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Goodwill and Intangible Assets
 9 Months Ended
Sep. 30, 2023
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill for the nine months ended September 30, 2023 are as follows:
(In millions)
Developed Markets (1)
Greater ChinaJANZ
Emerging Markets (2)
Total
Balance at December 31, 2022:7,461.5 940.6 689.0 1,334.7 10,425.8 
Acquisitions95.3 — — — 95.3 
Reclassification to assets held for sale(49.7)— — (16.2)(65.9)
Foreign currency translation(128.7)(0.9)(36.8)(10.7)(177.1)
Balance at September 30, 2023:$7,378.4 $939.7 $652.2 $1,307.8 $10,278.1 
____________
(1)Balances as of September 30, 2023 and December 31, 2022 include an accumulated impairment loss of $385.0 million.
(2)Balances as of September 30, 2023 and December 31, 2022 include an accumulated impairment loss of $117.0 million.
The Company reviews goodwill for impairment annually on April 1st or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. The Company performed the annual goodwill impairment test as of April 1, 2023.
The Company performed its annual goodwill impairment test on a quantitative basis for its five reporting units, North America, Europe, Emerging Markets, JANZ, and Greater China. In estimating each reporting unit’s fair value, the Company performed an extensive valuation analysis, utilizing a discounted cash flow approach. The determination of the fair value of the reporting units requires the Company to make significant estimates and assumptions that affect the reporting unit’s expected future cash flows. These estimates and assumptions, utilizing Level 3 inputs, primarily include, but are not limited to, the discount rate, terminal growth rates, operating income before depreciation and amortization, capital expenditures forecasts and control premiums.

When compared to the prior year’s annual goodwill impairment test completed on April 1, 2022, the Company has experienced significant fluctuations in foreign exchange rates in certain international markets, combined with a significant increase in market interest rates. These market factors have caused the discount rate utilized in all our reporting units to increase between 1.0% to 4.5%, resulting in a significant reduction in the calculated fair values at April 1, 2023 for all our reporting units. Also, in conjunction with the Company’s annual strategic planning process which included determining long-term growth rate targets for our business, operational results during the forecast period were reduced and long-term growth rates were increased. As a result of these changes, the calculated fair values of the North America, Greater China and Europe reporting units declined in excess of 10% and the JANZ and Emerging Markets reporting units declined in excess of 15% when compared to the prior year fair values.

As of April 1, 2023, the allocation of the Company’s total goodwill was as follows: North America $3.15 billion, Europe $4.47 billion, Emerging Markets $1.34 billion, JANZ $0.68 billion and Greater China $0.94 billion.
As of April 1, 2023, the Company determined that the fair value of the North America and Greater China reporting units was substantially in excess of the respective unit’s carrying value.
For the Europe reporting unit, the estimated fair value exceeded its carrying value by approximately $535 million or 3.9% for the annual goodwill impairment test. As it relates to the discounted cash flow approach for the Europe reporting unit at April 1, 2023, the Company forecasted cash flows for the next 10 years. During the forecast period, the revenue compound annual growth rate was approximately 2.4%. A terminal year value was calculated with a 2.0% revenue growth rate applied. The discount rate utilized was 11.0% and the estimated tax rate was 14.9%. If all other assumptions are held constant, a reduction in the terminal value growth rate by 1.0% or an increase in discount rate by 0.5% would result in an impairment charge for the Europe reporting unit.
For the JANZ reporting unit, the estimated fair value exceeded its carrying value by approximately $145 million or 5.5% for the annual goodwill impairment test. As it relates to the discounted cash flow approach for the JANZ reporting unit at April 1, 2023, the Company forecasted cash flows for the next 10 years. During the forecast period, the revenue compound annual growth rate was approximately negative 2.0%. A terminal year value was calculated with a 1.5% revenue growth rate applied. The discount rate utilized was 7.0% and the estimated tax rate was 30.6%. If all other assumptions are held constant, a reduction in the terminal value growth rate by 0.5% or an increase in discount rate by 0.5% would result in an impairment charge for the JANZ reporting unit.
For the Emerging Markets reporting unit, the estimated fair value exceeded its carrying value by approximately $513 million or 7.7% for the annual goodwill impairment test. As it relates to the discounted cash flow approach for the Emerging Markets reporting unit at April 1, 2023, the Company forecasted cash flows for the next 10 years. During the forecast period, the revenue compound annual growth rate was approximately 1.8%. A terminal year value was calculated with a 2.0% revenue growth rate applied. The discount rate utilized was 11.5% and the estimated tax rate was 17.4%. If all other assumptions are held constant, a reduction in the terminal value growth rate by 2.5% or an increase in discount rate by 1.0% would result in an impairment charge for the Emerging Markets reporting unit.
Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates. In addition, changes in underlying assumptions, especially as they relate to the key assumptions detailed, could have a significant impact on the fair value of the reporting units.
The Company allocated goodwill of $65.9 million to its women’s healthcare business using a relative fair value approach and reclassified the amount to Assets Held for Sale in the September 30, 2023 condensed consolidated balance sheet.
Intangible Assets, Net
Intangible assets consist of the following components at September 30, 2023 and December 31, 2022:
(In millions)Weighted Average Life (Years)Original CostAccumulated AmortizationNet Book Value
September 30, 2023
Product rights, licenses and other (1)
15$37,442.8 $16,481.9 $20,960.9 
In-process research and development319.6 — 319.6 
$37,762.4 $16,481.9 $21,280.5 
December 31, 2022
Product rights, licenses and other (1)
15$37,490.5 $14,923.6 $22,566.9 
In-process research and development40.2 — 40.2 
$37,530.7 $14,923.6 $22,607.1 
____________
(1)Represents amortizable intangible assets. Other intangible assets consists principally of customer lists and contractual rights.
During the nine months ended September 30, 2023, the Company recorded intangible assets of approximately $334.0 million as part of the Oyster Point acquisition, and IPR&D of approximately $290.0 million as part of the Famy Life Sciences acquisition. Refer to Note 4 Acquisitions and Other Transactions for additional information.
Amortization expense and intangible asset disposal & impairment charges (which are included as a component of amortization expense) are classified primarily within Cost of Sales in the condensed consolidated statements of operations and were as follows for the three and nine months ended September 30, 2023 and 2022:
Three Months EndedNine Months Ended
September 30,September 30,
(In millions)2023202220232022
Intangible asset amortization expense$584.0 $615.9 $1,778.5 $1,898.1 
Intangible asset disposal & impairment charges— — 32.0 — 
Total intangible asset amortization expense (including disposal & impairment charges)$584.0 $615.9 $1,810.5 $1,898.1 
During the nine months ended September 30, 2023, the Company recognized an intangible asset charge of approximately $32.0 million, which was recorded within Cost of Sales in the condensed consolidated statements of operations, to write down the disposal group to fair value, less cost to sell, related to our Upjohn Distributor Markets, which are classified as held for sale. Refer to Note 5 Divestitures for additional information.
Intangible asset amortization expense over the remainder of 2023 and for the years ending December 31, 2024 through 2027 is estimated to be as follows:
(In millions)
2023$573 
20242,223 
20252,149 
20262,094 
20271,882