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Acquisition Of Ascyrus | 9 Months Ended
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Sep. 30, 2020
Acquisition Of Ascyrus [Abstract] |
Acquisition of Ascyrus | 2. Acquisition of Ascyrus Overview On September 2, 2020, we entered into a Securities Purchase Agreement (the “Ascyrus Agreement”) to acquire 100% of the outstanding equity interests of Ascyrus Medical LLC, (“Ascyrus”). Ascyrus is the developer of the Ascyrus Medical Dissection Stent (“AMDS”), the world’s first aortic arch remodeling device for use in the treatment of acute Type A aortic dissections. Under the terms of the Ascyrus Agreement, we will pay an aggregate of up to $200.0 million in consideration, consisting of: (i) a cash payment of approximately $60.0 million and the issuance of $20.0 million in shares of CryoLife common stock, in each case, delivered at the closing of the acquisition, (ii) if the U.S. Food and Drug Administration (the “FDA”) approves an Investigational Device Exemption (“IDE”) application for the AMDS, a cash payment of $10.0 million and the issuance of $10.0 million in shares of CryoLife common stock, (iii) if the FDA approves a Premarket Approval (“PMA”) application submitted for the AMDS, a cash payment of $25.0 million, (iv) if regulatory approval of the AMDS is obtained in Japan on or before June 30, 2027, a cash payment of $10.0 million, (v) if regulatory approval of the AMDS is obtained in China on or before June 30, 2027, a cash payment of $10.0 million and (vi) a potential cash payment of up to $55.0 million (or up to $65.0 million to $75.0 million if the Japanese or Chinese approvals are not secured on or before June 30, 2027) calculated as two times the incremental worldwide sales of the AMDS (or any other acquired technology or derivatives of such acquired technology) outside of the European Union during the three-year period following the date the FDA approves a Premarket Approval application submitted for the AMDS. Accounting for the Transaction Upon closing of the acquisition on September 2, 2020, we paid $83.7 million consisting of $63.7 million in cash consideration, and $20.0 million in shares of CryoLife common stock. The number of shares issued was based on a 10-day moving volume weighted average closing price of a share of CryoLife common stock as of the date immediately prior to closing, resulting in an issuance of 991,800 shares of CryoLife common stock. As part of the acquisition, we may be required to pay additional consideration in cash and equity up to $120.0 million to the former shareholders of Ascyrus upon the achievement of certain milestones and the sales-based additional earnout described above. The fair value of the total potential purchase consideration of $200.0 million was calculated to be $139.1 million, which includes total purchase consideration, as well as the contingent consideration liability discussed below. Our preliminary allocation of the purchase consideration was allocated to Ascyrus’s tangible and identifiable intangible assets acquired and liabilities assumed, based on their estimated fair values as of September 2, 2020. We recorded the contingent consideration liability of $55.4 million in Other long-term liabilities in the Summary Consolidated Balance Sheets, representing the estimated fair value of future potential payments. The fair value of the contingent consideration liability was estimated by discounting to present value the contingent payments expected to be made based on a probability-weighted scenario approach. We applied a discount rate based on our unsecured credit spread and the term commensurate risk-free rate to the additional consideration to be paid, and then applied a risk-based estimate of the probability of achieving each scenario to calculate the fair value of the contingent consideration. This fair value measurement was based on unobservable inputs, including management estimates and assumptions about the future achievement of milestones and future estimate of revenues, and is, therefore, classified as Level 3 within the fair value hierarchy presented in Note 4. We will remeasure this liability at each reporting date and will record changes in the fair value of the contingent consideration in operating expenses on the Summary Consolidated Statements of Operations and Comprehensive Income (Loss). Increases or decreases in the fair value of the contingent consideration liability can result from changes in discount periods and rates, changes in the timing and amount of our revenue estimates, and changes in the timing and expectation of regulatory approvals. We performed an assessment of the fair value of the contingent consideration as of September 30, 2020 and concluded that an adjustment to the fair value as a result of this assessment was not material. We recorded $62.7 million of preliminary goodwill, that we expect to deduct for tax purposes, based on the amount by which the total purchase consideration price exceeded the fair value of the net assets acquired and liabilities assumed. Goodwill from this transaction has been allocated to our Medical Devices segment. The estimated allocation of assets acquired and liabilities assumed is based on the information available to us as of September 30, 2020. We are completing our procedures related to the purchase price allocation and if new information regarding these values is received that would result in a material adjustment to the values recorded, we will recognize the adjustment, which may include the recognition of additional expenses, impairments, or other allocation adjustments, in the period this determination is made. The preliminary purchase consideration allocated as of September 2, 2020 consisted of the following (in thousands):
Consideration |  |
Cash paid for acquisition | $ | 63,660
Common stock issued |  | 20,000
Contingent consideration |  | 55,407
Fair value of total consideration | $ | 139,067
Purchase Price Allocation |  |
Cash and cash equivalents | $ | 4,017
Intangible assets |  | 72,600
Net other assets/liabilities acquired |  | (274)
Goodwill |  | 62,724
Net assets acquired | $ | 139,067
We incurred transaction costs of $618,000 and $677,000 for the three and nine months ended September 30, 2020, respectively, primarily related to the acquisition, which included, among other costs, expenses related to legal and professional fees. These costs were expensed as incurred and were primarily recorded as general, administrative, and marketing expenses on our Summary Consolidated Statements of Operations and Comprehensive Income (Loss). Pro forma financial information related to the Ascyrus Agreement has not been provided as it is not material to our consolidated results of operations.

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