Business combination

On August 23, 2018, the Company completed its acquisition of Agilis pursuant to the Merger Agreement. Agilis was a privately-held biotechnology company advancing an innovative gene therapy platform for rare monogenic diseases that affect the central nervous system. Upon completion of the Merger, the Company acquired Agilis's lead product candidate, PTC-AADC, for the treatment of AADC deficiency, as well as three other gene therapies that were part of the Agilis platform.

Upon the closing of the Merger, the Company paid to Agilis equityholders total upfront consideration comprised of $49.2 million in cash and 3,500,907 shares of the Company’s common stock (the “Closing Stock Consideration”). The Closing Stock Consideration was determined by dividing $150.0 million by the volume-weighted average price per share of the Company’s common stock on the Nasdaq Global Select Market for the 10 consecutive trading-day period ending on the second trading-day immediately preceding the closing of the Merger. The fair value of the stock on the acquisition date was determined to be $155.9 million.

Pursuant to the Merger Agreement, Agilis equityholders may become entitled to receive contingent consideration payments from the Company based on (i) the achievement of certain development milestones up to an aggregate maximum amount of $60.0 million, (ii) the achievement of certain regulatory approval milestones together with a milestone payment following the receipt of a priority review voucher up to an aggregate maximum amount of $535.0 million, (iii) the achievement of certain net sales milestones up to an aggregate maximum amount of $150.0 million, and (iv) a percentage of annual net sales for Friedreich Ataxia and Angelman Syndrome during specified terms, ranging from 2-6%. The fair value of the contingent consideration payments at the acquisition date was estimated to be $218.7 million and was determined by applying a probability adjusted, discounted cash flow approach based on development timelines from the acquired product candidates and estimated future sales. Under the Merger Agreement, the Company is required to pay $40.0 million of the development milestone payments mentioned above no later than the second anniversary of the closing of the Merger, regardless of whether the applicable milestones have been achieved. The fair value of the deferred consideration payments at the closing date was estimated to be $38.2 million. Refer to Footnote 4 for further fair value considerations.

The Company evaluated the acquisition of Agilis under ASU No. 2017-01, Business Combinations: Clarifying the Definition of a Business. Because the business contained both inputs and processes necessary to manage products and provide economic benefits directly to its owners and substantially all the value of the acquisition did not relate to a similar group of assets, it was determined that the acquisition represents a business combination. Therefore, the transaction has been accounted for using the acquisition method of accounting. Under the acquisition method of accounting, the total purchase price of the acquisition is allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the date of acquisition.

The fair value of consideration totaled approximately $462.0 million summarized as follows:



	As of August 23, 2018
Cash consideration	$	49,221
Fair value of PTC common stock issued	155,860
Estimated fair value of deferred consideration payable	38,200
Estimated fair value of contingent consideration payable	218,700
Total consideration	$	461,981

The Company recorded the assets acquired and liabilities assumed as of the date of acquisition based on the information available at that time. As the Company finalizes the fair values of the assets acquired and liabilities assumed, purchase price adjustments may be recorded during the measurement period and such adjustments could be material. The Company will reflect measurement period adjustments, if any, in the period in which the adjustments are recognized. No adjustments have been made as of the acquisition date of August 23, 2018 through the period ended September 30, 2018.

The following table presents the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date of August 23, 2018, and through the period ended September 30, 2018:



	Preliminary Allocation as of the acquisition date and as at September 30, 2018
Cash and cash equivalents	$	328
Prepaid expenses and other current assets	181
Fixed assets	153
Other assets	38
Intangible assets - in process research and development (“IPRD”)	480,000
Accounts payable and accrued expenses	(3,828		)
Deferred tax liability	(115,200		)
Fair value of net assets acquired	$	361,672
Goodwill	100,309
Total purchase price	$	461,981

The Company incurred approximately $1.5 million in acquisition related expenses as of September 30, 2018, which were included in selling, general and administrative expenses in the consolidated statement of operations. The results of Agilis’s operations have been included in the consolidated statements of operations beginning on the acquisition date of August 23, 2018.

The fair value of the IPR&D will be capitalized as of the acquisition date and subsequently accounted for as indefinite-lived intangible assets until disposition of the assets or completion or abandonment of the associated research and development efforts. Accordingly, during the development period after the completion of the acquisition, these assets will not be amortized into earnings; rather, these assets will be subject to periodic impairment testing. Upon successful completion of the development efforts, the useful lives of the IPR&D assets will be determined and the assets will be considered definite-lived intangible assets and amortized over their expected useful lives.

The goodwill recorded is the excess of the purchase price of the net assets acquired net of any deferred tax adjustments. The Company currently has a deferred tax liability for the indefinite lived IPR&D intangible assets, which have no tax basis and, therefore, will not result in a future tax deduction. The goodwill is not deductible for income tax purposes.

The net loss of Agilis included in the consolidated statement of operations for the period August 23, 2018 through September 30, 2018 was $1.9 million.

Pro-Forma Financial Information Associated with the Agilis Acquisition (Unaudited)

The following table summarizes certain supplemental pro forma financial information for the three and nine-month periods ended September 30, 2018 and 2017 as if the Merger had occurred as of January 1, 2017. The unaudited pro-forma financial information for the three month and nine month periods ended September 30, 2018 reflects adjustments of $0.8 million and $1.5 million, respectively, related to acquisition fees that are non-recurring in nature. There were no adjustments related to the three and nine month periods ended September 30, 2017.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Revenues	$	53,591		$	41,853		$	178,396		$	116,362
Net loss attributable to common stockholders	(52,458		)	(41,606		)	(89,976		)	(90,795		)

Bridge Loan

In connection with the Merger Agreement, on July 19, 2018, the Company also entered into a Bridge Loan and Security Agreement, or the Bridge Loan Agreement, by and among the Company, Agilis and certain of Agilis’s domestic subsidiaries, as guarantors. Under the Bridge Loan Agreement, the Company made a term loan advance to Agilis on July 23, 2018 in an original principal amount of $10.0 million. In connection with the closing of the Merger, the original principal amount of $10.0 million plus all accrued and unpaid interest thereon was credited against the cash portion of the upfront consideration paid by the Company pursuant to the terms of the Merger Agreement in satisfaction of Agilis’s outstanding payment obligations under the Bridge Loan Agreement, and the Company will have no further obligation to extend any further loan amounts under the Bridge Loan Agreement.