EXHIBIT 99.4
KERYX BIOPHARMACEUTICALS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On February 5, 2004, Keryx Biopharmaceuticals, Inc. ("Keryx") completed its
merger with ACCESS Oncology, Inc. ("ACCESS") and Keryx and ACCESS combined
operations.
The following unaudited pro forma condensed combined financial statements are
presented to illustrate the effects of the merger on the historical financial
position and operating results of Keryx and ACCESS. The unaudited pro forma
condensed combined statement of income combines the historical consolidated
statements of income of Keryx and ACCESS, giving effect to the merger as if it
had occurred on January 1, 2003. The unaudited pro forma condensed combined
balance sheet combines the historical consolidated balance sheets of Keryx and
ACCESS, giving effect to the merger as if it had occurred on December 31, 2003.
We have adjusted the historical consolidated financial information to give
effect to pro forma events that are (1) directly attributable to the merger, (2)
factually supportable, and (3) with respect to the statement of income, expected
to have a continuing impact on the combined results. You should read this
information in conjunction with the:
- accompanying Notes to the Unaudited Pro Forma Condensed
Combined Financial Statements;
- separate historical financial statements of Keryx as of and
for the year ended December 31, 2003 included in the Annual
Report on Form 10-K for Keryx for the year ended December 31,
2003; and
- separate historical financial statements of ACCESS as of and
for the year ended December 31, 2003 included herein as
Exhibit 99.3 to Amendment No. 1 to the Current Report on Form
8-K for Keryx.
Keryx prepared the unaudited pro forma condensed combined financial information
using the purchase method of accounting with Keryx treated as the acquirer.
Accordingly, Keryx's estimated cost to acquire ACCESS of approximately $19.5
million has been allocated to the assets acquired and liabilities assumed
according to their estimated fair values at the date of acquisition. The excess
of the net assets acquired over the purchase price has been allocated to the
contingent consideration payable to the former shareholders of ACCESS based on
the achievement of specific milestones with respect to the acquired drug
portfolio. Independent valuation specialists are currently assisting management
in determining the fair values of a significant portion of these net assets. The
preliminary work performed by the independent valuation specialists has been
considered by management in estimating the fair values reflected in these
unaudited pro forma condensed combined financial statements. The final
determination of these fair values will be completed as soon as possible but no
later than one year from the acquisition date. This final valuation will be
based on the actual assets acquired and liabilities assumed at the acquisition
date and management's consideration of the independent valuation work. Although
the final determination may result in asset and liability fair values that are
different than the preliminary estimates of these amounts included herein, it is
not expected that those differences will be material to an understanding of the
impact of this transaction to Keryx.
Keryx presents the unaudited pro forma condensed combined financial information
for informational purposes only. The pro forma data is not necessarily
indicative of what its financial position or results of operations actually
would have been had Keryx completed the merger at the dates indicated. In
addition, the unaudited pro forma condensed combined financial information does
not purport to project the future financial position or operating results of the
combined company.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2003
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
KERYX ACCESS PRO FORMA PRO FORMA
BIOPHARMACEUTICALS ONCOLOGY ADJUSTMENTS NOTE 5 COMBINED
------------------ ---------- ----------- ------ ------------
Revenue -- $ 786 $ 786
Operating expenses
Cost of Services:
Non-cash compensation -- $ 42 $ 42
Other cost of services -- $ 850 $ 850
----------- ---------- --------- ------------
Total cost of services -- $ 892 -- $ 892
Research and development:
Non-cash compensation ($ 486) $ 160 ($ 326)
Other research and development $ 5,996 $ 1,331 -- (a) $ 7,327
----------- ---------- --------- ------------
Total research and development $ 5,510 $ 1,491 -- $ 7,001
General and administrative:
Non-cash compensation $ 188 $ 199 $ 387
Other general and administrative $ 3,684 $ 581 $ 4,265
----------- ---------- --------- ------------
Total general and administrative $ 3,872 $ 780 -- $ 4,652
----------- ---------- --------- ------------
Total operating expenses $ 9,382 $ 3,163 -- $ 12,545
----------- ---------- --------- ------------
Operating loss ($ 9,382) ($ 2,377) -- ($ 11,759)
----------- ---------- --------- ------------
Interest income $ 272 $ 1 ($ 2) (a) $ 271
Interest expense and other bank charges ($ 25) ($ 629) $ 2 (a) ($ 652)
----------- ---------- --------- ------------
Net loss before income taxes ($ 9,135) ($ 3,005) -- ($ 12,140)
----------- ---------- --------- ------------
Income taxes ($ 27) -- -- ($ 27)
----------- ---------- --------- ------------
Net loss ($ 9,108) ($ 3,005) -- ($ 12,113)
=========== ========== ========= ============
Basic and diluted loss per common share ($ 0.43) -- ($ 0.55)
Weighted average shares used in computing
basic and diluted net loss per common share 21,367,088 623,145 (d) 21,990,233
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements, which are an integral part of these statements.
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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 2003
(IN THOUSANDS)
KERYX ACCESS PRO FORMA PRO FORMA
BIOPHARMACEUTICALS ONCOLOGY ADJUSTMENTS NOTE 5 COMBINED
------------------ ---------- ----------- ------ ----------
Assets
Current assets
Cash and cash equivalents $ 21,672 $ 103 $ 21,775
Investment securities, held to maturity $ 9,631 -- $ 9,631
Accounts receivable, net -- $ 84 $ 84
Note and accrued interest receivable from related party $ 352 -- ($ 352) (a) --
Accrued interest receivable $ 111 -- $ 111
Other receivables and prepaid expenses $ 213 $ 233 $ 446
---------- ---------- -------- ----------
Total current assets $ 31,979 $ 420 ($ 352) $ 32,047
Property, plant and equipment, net $ 24 $ 165 $ 189
Intangible assets, net -- $ 23 ($ 23) (b) --
Other assets (primarily intangible assets), net $ 220 $ 87 $ 307
---------- ---------- -------- ----------
Total assets $ 32,223 $ 695 ($ 375) $ 32,543
========== ========== ======== ==========
Liabilities and stockholders' equity
Current liabilities
Accounts payable and accrued expenses $ 894 $ 1,212 $ 1,000 (c) $ 3,106
Accrued compensation and related liabilities $ 103 $ 565 $ 668
Deferred revenue -- $ 543 $ 543
Notes payable & accrued interest -- $ 6,601 ($ 352) (a) $ 6,249
---------- ---------- -------- ----------
Total current liabilities $ 997 $ 8,921 $ 648 $ 10,566
Other liabilities -- $ 71 $ 84 $ 155
Contingent equity rights -- -- $ 3,071 $ 3,071
---------- ---------- -------- ----------
Total liabilities $ 997 $ 8,992 $ 3,803 $ 13,792
Stockholders' equity
Preferred stock -- $ 4 ($ 4) (e) --
Common stock $ 25 $ 11 ($ 10) (e) $ 26
Additional paid-in capital $ 86,042 $ 10,645 ($ 4,321) (e) $ 92,366
Treasury stock, at cost ($ 89) -- ($ 89)
Unearned compensation ($ 142) ($ 255) $ 255 (e) ($ 142)
Deficit accumulated during the development stage ($ 54,610) ($ 18,702) ($ 98) (e) ($ 73,410)
---------- ---------- -------- ----------
Total stockholders' equity $ 31,226 ($ 8,297) ($ 4,178) $ 18,751
---------- ---------- -------- ----------
Total liabilities and stockholders' equity $ 32,223 $ 695 ($ 375) $ 32,543
========== ========== ======== ==========
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements, which are an integral part of these statements.
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT AS OTHERWISE NOTED)
1. DESCRIPTION OF TRANSACTION AND BASIS OF PRESENTATION
On February 5, 2004, Keryx acquired ACCESS for an estimated purchase price of
approximately $19.5 million, which includes Keryx's assumption of ACCESS'
liabilities of $9.1 million, Keryx's common stock valued at $6.3 million, as
well as contingent equity rights of $3.1 million and transaction costs of $1.0
million.
Under the terms of the merger agreement, as amended, at the effective time of
the merger the outstanding shares of preferred stock of ACCESS Oncology were
converted into the right to receive, at the election of each preferred
stockholder, either (i) shares of our common stock to be issued approximately 30
days after the merger having a value (as determined in accordance with the
merger agreement) equal to the value of the liquidation preference associated
with the stockholder's shares of preferred stock, or (ii) a portion of the
contingent milestone consideration (described below) payable to the holders of
ACCESS Oncology common stock and securities convertible into ACCESS Oncology
common stock in an amount equal to what the preferred stockholder would have
received had he converted his preferred stock immediately before the
consummation of the merger. At the effective time of the merger, each share of
ACCESS Oncology common stock, including shares issuable upon the exercise of
options exercised before March 1, 2004 and upon the exercise of outstanding
warrants, was converted into the right to share in milestone consideration pro
rata with such other holders of ACCESS Oncology common stock. Pursuant to the
merger agreement, 623,145 shares of our common stock have been issued to those
preferred stockholders of ACCESS Oncology electing option number one as
described above. An additional 4,433 shares of our common stock may be issued to
those preferred stockholders of ACCESS Oncology who have yet to elect to receive
shares of our common stock.
The contingent milestone consideration will be paid upon the achievement of the
following milestones:
o 500,000 shares of our common stock upon enrollment of the first patient in
a Keryx-sponsored Phase III (or other Pivotal) clinical trial for any of
the acquired ACCESS Oncology drug candidates;
o 750,000 shares of our common stock upon the first NDA acceptance by the
FDA for any of the acquired ACCESS Oncology drug candidates;
o 1,750,000 shares of our common stock upon the first FDA approval of any of
the acquired ACCESS Oncology drug candidates;
o 372,422 shares of our common stock in the first 12-month period that sales
of all of the acquired ACCESS Oncology drug candidates combined exceeds
$100 million; and
In no event will we issue more than 4,000,000 shares of our common stock
pursuant to the merger agreement. Accordingly, the amount of our common stock
deliverable to the ACCESS Oncology stockholders as milestone consideration will
be no more than 3,372,422 shares of our common stock, which is the portion of
the common stock deliverable as consideration pursuant to the merger agreement
not issued or issuable to certain of the former preferred stockholders of
ACCESS Oncology as discussed above. Our stockholders must approve the issuance
of shares of our common stock payable as contingent milestone consideration. If
they do not approve such issuance, we will instead pay the former ACCESS
Oncology stockholders cash in an amount equaling the value (determined in
accordance with the merger agreement) of our common stock that would have been
issued as milestone consideration upon the achievement of the milestones as
described above.
The merger has been accounted for as a purchase by Keryx under accounting
principles generally accepted in the United States of America. Under the
purchase method of accounting, the assets and liabilities of ACCESS are recorded
as of completion of the merger, at their respective fair values, and added to
those of
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Keryx. Financial statements and reported results of operations of Keryx issued
after completion of the merger will reflect these values, but will not be
restated retroactively to reflect the historical financial position or results
of operations of ACCESS.
2. PURCHASE PRICE
The following is an estimate of the purchase price for ACCESS, as of December
31, 2003:
<Caption>
($ in thousand)
Assumed liabilities $ 9,076
Number of shares of Keryx common stock issued 623,145
Multiplied by Keryx's volume-adjusted weighted average
closing price per share measured over the last seven
trading days immediately preceding the closing
$ 10.15 $ 6,325
--------
Contingent equity rights $ 3,071
Other transaction costs $ 1,000
-------
Total estimated purchase price $19,472
=======
The excess of the net assets acquired over the purchase price represented
negative goodwill of approximately $3,071. Since the negative goodwill is a
result of not recognizing contingent consideration (i.e., the contingent equity
rights), the lesser of the negative goodwill ($3,071) and the maximum value of
the contingent equity rights at the date of the acquisition ($34,275) has been
recorded as if it were a liability, thereby reducing the negative goodwill. The
value of the contingent equity rights of $34,275 was based on the
volume-adjusted weighted average closing price per share or Keryx common stock
measured over the last seven trading days immediately preceding the closing of
the merger ($10.15 per share) multiplied by the unissued amount of Keryx common
stock deliverable to the ACCESS stockholders as milestone consideration
(3,376,855 shares).
For the purpose of this pro forma analysis, the above estimated purchase price
has been preliminarily allocated based on an estimate of the fair value of
assets and liabilities acquired. The final valuation of net assets is expected
to be completed as soon as possible but no later than one year from the
acquisition date. To the extent that these estimates need to be adjusted, Keryx
will do so.
($ in thousands)
Estimated purchase price:
Book value of net assets acquired $ 695
Adjusted for write-off of existing intangible assets $ 23
-------
Adjusted book value of net assets acquired $ 672
Record in-process research and development charge $18,800
-------
Estimated purchase price $19,472
=======
As required by Financial Accounting Standards Board Interpretation No. 4,
"Applicability of FASB Statement No. 2 to Business Combinations Accounted for by
the Purchase Method" ("FIN 4"), the portion of the purchase price allocated to
in-process research and development of $18,800 will be immediately expensed. An
adjustment for the estimated in-process research and development charge to be
incurred by Keryx has not been included in the unaudited pro forma condensed
combined income statement since such adjustment is non-recurring in nature. The
preliminary estimate of the write-off of in-process research and development and
related disclosures will be included in the combined company's quarterly report
on Form 10-Q for the first quarter of 2004.
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A project-by-project valuation using the guidance in Statement of Financial
Accounting Standards No. 141, "Business Combinations" and the AICPA Practice Aid
"Assets Acquired in a Business Combination to Be Used In Research and
Development Activities: A Focus on Software, Electronic Devices and
Pharmaceutical Industries" is being performed by independent valuation
specialists to determine the fair value of research and development projects of
ACCESS which were in-process, but not yet completed.
The fair value was determined using an excess earnings model, a variation of the
income approach, on a project-by-project basis. This method starts with a
forecast of future net cash flows. These cash flows are then discounted to
present value by applying an appropriate discount rate that reflects the
project's stage of completion and other risk factors, which have or have not
been reflected in the financial projections utilized in the valuation. These
other risk factors can include the nature of the product, the scientific data
associated with the technology, the current patent situation, market competition
and one potential scenario of the future market which the projects are expected
to gain upon commercialization.
The forecast of future cash flows required the following assumptions to be made
in the current scenario utilized:
- Revenue that is likely to result from specific in-process
research and development projects, including estimated patient
populations, estimated selling prices, estimated market
penetration and estimated market share and year-over-year
growth rates over the product life cycles,
- Cost of sales related to the potential products using industry
data or other sources of market data,
- Sales and marketing expense using industry data or other
market data,
- General and administrative expenses, and
- R&D expenses (for completion of the current project plus
maintenance).
The final valuation is expected to be completed as soon as possible but no later
than one year from the acquisition date. To the extent that our estimates need
to be adjusted, we will do so.
3. ACCOUNTING POLICIES AND FINANCIAL STATEMENT CLASSIFICATIONS
Keryx is currently reviewing accounting policies and financial statement
classifications used by ACCESS. As a result of this review, it may become
necessary to make certain reclassifications to the combined company's financial
statements to conform to those accounting policies and classifications that are
determined to be more appropriate and or consistent with Keryx's practices
according to accounting principles generally accepted in the United States of
America.
4. INTERCOMPANY TRANSACTIONS
Transactions between Keryx and ACCESS are primarily limited to a short-term
promissory note purchased from ACCESS, a rent sharing agreement and the
reimbursement of the salaries and related facility costs of two ACCESS
employees. Upon completion of the merger, transactions that occur in connection
with these arrangements would be considered intercompany transactions. All
significant balances and transactions related to these arrangements have been
eliminated from the unaudited pro forma condensed combined financial statements.
Eliminations primarily relate to receivables and payables between Keryx and
ACCESS and are reflected as adjustments to "Note and accrued interest receivable
from related party" and "Notes payable & accrued interest" in the unaudited pro
forma condensed combined balance sheet.
5. PRO FORMA ADJUSTMENTS
Adjustments included in the column under the heading "Pro Forma Adjustments"
primarily relate to the following:
(a) To eliminate balances and transactions between Keryx and ACCESS, which upon
completion of the merger would be considered intercompany balances and
transactions.
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($ in thousands)
Increase / (decrease)
Interest income $ (2)
Interest expense and other bank charges (2)
Note and accrued interest receivable from related party $(352)
Notes payable & accrued interest (352)
The entries include the elimination of receivable and payable balances and
certain interest income and expense. Elimination of the reimbursement of
salaries and related facility costs of two of ACCESS' employees is included in
other research and development expenses and nets to zero.
(b) To eliminate acquired intangible assets.
(c) To record the accrual of estimated other transaction costs of $1,000.
(d) The combined basic and diluted weighted average shares of Keryx and ACCESS
include the issuance of 623,145 shares of Keryx common stock to the ACCESS
preferred stockholders as merger consideration.
(e) to adjust stockholders' equity for the following:
Preferred stock ($4 decrease) -
- To remove the historical balance of ACCESS ($4 decrease).
Common stock ($10 net decrease) -
- To remove the historical balance of ACCESS ($11 decrease).
- To record the estimated par value of the shares issued by
Keryx to the ACCESS preferred stockholders as merger
consideration ($1 increase).
Additional paid-in capital ($4,321 net decrease) -
- To remove the historical balance of ACCESS ($10,645 decrease).
- To record the purchase price of the shares of common stock
issued by Keryx to the ACCESS preferred stockholders as merger
consideration ($6,325 increase) net of the amount allocated to
the par value of the common stock ($1 increase).
Unearned compensation ($255 increase) -
- To remove the historical balance of ACCESS ($255 increase).
Deficit accumulated during the development stage ($98 net decrease) -
- To remove the historical balance of ACCESS ($18,702 increase).
- To record the elimination of transactions between Keryx and
ACCESS - (see pro forma adjustments (a) - net change zero).
- To record the estimated write-off of in-process research and
development, as required by FIN 4 ($18,800 decrease) - see
also Note 2 to the unaudited pro forma condensed combined
financial statements.
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