3.	Acquisitions, Goodwill and Other Intangible Assets

Acquisitions

Spectrum LifeSciences, LLC

On August 1, 2017, the Company completed the acquisition of Spectrum pursuant to the terms of the Agreement and Plan of Merger and Reorganization, dated as of June 22, 2017 (such acquisition, the “Spectrum Acquisition”).

Spectrum is a diversified filtration company with a differentiated portfolio of hollow fiber cartridges, bench-top to commercial scale filtration and perfusion systems and a broad portfolio of disposable and single-use solutions. Spectrum’s products are primarily used for the filtration, isolation, purification and concentration of monoclonal antibodies, vaccines, recombinant proteins, diagnostic products and cell therapies where the company offers both standard and customized solutions to its bioprocessing customers.

Spectrum’s filtration products include its KrosFlo^® line of hollow-fiber cartridges, tangential flow filtration (TFF) systems and single-use flow path consumables, as well as its Spectra/Por^® portfolio of laboratory dialysis products and its Pro-Connex^® single-use hollow fiber Module-Bag-Tubing (MBT) sets. Outside of filtration, the company sells its Spectra/Chrom^® liquid chromatography products for research applications. These bioprocessing products account for the majority of Spectrum revenues. Spectrum also offers a line of operating room products.

The Spectrum Acquisition was accounted for as a purchase of a business under ASC 805, Business Combinations. The Spectrum Acquisition was funded through payment of approximately $122.9 million in cash, 6,153,995 unregistered shares of the Company’s common stock totaling $247.6 million and a working capital adjustment of $425,000 for a total purchase price of $370.9 million.

Consideration Transferred

The Company accounted for the Spectrum Acquisition as a purchase of a business under U.S. GAAP. Under the acquisition method of accounting, the assets of Spectrum were recorded as of the acquisition date, at their respective fair values, and consolidated with those of the Company. The fair value of the net assets acquired was approximately $370.9 million.

The preparation of the valuation required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable; however, actual results may differ from these estimates.

The total consideration transferred follows (in thousands):


Cash consideration	$	122,932
Equity consideration		247,575
Working capital adjustment		425

Net assets acquired	$	370,932

Acquisition-related costs are not included as a component of consideration transferred, but are expensed in the periods in which the costs are incurred. The Company has incurred $7,060,000 in costs related to the Spectrum Acquisition for the year ended December 31, 2017. These costs are primarily included in selling, general and administrative expenses in the consolidated statements of operations.

Fair Value of Net Assets Acquired

The allocation of purchase price was based on the fair value of assets acquired and liabilities assumed as of August 1, 2017, based on the preliminary valuation. The components and allocation of the purchase price consists of the following amounts (in thousands):


Cash and cash equivalents	$	10,137
Accounts receivable		5,075
Inventory		13,705
Prepaid expenses and other assets		616
Fixed assets		6,004
Deferred tax assets		1,102
Customer relationships		78,400
Developed technology		38,560
Trademark and tradename		2,160
Non-competition agreements		960
Goodwill		265,519
Accounts payable		(1,335	)
Unrecognized tax benefit		(576	)
Accrued liabilities		(5,787	)
Deferred tax liabilities		(43,608	)

Fair value of net assets acquired	$	370,932

Of the consideration paid, $78.4 million represents the fair value of customer relationships that will be amortized over the weighted average determined useful life of 15 years, and $38.6 million represents the fair value of developed technology that will be amortized over a determined useful life of 20 years. $960,000 represents the fair value of non-competition agreements that will be amortized over a determined life of 3 years. $2.2 million represents the fair value of trademarks that will be amortized over a determined life of 2 to 20 years. The aforementioned intangible assets will be amortized on a straight-line basis.

The goodwill of $265.5 million represents future economic benefits expected to arise from synergies from combining operations and commercial organizations to increase market presence and the extension of existing customer relationships. None of the goodwill recorded is expected to be deductible for income tax purposes.

The purchase price allocation may be subject to adjustment as purchase accounting is preliminary as of December 31, 2017 related to inventory valuation, and accordingly, the fair value of inventory acquired may be subject to change.

Revenue, Net Income and Pro Forma Presentation

The Company recorded revenue from Spectrum of $19,394,000 from August 1, 2017 through December 31, 2017. The Company has included the operating results of Spectrum in its consolidated statements of operations since the August 1, 2017 acquisition date. The following table presents unaudited supplemental pro forma information as if both the Spectrum Acquisition had occurred as of January 1, 2016 and the TangenX Acquisition had occurred as of January 1, 2015 (in thousands, except per share data):


	December 31, 2017		December 31, 2016
Total revenue		162,913		145,994
Net income (loss)		17,220		(12,656	)
Earnings (loss) per share:
Basic	$	0.41	$	(0.32	)

Diluted	$	0.40	$	(0.32	)

The unaudited pro forma information for the years ended December 31, 2017 and 2016 was calculated after applying the Company’s accounting policies and the impact of acquisition date fair value adjustments. Unaudited pro forma net income for year ended December 31, 2017 was adjusted to exclude acquisition-related transaction costs, nonrecurring expenses related to the fair value adjustments associated with the acquisition and income tax benefits resulting from the acquisition. In addition, the unaudited pro forma net income for the year ended December 31, 2017 was adjusted to include incremental amortization of intangible assets. These items have been factored to the unaudited pro forma net income for the year ended December 31, 2017. The unaudited pro forma net loss for the year ended December 31, 2016 was adjusted to include acquisition-related transaction costs, expenses related to the fair value adjustments, amortization of intangible assets, and income tax benefits resulting from the acquisition.

These pro forma condensed consolidated financial results have been prepared for comparative purposes only and include certain adjustments to reflect the pro forma results of operations as if the acquisition had occurred as of the beginning of the periods presented, such as fair value adjustments to inventory and increased amortization for the fair value of acquired intangible assets. The pro forma information does not reflect the effect of costs or synergies that would have been expected to result from the integration of the acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred at the beginning of each period presented, or of future results of the consolidated entities.

TangenX Technology Corporation

On December 14, 2016, the Company acquired TangenX Technology Corporation (“TangenX”), pursuant to the terms of the Share Purchase Agreement, dated as of December 14, 2016 (the “Share Purchase Agreement”), by and among the Company and TangenX (such acquisition, the “TangenX Acquisition”). The Company acquired all outstanding shares and the business of TangenX, including TangenX’s innovative single-use Sius line of tangential flow filtration (“TFF”) cassettes and hardware used in downstream biopharmaceutical manufacturing processes.

Sius TFF is used in the filtration of biological drugs, complimenting Repligen’s OPUS line of pre-packed chromatography columns used in downstream purification. Pursuant to the Share Purchase Agreement, Repligen acquired all of the outstanding shares of TangenX, as well as certain assets and liabilities. Effective June 30, 2017, TangenX was legally merged with and into the Company.

The TangenX Acquisition was accounted for as a purchase of a business under ASC 805, “Business Combinations.” The total purchase price of the TangenX Acquisition was $37.1 million in cash.

Consideration Transferred

The Company accounted for the TangenX Acquisition as the purchase of a business under U.S. GAAP. Under the acquisition method of accounting, the assets of TangenX were recorded as of the acquisition date, at their respective fair values, and consolidated with those of Repligen. The fair value of the net assets acquired was approximately $37.1 million.

The preparation of the valuation required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable. However, actual results may differ from these estimates.

The total consideration transferred follows (in thousands):


Cash consideration	$	37,532
Less: working capital adjustment		(382	)

Net assets acquired	$	37,150

Acquisition related costs are not included as a component of consideration transferred, but are expensed in the periods in which the costs are incurred. The Company incurred transaction costs of $431,000 in the year ended December 31, 2017 and $935,000 in the year ended December 31, 2016 related to the TangenX Acquisition. The transaction costs are included in selling, general and administrative expenses in the consolidated statements of operations.

Fair Value of Net Assets Acquired

The allocation of purchase price was based on the fair value of assets acquired and liabilities assumed as of December 14, 2016. The components and allocation of the purchase price consists of the following amounts (in thousands):


Cash and cash equivalents	$	1,218
Accounts receivable		459
Other receivables		111
Inventory		936
Other current assets		50
Fixed assets, net		215
Customer relationships		6,192
Developed technology		6,044
Non-competition agreements		21
Trademark and trade name		11
Accounts payable and other liabilities assumed		(3,083	)
Deferred tax liabilities		(4,525	)
Goodwill		29,501

Net assets acquired	$	37,150

Of the consideration paid, $6.2 million represents the fair value of customer relationships that will be amortized over the determined useful life of 13 years and $6.0 million represents the fair value of developed technology that will be amortized over a determined useful life of 20 years. $21,000 represents the fair value of non-competition agreements that will be amortized over a determined life of 5 years. $11,000 represents the fair value of trademarks and trade names that will be amortized over a determined useful life of 2 years. The aforementioned intangible assets will be amortized on a straight-line basis.

The goodwill of $29.5 million represents future economic benefits expected to arise from synergies from combining operations and the extension of existing customer relationships.

Revenue, Net Income and Pro Forma Presentation

The Company recorded revenue from TangenX of approximately $119,000 from December 15, 2016 through December 31, 2016. The Company has included the operating results of TangenX in its consolidated statements of operations since the December 15, 2016 acquisition date. The following table presents unaudited supplemental pro forma information as if the TangenX Acquisition had occurred as of January 1, 2015 (in thousands, except per share data):


	December 31, 2016		December 31, 2015
Total revenue		110,228		88,437
Net income		5,744		13,208
Earnings per share:
Basic	$	0.17	$	0.40

Diluted	$	0.17	$	0.39

The unaudited pro forma information for the year ended December 31, 2016 and 2015 was calculated after applying the Company’s accounting policies and the impact of acquisition date fair value adjustments. Unaudited pro forma net income for year ended December 31, 2016 was adjusted to exclude acquisition-related transaction costs, nonrecurring expenses related to the fair value adjustments associated with the acquisition, and income tax benefits resulting from the acquisition. In addition, the unaudited pro forma net income for the year ended December 31, 2016 was adjusted to include incremental amortization of intangible assets. These items have been factored to the unaudited pro forma net income for the year ended December 31, 2016. The unaudited pro forma net income for the year ended December 31, 2015 was adjusted to include these acquisition-related transaction costs, expenses related to the fair value adjustments, amortization of intangible assets, and income tax benefits resulting from the acquisition.

Atoll GmbH

On April 1, 2016, the Company’s subsidiary Repligen Sweden acquired Atoll GmbH (“Atoll”) from UV-Cap GmbH & Co. KG (the “Seller”) pursuant to a Share Purchase Agreement (the “Share Purchase Agreement”), dated as of March 31, 2016 (such acquisition, the “Atoll Acquisition”), by and among Repligen Sweden, the Seller, and the Company, in its capacity as guarantor of the obligations of Repligen Sweden under the Share Purchase Agreement. The Atoll Acquisition was subject to certain closing conditions that did not occur until April 1, 2016. Payment for the Atoll Acquisition was denominated in Euros but is reflected here in U.S. dollars for presentation purposes.

In connection with the Atoll Acquisition, the Company issued and contributed 538,700 shares of the Company’s common stock, par value of $0.01 per share valued at $14.1 million (the “Stock Consideration”) to Repligen Sweden through a transfer by the Company on behalf of Repligen Sweden to fulfill Repligen Sweden’s obligation to deliver the Stock Consideration under the Share Purchase Agreement. The issuance of the Stock Consideration was not registered under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act. The Stock Consideration was based on the fair value of the Company’s common stock on April 1, 2016.

This acquisition strengthened Repligen’s bioprocessing business by adding a complementary extension to an existing product line while expanding its direct sales presence worldwide. On September 20, 2016, Atoll changed its name to Repligen GmbH.

The Atoll Acquisition was accounted for as a purchase of a business under ASC 805, “Business Combinations.” The total purchase price of the Atoll Acquisition was $25.3 million, consisting of an upfront cash payment of $10.2 million, less $74,000 as a result of the final determination of working capital, issuance of the Stock Consideration, and a future potential milestone payment of $1.1 million if specific revenue growth targets are met for 2016. The $1.1 million potential contingent consideration had an initial probability weighted fair value at the time of the closing of the Atoll Acquisition of approximately $952,000.

Consideration Transferred

The Company accounted for the Atoll Acquisition as the purchase of a business under U.S. GAAP. Under the acquisition method of accounting, the assets of Atoll were recorded as of the acquisition date, at their respective fair values, and consolidated with those of Repligen. The fair value of the net assets acquired was approximately $25.3 million.

The preparation of the valuation required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable. However, actual results may differ from these estimates.

The total consideration transferred follows (in thousands):


Cash consideration, less $74 of working capital adjustments	$	10,176
Value of common stock issued		14,138
Estimated fair value of contingent consideration		952

Total consideration transferred	$	25,266

The fair value of contingent consideration was determined based upon a probability weighted analysis of expected future milestone and settlement payments to be made to the Seller. The Company could make a contingent consideration payment of $1.1 million if specific revenue growth targets are met for 2016. The liability for contingent consideration was included in current liabilities on the consolidated balance sheets. Because the contingent consideration related only to 2016 sales growth, no further remeasurement of this liability was required as of December 31, 2016. See Note 9 – Accrued Liabilities for further details.

Acquisition related costs are not included as a component of consideration transferred, but are expensed in the periods in which the costs are incurred. The Company incurred $1,307,000 in transaction costs related to the Atoll Acquisition. The transaction costs are included in selling, general and administrative expenses in the consolidated statements of operations.

Fair Value of Net Assets Acquired

The allocation of purchase price was based on the fair value of assets acquired and liabilities assumed as of April 1, 2016. The components and allocation of the purchase price consists of the following amounts (in thousands):


Cash and cash equivalents	$	1,409
Accounts receivable		697
Inventory		155
Other current assets		169
Fixed assets		114
Customer relationships		5,318
Developed technology		2,175
Non-competition agreements		57
Trademark and trade name		11
Deferred tax assets		885
Accounts payable and other liabilities assumed		(599	)
Deferred tax liabilities		(2,202	)
Goodwill		17,077

Net assets acquired	$	25,266

Of the consideration paid, $5.3 million represents the fair value of customer relationships that will be amortized over the determined useful life of 13 years and $2.2 million represents the fair value of developed technology that will be amortized over a determined useful life of 14 years. $57,000 represents the fair value of non-competition agreements and $11,000 represents the fair value of trademarks and trade names that will be amortized over a determined useful life of 2 years. The aforementioned intangible assets will be amortized on a straight-line basis.

The goodwill of $17.1 million represents future economic benefits expected to arise from synergies from combining operations, utilizing the Company’s existing sales infrastructure to increase market presence and the extension of existing customer relationships.

Goodwill

The changes in the carrying value of goodwill for the year ended December 31, 2017 is as follows (in thousands):


Balance at December 31, 2016	$	59,548
Goodwill adjustments arising from the TangenX Acquisition		85
Goodwill arising from the Spectrum Acquisition		265,519
Foreign currency adjustments on goodwill from the Atoll Acquisition		2,181

Balance at December 31, 2017	$	327,333

Other Intangible Assets

Intangible assets, except for the ATF tradename, are amortized over their useful lives using the estimated economic benefit method, as applicable, and the amortization expense is recorded within selling, general and administrative expense in the Company’s statements of comprehensive income. The ATF tradename are not amortized. The Company reviews its indefinite-lived intangible assets not subject to amortization to determine if adverse conditions exist or a change in circumstances exists that would indicate an impairment. Intangible assets and their related useful lives are reviewed at least annually to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable. More frequent impairment assessments are conducted if certain conditions exist, including a change in the competitive landscape, any internal decisions to pursue new or different technology strategies, a loss of a significant customer, or a significant change in the marketplace, including changes in the prices paid for our products or changes in the size of the market for our products. An impairment results if the carrying value of the asset exceeds the estimated fair value of the asset. If the estimate of an intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. The Company continues to believe that its intangible assets are recoverable at December 31, 2017.