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Acquisitions | 9 Months Ended
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Sep. 30, 2021
Business Combination and Asset Acquisition [Abstract] |
Acquisitions | Acquisitions Pfenex Acquisition On October 1, 2020, we acquired Pfenex, which develops next-generation and novel protein therapeutics to improve existing therapies and create new therapies for biological targets linked to critical, unmet diseases using a protein expression technology platform. The preliminary purchase price of $465.1 million included $429.6 million cash consideration paid upon acquisition, and a contingent CVR payment of up to $77.8 million in cash based on a certain specified milestone with an estimated initial fair value of $37.0 million. The CVR will only be paid in full if the milestone is achieved by December 31, 2021. The amount of the CVR included in the purchase price was reduced by $1.5 million that was determined to be post-combination expense. The fair value of the CVR liability was determined using a probability-adjusted income approach. These cash flows were then discounted to present value using a discount rate based on market participants' cost of debt reflective of the Company, which was 7.1%. The liability is periodically assessed based on events and circumstances related to the underlying milestone, and any change in fair value is recorded in our consolidated statements of operations. During the nine months ended September 30, 2021, we wrote off the entire CVR liability primarily due to the lower probability of achieving the specific development and regulatory milestone by December 31, 2021 as defined by Pfenex CVR. In connection with the acquisition, a portion of Pfenex's equity awards that were outstanding and unvested prior to the acquisition became fully vested per the terms of the merger agreement. The acceleration of vesting required us to allocate the fair value of the equity attributable to pre-combination service to the purchase price and the remaining amount was considered our post-combination expense. We paid $17.3 million in cash for equity compensation, which is attributable to pre-combination services and is reflected as a component of the total purchase price paid of $429.6 million. In addition, the fair value of equity compensation attributable to the post-combination service period was $8.7 million. These amounts were associated with the accelerated vesting of stock options previously granted to Pfenex employees and were fully paid in cash, which was recognized as general and administrative expenses during the fourth quarter of 2020. The following table sets forth an allocation of the preliminary purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed, with the excess recorded to goodwill (in thousands):
Cash | $ | 51,407 |
Restricted cash | 200 |
Accounts and unbilled receivables | 1,359 |
Property and equipment, net | 7,823 |
Right-of-use asset | 3,070 |
Other assets | 1,338 |
Intangibles acquired | 385,000 |
Goodwill(1) | 91,271 |
Accounts payable | (6,814) |
Accrued liabilities | (8,466) |
Deferred revenue | (3,908) |
Lease liabilities | (3,070) |
Other liabilities | (1,382) |
Deferred tax liabilities, net | (52,730) |
| $ | 465,098 |
(1) Goodwill represents the excess of the purchase price over the preliminary fair value of the underlying assets acquired and liabilities assumed. Goodwill is attributable to the assembled workforce of experienced personnel at Pfenex and expected synergies. None of the goodwill is expected to be deductible for tax purposes. Acquired intangibles include $362 million of contractual relationships and $23 million of core technology. The fair values of the contractual relationships were based on the discounted cash flow method that estimated the present value of the potential royalties, milestones, collaboration and product revenue streams derived from the licensing of the related technologies over the estimated contractual relationship period. The fair value of the contractual relationships is being amortized on a straight-line basis over the weighted average estimated useful life of 12.9 years. The fair values of the acquired technologies were based on the discounted cash flow method that estimated the present value of the potential royalties, milestones, collaboration and product revenue streams derived from the licensing of the related technologies over the estimated useful lives. These projected cash flows were discounted to present value using a discount rate, which varies from 12% to 15%. The total acquired intangibles are being amortized on a straight-line basis over the weighted average estimated useful life of 13.0 years. The estimated fair values of assets acquired and liabilities assumed, including deferred tax assets and liabilities, are provisional. The accounting for these amounts falls within the measurement period and therefore we may adjust these provisional amounts to reflect new information obtained about facts and circumstances that existed as of the acquisition date. The following summary presents our unaudited pro forma consolidated results of operations for the three and nine months ended September 30, 2020 as if the Pfenex acquisition had occurred on January 1, 2020, which gives effect to certain transaction accounting adjustments, including amortization of acquired intangibles and share-based compensation expense for retained Pfenex employees. The pro forma financial information is not necessarily indicative of the operating results that would have occurred had the acquisition been consummated as of the date indicated, nor is it necessarily indicative of future operating results (in thousands, except per share amounts):
| Three months ended September 30, 2020 |  | Nine months ended September 30, 2020
Revenue | $ | 43,082 |  |  | $ | 119,126 |
Net loss | $ | (46,845) |  |  | $ | (77,349) |
Net loss per common share: |  |  |
Basic and diluted | $ | (2.91) |  |  | $ | (4.77) |
Taurus Acquisition On September 9, 2020, we acquired Taurus, which discovers and develops novel antibodies from immunized cows and cow-derived libraries. The purchase price of $5.1 million included $4.6 million in cash, and a $0.5 million holdback to satisfy indemnification obligations which was settled and paid in September 2021. We also issued nontransferable CVRs for up to $4.5 million tied to partnered and internal research and development and for up to $25.0 million as a 25% share of post-clinical Taurus product revenues (including milestone payments) received by us. We evaluated this acquisition in accordance with ASC 805, Business Combinations, to discern whether the assets and operations of Taurus met the definition of a business. We concluded that substantially all of the fair value of the gross assets acquired is concentrated in the acquired core technology. Accordingly, we accounted for this transaction as an asset acquisition. Of the $5.1 million consideration transferred, we recognized (1) $0.05 million of tangible assets acquired, and (2) $5.0 million of core completed technology intangibles acquired. The core technology is being amortized on a straight-line basis over the estimated useful life of 10 years. We account for the CVRs in accordance with ASC 450, Contingencies, when the contingency is resolved and the liability becomes payable. None of the CVRs are recognized as of September 30, 2021. xCella Acquisition On September 8, 2020, we acquired xCella, an antibody discovery company. We paid $7.1 million in cash (including a $0.5 million holdback to satisfy indemnification obligations to be settled by September 2021), and issued earnout rights for up to $5.0 million tied to our use of the xCella technology for partnered research and development and for up to $25.75 million as a 25% share of any future milestone payments we received under a certain existing xCella partner arrangement. The holdback was not settled as of September 30, 2021, and we expect to have it settled by the end of 2021. We evaluated this acquisition in accordance with ASC 805, Business Combinations, to discern whether the assets and operations of xCella met the definition of a business. We concluded that substantially all of the fair value of the gross assets acquired is concentrated in the acquired core technology. Accordingly, we accounted for this transaction as an asset acquisition. Of the $7.1 million consideration transferred, we recognized (1) $0.2 million of tangible assets acquired, (2) $(0.1) million of liabilities assumed, (3) $7.8 million of core completed technology acquired, and (4) $(0.8) million of deferred tax liability. The core technology is being amortized on a straight-line basis over the estimated useful life of 15 years. We account for the earnout rights in accordance with ASC 450, Contingencies, when the contingency is resolved and the liability becomes payable. None of the earnout rights are recognized as of the acquisition date. During the three and nine months ended September 30, 2021, we recognized $0.5 million and $0.7 million, respectively, in earnout rights when certain contingencies were resolved during the period. Icagen Acquisition On April 1, 2020, we acquired the core assets, including its partnered programs and ion channel technology, from Icagen and certain of its affiliates. The acquisition was accounted for as a business combination and we applied the acquisition method of accounting. Accordingly, we recorded the tangible and intangible assets acquired and liabilities assumed at their estimated fair values as of the applicable date of acquisition. We did not incur any material acquisition-related costs. The purchase price of $19.9 million included $15.1 million cash consideration paid upon acquisition, and a contingent earn-out payment of up to $25.0 million of cash payments based on certain revenue milestones with an estimated fair value of $4.8 million. The fair value of the earn-out liability was determined using a probability weighted income approach incorporating the estimated future cash flows from expected future milestones. These cash flows were then discounted to present value using a discount rate based on the market participants' cost of debt reflective of Icagen. Refer to Note 2, Fair Value Measurement, for further discussion. The liability will be periodically assessed based on events and circumstances related to the underlying milestones, and any change in fair value will be recorded in our consolidated statements of operations. The carrying amount of the liability may fluctuate significantly and the actual amount paid may be materially different than the carrying amount of the liability. As the acquisition is not considered significant, pro forma information has not been provided. The results of Icagen have been included in our results of operations since the date of acquisition. The allocation of the purchase price consisted of (1) $1.8 million of fair value of tangible assets acquired, (2) $(0.8) million of liabilities assumed, (3) $12.8 million of acquired intangibles, (4) $(3.7) million of deferred revenue in connection with assumed performance obligations under a collaboration agreement, (5) $0.8 million of deferred tax asset associated with the deferred revenue, and (6) $9.0 million of goodwill, the majority of which is deductible for tax purposes. Acquired intangibles include $11.1 million of customer relationships and $1.7 million of core technology. The fair values of the customer relationships were based on a discounted cash flow analysis incorporating the estimated future cash flows from these relationships during the contractual term. These cash flows were then discounted to present value using a discount rate of 17%. The fair value of the customer relationships is being amortized on a straight-line basis over the weighted average estimated useful life of 9.6 years. The fair value of the core technology was based on the discounted cash flow method that estimated the present value of the potential royalties, milestones, and collaboration revenue streams derived from the licensing of the related technologies. These projected cash flows were discounted to present value using a discount rate of 17%. The fair value of the core technology is being amortized on a straight-line basis over the estimated useful life of 10 years. The total acquired intangibles are being amortized on a straight-line basis over the estimated useful life of 9.7 years.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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