Business Combinations | 9 Months Ended |
Sep. 30, 2014 |
Business Combinations [Abstract] | ' |
Business Combinations | ' |
4. Business Combinations |
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Acquisition of Okapi Sciences |
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On January 6, 2014, the Company acquired Okapi Sciences, a Leuven, Belgium based company with a proprietary antiviral platform and three clinical/development stage product candidates. This acquisition further expanded the existing Company pipeline. The aggregate purchase price was approximately $44,439, which consisted of $14,139 in cash, a promissory note in the principal amount of $15,134 with a maturity date of December 31, 2014, and a contingent consideration of up to $16,308 with an acquisition fair value of $15,166. The promissory note bore interest at a rate of 7% per annum, payable quarterly in arrears, and was subject to mandatory prepayment in the event of a specified equity financing by the Company. On February 4, 2014, the promissory note and accrued interest was paid in cash in the amount of $15,158. On March 17, 2014, the contingent consideration was settled in cash in the amount of $15,235. |
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Included in the Company’s consolidated statements of operations for the three and nine months ended September 30, 2014 is revenue totaling approximately $0 and $452, respectively, related to Okapi Sciences. |
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The acquisition-date fair value of the consideration transferred to the sellers of Okapi Sciences, less cash acquired, was $43,376, which consisted of the following: |
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Cash consideration | | $ | 14,139 | | | |
Fair value of promissory note | | | 15,134 | | | |
Fair value of contingent consideration | | | 15,166 | | | |
Fair value of total consideration | | | 44,439 | | | |
Less cash acquired | | | -1,063 | | | |
Total consideration transferred, net of cash acquired | | $ | 43,376 | | | |
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Fair Value of Contingent Consideration: The Company agreed to pay up to $16,308 on or prior to April 7, 2014, subject to mandatory prepayment in cash in the event of a specified future equity financing, provided that if not paid in cash by April 7, 2014, payment was to be made in the form of shares of the Company’s common stock based on the average closing price of the Company’s common stock during the 10-trading day period ending April 4, 2014, subject to a maximum of 1,060,740 shares and a minimum of 707,160 shares. This contingent consideration was recorded as a liability and measured at fair value using a probability-weighted model utilizing significant observable and unobservable inputs, including the volatility in the market price of the Company’s common stock, the expected probability of settling the contingent consideration in either cash or shares and an estimated discount rate commensurate with the risks of these outcomes. The analysis resulted in an estimated fair value of contingent consideration of $15,166. The contingent consideration was settled March 17, 2014 for $15,235 and the difference between the initial fair value amount and settlement amount was $69 which is reflected as a charge to general and administrative expenses in the consolidated statement of operations. |
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The acquisition of Okapi Sciences was accounted for as a business combination under the acquisition method of accounting. Accordingly, the assets acquired and liabilities assumed were recorded at fair value with the remaining purchase price recorded as goodwill. The assets acquired and the liabilities assumed from Okapi Sciences have been recorded at their fair values at the date of acquisition, being January 6, 2014. The Company’s consolidated financial statements and results of operations include the results of Okapi Sciences from January 6, 2014. |
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In the nine months ended September 30, 2014 the Company incurred expenses totaling $161 relating to the Okapi Sciences acquisition, which were recorded within General and administrative expenses in the Company’s consolidated statement of operations. |
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The Company has preliminarily valued the acquired assets and assumed liabilities based on their estimated fair values. These estimates are subject to change as additional information becomes available, including finalization of certain tax matters and finalization of the working capital adjustment. The preliminary fair values included in the consolidated balance sheet as of September 30, 2014 are based on the best estimates of management. The completion of the valuation may result in adjustments to the carrying value of Okapi Sciences’ assets and liabilities, revision of useful lives of intangibles assets, the determination of any residual amount that will be allocated to goodwill and the related tax effects. The related amortization of acquired assets is also subject to revision based on the final valuation. Any adjustments to the preliminary fair values will be made as soon as practicable but no later than one year from the January 6, 2014 acquisition date. |
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The Company’s allocation of the purchase price to the assets acquired and liabilities assumed was as follows: |
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Cash | | $ | 1,063 | | | |
Accounts receivable | | | 149 | | | |
Other receivables | | | 60 | | | |
Prepaid expenses and other current assets | | | 82 | | | |
Property and equipment | | | 217 | | | |
Other long-term assets | | | 18 | | | |
Identifiable intangible assets | | | 29,400 | | | |
Accounts payable and accrued expenses | | | -586 | | | |
Deferred revenue | | | -83 | | | |
Deferred tax liabilities, net | | | -3,588 | | | |
Long-term debt | | | -4 | | | |
Total identifiable net assets | | | 26,728 | | | |
Goodwill | | | 17,711 | | | |
Total net assets acquired | | | 44,439 | | | |
Less: | | | | | | |
Promissory note | | | 15,134 | | | |
Contingent consideration | | | 15,166 | | | |
Cash paid | | $ | 14,139 | | | |
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The following are the intangible assets acquired by drug program and their estimated useful lives as of the date of the acquisition: |
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| | FAIR VALUE | | USEFUL LIFE | |
AT-006 | | $ | 3,400 | | 13 years | |
AT-007 | | | 13,500 | | 15 years | |
AT-008 | | | 5,300 | | 13 years | |
AT-011 | | | 7,200 | | 14 years | |
Total intangible assets subject to amortization | | $ | 29,400 | | | |
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The identifiable intangible assets recognized by the Company as a result of the Okapi Sciences acquisition relate to Okapi Sciences technology, and consist primarily of its intellectual property related to Okapi Sciences AT-006, AT-007, AT-008 and AT-011 programs, and the estimated net present value of future cash flows from commercial agreements related to the AT-006 program. |
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All Okapi Sciences programs, which were considered in-process research and development (“IPR&D”) at the acquisition date, were valued using a multi-period excess earnings method, a form of the income approach, which incorporates the estimated future cash flows to be generated from this technology. Excess earnings are the earnings remaining after deducting the market rates of return on the estimated values of contributory assets, including debt-free net working capital, tangible, and intangible assets. The excess earnings are thereby calculated for each year of a multi-year projection period and discounted to present value. Accordingly, the primary components of this method consist of the determination of excess earnings and an appropriate rate of return. |
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The Company will not amortize the assets related to the Okapi Sciences programs until commercialization has been achieved. |
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The preliminary valuation analysis conducted by the Company determined that the aggregate fair value of identifiable assets acquired less the aggregate fair value of identifiable liabilities assumed by the Company is less than the purchase price. As the purchase price exceeds the fair value of assets and liabilities acquired or assumed, goodwill will be recognized. Goodwill is calculated as the difference between the Okapi Sciences acquisition date fair value of the consideration transferred and the fair values of the assets acquired and liabilities assumed. The goodwill is not expected to be deductible for income tax purposes. Goodwill is recorded as an indefinite-lived asset and is not amortized but tested for impairment on an annual basis or when indications of impairment exist. |
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The difference between the total consideration and the fair value of the net assets acquired of $17,711 was recorded as Goodwill in the consolidated balance sheet. This goodwill represents the excess of the purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed, principally representing the tax attributes of the acquisition and certain operational and strategic synergies such as advancement toward becoming a commercial company and acquiring a proprietary antiviral platform. |
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Pro Forma Financial Information |
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The following pro forma financial information summarizes the combined results of operations for the Company as though the acquisition of Okapi Sciences occurred on January 1, 2013. The unaudited pro forma financial information is as follows: |
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| | THREE MONTHS ENDED | | NINE MONTHS ENDED |
| | 30-Sep-13 | | 30-Sep-13 |
Revenue | | $ | — | | $ | — |
Loss from operations | | $ | -4,657 | | $ | -13,912 |
Net and comprehensive loss before income taxes | | $ | -4,910 | | $ | -14,335 |
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Net loss per share attributable to common stockholders—basic and diluted | | $ | -0.24 | | $ | -1.89 |
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The pro forma financial information for all periods presented has been calculated after adjusting the results of the Company and Okapi Sciences to reflect the business combination accounting effects resulting from these acquisitions including the amortization expenses from acquired intangible assets, the depreciation expenses from acquired tangible assets, the stock-based compensation expense for unvested stock options and restricted stock units assumed and the related tax effects as though the acquisition occurred as of January 1, 2013. The pro forma financial information is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the Company’s 2013 fiscal year. |
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