| Acquisitions and Collaborations | NOTE 5
ACQUISITIONS AND COLLABORATIONS
Acquisitions
The following
table summarizes the fair value of consideration transferred and
the recognized amounts of the assets acquired and liabilities
assumed as of the acquisition date for the company’s material
acquisitions during 2015, 2014 and 2013.
2015 2014 2013
(in millions)
ONCASPAR
SuppreMol
Chatham
AesRx
Inspiration/Ipsen
OBIZUR
Consideration
transferred
Cash, net of cash
acquired $ 890 $ 228 $ 70 $ 15 $ 51
Fair value of contingent
payments — — 77 65 269
Fair value of
consideration transferred $ 890 $ 228 $ 147 $ 80 $ 320
Assets acquired and
liabilities assumed
Other intangible
assets $ 794 $ 179 $ 74 $ 78 $ 288
Inventories 22 — — — —
Other assets — 19 — — 25
Accrued
liabilities (1 ) — — — —
Long-term
liabilities (123 ) (53 ) — — —
Total identifiable net
assets 692 145 74 78 313
Goodwill 198 83 73 2 7
Total assets acquired and
liabilities assumed $ 890 $ 228 $ 147 $ 80 $ 320
While the
valuation of the assets acquired and liabilities assumed are
substantially complete, measurement period adjustments for the
acquisitions in 2015 may be recorded in the future as the company
finalizes its fair value estimates. Pro forma financial information
has not been included because the acquisitions, individually and in
the aggregate, would not have had a material impact on the
company’s consolidated and combined results of
operations.
ONCASPAR
Business Acquisition
In July 2015, the company
acquired the ONCASPAR (pegaspargase) product portfolio from
Sigma-Tau Finanziaria S.p.A (Sigma-Tau), a privately held
biopharmaceutical company based in Italy, through the acquisition
of 100% of the shares of a subsidiary of Sigma-Tau. Through the
acquisition, the company gained the marketed biologic treatment
ONCASPAR, the investigational biologic calaspargase pegol, and an
established oncology infrastructure with clinical and sales
resources. ONCASPAR is a first-line biologic used as part of a
chemotherapy regimen to treat patients with acute lymphoblastic
leukemia. As of the acquisition date, it was marketed in the United
States, Germany, Poland and certain other countries, and recently
received EU approval. The acquired net assets comprised a business
based on the acquired inputs, processes and outputs. As a result,
the transaction was accounted for as a business
combination.
The company allocated
$794 million of the total consideration to developed technology,
which reflected rights to the ONCASPAR product portfolio. The
developed technology is being amortized on a straight-line basis
over an estimated useful life of 16 years. Long-term liabilities
acquired consist primarily of deferred tax liabilities. The
goodwill, which is not deductible for tax purposes, includes the
value of potential future technologies as well as the overall
strategic benefits of the acquisition to the company and its
oncology pipeline.
The purchase price
allocations described above reflect measurement period adjustments
recorded in the fourth quarter of 2015 as the company substantially
completed its estimates of the fair value of assets acquired and
liabilities assumed. The measurement period adjustments included
increases of $13 million, $5 million and $3 million to intangible
assets, inventory and long-term liabilities, respectively. The
adjustments resulted in a corresponding decrease in goodwill of $15
million. The measurement period adjustments did not have a material
impact on the company’s results of
operations.
Historical annual sales
for ONCASPAR were approximately $100 million, and the company has
recorded ONCASPAR net sales of $87 million from the acquisition
date through December 31, 2015. The company incurred
acquisition-related costs of $17 million during 2015, which were
primarily recorded in selling, general and administrative
expenses.
SuppreMol
Acquisition
In March 2015, the
company acquired all of the outstanding shares of SuppreMol GmbH
(SuppreMol), a privately held biopharmaceutical company based in
Germany. Through the acquisition, the company acquired
SuppreMol’s early-stage pipeline of treatment options for
autoimmune and allergic diseases, as well as its operations in
Munich, Germany. The acquired investigational treatments will
complement and build upon the company’s immunology portfolio
and offer an opportunity to expand into new areas with significant
market potential and unmet medical needs in autoimmune diseases.
The acquired net assets comprised a business based on the acquired
inputs, processes and outputs. As a result, the transaction has
been accounted for as a business combination.
The company allocated
$179 million of the total consideration to IPR&D, which is
being accounted for as an indefinite-lived intangible asset. The
acquired IPR&D primarily relates to SuppreMol’s lead
candidate SM-101,
AesRx, LLC
Acquisition
In June 2014, the company
acquired all of the outstanding membership interests in AesRx, LLC
(AesRx), obtaining AesRx’s program related to the development
and commercialization of treatments for sickle cell
disease.
The company made an
initial payment of $15 million, and as of the acquisition date may
make additional payments of up to $278 million related to the
achievement of development and regulatory milestones, in addition
to sales milestones of up to $550 million. The estimated fair value
of the contingent payment liabilities at the acquisition date was
$65 million, which was recorded in long-term liabilities, and was
calculated based on the probability of achieving the specified
milestones and the discounting of expected future cash
flows.
The company allocated $78
million of the total consideration to acquired IPR&D, which was
accounted for as an indefinite-lived intangible asset, with the
residual consideration of $2 million recorded as goodwill. The
acquired IPR&D related to AesRx’s sickle cell disease
program, which was in Phase II clinical trials at the time of the
acquisition, and was expected to be completed in approximately five
years. The value of IPR&D was calculated using cash flow
projections adjusted for the inherent technical, regulatory,
commercial and obsolescence risks in such activities, discounted at
a rate of 15.5%. Additional R&D was required prior to obtaining
regulatory approval and, as of the acquisition date, incremental
R&D costs were projected to be in excess of $40
million.
During 2015, the company
decided not to pursue further development activities related to the
acquired project. The company recorded a charge of $81 million in
R&D expenses to fully impair the acquired IPR&D and a gain
of $66 million resulting primarily from the reduction of the fair
value of contingent payment liabilities to zero as of
December 31, 2015.
Chatham Therapeutics,
LLC Acquisition
In April 2014, the
company acquired all of the outstanding membership interests in
Chatham Therapeutics, LLC (Chatham), obtaining potential treatments
for hemophilia B utilizing Chatham’s gene therapy
technology.
The company made an
initial payment of $70 million, and as of the acquisition date may
make additional payments of up to $560 million related to the
achievement of development, regulatory and first commercial sale
milestones, in addition to other sales milestones of up to $780
million. The estimated fair value of the contingent payment
liabilities at the acquisition date was $77 million, which was
recorded in long-term liabilities, and was calculated based on the
probability of achieving the specified milestones and the
discounting of expected future cash flows. As of December 31,
2015, the estimated fair value of the contingent payments was $74
million, with changes in the estimated fair value recognized in
other (income) expense, net within the consolidated and combined
statements of income. Refer to Note 10 for additional information
regarding the contingent payment liability.
The company allocated $74
million of the total consideration to acquired IPR&D, which is
being accounted for as an indefinite-lived intangible asset, with
the residual consideration of $73 million recorded as goodwill. The
acquired IPR&D primarily relates to Chatham’s hemophilia
A (factor VIII) program, which was in preclinical stage at the time
of the acquisition and was expected to be completed in
approximately 10 years as of the acquisition date. The value of the
IPR&D was calculated using cash flow projections adjusted for
the inherent technical, regulatory, commercial and obsolescence
risks in such activities, discounted at a rate of 12%. Additional
R&D will be required prior to obtaining regulatory approval
and, as of the acquisition date, incremental R&D costs were
projected to be in excess of $130 million. The goodwill, which may
be deductible for tax purposes depending on the ultimate resolution
of the contingent payment liabilities, includes the value of
potential future technologies as well as the overall strategic
benefits of the acquisition to the company in the hemophilia
market.
Inspiration / Ipsen
Acquisition
In March 2013, the
investigational hemophilia compound OBIZUR and related assets were
acquired from Inspiration BioPharmaceuticals, Inc. (Inspiration),
and certain other OBIZUR related assets, including manufacturing
operations, were acquired from Ipsen Pharma S.A.S. (Ipsen) in
conjunction with Inspiration’s bankruptcy proceedings. Ipsen
was Inspiration’s senior secured creditor and had been
providing Inspiration with debtor-in-possession financing to fund
Inspiration’s operations and the sales process. Additionally,
Ipsen was the owner of certain assets acquired in the
transaction.
OBIZUR is a recombinant
porcine factor VIII that was approved in the United States in 2014
and in Canada and Europe in 2015 for the treatment of patients with
acquired hemophilia A, and is being investigated for the treatment
of congenital hemophilia A patients with
inhibitors.
The estimated fair value
of contingent payment liabilities at the acquisition date was $269
million, based on the probability of achieving the specified
milestones, of up to $135 million, and sales-based payments, and
the discounting of expected future cash flows. The estimated fair
value of contingent payment liabilities was recorded in other
long-term liabilities as part of the consideration transferred. As
of December 31, 2015, the estimated fair value of the
contingent payments was $360 million, with changes in the estimated
fair value recognized in other (income) expense, net within the
consolidated and combined statements of income. Refer to Note 10
for additional information regarding the contingent payment
liability.
Goodwill of $7 million
principally included the value associated with the assembled
workforce at the acquired manufacturing facility. The goodwill is
deductible for tax purposes. Other intangible assets of $288
million related to acquired IPR&D activities, and the total was
accounted for as an indefinite-lived intangible asset at the
acquisition date. The value of the IPR&D was calculated using
cash flow projections adjusted for the inherent technical,
regulatory, commercial and obsolescence risk associated with such
activities, discounted at a rate of 13%. In 2014, the acquired
IPR&D was reclassified as a definite-lived intangible asset
following regulatory approval. It is being amortized on a
straight-line basis over an estimated useful life of 15
years.
Collaborations
Precision
BioSciences
In February 2016, Baxalta
entered into a strategic immuno-oncology collaboration with
Precision BioSciences (Precision), a private biopharmaceutical
company based in the United States, specializing in genome editing
technology. Together, Baxalta and Precision will develop chimeric
antigen receptor (CAR) T cell therapies for up to six unique
targets, with the first program expected to enter clinical studies
in late 2017. On a product-by-product basis, following successful
completion of early-stage research activities up to Phase 2,
Baxalta will have exclusive option rights to complete late-stage
development and worldwide commercialization. Precision is
responsible for development costs for each target prior to option
exercise. The company will make an upfront payment of $105 million
to Precision, which will be recorded as R&D expense in the
first quarter of 2016. The company may make additional payments
related to option fees and development, regulatory, and commercial
milestones totaling up to $1.6 billion, in addition to future
royalty payments on worldwide sales. Precision also has the right
to participate in the development and commercialization of any
licensed products resulting from the collaboration through a 50/50
co-development and co-promotion option in the United
States.
Symphogen
In December 2015, the
company entered into a research, option and commercial agreement
with Symphogen, a private biopharmaceutical company headquartered
in Denmark that is developing recombinant antibodies and antibody
mixtures. Under the terms of the agreement, the company has options
to obtain exclusive licensing rights for three specified proteins
in development for the treatment of immune-oncology diseases as
well as three additional proteins that may be selected at a later
date. Each option is exercisable for a period of 90 days when each
protein is ready for Phase II clinical trials. Symphogen is
responsible for development costs for each protein until option
exercise, at which point Baxalta would be responsible for
development costs.
The company made an
upfront payment of $175 million in January 2016, which was
recognized as R&D expense in 2015 upon entering into the
agreement. Each option exercise fee is variable depending on when
it is exercised, with a maximum exercise price of up to
€20 million for each protein. The company may make
additional payments of up to approximately €1.2 billion
related to development, regulatory and commercial milestones
achieved after option exercise for all six proteins, in addition to
future royalty payments.
SFJ Pharmaceuticals
Group
In June 2015, the company
entered into an agreement with SFJ Pharmaceuticals Group (SFJ)
relating to adalimumab (BAX 923), whereby SFJ will fund up to $200
million of specified development costs related to the
company’s BAX 923 program, in exchange for payments in the
event the product obtains regulatory approval in the United States
or Europe. The terms of the agreement include funding limitations
of up to $50 million for incurred costs through Phase I development
and cumulative spending caps in six month intervals through
December 31, 2017. The contingent success payments total
approximately 5.5 times the incurred development costs and are
payable in annual installments over an approximate eight-year
period following the dates of regulatory approval. The development
funding from SFJ is being recognized as an offset to R&D
expenses as incurred because there is substantive and genuine
transfer of risk to SFJ. The R&D expense offset for 2015
totaled $58 million. BAX923 is one of the biosimilars in which the
company is collaborating with Momenta Pharmaceuticals, Inc. as
further described below.
Merrimack
Pharmaceuticals, Inc.
In September 2014, the
company entered into an exclusive license agreement with Merrimack
Pharmaceuticals, Inc. (Merrimack) relating to the development and
commercialization of MM-398 (nanoliposomal irinotecan injection),
also known as “nal-IRI”. The arrangement includes all
potential indications for MM-398 across all markets with the
exception of the United States and Taiwan. The first indication
being pursued is for the treatment of patients with metastatic
pancreatic cancer who were previously treated with
gemcitabine-based therapy. In 2014, the company recognized an
R&D charge of $100 million related to the upfront payment. Upon
entering into the agreement, the company had the potential to make
future payments of up to $870 million related to the achievement of
development, regulatory, and commercial milestones, in addition to
royalty payments.
CTI BioPharma
Corp.
In November 2013, the
company acquired approximately 16 million shares of CTI
BioPharma Corp. (CTI BioPharma), which was formerly named Cell
Therapeutics, Inc., common stock for $27 million. The company also
entered into an exclusive worldwide licensing agreement with CTI
BioPharma to develop and commercialize pacritinib, a novel
investigational JAK2/FLT3 inhibitor with activity against genetic
mutations linked to myelofibrosis, leukemia and certain solid
tumors. At the time the company entered into the agreement,
pacritinib was in Phase III development for patients with
myelofibrosis, a chronic malignant bone marrow disorder. Under the
terms of the agreement, the company gained commercialization rights
for all indications of pacritinib outside the United States, while
the company and CTI BioPharma will jointly commercialize pacritinib
in the United States. Under the terms of the initial agreement, CTI
BioPharma is responsible for the funding of the majority of
development activities as well as the manufacture of the product.
In 2013, the company recognized an R&D charge of $33 million
related to an upfront payment. Upon entering into the agreement,
the company had the potential to make future payments of up to $302
million related to the achievement of development, regulatory and
commercial milestones, in addition to future royalty
payments.
In June 2015, the company
entered into an amendment with CTI BioPharma Corp (CTI BioPharma).
Pursuant to the amendment, the company paid $32 million to CTI
BioPharma relating to two contingent milestone payments included in
the original agreement. The company obtained certain additional
rights relating to manufacturing and supply, and CTI BioPharma
committed to spend a specified amount on the development of
pacritinib through February 2016, with failure to do so resulting
in payments to the company equal to the
deficiency.
Coherus Biosciences,
Inc.
In August 2013, the
company entered into an exclusive license agreement with Coherus
Biosciences, Inc. (Coherus) to develop and commercialize a
biosimilar to ENBREL ®
Momenta
Pharmaceuticals, Inc.
In February 2012, the
company entered into an exclusive license agreement with Momenta to
develop and commercialize biosimilars. The arrangement includes
specified funding by the company, as well as other
responsibilities, relating to development and commercialization
activities. In 2012, the company recognized an R&D charge of
$33 million related to an upfront payment. Upon entering into the
agreement, the company had the potential to make future payments of
up to approximately $202 million related to the exercise of options
to develop additional products and the achievement of technical,
development and regulatory milestones for these products, in
addition to future royalty payments and potential profit-sharing
payments.
Payments to
Collaboration Partners
R&D expenses related
to payments to collaboration partners were $430 million, $242
million and $80 million during 2015, 2014, and 2013, respectively.
Expenses related to upfront payments were $175 million, $100
million and $63 million during 2015, 2014 and 2013, respectively;
and expenses related to milestone payments were $215 million, $117
million and $15 million during 2015, 2014 and 2013, respectively.
The remainder primarily related to R&D cost reimbursements.
Payments to collaboration partners classified in cost of sales were
not significant in 2015, 2014 and 2013.
Unfunded Contingent
Payments
At December 31,
2015, the company’s unfunded contingent milestone payments
associated with all of its collaborative arrangements totaled $2.1
billion. This total includes contingent payments associated with
the SFJ agreement related to development costs funded through
December 31, 2015. This total excludes contingent royalty and
profit-sharing payments, contingent payment liabilities arising
from business combinations, which are further discussed in Note 11,
and potential milestone payments and option exercise fees
associated with the Symphogen arrangement because they would be
payable only if the company chooses to exercise one or more of its
options. Based on the company’s projections, any contingent
payments made in the future will be more than offset by the
estimated net future cash flows relating to the rights acquired for
those payments. |
