Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information gives effect to the Transaction. The unaudited pro forma condensed combined statements of operations combine the historical statements of operations of CareDx for the three months ended March 31, 2016 and year ended December 31, 2015, and Allenex for the three months ended March 31, 2016 and year ended December 31, 2015, as if the Transaction had been completed on January 1, 2015.
The unaudited pro forma condensed combined balance sheet combines the historical balance sheets of CareDx as of March 31, 2016 and Allenex as of March 31, 2016, as if the Transaction had been completed on March 31, 2016.
The historical financial statements of CareDx are presented in USD and have been prepared in accordance with U.S. GAAP. The historical financial statements of Allenex are presented in Swedish Kronor (SEK) and have been prepared in accordance with IFRS as issued by the IASB.
The unaudited pro forma condensed combined financial information has been prepared under U.S. GAAP using the acquisition method of accounting under Accounting Standards Codification 805,Business Combinations (“ASC 805”), with CareDx treated as the accounting acquirer. The unaudited pro forma condensed combined financial information conforms to Article 11 of Regulation S-X,Pro forma financial information.
The historical financial information has been adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma matters that are directly attributable to the Transaction and factually supportable, and with respect to the unaudited condensed combined statement of operations, expected to have a continuing impact on the operating results of the Combined Company. Additionally, certain pro forma adjustments have been made to the historical consolidated financial statements of Allenex in order to (i) convert their financials to U.S. GAAP, (ii) conform their accounting policies to those applied by CareDx and (iii) present them in a manner consistent with CareDx’ presentation.
The acquisition method of accounting is dependent upon certain valuations and other studies that must be prepared as of the completion date of the Transaction. For purposes of preparing the preliminary valuation, CareDx used information provided by Allenex management, publicly available information, as well as a variety of other assumptions, including market participant assumptions, cost and development assumptions, and certain other high-level assumptions. Differences between these preliminary estimates and the final acquisition accounting will occur and these differences could have a material impact on the unaudited pro forma condensed combined financial information.
The unaudited condensed combined pro forma information is provided for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the Transaction had been completed as of the dates set forth above, nor is it indicative of the future results of the Combined Company. Because of its nature, the unaudited pro forma condensed combined financial information addresses a hypothetical situation and, therefore, does not represent the Combined Company’s actual financial position or results of operations. Furthermore, the unaudited pro forma condensed combined financial information does not purport to project the future operating results or financial position of the Combined Company following the Transaction. The unaudited pro forma condensed combined statements of operations do not reflect any revenue or cost savings (or associated costs to achieve such savings) from synergies that may be directly related to the Transaction.
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The unaudited condensed combined pro forma information should be read in conjunction with:
| • | | The accompanying notes to the unaudited pro forma condensed combined financial information; |
| • | | CareDx’ audited financial statements and related notes contained in the Annual Report on Form 10-K as of and for the year ended December 31, 2015, as incorporated by reference in this report (“Form 8-K/A”); |
| • | | CareDx’ unaudited condensed financial statements and related notes contained in the Quarterly Report on Form 10-Q as of and for the three months ended March 31, 2016, as incorporated by reference in this report (“Form 8-K/A”); |
| • | | CareDx’ current report on Form 8-K as of April 12, 2016; |
| • | | Allenex’ audited consolidated financial statements as of and for the year ended December 31, 2015 together with related notes, which are available on Allenex’ website (www.allenex.com), included in this report (“Form 8-K/A”); |
| • | | Allenex’ unaudited financial interim information and related notes contained in the Interim Report as of and for the three months ended March 31, 2016, included in this report (“Form 8-K/A”); |
| • | | The other information contained in this report (“Form 8-K/A”). |
2
Unaudited Pro Forma Condensed Combined
Balance Sheet
As of March 31, 2016
| | | | | | | | | | | | | | | | | | | | |
USD, in thousands | | CareDx Historical | | | Allenex U.S. GAAP Note 3 | | | Pro Forma Adjustments | | | Notes | | | Pro Forma Combined | |
Assets | | | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 23,752 | | | $ | 383 | | | $ | (21,807 | ) | | | 5a | | | $ | 23,092 | |
| | | | | | | | | | | 22,169 | | | | 6a | | | | | |
| | | | | | | | | | | (1,405 | ) | | | 6c | | | | | |
Accounts receivable | | | 2,512 | | | | 1,642 | | | | — | | | | | | | | 4,154 | |
Inventory | | | 595 | | | | 5,462 | | | | 6,013 | | | | 5d | | | | 12,070 | |
Prepaid and other assets | | | 807 | | | | 988 | | | | 157 | | | | 5l | | | | 1,952 | |
| | | | | | | | | | | | | | | | | | | | |
Total current assets | | | 27,666 | | | | 8,475 | | | | 5,127 | | | | | | | | 41,268 | |
Property, plant and equipment, net | | | 2,346 | | | | 450 | | | | 175 | | | | 5e | | | | 2,971 | |
Intangible assets, net | | | 6,650 | | | | 7,138 | | | | 24,132 | | | | 5f | | | | 37,920 | |
Goodwill | | | 12,005 | | | | 26,468 | | | | (12,521 | ) | | | 5g | | | | 26,351 | |
| | | | | | | | | | | 399 | | | | 5l | | | | | |
Restricted cash | | | 147 | | | | — | | | | — | | | | | | | | 147 | |
Other noncurrent assets | | | 20 | | | | — | | | | — | | | | | | | | 20 | |
| | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 48,834 | | | $ | 42,531 | | | $ | 17,312 | | | | | | | $ | 108,677 | |
| | | | | | | | | | | | | | | | | | | | |
Liabilities, redeemable preferred stock and stockholders’ equity | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | |
Accounts payable | | $ | 2,536 | | | $ | 1,901 | | | $ | — | | | | | | | $ | 4,437 | |
Accrued payroll liabilities | | | 1,609 | | | | 542 | | | | — | | | | | | | | 2,151 | |
Accrued and other liabilities | | | 5,298 | | | | 1,407 | | | | 5,163 | | | | 5a | | | | 11,919 | |
| | | | | | | | | | | 51 | | | | 5l | | | | | |
Accrued royalties | | | 232 | | | | — | | | | — | | | | | | | | 232 | |
Deferred revenue | | | 137 | | | | — | | | | — | | | | | | | | 137 | |
Current portion of long-term debt | | | 4,419 | | | | 1,253 | | | | — | | | | | | | | 5,672 | |
| | | | | | | | | | | | | | | | | | | | |
Total current liabilities | | | 14,231 | | | | 5,103 | | | | 5,214 | | | | | | | | 24,548 | |
Deferred income taxes | | | — | | | | 1,234 | | | | 7,817 | | | | 5h | | | | 8,955 | |
| | | | | | | | | | | (96 | ) | | | 5l | | | | | |
Deferred rent, net of current portion | | | 1,347 | | | | — | | | | — | | | | | | | | 1,347 | |
Deferred revenue, net of current portion | | | 693 | | | | — | | | | — | | | | | | | | 693 | |
Long-term debt, net of current portion | | | 11,368 | | | | 12,001 | | | | — | | | | | | | | 23,369 | |
Contingent consideration | | | 735 | | | | — | | | | — | | | | | | | | 735 | |
Other liabilities | | | — | | | | — | | | | 652 | | | | 5l | | | | 5,609 | |
| | | | | | | | | | | 4,667 | | | | 6a | | | | | |
| | | | | | | | | | | 290 | | | | 6d | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total liabilities | | | 28,374 | | | | 18,338 | | | | 18,544 | | | | | | | | 65,256 | |
Commitments and contingent liabilities | | | | | | | | | | | | | | | | | | | | |
Redeemable preferred stock | | | — | | | | — | | | | 14,585 | | | | 6a | | | | 14,585 | |
Stockholder’s equity: | | | | | | | | | | | | | | | | | | | | |
Common stock | | | 12 | | | | 14,806 | | | | (14,806 | ) | | | 5c | | | | 14 | |
| | | | | | | | | | | 1 | | | | 5a | | | | | |
| | | | | | | | | | | 1 | | | | 6a | | | | | |
Additional paid-in capital | | | 203,284 | | | | 61,681 | | | | (61,681 | ) | | | 5c | | | | 211,709 | |
| | | | | | | | | | | 7,204 | | | | 5a | | | | | |
| | | | | | | | | | | (1,405 | ) | | | 6c | | | | | |
| | | | | | | | | | | 2,916 | | | | 6a | | | | | |
| | | | | | | | | | | (290 | ) | | | 6d | | | | | |
Accumulated other comprehensive loss | | | — | | | | (2,312 | ) | | | 2,312 | | | | 5c | | | | — | |
Accumulated deficit | | | (182,836 | ) | | | (49,982 | ) | | | 49,982 | | | | 5c | | | | (182,887 | ) |
| | | | | | | | | | | (51 | ) | | | 5l | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total stockholders’ equity | | | 20,460 | | | | 24,193 | | | | (15,817 | ) | | | | | | | 28,836 | |
| | | | | | | | | | | | | | | | | | | | |
Total liabilities, redeemable preferred stock and stockholders’ equity | | $ | 48,834 | | | $ | 42,531 | | | $ | 17,312 | | | | | | | $ | 108,677 | |
| | | | | | | | | | | | | | | | | | | | |
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
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Unaudited Pro Forma Condensed Combined
Statement of Operations
For the Three Months Ended March 31, 2016
| | | | | | | | | | | | | | | | | | |
USD, in thousands | | CareDx Historical | | | Allenex U.S. GAAP Note 3 | | | Pro Forma Adjustments | | | Notes | | Pro Forma Combined | |
Revenue: | | | | | | | | | | | | | | | | | | |
Testing revenue | | $ | 6,452 | | | $ | 3,866 | | | $ | — | | | | | $ | 10,318 | |
Collaboration and license revenue | | | 110 | | | | — | | | | — | | | | | | 110 | |
Other revenue | | | — | | | | 78 | | | | — | | | | | | 78 | |
| | | | | | | | | | | | | | | | | | |
Total revenue | | | 6,562 | | | | 3,944 | | | | — | | | | | | 10,506 | |
Operating expenses: | | | | | | | | | | | | | | | | | | |
Cost of testing | | | 2,772 | | | | 1 707 | | | | 395 | | | 5e, f | | | 4,874 | |
Research and development | | | 3,159 | | | | 445 | | | | (77 | ) | | 5f | | | 3,527 | |
Sales and marketing | | | 1,737 | | | | 1,258 | | | | 174 | | | 5f | | | 3,169 | |
General and administrative | | | 5,676 | | | | 608 | | | | 2 | | | 5e | | | 4,127 | |
| | | | | | | | | | | (2,159 | ) | | 5b | | | | |
Change in estimated fair value of contingent consideration | | | (213 | ) | | | — | | | | — | | | | | | (213 | ) |
| | | | | | | | | | | | | | | | | | |
Total operating expenses | | | 13,131 | | | | 4 018 | | | | (1,665 | ) | | | | | 15,484 | |
| | | | | | | | | | | | | | | | | | |
Income (loss) from operations | | | (6,569 | ) | | | (74 | ) | | | 1,665 | | | | | | (4,978 | ) |
Interest expense | | | (266 | ) | | | (145 | ) | | | — | | | | | | (411 | ) |
Other income (expense), net | | | (2,917 | ) | | | (53 | ) | | | 2,879 | | | 5b | | | (91 | ) |
| | | | | | | | | | | | | | | | | | |
Loss before income taxes | | | (9,752 | ) | | | (272 | ) | | | 4,544 | | | | | | (5,480 | ) |
Income tax (expense)/benefit | | | — | | | | 144 | | | | (51 | ) | | 5i | | | 93 | |
| | | | | | | | | | | | | | | | | | |
Net (loss) | | $ | (9,752 | ) | | $ | (128 | ) | | $ | 4,493 | | | | | $ | (5,387 | ) |
| | | | | | | | | | | | | | | | | | |
Net (loss) per share | | | | | | | | | | | | | | | | | | |
Basic | | $ | (0.81 | ) | | $ | (0.00 | ) | | | | | | 5k | | $ | (0.29 | ) |
Diluted | | $ | (0.81 | ) | | $ | (0.00 | ) | | | | | | 5k | | $ | (0.29 | ) |
Weighted average shares | | | | | | | | | | | | | | | | | | |
Basic | | | 11,969,714 | | | | 120,288,448 | | | | 1,375,028 | | | 5j | | | 18,900,916 | |
| | | | | | | | | | | 5,556,174 | | | 6b | | | | |
| | | | | | | | | | | (120,288,448 | ) | | 5m | | | | |
Diluted | | | 11,969,714 | | | | 120,288,448 | | | | 1,375,028 | | | 5j | | | 18,900,916 | |
| | | | | | | | | | | 5,556,174 | | | 6b | | | | |
| | | | | | | | | | | (120,288,448 | ) | | 5m | | | | |
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
4
Unaudited Pro Forma Condensed Combined
Statement of Operations
For the Year Ended December 31, 2015
| | | | | | | | | | | | | | | | | | |
USD, in thousands | | CareDx Historical | | | Allenex U.S. GAAP Note 3 | | | Pro Forma Adjustments | | | Notes | | Pro Forma Combined | |
Revenue: | | | | | | | | | | | | | | | | | | |
Testing revenue | | $ | 27,881 | | | $ | 15,949 | | | $ | — | | | | | $ | 43,830 | |
Collaboration and license revenue | | | 263 | | | | — | | | | — | | | | | | 263 | |
Other revenue | | | — | | | | 315 | | | | — | | | | | | 315 | |
| | | | | | | | | | | | | | | | | | |
Total revenue | | | 28,144 | | | | 16,264 | | | | — | | | | | | 44,408 | |
Operating expenses: | | | | | | | | | | | | | | | | | | |
Cost of testing | | | 10,273 | | | | 5,600 | | | | 1,581 | | | 5e,f | | | 17,454 | |
Research and development | | | 9,333 | | | | 2,053 | | | | (294 | ) | | 5f | | | 11,092 | |
Sales and marketing | | | 8,349 | | | | 5,436 | | | | 695 | | | 5f | | | 14,480 | |
General and administrative | | | 12,247 | | | | 1,826 | | | | 10 | | | 5e | | | 12,941 | |
| | | | | | | | | | | (1,142 | ) | | 5b | | | | |
Change in estimated fair value of contingent consideration | | | (126 | ) | | | — | | | | 556 | | | 5a | | | 430 | |
| | | | | | | | | | | | | | | | | | |
Total operating expenses | | | 40,076 | | | | 14,915 | | | | 1,406 | | | | | | 56,397 | |
| | | | | | | | | | | | | | | | | | |
Income (loss) from operations | | | (11,932 | ) | | | 1,349 | | | | (1,406 | ) | | | | | (11,989 | ) |
Interest expense | | | (1,587 | ) | | | (563 | ) | | | (496 | ) | | 5a | | | (2,646 | ) |
Other income (expense), net | | | (188 | ) | | | (58 | ) | | | 128 | | | 5b | | | (118 | ) |
| | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | (13,707 | ) | | | 728 | | | | (1,774 | ) | | | | | (14,753 | ) |
Income tax (expense) | | | — | | | | (91 | ) | | | (127 | ) | | 5i | | | (177 | ) |
| | | | | | | | | | | 41 | | | 5l | | | | |
| | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (13,707 | ) | | $ | 637 | | | $ | (1,860 | ) | | | | $ | (14,930 | ) |
| | | | | | | | | | | | | | | | | | |
Net income (loss) per share | | | | | | | | | | | | | | | | | | |
Basic | | $ | (1.16 | ) | | $ | 0.01 | | | | | | | 5k | | $ | (0.79 | ) |
Diluted | | $ | (1.16 | ) | | $ | 0.01 | | | | | | | 5k | | $ | (0.79 | ) |
Weighted average shares | | | | | | | | | | | | | | | | | | |
Basic | | | 11,860,885 | | | | 120,288,448 | | | | 1,375,028 | | | 5j | | | 18,792,087 | |
| | | | | | | | | | | 5,556,174 | | | 6b | | | | |
| | | | | | | | | | | (120,288,448 | ) | | 5m | | | | |
Diluted | | | 11,860,885 | | | | 120,288,448 | | | | 1,375,028 | | | 5j | | | 18,792,087 | |
| | | | | | | | | | | 5,556,174 | | | 6b | | | | |
| | | | | | | | | | | (120,288,448 | ) | | 5m | | | | |
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
5
Notes to Unaudited Pro Forma Condensed Combined Financial Information
Note 1 Description of transaction
On December 16, 2015, CareDx, Inc. (NASDAQ: CDNA) issued a press release in Sweden and in the U.S. announcing its intent, to combine with Allenex (ALNX.ST: Sweden NASDAQ), pursuant to a tender offer, that was supported by the Allenex board of directors and three institutional investors (“Majority Shareholders”) which together represent approximately 77.93 percent of the outstanding shares of Allenex as of March 31, 2016, to acquire 100 percent of Allenex’ shares (“The Transaction”). The shareholders who own the remaining 22.07 percent of the outstanding Allenex shares, primarily based in Sweden (“Minority Shareholders”) were also invited to participate in the tender offer. On February 9, 2016, CareDx announced a revision to the deferred consideration alternative which was the consideration alternative agreed to by the Majority Shareholders. As a consequence of the enhanced share component following the revision, CareDx also revised the mixed consideration alternative which was offered to Minority Shareholders to reflect the enhanced share component.
On March 27, 2016 a tender offer document was made public. On April 6, 2016 Allenex shareholders holding an aggregate of 118,207,862 shares, corresponding to 98.27 percent of the total number of outstanding shares in Allenex, accepted the tender offer.
On April 14, 2016, CareDx announced settlement and completion of a successful tender of 98.27 percent of Allenex outstanding shares as part of a public tender offer (“Acquisition date” and/or “Closing date”).
The Majority Shareholders holding an aggregate of 93,739,912 shares tendered all their shares. The Transaction consideration payable to Majority Shareholders consists of SEK 1.191 per share payable in cash (in aggregate, SEK 111.6 million, or USD 13.7 million, at April 14, 2016), SEK 0.54 per share payable in cash by March 31, 2017 subject to the achievement of certain financial and research and development milestones (in aggregate, SEK 42.0 million, or USD 5.2 million, at April 14, 2016), and 0.01458 shares of CareDx common stock per Allenex share held (in aggregate, 1,366,727 shares of CareDx common stock which had a fair value of SEK 58.3 million, or USD 7.2 million, at April 14, 2016).
The Minority shareholders tendered their shares as follows:
| (i) | 23,898,587 shares under theAll cash alternative,corresponding to 19.9 percent of the total number of outstanding shares in Allenex – The transaction consideration consists of SEK 2.50 per share payable in cash (in aggregate, SEK 59.7 million, or USD 7.3 million, at April 14, 2016); |
| (ii) | 569,363 shares under theMixed consideration alternative,corresponding to 0.5 percent of the total number of outstanding shares in Allenex – The transaction consideration consists of SEK 1.731 per share payable in cash (in aggregate, SEK 1.0 million, or USD 0.1 million, at April 14, 2016) and 0.01458 shares of CareDx common stock per Allenex share held (in aggregate, 8,301 shares of CareDx common stock which had a fair value of SEK 0.4 million, or USD 43 thousand, at April 14, 2016). |
The Minority shareholders holding an aggregate of 2,080,586 shares, corresponding to 1.73 percent of the total number of outstanding shares in Allenex, did not tender their shares. The Transaction consideration payable to Minority Shareholders for the remaining shares consists of SEK 2.50 per share payable in cash (in aggregate, SEK 5.2 million, or USD 0.6 million, at April 14, 2016).
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As more than 90 percent of the total outstanding Allenex shares were acquired, CareDx intends to initiate compulsory acquisition procedures with respect to the remaining Allenex shares under the Swedish Companies Act. In connection therewith, CareDx subsequently intends to initiate a delisting of Allenex from Nasdaq Stockholm. This process is expected to be concluded in June 2016.
The Transaction will be accounted for under the acquisition method of accounting in accordance with ASC 805, with CareDx treated as the accounting acquirer. Under the acquisition method of accounting, all of Allenex’ acquired assets and liabilities assumed in the Transaction will be recorded by CareDx at their acquisition date estimated fair values, while all Transaction costs associated with the transaction will be expensed as incurred.
Note 2 Basis of presentation
Allenex’ historical consolidated financial statements as of and for the three months ended March 31, 2016 and the year ended December 31, 2015 have been prepared in accordance with IFRS as issued by the IASB and use the local currency, SEK, as the reporting currency. As a result, Allenex’ historical consolidated financial statements have been converted from IFRS to U.S. GAAP (Note 3) and translated from SEK to USD for the preparation of the unaudited pro forma condensed combined financial information herein.
The unaudited pro forma financial information has been presented in USD, which is CareDx’ functional and reporting currency. Allenex’ historical financial information has been converted using the following rates as quoted by OANDA.com:
| • | | the unaudited adjusted statements of operations for the three months ended March 31, 2016 and the year ended December 31, 2015 were translated using the average exchange rate for the periods of SEK 8.45 per USD and SEK 8.44 per USD, respectively; and |
| • | | the unaudited adjusted balance sheet was translated at the closing rate of SEK 8.13 per USD as of March 31, 2016. |
Sensitivity analysis
During the three months ended March 31, 2016, the USD/SEK exchange rate averaged SEK 8.45 compared to 8.35 SEK during the three months ended March 31, 2015, and was SEK 8.14 per USD as of April 14, 2016 as quoted by OANDA.com. A significant decline in the USD/SEK exchange rate may have a material adverse effect on the Allenex reported SEK amounts of revenue and net income.
CareDx believes that a 10 percent fluctuation in the USD/SEK exchange rate is reasonably possible. The table below illustrates the potential impact to Allenex’ SEK amounts of revenue and net income as converted to USD resulting from a 10 percent increase or decrease in the USD/SEK exchange rate (in USD thousands):
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| | | | | | | | | | | | | | | | | | | | |
USD, in thousands | | Allenex adjusted U.S. GAAP | | | 10% increase in USD/SEK exchange rate | | | 10% decrease in USD/SEK exchange rate | |
Total revenue | | | 3,866 | | | | (357 | ) | | | 3,509 | | | | 423 | | | | 4,289 | |
Net loss | | | (128 | ) | | | 11 | | | | (117 | ) | | | (14 | ) | | | (142 | ) |
Reclassifications
Based on information known and assessed on the date of the report (“Form 8-K/A”) and on the amounts reported in the statements of operations and balance sheets of CareDx and Allenex as of and for the three months ended March 31, 2016 and statements of operations for the year ended December 31, 2015, certain financial line items included in Allenex’ historical consolidated financial statement presentation have been reclassified to conform to corresponding line items included in the CareDx’ historical financial statement presentation. These reclassifications have no material impact on the historical operating income, net income, total assets, liabilities or stockholders’ equity previously reported by Allenex (Note 3). Additionally, based on a comparison of Allenex’ summary of significant accounting policies as disclosed in the notes to Allenex’ consolidated financial statements, with those of CareDx, the nature and amount of any adjustments to the historical consolidated financial statements of Allenex to conform its accounting policies to those of CareDx are not expected to be material, other than the adjustments required to conform to U.S. GAAP as discussed in Note 3.
In addition, the unaudited pro forma condensed combined financial information includes adjustments to reflect the financing structure established to fund the Transaction (Notes 5 and 6).
The unaudited pro forma condensed combined financial information is based on information available as of the date of the Offer document. Further review of Allenex’ accounting policies and historical consolidated financial statements may result in further revisions to these adjustments to conform to CareDx’ financial statement presentation.
8
Note 3 Description of IFRS to U.S. GAAP adjustments
Unaudited adjusted Allenex consolidated balance sheet
As of March 31, 2016
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Reclassifications and IFRS to U.S. GAAP Adjustments (in SEK) | | | | | | | |
In thousands | | Allenex Historical IFRS (in SEK) | | | Reclassifications 3 (a) | | | Capitalized development costs 3 (c) | | | Taxes on unrealized intercompany profit 3 (e) | | | Allenex adjusted U.S. GAAP (in SEK) | | | Allenex adjusted U.S. GAAP (in USD) | |
Assets | | | | | | | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | SEK | 3,108 | | | SEK | — | | | SEK | — | | | SEK | — | | | SEK | 3,108 | | | $ | 383 | |
Accounts receivable | | | — | | | | 13,344 | | | | — | | | | — | | | | 13,344 | | | | 1,642 | |
Inventory | | | 44,376 | | | | — | | | | — | | | | — | | | | 44,376 | | | | 5,462 | |
Current receivables | | | 20,038 | | | | (20,038 | ) | | | — | | | | — | | | | — | | | | — | |
Prepaid and other assets | | | — | | | | 6,694 | | | | — | | | | 1,330 | | | | 8 024 | | | | 988 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total current assets | | | 67,522 | | | | — | | | | — | | | | 1 330 | | | | 68,852 | | | | 8,475 | |
Deferred income taxes | | | 3,796 | | | | (2,765 | ) | | | — | | | | (1,031 | ) | | | — | | | | — | |
Property, plant and equipment, net | | | 3,656 | | | | — | | | | — | | | | — | | | | 3,656 | | | | 450 | |
Intangible assets, net | | | 75,896 | | | | — | | | | (17,903 | ) | | | — | | | | 57,993 | | | | 7,138 | |
Goodwill | | | 215,041 | | | | — | | | | — | | | | — | | | | 215,041 | | | | 26,468 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total assets | | SEK | 365,911 | | | SEK | (2 765 | ) | | SEK | (17,903 | ) | | SEK | 299 | | | SEK | 345,542 | | | $ | 42,531 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and stockholders’ equity | | | | | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts payable | | SEK | — | | | SEK | 15,448 | | | SEK | — | | | SEK | — | | | SEK | 15,448 | | | $ | 1,901 | |
Accrued payroll liabilities | | | — | | | | 4,405 | | | | — | | | | — | | | | 4,405 | | | | 542 | |
Accrued and other liabilities | | | — | | | | 11,433 | | | | — | | | | — | | | | 11,433 | | | | 1,407 | |
Non-interest bearing current liabilities | | | 31,286 | | | | (31,286 | ) | | | — | | | | — | | | | — | | | | — | |
Current portion of long-term debt | | | 10,173 | | | | — | | | | — | | | | — | | | | 10,173 | | | | 1,253 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total current liabilities | | | 41,459 | | | | — | | | | — | | | | — | | | | 41,459 | | | | 5,103 | |
Deferred income taxes | | | 16,732 | | | | (2,765 | ) | | | (3,939 | ) | | | — | | | | 10,028 | | | | 1,234 | |
Long-term debt, net of current portion | | | 97,500 | | | | — | | | | — | | | | — | | | | 97,500 | | | | 12,001 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities | | | 155,691 | | | | (2 765 | ) | | | (3,939 | ) | | | — | | | | 148,987 | | | | 18,338 | |
Stockholder’s equity: | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock | | | 120,288 | | | | | | | | — | | | | — | | | | 120,288 | | | | 14,806 | |
Additional paid-in capital | | | 501,130 | | | | | | | | — | | | | — | | | | 501,130 | | | | 61,681 | |
Accumulated other comprehensive loss* | | | (18,785 | ) | | | | | | | — | | | | — | | | | (18,785 | ) | | | (2,312 | ) |
Accumulated deficit | | | (392,413 | ) | | | | | | | (13,964 | ) | | | 299 | | | | (406,078 | ) | | | (49,982 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total stockholders’ equity | | | 210,220 | | | | — | | | | (13,964 | ) | | | 299 | | | | 196,555 | | | | 24,193 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities and stockholders’ equity | | SEK | 365,911 | | | SEK | (2 765 | ) | | SEK | (17,903 | ) | | SEK | 299 | | | SEK | 345,542 | | | $ | 42,531 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
(*) | Accumulated other comprehensive loss is attributable to translation differences. |
9
Unaudited adjusted Allenex consolidated statement of operations
Three Months ended March 31, 2016
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Reclassifications and IFRS to U.S. GAAP Adjustments (in SEK) | | | | | | | |
In thousands | | Allenex Historical IFRS (in SEK) | | | Reclassifi- cations 3 (a) | | | Capitalized personnel costs 3 (b) | | | Capitalized development costs 3 (c) | | | Taxes on unrealized intercompany profit 3 (e) | | | Allenex adjusted U.S. GAAP (in SEK) | | | Allenex adjusted U.S. GAAP (in USD) | |
Revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Testing revenue | | SEK | — | | | SEK | 32,612 | | | SEK | — | | | SEK | — | | | SEK | — | | | | SEK 32,612 | | | $ | 3,866 | |
Net sales | | | 32,612 | | | | (32,612 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
Change in inventories of finished goods | | | (1,084 | ) | | | 1,084 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Capitalized development costs | | | 700 | | | | — | | | | (700 | ) | | | — | | | | — | | | | — | | | | — | |
Other revenue | | | 656 | | | | — | | | | — | | | | — | | | | — | | | | 656 | | | | 78 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenue | | | 32,884 | | | | 1,084 | | | | (700 | ) | | | — | | | | — | | | | 33,268 | | | | 3,944 | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of testing | | | — | | | | 14,400 | | | | — | | | | — | | | | — | | | | 14,400 | | | | 1,707 | |
Research and development | | | — | | | | 2,149 | | | | (700 | ) | | | 2,307 | | | | — | | | | 3,756 | | | | 445 | |
Sales and marketing | | | — | | | | 10,609 | | | | — | | | | — | | | | — | | | | 10,609 | | | | 1,258 | |
General and administrative | | | — | | | | 5,130 | | | | — | | | | — | | | | — | | | | 5,130 | | | | 608 | |
Raw materials and consumables | | | 7,703 | | | | (7,703 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
Other expenses | | | 10,342 | | | | (10,342 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
Cost of employee remuneration | | | 12,050 | | | | (12,050 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
Depreciation/amortization | | | 1,109 | | | | (1,109 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total operating expenses | | | 31,204 | | | | 1,084 | | | | (700 | ) | | | 2,307 | | | | — | | | | 33,895 | | | | 4 018 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from operations | | | 1,680 | | | | — | | | | — | | | | (2,307 | ) | | | — | | | | (627 | ) | | | (74 | ) |
Interest expense | | | — | | | | (1,221 | ) | | | — | | | | — | | | | — | | | | (1,221 | ) | | | (145 | ) |
Other income (expense), net | | | — | | | | (449 | ) | | | | | | | | | | | | | | | (449 | ) | | | (53 | ) |
Other financial expenses and income | | | (1,670 | ) | | | 1,670 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | 10 | | | | — | | | | — | | | | (2,307 | ) | | | — | | | | (2,297 | ) | | | (272 | ) |
Income tax benefit | | | 407 | | | | — | | | | — | | | | 508 | | | | 299 | | | | 1,214 | | | | 144 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | SEK | 417 | | | SEK | — | | | SEK | — | | | SEK | (1,799 | ) | | SEK | 299 | | | SEK | (1,083 | ) | | $ | (128 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) per ordinary share | | | | | | | | | | | | | |
Basic | | SEK | 0.00 | | | | | | | | | | | | | | | | | | | SEK | (0.01 | ) | | $ | (0.00 | ) |
Diluted | | SEK | 0.00 | | | | | | | | | | | | | | | | | | | SEK | (0.01 | ) | | $ | (0.00 | ) |
Weighted average shares | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | 120,288,448 | | | | | | | | | | | | | | | | | | | | 120,288,448 | | | | 120,288,448 | |
Diluted | | | 120,288,448 | | | | | | | | | | | | | | | | | | | | 120,288,448 | | | | 120,288,448 | |
10
Unaudited adjusted Allenex consolidated statement of operations
Year ended December 31, 2015
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Reclassifications and IFRS to U.S. GAAP Adjustments (in SEK) | | | | | | | |
In thousands | | Allenex Historical IFRS (in SEK) | | | Reclassifi- cations 3 (a) | | | Capitalized personnel costs 3 (b) | | | Capitalized development costs 3 (c) | | | Insurance compensation 3 (d) | | | Taxes on unrealized intercompany profit 3 (e) | | | Allenex adjusted U.S. GAAP (in SEK) | | | Allenex adjusted U.S. GAAP (in USD) | |
Revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Testing revenue | | SEK | — | | | SEK | 134,548 | | | SEK | — | | | SEK | — | | | SEK | — | | | SEK | — | | | SEK | 134,548 | | | $ | 15,949 | |
Net sales | | | 134,548 | | | | (134,548 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Change in inventories of finished goods | | | 4,092 | | | | (4,092 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Capitalized development costs | | | 2,354 | | | | — | | | | (2,354 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
Other revenue | | | 3,481 | | | | (437 | ) | | | — | | | | — | | | | (385 | ) | | | — | | | | 2,659 | | | | 315 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenue | | | 144,475 | | | | (4,529 | ) | | | (2,354 | ) | | | — | | | | (385 | ) | | | — | | | | 137,207 | | | | 16,264 | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of testing | | | — | | | | 47,627 | | | | — | | | | — | | | | (385 | ) | | | — | | | | 47,242 | | | | 5,600 | |
Research and development | | | — | | | | 6,889 | | | | (2,354 | ) | | | 12,788 | | | | — | | | | — | | | | 17,323 | | | | 2,053 | |
Sales and marketing | | | — | | | | 45,856 | | | | — | | | | — | | | | — | | | | — | | | | 45,856 | | | | 5,436 | |
General and administrative | | | — | | | | 15,406 | | | | — | | | | — | | | | — | | | | — | | | | 15,406 | | | | 1,826 | |
Raw materials and consumables | | | 29,272 | | | | (29,272 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Other expenses | | | 38,323 | | | | (38,323 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Cost of employee remuneration | | | 48,582 | | | | (48,582 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Depreciation/amortization | | | 4,130 | | | | (4,130 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total operating expenses | | | 120,307 | | | | (4,529 | ) | | | (2,354 | ) | | | 12,788 | | | | (385 | ) | | | — | | | | 125,827 | | | | 14,915 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from operations | | | 24,168 | | | | — | | | | — | | | | (12,788 | ) | | | — | | | | — | | | | 11,380 | | | | 1,349 | |
Interest expense | | | — | | | | (4,752 | ) | | | — | | | | — | | | | — | | | | — | | | | (4,752 | ) | | | (563 | ) |
Other income (expense), net | | | — | | | | (489 | ) | | | — | | | | — | | | | — | | | | — | | | | (489 | ) | | | (58 | ) |
Financial income | | | 860 | | | | (860 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Financial expenses | | | (6,101 | ) | | | 6,101 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | 18,927 | | | | — | | | | — | | | | (12,788 | ) | | | — | | | | — | | | | 6,139 | | | | 728 | |
Income tax benefit / (expense) | | | (3,795 | ) | | | — | | | | — | | | | 2,813 | | | | — | | | | 212 | | | | (770 | ) | | | (91 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | SEK | 15,132 | | | SEK | — | | | SEK | — | | | SEK | (9,975 | ) | | SEK | — | | | SEK | 212 | | | SEK | 5,369 | | | $ | 637 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income per ordinary share | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | SEK | 0.13 | | | | | | | | | | | | | | | | | | | | | | | SEK | 0.04 | | | $ | 0.01 | |
Diluted | | SEK | 0.13 | | | | | | | | | | | | | | | | | | | | | | | SEK | 0.04 | | | $ | 0.01 | |
Weighted average shares | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | 120,288,448 | | | | | | | | | | | | | | | | | | | | | | | | 120,288,448 | | | | 120,288,448 | |
Diluted | | | 120,288,448 | | | | | | | | | | | | | | | | | | | | | | | | 120,288,448 | | | | 120,288,448 | |
11
Reclassification adjustments
| (3a) | The classification of certain items presented by Allenex under IFRS has been modified in order to align with the presentation used by CareDx under U.S. GAAP (amounts in SEK thousands): |
| • | | To present operating expenses on a functional basis (cost of testing, research and development, sales and marketing, general and administrative), rather than by nature (raw materials and consumables, cost of employee remuneration, depreciation/amortization and other expenses): |
| | | | | | | | |
| | Allenex Presentation | |
SEK, in thousands | | Three months ended March 31, 2016 | | | Year ended December 31, 2015 | |
Raw materials and consumables | | | 7,703 | | | | 29,272 | |
Other expenses | | | 10,342 | | | | 38,323 | |
Cost of employee remuneration | | | 12,050 | | | | 48,582 | |
Depreciation/amortization | | | 1,109 | | | | 4,130 | |
| | | | | | | | |
Total operating expenses | | | 31,204 | | | | 120,307 | |
| | | | | | | | |
| | | | | | | | |
| | Reclassified Presentation | |
| | Three months ended March 31, 2016 | | | Year ended December 31, 2015 | |
Cost of testing | | | 13,316 | | | | 51,719 | |
Research and development | | | 2,149 | | | | 7,326 | |
Sales and marketing | | | 10,609 | | | | 45,856 | |
General and administrative | | | 5,130 | | | | 15,406 | |
| | | | | | | | |
Total operating expenses | | | 31,204 | | | | 120,307 | |
| | | | | | | | |
| • | | To reclassify “net sales” to “testing revenue” line item: |
| | | | | | | | |
| | Allenex Presentation | |
SEK, in thousands | | Three months ended March 31, 2016 | | | Year ended December 31, 2015 | |
Net sales | | | 32,612 | | | | 134,548 | |
| | | | | | | | |
Total revenue | | | 32,612 | | | | 134,548 | |
| | | | | | | | |
| | | | | | | | |
| | Reclassified Presentation | |
| | Three months ended March 31, 2016 | | | Year ended December 31, 2015 | |
Testing revenue | | | 32,612 | | | | 134,548 | |
| | | | | | | | |
Total revenue | | | 32,612 | | | | 134,548 | |
| | | | | | | | |
| • | | To reclassify “change in inventories of finished goods” line item included in revenue to cost of testing: |
| | | | | | | | |
| | Allenex Presentation | |
SEK, in thousands | | Three months ended March 31, 2016 | | | Year ended December 31, 2015 | |
Change in inventories of finished goods | | | 1,084 | | | | (4,092 | ) |
| | | | | | | | |
Total revenue | | | 1,084 | | | | (4,092 | ) |
| | | | | | | | |
| | | | | | | | |
| | Reclassified Presentation | |
| | Three months ended March 31, 2016 | | | Year ended December 31, 2015 | |
Cost of testing | | | 1,084 | | | | (4,092 | ) |
| | | | | | | | |
Total operating expenses | | | 1,084 | | | | (4,092 | ) |
| | | | | | | | |
12
| • | | To reclassify grant received included in “other revenue” line item to research and development costs: |
| | | | | | | | |
| | Allenex Presentation | |
SEK, in thousands | | Three months ended March 31, 2016 | | | Year ended December 31, 2015 | |
Other revenue | | | — | | | | (437 | ) |
| | | | | | | | |
Total revenue | | | — | | | | (437 | ) |
| | | | | | | | |
| | | | | | | | |
| | Reclassified Presentation | |
| | Three months ended March 31, 2016 | | | Year ended December 31, 2015 | |
Research and development costs | | | — | | | | (437 | ) |
| | | | | | | | |
Total operating expenses | | | — | | | | (437 | ) |
| | | | | | | | |
| • | | To reclassify financial income and expenses to “interest expense” and “other income (expense), net” line items: |
| | | | | | | | |
| | Allenex Presentation | |
SEK, in thousands | | Three months ended March 31, 2016 | | | Year ended December 31, 2015 | |
Financial income | | | — | | | | 860 | |
Financial expenses | | | — | | | | (6,101 | ) |
Other financial expenses and income | | | (1 670 | ) | | | — | |
| | | | | | | | |
Total | | | (1,670 | ) | | | (5,241 | ) |
| | | | | | | | |
| | | | | | | | |
| | Reclassified Presentation | |
| | Three months ended March 31, 2016 | | | Year ended December 31, 2015 | |
Interest expense | | | (1,221 | ) | | | (4,752 | ) |
Other income (expense), net | | | (449 | ) | | | (489 | ) |
| | | | | | | | |
Total | | | (1,670 | ) | | | (5,241 | ) |
| | | | | | | | |
| • | | To reclassify “current receivables” to “accounts receivable” and “prepaid and other assets”, and to reclassify “non-interest bearing current liabilities” to “accounts payable”, “accrued payroll liabilities” and “accrued and other liabilities” on the pro forma balance sheet: |
| | | | |
| | Allenex Presentation | |
SEK, in thousands | | As of March 31, 2016 | |
Current receivables | | | 20,038 | |
| | | | |
Total current assets | | | 20,038 | |
| | | | |
Non-interest bearing current liabilities | | | 31,286 | |
| | | | |
Total current liabilities | | | 31,286 | |
| | | | |
| | | | |
| | Reclassified Presentation | |
| | As of March 31, 2016 | |
Accounts receivable | | | 13,344 | |
Prepaid and other assets | | | 6,694 | |
| | | | |
Total current assets | | | 20,038 | |
| | | | |
Accounts payable | | | 15,448 | |
Accrued payroll liabilities | | | 4,405 | |
Accrued and other liabilities | | | 11,433 | |
| | | | |
Total current liabilities | | | 31,286 | |
| | | | |
13
| • | | To reclassify deferred tax assets balance to deferred tax liabilities on the pro forma balance sheet: |
| | | | |
| | Allenex Presentation | |
SEK, in thousands | | As of March 31, 2016 | |
Deferred income tax | | | 2,765 | |
| | | | |
Total assets | | | 2,765 | |
| | | | |
| | | | |
| | Reclassified Presentation | |
| | As of March 31, 2016 | |
Deferred income tax | | | 2,765 | |
| | | | |
Total liabilities | | | 2,765 | |
| | | | |
Adjustments to convert to U.S. GAAP
The following adjustments are made to convert Allenex’ historical consolidated balance sheet as of March 31, 2016 and consolidated statements of operations for the three months ended March 31, 2016 and year ended December 31, 2015 to U.S. GAAP for purposes of the unaudited pro forma condensed combined financial information:
| (3b) | Under IFRS, Allenex records its capitalized internal personnel cost as revenue within the line item “capitalized development costs”. The adjustment to the consolidated statements of operations represents the reclassification of capitalized personnel cost to research and development costs under U.S. GAAP. |
| (3c) | Allenex capitalizes its development costs related to QTYPE product which includes Score 6 software in accordance with IAS 38, Intangible Assets. These capitalized development costs have not yet been amortized. Under U.S. GAAP all expenditures for the development of products should be expensed as incurred. The adjustments to the consolidated statements of operations represent the development costs capitalized in the period which should be expensed and the reduction in the underlying deferred tax liability. |
| (3d) | Under IFRS, Allenex records insurance compensation received for goods damaged during shipping within the line item “other revenue”. Under U.S. GAAP, insurance compensation is classified in “cost of testing” consistent with the related loss. |
| (3e) | U.S. GAAP requires (i) income tax consequences on an intercompany sale to be deferred until underlying items of inventory are sold outside the group and (ii) to match the income tax consequences to the profit from the third part sale. The adjustments represent deferral of the current tax charge due in the seller’s jurisdiction and reversal of the deferred tax asset for the increase in tax basis arising from the intercompany sale. |
14
Note 4 Purchase accounting
Acquisition Consideration
The acquisition consideration for the Transaction is estimated for pro forma purposes as follows:
| | | | |
USD, in thousands | | | |
Fair value of CareDx common shares issued for Allenex shares | | | 7,205 | |
Cash consideration | | | 21,807 | |
Deferred cash consideration | | | 2,717 | |
Contingent cash consideration | | | 2,446 | |
| | | | |
Total purchase consideration | | | 34,175 | |
The acquisition consideration was computed using all Allenex’ outstanding shares as of March 31, 2016 of 120,288,448. The fair value of CareDx’ common shares was calculated based on an exchange ratio of 0.01458 CareDx common share per Allenex share and CareDx’ stock price of SEK 42.67 (USD 5.24), which was the closing price for CareDx common shares on April 14, 2016. The acquisition consideration was translated using the exchange rate as of April 14, 2016 of SEK 8.14 per USD as quoted by OANDA.com.
Acquisition consideration offered to Majority Shareholders that is subject to the achievement of certain milestones was estimated as follows:
| (i) | SEK 0.27 per share (in aggregate, SEK 25.3 million, or USD 3.1 million, at April 14, 2016) is contingent on certain events, in each of the reference periods Q4 2015 and Q1 2016. |
| | The contingency was resolved as of the acquisition date of April 14, 2016, and the full amount associated with the contingency is expected to become payable on March 31, 2017. Accordingly, for pro forma purposes, the entire amount of consideration was considered as a deferred cash consideration element of the acquisition consideration and is included as a liability in CareDx’ unaudited pro forma condensed combined balance sheet at its estimated fair value of SEK 22.1 million (USD 2.7 million at April 14, 2016), determined using an estimated borrowing rate of 15 percent. The initial fair value will be accreted to the payment value over the period until the due date, with the accretion recorded as a component of interest expense in each reporting period. |
| (ii) | An additional SEK 0.27 per share (in aggregate, SEK 25.3 million, or USD 3.1 million, at April 14, 2016) which is contingent on other defined milestone, is to be paid in full by March 31, 2017 (assuming satisfaction of the milestone). |
| | Consideration subject to this contingency was included in the total acquisition consideration at its estimated fair value, which was determined based on the CareDx management expectations of the likelihood and timing of when the condition (defined milestone as described in Note 1) could be achieved and discounted using an estimated borrowing rate of 15 percent. The fair value of this element of the acquisition consideration was estimated at SEK 19.9 million (USD 2.4 million at April 14, 2016) and is included as a liability in CareDx’ unaudited pro forma condensed combined balance sheet, and will be remeasured at fair value with the difference recorded as a component of operating expenses in income (loss) from operations in each reporting period until the contingency has been resolved, and accreted for the time value of money as a component of interest expense thereafter until the due date. |
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Acquisition consideration allocation
Under the acquisition method of accounting, the acquisition consideration, calculated as described above is allocated to the tangible and intangible assets acquired and liabilities assumed by CareDx based on their estimated fair values as of the closing date of the Transaction, with any excess of the acquisition consideration over the estimated fair values of net assets acquired recorded as goodwill. The estimated fair values of assets acquired and liabilities assumed were determined based on the recorded amounts reported by Allenex as of March 31, 2016 and are preliminary. Final amounts will be based on (i) the estimated fair values of assets acquired, including the fair values of the identifiable intangible assets, (ii) the estimated fair values of liabilities assumed, and (iii) the fair value of common stock issued, as of the date the Transaction is consummated.
The purchase accounting will be preliminary until CareDx completes a final valuation of identifiable intangible assets acquired and determines the estimated fair values of other assets and liabilities acquired. The final determination of the fair values of the assets acquired, liabilities assumed and the consideration transferred is expected to be completed as soon as practicable after consummation of the Transaction, and the final amounts could differ significantly from the amounts presented below.
The preliminary fair values of the assets acquired and liabilities assumed are as follows (in USD thousands):
| | | | |
USD, in thousands | | | |
Cash | | | 383 | |
Accounts receivable | | | 1,642 | |
Prepaid and other assets | | | 988 | |
Inventory | | | 11,475 | |
Deferred tax assets | | | 227 | |
Property, plant and equipment | | | 625 | |
Customer relationships | | | 11,440 | |
Developed technology - SSP | | | 12,080 | |
Developed technology - Qtype | | | 5,640 | |
Tradename | | | 2,110 | |
Goodwill | | | 13,947 | |
Assumed liabilities | | | (26,382 | ) |
| | | | |
Total preliminary acquisition consideration | | | 34,175 | |
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Preliminary valuation
For purposes of preparing the preliminary valuation, CareDx used information provided by Allenex management, publicly available information, as well as a variety of other assumptions, including market participant assumptions, cost and development assumptions, and certain other high-level assumptions. The estimated fair values of identifiable intangible assets were determined using the following methodologies:
Tradename – Tradenames were valued using the relief from royalty approach which assumes that the value of the asset equals the amount a third party would pay to use the asset. Under this approach, a royalty rate is applied to the forecasted revenue to estimate the pre-tax income associated with the asset. Projections of revenue generated from using the tradename were developed based on Allenex historical financial information and CareDx management business projections.
Customer relationships – Customer relationships were valued using the income approach. Revenues for the existing customer relationships were projected based on Allenex historical financial information, CareDx management business projections and taking into account estimated customer attrition. Costs of sales and operating expenses were projected based on Allenex historical financial information and CareDx management business projections. Contributory charges for the utilization of working capital, developed technology, tradename and other long-lived assets were added.
Technology – Technology assets were valued using the relief from royalty approach, and projections of revenue from sales of products underlying the relevant technologies, which were developed based on Allenex historical financial information and CareDx management business projections.
The tradename, customer relationships and developed technology are amortized using the straight-line basis over their estimated useful lives ranging from ten to fifteen years. The carrying value of the intangible assets will be periodically reviewed to determine if the facts and circumstances suggest that a potential impairment may have occurred. Impairment charges, if any, will be recorded in the period in which the impairment occurs.
Transaction financing
On April 12, 2016, CareDx entered into a securities purchase agreement (the “Purchase Agreement”) with certain accredited investors (the “Investors”) in connection with private placement of 591,860 units (“Units”) in an aggregate amount of USD 14.1 million. Each Unit comprised of: (i) one share of CareDx common stock, par value of USD 0.001 per share (“Common Stock”); (ii) five shares of CareDx Series A mandatorily convertible preferred stock, par value of $0.001 per share (“Series A Preferred”); and (iii) three warrants, each to purchase one share of common stock upon exercise of such warrants, at a purchase price of USD 23.94 per Unit (the equivalent of USD 3.99 per share of common stock, assuming conversion of the Series A Preferred).
CareDx intends to use the net proceeds from the sale of the Units for Transaction financing and general corporate purposes.
Each share of Series A Preferred is mandatorily convertible into common stock upon CareDx’ receipt of certain stockholder approvals required pursuant to the rules of the NASDAQ Stock Market (the “Requisite Stockholder Approval”). Subject to obtaining this approval, each share of
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Series A Preferred is initially convertible into one share of common stock, subject to certain adjustments. The Series A Preferred is not entitled to receive dividends and is not redeemable at the election of CareDx. Series A Preferred shares could be required to be redeemed upon a deemed liquidation event, as defined, or if CareDx is unable to issue share certificates without sale restriction legend in certain circumstances, at an amount of $3.99 per share. Except as required by the General Corporation Law of Delaware, the Series A Preferred do not have voting rights and will not be included in determining the number of shares voting or entitled to vote on any matter of CareDx.
Each warrant is exercisable for a period of seven years into one share of common stock at an initial exercise price of USD 4.98 per share, subject to certain adjustments. Pursuant to the terms of the warrant, the holder of the warrant cannot exercise the warrant until CareDx has obtained the Requisite Stockholder Approval. The warrants are expected to be subject to ongoing remeasurement.
Concurrently with the execution and delivery of the Purchase Agreement, CareDx and certain stockholders of CareDx entered into commitment agreements (“Commitment Agreements”) with certain of the former Majority shareholders of Allenex, pursuant to which such former Majority shareholders committed to purchase 334,169 Units for an aggregate amount of USD 8.0 million. The subsequent investment is on substantially the same terms as the Purchase Agreement and is expected to be closed no later than June 30, 2016. The obligation to invest under the Commitment Agreements is subject to certain conditions. The USD 8.0 million has been placed into an escrow account and will be released to CareDx upon closing of the Commitment Agreements.
As part of the financing, CareDx issued warrants to the placement agents with generally similar terms to those issued to the investors, except for the exercise price was $3.99 to exercise 1 warrant for 1 common share and the expiration date was in 5 years. The placement agent warrants were not issued as part of the Units.
For the purposes of preparing the unaudited condensed combined pro forma financial information, the Purchase and Commitment Agreements consisting of USD 14.1 million and USD 8.0 million, respectively, are considered entered into on March 31, 2016 for the pro forma condensed combined balance sheet and on January 1, 2015 for the pro forma condensed combined statements of operations.
Note 5 Pro Forma Adjustments Related to the Transaction
The pro forma adjustments included in the unaudited condensed combined financial information are as follows:
| (5a) | To record the acquisition consideration consisting of cash consideration of USD 21,807 thousand, the fair value of deferred cash consideration of USD 2,717 thousand and contingent cash consideration of USD 2,446 thousand, as well as the par value of USD 1 thousand and the additional paid-in capital of USD 7,204 thousand reflecting the issuance of the 1,375,028 CareDx common shares in connection with the Transaction. Refer to Note 4 for further details. |
| | Also to reflect in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015 (i) changes in the fair value of contingent cash consideration for USD 556 thousand in operating expenses until the CE-marking contingency is resolved (determined under the assumption that the milestone will be achieved at December 31, 2016), and (ii) accretion of discount on deferred cash consideration and the amount that becomes due upon resolution of the CE-marking contingency, determined using the effective interest method, into interest expense for USD 391 and USD 105 thousand, respectively. |
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| (5b) | The total estimated transaction costs of USD 6,408 thousand consist of USD 3,301 thousand fees for investment banking services, legal, accounting, due diligence, tax, valuation, printing and other services, USD 100 thousand of equity issuance costs, and USD 3,007 thousand of costs related to the failed Oberland Capital debt financing. These costs are directly attributable to the Transaction and have a one-time impact on the unaudited pro forma statements of operations. |
| | Transaction costs of USD 6,308 thousand, net of equity issuance costs, have been eliminated from the unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2016 and the year ended December 31, 2015 as they are considered to be one-time expenses directly related to the Transaction: |
| • | | USD 2,159 thousand and USD 1,142 thousand incurred by CareDx during the three months ended March 31, 2016 and the year ended December 31, 2015 respectively, in “general and administrative” line item; and |
| • | | costs relating to failed Oberland Capital debt financing of USD 2,879 thousand and USD 128 thousand incurred by CareDx during the three months ended March 31, 2016 and the year ended December 31, 2015 respectively, in “other income (expense), net” line item. |
| (5c) | To eliminate Allenex historical stockholders’ equity accounts. |
| (5d) | To record preliminary fair value of inventory (USD 11,475 thousand) as of March 31, 2016 and to reverse Allenex’ historical value of inventory (USD 5,462 thousand). |
Impact of the step-up on inventory that is recognized on the sale of finished goods (under the assumption that such inventory will be sold within one year) for USD 6,013 thousand is expected to have a one-time impact on the unaudited pro forma condensed combined statement of operations and has not been included to arrive at the pro forma combined net (loss) for the three months ended March 31, 2016 and for the year ended December 31, 2015.
| (5e) | To record preliminary fair value of property, plant & equipment acquired of USD 625 thousand and related estimated amortization expense of USD 9 and USD 38 thousand during the three months ended March 31, 2016 and year ended December 31, 2015, respectively. Also to record reversal of Allenex’ historical net value of property, plant & equipment of USD 450 thousand and the related amortization expense of USD 8 and USD 31 thousand during the three months ended March 31, 2016 and the year ended December 31, 2015, respectively. |
| (5f) | To record preliminary fair value of intangible assets acquired of USD 31,270 thousand and related estimated amortization expense of USD 587 and USD 2,347 thousand during the three months ended March 31, 2016 and year ended December 31, 2015, respectively. Also to record reversal of Allenex’ historical net value of intangible assets of USD 7,138 thousand and the related amortization expense of USD 94 and USD 362 thousand during the three months ended March 31, 2016 and year ended December 31, 2015, respectively. |
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| (5g) | To eliminate the historical Allenex goodwill of USD 26,468 thousand and to record the preliminary estimate of goodwill of USD 13,947 thousand for the excess of the preliminary acquisition consideration over the estimated fair value of the assets acquired and liabilities assumed as shown in Note 4. The goodwill will not be amortized but will be tested for impairment at least annually. |
| (5h) | To record the deferred tax liability associated with the estimated fair value of inventory, intangible assets, and property, plant & equipment of USD 9,278 thousand, using a weighted average tax rate of 25 percent, to reflect the temporary differences arising from applying the acquisition method of accounting and to reverse the historical deferred tax liability of USD 1,575 thousand. Tax bases are USD 5,462 thousand for inventory (compared to an estimated fair value of USD 11,475 thousand) and USD 450 thousand for property, plant & equipment (compared to an estimated fair value of USD 625 thousand). The tax base for intangible assets is nil (compared to an estimated fair value of USD 31,270 thousand). |
| | Also to record the preliminary fair value of deferred tax assets of USD 227 thousand as of March 31, 2016 and to reverse Allenex’ historical value of deferred tax assets USD (340 thousand) reclassified to the deferred tax liabilities line item (see Note 3). |
| (5i) | To reflect the tax impact of pro forma adjustments recorded in the unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2016 and the year ended December 31, 2015 USD 51 thousand and USD 127 thousand, respectively: amortization expense due to the step-up recognized on property, plant & equipment and intangible assets (5e,f), fair value adjustment on contingent cash consideration and accretion of discount on deferred and contingent cash consideration (5a), elimination of transaction costs (5b), and income tax adjustments (5l). |
| (5j) | To reflect the increase in CareDx common shares outstanding for EPS purposes due to the issuance of 1,375,028 shares to the Allenex shareholders. |
| (5k) | Pro forma combined basic and diluted net loss per share is computed by dividing net loss attributable to combined company common stockholders by the weighted average pro forma number of shares outstanding during the three months ended March 31, 2016 and year ended December 31, 2015, assuming that the shares issued by CareDx as acquisition consideration have been outstanding since January 1, 2015. |
| (5l) | To record tax adjustments in the pro forma balance sheet as of March 31, 2016 relating to (i) tax effect on intercompany sales recorded as an increase in prepaid and other assets of USD 157 thousand and a corresponding charge to goodwill; (ii) an uncertain tax position liability recorded as noncurrent other liabilities of USD 652 thousand and corresponding decrease of USD 96 thousand to deferred tax liability and an increase of USD 556 thousand to goodwill; (iii) income tax payable recorded as an increase in accrued and other liabilities of USD 51 thousand and a corresponding charge to accumulated deficit of USD 51 thousand. |
Also to reflect in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015 an estimated change of USD 41 thousand relating to the prepaid tax assets balance.
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| (5m) | To reflect a decrease in Allenex ordinary shares outstanding due to retirement. |
Note 6 Pro Forma Adjustments Related to Equity Financing
The following adjustments have been included in the unaudited pro forma condensed combined financial information to reflect:
(6 a) To record the private placement cash received of USD 22,169 thousand related to the fair value of warrants of USD 4,667 thousand, reflecting warrants to purchase 2,778,087 common shares in connection with the Transaction, Series A Preferred shares with a value of USD 14,585 thousand, reflecting the issuance of the 4,630,145 CareDx Series A Preferred shares, and the par value of USD 1 thousand and the additional paid-in capital of USD 2,916 thousand reflecting the issuance of the 926,029 CareDx common shares. Refer to Note 4 for further details.
The Series A Preferred shares are reflected in the pro forma balance sheet as of March 31, 2016 as mezzanine equity presuming the conversion to common stock has not occurred on March 31, 2016 because the shares could be required to be redeemed upon a deemed liquidation event, or if CareDx is unable to issue share certificates without sale restriction legend in certain circumstances, neither of which is deemed probable. Accordingly, the initial carrying value of Series A Preferred shares was not adjusted for the three months ended March 31, 2016.
The warrants are reflected in the pro forma balance sheet as of March 31, 2016 as liabilities at fair value. The change in the fair value of the warrants during the three months ended March 31, 2016 and year ended December 31, 2015 was not estimated as such estimates by their nature would inevitably be based on hypothetical assumptions.
(6 b) To reflect an increase in CareDx common shares outstanding for EPS purposes due to issuance of 926,029 CareDx common shares and 4,630,145 CareDx Series A Preferred shares to former Allenex Majority Shareholders.
Assuming the conversion of Series A Preferred stock shares into common stock shares occurred on January 1, 2015, 4,630,145 CareDx Series A Preferred shares outstanding were included into weighted average basic shares outstanding for the year ended December 31, 2015 and three months ended March 31, 2016. Potential common stock shares were included into the diluted EPS calculation for Series A Preferred stock shares for the year ended December 31, 2015 and three months ended March 31, 2016 as CareDx management expects shares of Series A Preferred stock to be converted into common stock in June 2016.
Warrants were not included in the pro forma diluted EPS assuming they will remain outstanding throughout the year ended December 31, 2015 and three months ended March 31, 2016, and their effect will be anti-dilutive to the diluted EPS calculation since there is no remeasurement reflected in the unaudited pro forma condensed combined statement of operations.
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(6 c) To record total estimated equity issuance costs of USD 1,405 thousand for placement agents, escrow agents and legal fees expected to be incurred by CareDx and considered necessary to complete the Transaction. The estimated equity issuance costs are reflected in the unaudited pro forma balance sheet as of March 31, 2016 as a decrease in cash of USD 1,405 thousand and a corresponding charge to additional paid-in capital of USD (1,405 thousand).
(6 d) To record total estimated value of the placement agent warrants in the unaudited pro forma balance sheet as of March 31, 2016 as an increase in noncurrent other liabilities of USD 290 thousand and corresponding charge to additional paid-in capital of USD (290 thousand).
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