| Acquisition | Acquisition Adamas Acquisition In connection with the Adamas Acquisition (see Note 1), the Company paid the Adamas shareholders $400.8 million and transferred two non-tradable contingent value rights (CVRs). Each CVR represents the contractual right to receive a contingent payment of $0.50 per share in cash, less any applicable withholding taxes and without interest, upon the achievement of the applicable milestone (each such amount, a Milestone Payment) in accordance with the terms of a Contingent Value Rights Agreement entered into between the Company and American Stock Transfer & Trust Company, LLC, as rights agent (CVR Agreement). One Milestone Payment is payable (subject to certain terms and conditions) upon the first occurrence of the achievement of aggregate worldwide net sales of GOCOVRI in excess of $150 million during any consecutive 12-month period ending on or before December 31, 2024 (Milestone 2024). Another Milestone Payment is payable (subject to certain terms and conditions) upon the first occurrence of the achievement of aggregate worldwide net sales of GOCOVRI in excess of $225 million during any consecutive 12-month period ending on or before December 31, 2025 (Milestone 2025 and, together with Milestone 2024, the Milestones). Each Milestone may only be achieved once. In connection with the two CVRs, the Company recorded contingent consideration liabilities of $10.3 million as of the date of the acquisition, to reflect the estimated fair value of the contingent consideration. The estimated fair values of the contingent consideration liabilities were determined using Monte Carlo simulations. The fair value measurements of the contingent consideration liabilities were determined based on significant unobservable inputs and thus represent Level 3 fair value measurements. The key assumptions considered include the estimated amount and timing of projected revenues, volatility, estimated discount rates and the risk-free interest rate. In each reporting period after the acquisition, the Company will revalue the contingent consideration liabilities and will record increases or decreases in the fair value of the liabilities in its consolidated statements of earnings. Changes in fair value will result from actual milestone achievement, as well as changes to forecasts. The inputs and assumptions may not be observable in the market, but they reflect the assumptions the Company believes would be made by a market participant. The possible outcomes for the contingent consideration range from $0 to $50.9 million on an undiscounted basis. The acquisition was accounted for as a business combination under the acquisition method of accounting, in accordance with ASC 805, Business Combinations . The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill. The estimated fair values of the assets acquired and liabilities assumed, including goodwill, have been included in the Company's consolidated financial statements since the acquisition Closing Date. The Company expects to finalize its purchase price allocation within one year of the Closing Date. In addition, the Company continues to analyze and assess relevant information necessary to determine, recognize and record at fair value the assets acquired and liabilities assumed. The activities the Company is currently undertaking include review and evaluation of the tax positions, and other tax-related matters. Accordingly, the preliminary recognition and measurement of assets acquired and liabilities assumed as of the Closing Date are subject to change. The following table presents the Company's preliminary estimates of the fair value of assets acquired and liabilities assumed as of the Closing Date and subsequent measurement period adjustments recorded (dollars in thousands): As Initially Reported Measurement Period Adjustments (1) As Adjusted (unaudited) (unaudited) Cash and cash equivalents $ 90,064 $ — $ 90,064 Accounts receivable 11,156 — 11,156 Inventories 20,200 — 20,200 Prepaid expenses and other current assets 5,077 — 5,077 Property and equipment 1,254 — 1,254 Intangibles 450,100 — 450,100 Other assets (2) 6,442 (1,620) 4,822 Total fair value of assets acquired 584,293 (1,620) 582,673 Accounts payable (4,592) — (4,592) Accrued expenses and other current liabilities (8,014) — (8,014) Current debt (138,315) — (138,315) Operating lease liabilities, long-term (5,224) — (5,224) Deferred income tax liabilities (2)(3) (56,588) 1,753 (54,835) Total fair value of liabilities assumed (212,733) 1,753 (210,980) Total identifiable net assets 371,560 133 371,693 Goodwill 39,553 (133) 39,420 Total purchase price $ 411,113 $ — $ 411,113 Cash consideration paid $ 400,806 $ — $ 400,806 Fair value of contingent consideration 10,307 — 10,307 Total purchase price $ 411,113 $ — $ 411,113 ______________________________ (1) Measurement period adjustments reflect changes for the nine months ended September 30, 2022 based on information related to the facts and circumstances that existed as of the Closing Date. (2) Refinement of the estimate of fair value of the right of use asset associated with the acquired Adamas headquarters lease recorded in the first quarter of 2022. Refer to Note 13, Leases . (3) Represents tax impact for the changes in fair value estimate of the right of use asset and changes made to finalize the accounting of certain state tax attributes which existed at the opening balance sheet date. Acquired Inventory The estimated fair value of the inventory was determined using the comparative sales method, which estimated the expected sales price of the product, reduced by all costs expected to be incurred to complete or dispose of the inventory, as well as a profit on the sale. Acquired Intangible Assets The acquired intangible assets include the acquired developed technology and product rights to GOCOVRI and Osmolex ER, as well as the right to receive royalties from Allergan plc for sales of Namzaric. The Company determined the estimated fair values for the acquired intangible assets as of the Closing Date using the income approach. This is a valuation technique that provides an estimate of fair value of the assets, based on the market participant's expectations of the cash flows that the assets are forecasted to generate. The cash flows were discounted at a rate commensurate with the level of risk associated with its projected cash flows. The Company believes the assumptions are representative of those a market participant would use in estimating fair value. The fair value measurements of the acquired intangible assets were determined based on significant unobservable inputs and thus represent Level 3 fair value measurement. Some of the more significant inputs and assumptions used in the intangible assets valuation includes: the estimated future cash flows from product sales, the timing and projection of costs and expenses, discount rates and tax rates. Acquired intangible assets consist of developed technology and product rights and are amortized over their estimated useful lives on a straight-line basis. The following table summarizes the preliminary purchase price allocation and the average remaining useful lives for identifiable intangible assets (dollars in thousands): Estimated Fair Value Estimated Useful Life as of Closing Date (in years) Acquired developed technology and product rights $ 450,100 3.1 - 8.1 Goodwill Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from the other assets acquired that could not be individually identified and separately recognized. Goodwill is primarily attributable to the anticipated cost synergies, additional growth platforms, and an expanded revenue base with the addition of the assets from the Adamas Acquisition. The goodwill is not expected to be deductible for tax purposes. Acquired Deferred Income Tax Liabilities, net The deferred income tax liabilities, net relates to the difference between the financial statement carrying amount and the tax basis of acquired intangible assets and inventory, partially offset by acquired net operating loss carryforwards and other temporary differences. The acquired federal and state net operating loss carryforwards are reduced by a valuation allowance for amounts that are not expected to be realizable in the future. The reported measurement period adjustment of $1.8 million for the nine months ended September 30, 2022 consisted of a reduction to deferred tax liabilities of $3.7 million recorded in the first quarter of 2022 and an increase to deferred tax liabilities of $1.9 million recorded in the third quarter of 2022. Revenue and Net Earnings of Adamas The operations of Adamas and its subsidiaries have been included in the Company's consolidated statements of earnings for the periods subsequent to the Closing Date. Pro Forma Information The following table presents the unaudited pro forma combined financial information for each of the periods presented, as if the Adamas Acquisition had occurred on January 1, 2020 (dollars in thousands): Three Months Ended Nine Months Ended 2021 2021 Pro forma total revenues $ 174,360 $ 487,904 Pro forma net loss (10,405) (30,905) The unaudited pro forma combined financial information is based on historical financial information and the Company's preliminary allocation of purchase price; therefore, it is subject to subsequent adjustment upon finalization of the purchase price allocation. In order to reflect the occurrence of the acquisition on January 1, 2020, the unaudited pro forma combined financial information reflects the recognition of additional amortization expense on intangible assets and estimated additional cost of products sold related to the inventory step-up adjustment; the estimated reduction in the Company's interest income generated from marketable securities that were liquidated to fund the purchase price of the Adamas Acquisition, and the estimated tax impact of the pro forma adjustments. The unaudited pro forma combined financial information should not necessarily be considered indicative of the results that would have occurred if the acquisition had been consummated on the assumed completion date, nor are they indicative of future results. |
