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BUSINESS COMBINATIONS AND ASSET ACQUISITIONS | 12 Months Ended
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Dec. 31, 2023
Business Combination and Asset Acquisition [Abstract] |
Business Combination, Divestiture, And Asset Acquisition | ACQUISITIONS AND DIVESTITURES Business Combinations Resolution Bioscience, Inc. On September 12, 2023, the Company completed the acquisition of all of the outstanding capital stock of Resolution Bioscience, Inc. from Agilent Technologies, Inc. Resolution Bioscience develops and commercializes next-generation sequencing-based precision oncology solutions through its Clinical Laboratory Improvement Amendments (“CLIA”) certified lab based in Kirkland, Washington. The acquisition provides the Company with a high-quality blood-based therapy selection platform, complementing its comprehensive, tissue-based OncoExTra TM test. The Company has included the financial results of Resolution Bioscience in the consolidated financial statements from the date of the acquisition. The acquisition date fair value of the consideration transferred for Resolution Bioscience was approximately $54.2 million, which consisted of the following:
(In thousands) |  |
Cash |  | $ | 52,527 |
Fair value of replaced equity awards |  | 1,675 |
Total purchase price |  | $ | 54,202 |
The Company replaced unvested RSUs with a combination-date fair value of $4.6 million. Of the total consideration for replaced equity awards, $1.7 million was allocated to the consideration transferred, and $2.9 million was deemed compensatory as it was attributable to post acquisition vesting. The compensatory replaced equity awards will be expensed over the remaining service periods on a straight-line basis. The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values including insignificant measurement period adjustments as follows:
(In thousands) |  |
Net operating assets |  | $ | 14,663 |
Developed technology |  | 26,000 |
Total identifiable assets acquired |  | 40,663 |
Net operating liabilities |  | (7,152) |
Net identifiable assets acquired |  | 33,511 |
Goodwill |  | 20,691 |
Net assets acquired |  | $ | 54,202 |
The Company recorded a $26.0 million identifiable intangible asset related to the developed technology associated with Resolution Bioscience’s liquid biopsy therapy selection tests. Developed technology represents purchased technology that had reached technological feasibility and for which Resolution Bioscience had substantially completed development as of the acquisition date. The fair value of the developed technology has been determined using the multi-period excess earnings method of the income approach, which involves significant unobservable inputs (Level 3 inputs). These inputs include projected revenues, gross margins, operating expenses, obsolescence, and an estimated discount rate. The developed technology intangible asset is amortized on a straight-line basis over its estimated useful life of 17 years. The calculation of the excess of the purchase price over the estimated fair value of the tangible net assets and intangible assets acquired was recorded to goodwill, which is primarily attributed to the acquired workforce expertise and expected sales force and therapy selection product portfolio synergies. The total goodwill related to this acquisition is deductible for tax purposes. The total purchase price allocation is preliminary and based upon estimates and assumptions that are subject to change within the measurement period as additional information for the estimates is obtained. The measurement period remains open pending the completion of valuation procedures related to the acquired assets and assumed liabilities, including in connection with the developed technology intangible asset. The following unaudited pro forma financial information summarizes the combined results of operations for the Company and Resolution Bioscience, as though the companies were combined as of the beginning of January 1, 2022.
|  | Twelve Months Ended December 31,
(In thousands) |  | 2023 |  | 2022
Total revenues |  | $ | 2,507,111 |  |  | $ | 2,097,680 |
Net loss before tax |  | (237,854) |  |  | (675,091) |
The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results that would have been achieved if the acquisition had taken place at such time. Expected cost savings and other synergistic benefits resulting from the acquisition were not reflected in the unaudited pro forma financial information. The Company did not have any significant, nonrecurring pro forma adjustments directly attributable to the acquisition included in the reported unaudited pro forma financial information. Revenue and net loss before tax from Resolution Bioscience included in the Company's consolidated statements of operations for the year ended December 31, 2023 was not significant. Acquisition-related costs were not significant and were recorded within general and administrative expenses in the consolidated statement of operations. These costs include fees associated with financial, legal, accounting, and other advisors incurred to complete the acquisition. OmicEra Diagnostics, GmbH On May 2, 2022, the Company completed the acquisition (the “OmicEra Acquisition”) of all of the outstanding equity interests of OmicEra Diagnostics GmbH. The OmicEra Acquisition provided the Company a state-of-the-art proteomics lab based in Planegg, Germany. OmicEra combines its mass spectrometry-based proteome analysis technology with its in-house proteomics scientific expertise to discover more reliable and valuable protein biomarkers, which will expand the Company’s research and development capabilities. The Company has included the financial results of OmicEra in the consolidated financial statements from the date of the acquisition. The acquisition date fair value of the consideration transferred for OmicEra was approximately $19.4 million, which consisted of the following:
(In thousands) |  |
Common stock issued |  | $ | 14,792 |
Contingent consideration |  | 4,600 |
Cash paid related to working capital adjustment |  | 16 |
Total purchase price |  | $ | 19,408 |
The fair value of the 265,186 common shares issued as part of the consideration transferred was determined on the basis of the average of the high and low market price of the Company’s shares on the acquisition date, which was $55.78. The purchase agreement requires the Company to pay a maximum of $6.0 million of additional cash consideration to OmicEra upon the achievement of certain earnout conditions related to the identification of protein biomarkers, as well as the growth of the proteomics research and development team. The fair value of the contingent consideration at the acquisition date was $4.6 million. The fair value of the contingent consideration was estimated using a probability-weighted scenario-based discounted cash flow model. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. The key assumptions are described in Note 7. The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values including insignificant measurement period adjustments as follows:
(In thousands) |  |
Net operating assets |  | $ | 2,586 |
Developed technology |  | 10,000 |
Total identifiable assets acquired |  | 12,586 |
Net operating liabilities |  | (3,987) |
Net identifiable assets acquired |  | 8,599 |
Goodwill |  | 10,809 |
Net assets acquired |  | $ | 19,408 |
The Company recorded $10.0 million of identifiable intangible assets related to the developed technology associated with OmicEra’s proteome analysis platform. Developed technology represents purchased technology that had reached technological feasibility and for which OmicEra had substantially completed development as of the date of acquisition. The fair value of the developed technology has been determined using the income approach multi-period excess earnings method, which involves significant unobservable inputs (Level 3 inputs). These inputs include projected sales, margin, obsolescence factor, required rate of return, and tax rate. Cash flows were discounted to their present value as of the closing date. The developed technology intangible asset is amortized on a straight-line basis over its estimated useful life of 16 years. The calculation of the excess purchase price over the estimated fair value of the tangible net assets and intangible assets acquired was recorded to goodwill, which is primarily attributed to the acquired workforce expertise, the potential to enhance the capabilities of current and future products, and expected research and development synergies. The total goodwill related to this acquisition is deductible for tax purposes. Pro forma impact and results of operations disclosures have not been included due to insignificance. Acquisition-related costs were not significant and were recorded within general and administrative expenses in the consolidated statement of operations. These costs include fees associated with financial, legal, accounting, and other advisors incurred to complete the merger. PreventionGenetics, LLC On December 31, 2021, the Company completed the acquisition (the “PreventionGenetics Acquisition”) of all of the outstanding equity interests of PreventionGenetics, LLC. The PreventionGenetics Acquisition provided the Company a CLIA certified and College of American Pathologist (“CAP”) accredited sequencing lab based in Marshfield, Wisconsin. PreventionGenetics provides more than 5,000 predefined genetic tests for nearly all clinically relevant genes, additional custom panels, and comprehensive germline, whole exome (“PGxome®”), and whole genome (“PGnome®”) sequencing tests. The Company has included the financial results of PreventionGenetics in the consolidated financial statements from the date of the acquisition. The acquisition date fair value of the consideration transferred for PreventionGenetics was approximately $185.4 million, which consisted of the following:
(In thousands) |  |
Cash |  | $ | 101,129
Common stock issued |  | 84,252
Total purchase price |  | $ | 185,381
The fair value of the 1,070,410 common shares issued as part of consideration transferred was determined on the basis of the average of the high and low market price of the Company's shares on the acquisition date, which was $78.71. Of the total $101.1 million of consideration settled through the payment of cash, $85.8 million was paid as of December 31, 2021. The remaining $15.3 million represented withheld cash consideration used to cover working capital adjustments or seller claims that arose following the completion of the acquisition. The withheld cash consideration was settled during the year ended December 31, 2022, and there is no remaining liability on the consolidated balance sheet. Acquisition-related costs were not significant and were recorded in general and administrative expenses in the consolidated statement of operations. These costs include fees associated with financial, legal, accounting and other advisors incurred to complete the merger. Ashion Analytics, LLC On April 14, 2021, the Company completed the acquisition (“Ashion Acquisition”) of all of the outstanding equity interests of Ashion Analytics, LLC from PMed Management, LLC (“PMed”), which is a subsidiary of The Translational Genomics Research Institute. The Ashion Acquisition provided the Company a CLIA-certified and CAP-accredited sequencing lab based in Phoenix, Arizona. Ashion developed GEM ExTra®, a comprehensive genomic cancer test, and provides access to whole exome, matched germline, and transcriptome sequencing capabilities. The Company has included the financial results of Ashion in the consolidated financial statements from the date of the acquisition. The acquisition date fair value of the consideration transferred for Ashion was approximately $110.0 million, which consisted of the following:
(In thousands) |  |
Cash |  | $ | 74,775
Common stock issued |  | 16,224
Contingent consideration |  | 19,000
Total purchase price |  | $ | 109,999
The fair value of the 125,444 common shares issued as part of consideration transferred was determined on the basis of the average of the high and low market price of the Company's shares on the acquisition date, which was $129.33. The contingent consideration arrangement requires the Company to pay $20.0 million of additional cash consideration to PMed upon the Company’s commercial launch, on or before the tenth anniversary of the Ashion Acquisition, of a test for MRD detection and/or treatment (the “Commercial Launch Milestone”). The fair value of the Commercial Launch Milestone at the acquisition date was $19.0 million. The contingent consideration arrangement also requires the Company to pay $30.0 million of additional cash upon the Company’s achievement, on or before the fifth anniversary of the Ashion Acquisition, of cumulative revenues from MRD products of $500.0 million (the “MRD Product Revenue Milestone”). No value was ascribed to the MRD Product Revenue Milestone based on probability assessments as of the acquisition date. The fair value of the Commercial Launch Milestone and MRD Product Revenue Milestone was estimated using a probability-weighted scenario based discounted cash flow model. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. The key assumptions are described in Note 7. Acquisition-related costs were not significant and were recorded in general and administrative expenses in the consolidated statement of operations. These costs include fees associated with financial, legal, accounting and other advisors incurred to complete the merger. Thrive Earlier Detection Corporation On January 5, 2021, the Company completed the acquisition (“Thrive Merger”) of all of the outstanding capital stock of Thrive Earlier Detection Corporation. Thrive, headquartered in Cambridge, Massachusetts, is a healthcare company dedicated to incorporating earlier cancer detection into routine medical care. The Company expects that combining Thrive’s early-stage MCED test with the Company’s scientific platform, clinical organization, and commercial infrastructure will bring an accurate blood-based, MCED test to patients faster. The Company has included the financial results of Thrive in the consolidated financial statements from the date of the acquisition. The acquisition date fair value of the consideration transferred for Thrive was approximately $2.19 billion, which consisted of the following:
(In thousands) |  |
Common stock issued |  | $ | 1,175,431
Cash |  | 584,996
Contingent consideration |  | 331,348
Fair value of replaced equity awards |  | 52,245
Previously held equity investment fair value |  | 43,034
Total purchase price |  | $ | 2,187,054
The Company issued 9,323,266 common shares that had a fair value of $1.19 billion based on the average of the high and low market price of the Company's shares on the acquisition date, which was $127.79. Of the total consideration for common stock issued, $1.18 billion was allocated to the purchase consideration and $16.0 million was recorded as compensation within general and administrative expenses in the consolidated statement of operations on the acquisition date due to accelerated vesting of legacy Thrive restricted stock awards (“RSA”) and RSU awards in connection with the acquisition. The Company paid $590.2 million in cash on the acquisition date. Of the total consideration for cash, $585.0 million was allocated to the purchase consideration and $5.2 million was recorded as compensation within general and administrative expenses on the acquisition date due to accelerated vesting of legacy Thrive RSU and RSAs that were cash-settled in connection with the acquisition. The contingent consideration arrangement requires the Company to pay up to $450.0 million of additional cash consideration to Thrive’s former shareholders upon the achievement of two discrete events, FDA approval and CMS coverage, for $150.0 million and up to $300.0 million, respectively. The fair value of the contingent consideration arrangement at the acquisition date was $352.0 million. The fair value of the contingent consideration was estimated using a probability-weighted scenario based discounted cash flow model. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. The key assumptions are described in Note 7. Of the total fair value of the contingent consideration, $331.3 million was allocated to the consideration transferred, $6.4 million was allocated to the Company’s previous ownership interest in Thrive, and $14.3 million was deemed compensatory as participation is dependent on replaced unvested equity awards vesting which requires future service. Compensation expense related to the milestones could be up to $18.2 million undiscounted and will be recognized in the future once probable and payable. The Company replaced unvested stock options, RSUs, and RSAs and vested stock options with an acquisition-date fair value of $197.0 million. Of the total consideration for replaced equity awards, $52.2 million was allocated to the consideration transferred and $144.8 million was deemed compensatory as it was attributable to post acquisition vesting. Of the total compensation related to replaced awards, $65.0 million was expensed on the acquisition date due to accelerated vesting of stock options in connection with the acquisition and $79.8 million relates to future services and will be expensed over the remaining service periods of the unvested stock options, RSUs, and RSAs on a straight-line basis. Including expense recognized for accelerated vesting of RSUs and RSAs described above, total expected stock-based compensation expense is $166.0 million, of which $86.2 million was recognized immediately to general and administrative expenses in the consolidated statement of operations due to accelerated vesting. The fair value of the stock options assumed by the Company was determined using the Black-Scholes option pricing model. The fair value of the RSA and RSUs assumed by the Company was determined based on the average of the high and low market price of the Company’s shares on the acquisition date. The share conversion ratio of 0.06216 was applied to convert Thrive’s outstanding equity awards for Thrive’s common stock into equity awards for shares of the Company’s common stock. The fair value of options assumed were based on the assumptions in the following table:
Option Plan Shares Assumed |  |
Risk-free interest rates |  | 0.11% - 0.12%
Expected term (in years) |  | 1.26 - 1.57
Expected volatility |  | 65.54% - 71.00%
Dividend yield |  | 0%
Weighted average fair value per share of options assumed |  | $109.74 - $124.89
The Company previously held a preferred stock investment of $12.5 million in Thrive and recognized a gain of approximately $30.5 million on the transaction within investment income (expense), net on the Company’s consolidated statement of operations, which represented the adjustment of the Company’s historical investment to the acquisition date fair value. The fair value of the Company’s previous ownership in Thrive was determined based on the pro-rata share payout applied to the Company’s interest combined with the fair value of the Company’s share of the contingent consideration arrangement, as discussed above. The net loss before tax of Thrive included in the Company’s consolidated statement of operations from the acquisition date of January 5, 2021 to December 31, 2022 was $255.0 million. The following unaudited pro forma financial information summarizes the combined results of operations for the Company and Thrive, as though the companies were combined as of the beginning of January 1, 2020.
|  | Year Ended December 31,
(In thousands) |  | 2021 |  | 2020
Total revenues |  | $ | 2,084,279 |  |  | $ | 1,767,087 |
Net loss before tax |  | (761,337) |  |  | (1,014,352) |
The unaudited pro forma financial information for all periods presented above has been calculated after adjusting the results of Thrive to reflect the business combination accounting effects resulting from this acquisition. The Company incurred $86.2 million of stock-based compensation expense related to accelerated vesting in connection with the acquisition, $13.5 million of stock-based compensation expense related to accelerated vesting for employees with qualifying termination events, and $10.3 million of transaction costs incurred to execute the acquisition during the first quarter of 2021. These expenses are included in general and administrative expenses on the consolidated statement of operations for the year ended December 31, 2021 and are reflected in pro forma earnings for the year ended December 31, 2020 in the table above. The Company recorded a realized gain of $30.5 million during the first quarter of 2021 in investment income (expense), net on the Company’s consolidated statement of operations relating to the Company’s pre-acquisition investment in Thrive. This gain has been reduced to $7.6 million due to the Company’s smaller ownership interest in Thrive on January 1, 2020, and is reflected in pro forma earnings for the year ended December 31, 2020 in the table above. The Company recorded a remeasurement of contingent consideration of $7.2 million related to Thrive in general and administrative expenses in the consolidated statement of operations for the year ended December 31, 2021. This expense is reflected in the year ended December 31, 2020 in the table above. The historical consolidated financial statements have been adjusted in the unaudited pro forma combined financial information to give effect to pro forma events that are directly attributable to the business combination and factually supportable. The unaudited 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 as of January 1, 2020. During the year ended December 31, 2021, the Company incurred $10.3 million of acquisition-related costs recorded in general and administrative expenses in the consolidated statement of operations. These costs include fees associated with financial, legal, accounting and other advisors incurred to complete the merger. In connection with acquisition-related severances, the Company recorded $19.0 million of expense related to vesting of previously unvested equity awards and $3.9 million of additional benefit charges for the year ended December 31, 2021. Asset Acquisitions PFS Genomics Inc. On May 3, 2021, the Company acquired 90% of the outstanding capital stock of PFS Genomics Inc. (“PFS”). On June 23, 2021, the Company completed the acquisition of the remaining 10% interest in PFS. The Company paid cash of $33.6 million for 100% of the outstanding capital stock in PFS. PFS is a healthcare company focused on personalizing treatment for breast cancer patients to improve outcomes and reduce unnecessary treatment. The Company expects this acquisition to expand its ability to help guide early-stage breast cancer treatment through individualized radiotherapy treatment decisions. The transaction was treated as an asset acquisition under GAAP because substantially all of the fair value of the gross assets acquired were deemed to be associated with the acquired technology. Acquisition related costs were not significant in this asset acquisition. Divestitures Oncotype DX Genomic Prostate Score Test On August 2, 2022, pursuant to an asset purchase agreement (“Asset Purchase Agreement”) with MDxHealth SA, the Company completed the sale of the intellectual property and know-how related to the Company’s Oncotype DX Genomic Prostate Score test, which will allow the Company to focus on the highest impact projects core to the Company’s vision. The closing date fair value of the consideration received for the asset was approximately $29.6 million, which consisted of the following:
(In thousands) |  |
Cash |  | $ | 25,000 |
MDxHealth American Depository Shares |  | 4,631 |
Contingent consideration |  | — |
Total consideration |  | $ | 29,631 |
The fair value of the 691,171 American Depository Shares received as part of the consideration transferred was determined on the basis of the average of the high and low market price of the MDxHealth’s shares on the date of divestiture, which was $6.70, and is included in marketable securities on the consolidated balance sheet. The Asset Purchase Agreement required MDxHealth to pay the Company up to an additional $70.0 million of contingent consideration that would be earned and receivable in cash and/or equity based on the achievement of certain revenue milestones by MDxHealth between 2023 and 2025. Under the Asset Purchase Agreement, contingent consideration would have been recognized in the consolidated statement of operations when it was probable a significant reversal of a gain would not occur. As of December 31, 2022, no contingent consideration was probable of not resulting in a significant gain reversal due to minimum revenue thresholds in place and therefore it was fully constrained. The carrying value of the developed technology intangible asset, which was previously included in intangible assets, net on the consolidated balance sheet, was $42.9 million as of the closing date. As a result of the sale, the Company recorded a loss of $13.2 million, which is included in other operating income (loss) in the consolidated statement of operations for the year ended December 31, 2022. Further, the Company agreed to provide certain transitional services to MDxHealth through December 31, 2022 and lab testing services for a period of up to 24 months. On August 23, 2023, the Company and MDxHealth executed the Second Amendment to the Asset Purchase Agreement (“Second Amendment”) related to the sale of the GPS test. Under the Second Amendment, the Company agreed to allow MDxHealth to defer the 2023 contingent consideration payment by three years in exchange for additional consideration and more favorable contingent consideration terms. The Company received additional consideration with a fair value of $3.1 million, which was recorded as a gain for the year ended December 31, 2023, and is included in other operating income (loss) in the consolidated statement of operations. Under the Second Amendment, the maximum contingent consideration increased from $70.0 million to $82.5 million and the minimum revenue thresholds previously required to be met under the Asset Purchase Agreement were eliminated. As a result of the elimination of the minimum revenue thresholds, the Company determined that a significant reversal of a gain is not probable and therefore the contingent consideration is no longer constrained. The Company recorded a contingent consideration gain of $73.3 million during the year ended December 31, 2023, which is included in other operating income (loss) in the consolidated statement of operations. The gain was estimated using historical GPS test revenues by MDxHealth under the most likely amount method. As of December 31, 2023, a portion of the contingent consideration is classified as a contract asset. The contract asset was $41.7 million and zero as of December 31, 2023 and 2022, respectively. The remaining balance of $31.6 million, which represents the amount earned during the 2023 earnout year, is classified as a receivable as of December 31, 2023. The contract asset and receivable are included in other long-term assets, net on the consolidated balance sheet. Transaction-related costs were not significant and were recorded within general and administrative expenses in the consolidated statement of operations. These costs include fees associated with financial, legal, accounting, and other advisors incurred to complete the divestiture.

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