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Acquisitions Acquisitions | 6 Months Ended
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Jun. 30, 2015
Business Combinations [Abstract] |
Acquisitions | Acquisitions Convergence Pharmaceuticals On February 12, 2015, we completed our acquisition of all of the outstanding stock of Convergence Pharmaceuticals (Convergence), a clinical-stage biopharmaceutical company with a focus on developing product candidates for neuropathic pain. Convergence’s lead candidate is its Phase 2 clinical candidate (CNV1014802), which has demonstrated clinical activity in proof-of-concept studies for trigeminal neuralgia (TGN), a chronic orphan disease. Additionally, CNV1014802 has potential applicability in several other neuropathic pain states. The purchase price consisted of a $200.1 million cash payment at closing, plus contingent consideration in the form of development and approval milestones up to a maximum of $450.0 million, of which $350.0 million is associated with the development and approval of CNV1014802 for the treatment of TGN. The acquisition was funded from our existing cash on hand and has been accounted for as the acquisition of a business. In addition to obtaining the rights to CNV1014802 and additional product candidates in preclinical development, we retained the services of key employees of Convergence. In connection with our acquisition of Convergence, we recorded a liability of $274.5 million representing the fair value of the contingent consideration. This amount was estimated through a valuation model that incorporates industry-based probability adjusted assumptions relating to the achievement of these milestones and thus the likelihood of making the contingent payments. This fair value measurement is based upon significant inputs not observable in the market and therefore represents a Level 3 measurement. The purchase price, as adjusted, consisted of the following:
(In millions) |
Cash portion of consideration | $ | 200.1 |
Contingent consideration | 274.5 |
Total purchase price | $ | 474.6 |
Subsequent changes in the fair value of the contingent consideration obligation will be recognized as adjustments to contingent consideration and reflected within our condensed consolidated statements of income. For additional information related to the fair value of this obligation, please read Note 6, Fair Value Measurements to these condensed consolidated financial statements. We adjusted our preliminary estimate of the fair value of the separately identifiable assets acquired and contingent consideration as of the date of acquisition to reflect revised estimates to our initial clinical development plans, resulting probabilities of success and the timing of certain milestone payments. The primary effects of these revised estimates resulted in an increase in the value of our estimated contingent consideration and goodwill by $36.0 million, respectively, as compared with March 31, 2015. Our revised purchase price allocation is reflected in the chart below. Our purchase price allocation is substantially complete. The following table summarizes the estimated fair values of the separately identifiable assets acquired and liabilities assumed as of February 12, 2015, as adjusted:
(In millions) |
In-process research and development | $ | 424.6 |
Other intangible assets | 7.6 |
Goodwill | 128.3 |
Deferred tax liability | (84.9 | )
Other, net | (1.0 | )
Total purchase price | $ | 474.6 |
Our estimate of the fair value of the IPR&D programs acquired was determined through a probability adjusted cash flow analysis based on probability weighted net cash flows utilizing a discount rate of 11%. This valuation was primarily driven by the value associated with the lead candidate, CNV1014802, which is in development for the treatment of TGN and is expected to be completed no earlier than 2020, at a remaining cost of approximately $145.0 million. The fair value associated with CNV1014802 for the treatment of TGN was $200.0 million. We have recorded additional IPR&D assets related to the use of CNV1014802 in two additional neuropathic pain indications, with a total estimated value of $220.0 million. The remaining cost of development for these two indications is approximately $415.0 million, with an expected completion date of no earlier than 2021. These fair value measurements were based on significant inputs not observable in the market and thus represent Level 3 fair value measurements. We have attributed the goodwill recognized to the Convergence workforce's expertise in chronic pain research and clinical development and to establishing a deferred tax liability for the acquired IPR&D intangible assets which has no tax basis. The goodwill is not tax deductible. Pro forma results of operations would not be materially different as a result of the acquisition of Convergence and therefore are not presented. Subsequent to the acquisition date, our results of operations include the results of operations of Convergence.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References No definition available. + Details
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