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Author: CatcherintheRye Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 3916  
Subject: Intangible Assets - Pfizer Date: 3/27/2005 5:21 PM
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After reading through the 2004 Pfizer financials, I'm hoping that some one can help me understand the intangilble asset amount that Pfizer accounts for following acquisition of Pharmacia.

Pfizer carries an asset of $33 billion in intangible assets as of year-end 2004 ($40b prior to accumulated amortization). By far and away, the largest component is "developed technology rights" of $33b, gross.

I understand brands, licenses, etc. well enough, but developed technology rights (which I think they amortise over ten years) is something I don't.

Given stated equity of $56 billion, this makes it an important asset to understand.

Thanks for any guidance you might offer.

Kind regards,
Catcher
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Author: TMFKitKat Big gold star, 5000 posts Top Favorite Fools Feste Award Nominee! Feste Award Winner! Old School Fool Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2998 of 3916
Subject: Re: Intangible Assets - Pfizer Date: 3/27/2005 7:19 PM
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From the 10K

Developed technology rights represent the value associated with developed technology from Pharmacia to which Pfizer has rights. These rights can include the right to develop, use, market, sell and/or offer for sale the products, compounds and intellectual property that we acquired from Pharmacia with respect to products, compounds and/or processes that have been completed. Most of these assets are related to our Pharmaceutical segment.

Would include completed products and intellectual property as opposed to in progress R&D

>^..^<


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Author: TMFKitKat Big gold star, 5000 posts Top Favorite Fools Feste Award Nominee! Feste Award Winner! Old School Fool Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2999 of 3916
Subject: Re: Intangible Assets - Pfizer Date: 3/27/2005 10:58 PM
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I should add that the Pharmacia acquisition was considered quite an accomplishment for Pfizer


As Pfizer prepares to announce a $60 billion in stock deal to acquire Pharmacia, here's what Pharmacia brought and part of the payment was for the four completed drugs.

As we now know Celebrex didn't quite work out the way they anticipated and Bextra is also not going to be all they hoped. Pfizer's per share price has appropriately been squashed. They now need to find other sources of revenue.
 
Pharmacia

$13.80 billion 2001 revenue

2001 Net Income $ 1.50 billion

Major Products
Celebrex (Arthritis)
Xalatan (Glaucoma),
Detrol (Urinary incontinence)
Bextra (Arthritis)

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Author: CatcherintheRye Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3000 of 3916
Subject: Re: Intangible Assets - Pfizer Date: 3/28/2005 7:11 PM
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Thanks >^..^<,

I appreciate your quick and thoughtful reply.

If I understand correctly, the bulk of the intangibles tie to expected future cash flows arising from pipeline projects and proprietary technology that will give rise to future revenues, plus future cash flows from existing products, plus brands.

Wow, that's a big number! On a revenue basis, it makes some sense but in terms of income I am astounded. Maybe I need to look beyond the 10 year amortization period?

Again, thanks for the guidance. Shall study a bit more.

Kind regards,
CAT-cher





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Author: TMFKitKat Big gold star, 5000 posts Top Favorite Fools Feste Award Nominee! Feste Award Winner! Old School Fool Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3001 of 3916
Subject: Re: Intangible Assets - Pfizer Date: 3/28/2005 11:17 PM
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Hi Catcher

Again from the 10K they discuss hiring valuation specialists to do the work

(d) We are working with independent valuation specialists to determine the following:

* the fair value of research and development projects of Pharmacia which were in-process, but not yet completed (collectively, In-Process Research and Development, or IPR&D); and
* the fair value of identifiable intangible assets
As required, we recorded a charge of $5,052 million for the preliminary estimate of the portion of the purchase price allocated to acquired IPR&D.
Components of the fair value of acquired identifiable intangible assets are as follows:

The total weighted average life of identifiable intangible assets acquired from Pharmacia that are subject to amortization is 11 years.


So you are pretty close at using 10 years for amortization--they cite 11.

And value is predicated on discounted future cash flows--so you were right therre too.

The fair value of both IPR&D and identifiable intangible assets is determined using the "income approach" on a project-by-project basis. This method starts with a forecast of all of the expected future net cash flows. These net cash flow projections do not anticipate any revenue or cost synergies. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams, some of which are more certain than others. For IPR&D, the discount rate also reflects the project's stage of completion and other risk factors which include the nature of the product, the scientific data associated with the technology, the current patent situation and market competition. Of the value allocated to developed technology rights, approximately 96% is derived from regulatory-approved uses and indications.

Now that Bextra and Celebrex are damaged goods do you suppose they may have to take a write down?

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