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ACQUISITIONS AND OTHER ARRANGEMENTS | 6 Months Ended
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Jun. 30, 2020
Business Combinations [Abstract] |
ACQUISITIONS AND OTHER ARRANGEMENTS | ACQUISITIONS AND OTHER ARRANGEMENTS Seprafilm Adhesion Barrier In February 2020, we acquired the product rights to Seprafilm Adhesion Barrier (Seprafilm) from Sanofi. The transaction closed in February 2020 and we paid approximately $342 million in cash for the acquired assets. Seprafilm is indicated for use in patients undergoing abdominal or pelvic laparotomy as an adjunct intended to reduce the incidence, extent and severity of postoperative adhesions between the abdominal wall and the underlying viscera such as omentum, small bowel, bladder, and stomach, and between the uterus and surrounding structures such as tubes and ovaries, large bowel, and bladder. We concluded that the acquired assets met the definition of a business and accounted for the transaction as a business combination using the acquisition method of accounting. The following table summarizes the fair values of the assets acquired as of the acquisition date:
(in millions) |
Assets acquired |
Inventories | $ | 18 |
Goodwill | 28 |
Other intangible assets | 296 |
Total assets acquired | $ | 342 |
In the three months ended June 30, 2020, we made immaterial measurement period adjustments to the acquired assets that had an insignificant impact on our results of operations. The valuation of the assets acquired are preliminary and measurement period adjustments may be recorded in the future as we finalize our fair value estimates. In the three and six months ended June 30, 2020, the results of operations of the acquired business have been included in our condensed consolidated statement of income since the date the business was acquired. The acquisition contributed $23 million and $36 million, respectively, of net sales for the three and six months ended June 30, 2020. Net earnings from the acquisition were not significant during the three and six months ended June 30, 2020 and included acquisition and integration costs, primarily incremental cost of sales relating to inventory fair value step-ups, of $6 million and $15 million, respectively. We allocated $286 million and $10 million of the total consideration to the Seprafilm developed product rights and customer relationships with useful lives of 10 and 7 years, respectively. The fair values of the intangible assets were determined using the income approach. The discount rates used to measure the developed product rights and customer relationship intangible assets were 14.8% and 11.0%, respectively. We consider the fair value of the intangible assets to be Level 3 measurements due to the significant estimates and assumptions we used in establishing the estimated fair values. The goodwill, which is deductible for tax purposes, includes the value of the overall strategic benefits provided to our product portfolio of hemostats and sealants and is included in the Americas and APAC segments. Other Business Combinations We completed other individually immaterial acquisitions in the six months ended June 30, 2020 for total consideration of $13 million in cash at closing plus aggregate future potential contingent consideration of up to $12 million with an acquisition date fair value of $4 million. The acquisitions primarily resulted in the recognition of goodwill and other intangible assets. We have not presented pro forma financial information for any of our acquisitions because their results are not material to our condensed consolidated financial statements. Other Business Development Activities In January 2020, we acquired the U.S. rights to an additional product for $60 million. The purchase price was capitalized as a developed-technology intangible asset in the quarter ended March 31, 2020 and is being amortized over its estimated useful life of 11 years. In the six months ended June 30, 2020, we entered into distribution license arrangements for multiple products that have not yet obtained regulatory approval for upfront cash payments of $22 million. The cash paid was treated as research and development (R&D) expenses on our condensed consolidated statement of income. We could make additional payments of up to $44 million upon the achievement of certain development, regulatory or commercial milestones.

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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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