acquired is reallocated to the nonfinancial assets acquired. The developed-product-technology rights acquired relate to Otezla®. The estimated fair value was determined by using a multi-period excess earnings income approach, which is based on the present value of the incremental after-tax cash flows attributable only to the intangible asset. The developed-product-technology rights will be amortized over a weighted-average period of 8.5 years by using the straight-line method. The estimated fair value of marketing-related rights, which relate to assembled workforce, was determined using a replacement cost approach, which consists of developing an estimate of the current cost of a similar new asset having the nearest equivalent utility to the asset being valued. The assembled workforce will be amortized over a period of 5 years by using the straight-line method. The estimated fair value of the acquired inventory was determined using the comparative sales method, which uses actual or expected selling prices of inventory as the base amount to which adjustments for selling effort and a profit on the buyer’s effort are applied. Inventory fair value adjustments will be amortized as inventory turns over, which we estimate to approximate 2.5 years. Nuevolution AB On July 15, 2019, we acquired all of the outstanding stock of Nuevolution AB (Nuevolution), a publicly traded, Denmark-based biotechnology company with a leading small molecule drug discovery platform, for total consideration of $183 million in cash. The transaction, which was accounted for as a business combination, expands our ability to discover novel small molecules against difficult-to-drug targets and with greater speed and efficiency. Nuevolution’s operations, which are not material, have been included in our consolidated financial statements commencing on the acquisition date. We allocated the consideration to acquire Nuevolution to finite-lived intangible assets of $150 million, comprised primarily of technology rights for a drug discovery platform with an estimated useful life of 10 years; goodwill of $26 million, which is not tax deductible; deferred tax liabilities of $22 million; and other net assets of $29 million. The estimated fair values of intangible assets were determined primarily by using a probability-weighted-income approach, which discounts expected future cash flows to present value by using a discount rate that represents the estimated rate that market participants would use to value the intangible assets. Our accounting for this acquisition is preliminary and will be finalized upon completion of our analysis to determine the acquisition date fair values of certain assets acquired, tax-related items and the residual impact on goodwill. Kirin-Amgen, Inc. During the first quarter of 2018, we acquired the remaining 50% ownership of Kirin-Amgen, Inc. (K-A), from Kirin Holdings Company, Limited (Kirin), making K-A a wholly owned subsidiary of Amgen. Upon its acquisition, K-A’s operations have been included in our consolidated financial statements commencing on the share acquisition date. The acquisition relieved Amgen of future royalty obligations to K-A. Prior to the share acquisition date, we owned 50% of K-A and accounted for our interest in K-A by using the equity method of accounting. The transaction was accounted for as a step acquisition of a business in which we were required to remeasure our existing 50% ownership interest at fair value. In addition, we were required to effectively settle our preexisting relationship with K-A, which resulted in a loss. Together the gain on the remeasurement of our existing ownership interest and the loss from the settlement of the preexisting relationship resulted in a net gain of $80 million, which was recorded in Interest and other income, net, in the Consolidated Statements of Income. The primary means of consideration for this transaction was a payment of $780 million in cash. The aggregate share acquisition date consideration to acquire the remaining 50% ownership in K-A and the fair value of Amgen’s preacquisition investment consisted of the following (in millions):
|  | Amounts
Total cash paid to Kirin |  | $ | 780 |
Fair value of contingent consideration obligation |  | 45 |
Loss on settlement of preexisting relationship |  | (168 | )
Total consideration transferred to acquire K-A |  | 657 |
Fair value of Amgen’s investment in K-A |  | 825 |
Total acquisition date fair value |  | $ | 1,482 |
In connection with this acquisition, we are obligated to make single-digit royalty payments to Kirin contingent upon sales of brodalumab. The estimated fair value of this contingent consideration obligation was $45 million as of the share acquisition date. The fair values of assets acquired and liabilities assumed consisted of cash of $977 million, licensing rights of $470 million, deferred tax liabilities of $102 million, other assets and liabilities of $131 million and goodwill of $6 million. The estimated fair value of acquired licensing rights was determined by using a probability-related-income approach, which is based on the present value of the incremental after-tax cash flows attributable only to the intangible asset. The projected cash flows were based on certain assumptions, including estimates of future revenues and expenses and the time and resources needed to maintain the assets through commercialization. The licensing rights will be amortized over a weighted-average period of four years by using the straight-line method. The excess of the share acquisition date consideration over the fair values assigned to the assets acquired and the liabilities assumed of $6 million was recorded as goodwill, which is not deductible for tax purposes. The $131 million in other assets and liabilities represents primarily receivables for royalties earned by K-A but not yet received, offset partially by payables representing R&D expenses incurred but not yet reimbursed by K-A. Pro forma results of operations for this acquisition have not been presented because this acquisition was not material to our consolidated results of operations.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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