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Kolltan Acquisition | 6 Months Ended
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Jun. 30, 2017
Kolltan Acquisition |
Kolltan Acquisition | (11) Kolltan Acquisition In connection with the Kolltan Acquisition, effective November 29, 2016, the Company issued 18,257,996 shares of common stock of the Company in exchange for all of the share and debt interests in Kolltan. The Company also agreed to issue an aggregate of 437,901 shares of its common stock, less tax withholdings, to certain former officers of Kolltan. During the six months ended June 30, 2017, the Company issued 75,637 shares of its common stock and at June 30, 2017, the Company’s remaining obligation is to issue 150,185 shares of its common stock, less tax withholdings, related to this severance obligation. In addition, in the event that certain specified preclinical and clinical development milestones related to Kolltan’s development programs and/or Celldex’s development programs and certain commercial milestones related to Kolltan’s drug candidates are achieved, Celldex will be required to pay Kolltan’s stockholders milestone payments of up to $172.5 million, which milestone payments may be made, at Celldex’s sole election, in cash, in shares of Celldex’s common stock or a combination of both, subject to provisions of the Merger Agreement. The Company acquired Kolltan to gain access to Kolltan’s programs including: (i) CDX-0158 (formerly KTN0158) which is currently in a Phase 1 dose escalation study in patients with refractory gastrointestinal stromal tumors (GIST); (ii) CDX-3379 (formerly KTN3379) which recently completed a Phase 1b study with combination cohorts where meaningful responses and stable disease were observed in cetuximab (Erbitux®) refractory patients in patients with head and neck squamous cell carcinoma and in BRAF-mutant non-small cell lung cancer (NSCLC); and (iii) a multi-faceted TAM program, a broad antibody discovery effort underway to generate antibodies that modulate the TAM family of RTKs, comprised of Tyro3, AXL and MerTK, which are expressed on tumor-infiltrating macrophages, dendritic cells and some tumors. The transaction was accounted for as a business combination with Celldex treated as the accounting acquirer. All of the assets acquired and liabilities assumed in the transaction are recognized at their acquisition-date fair values, while transaction costs associated with the transaction are expensed as incurred. Purchase Price The purchase price for Kolltan was based on the acquisition-date fair value of the consideration transferred, which was calculated based on the closing price of the Company’s common stock of $4.02 per share on November 29, 2016. The acquisition-date fair value of the consideration transferred consisted of the following (in thousands):
Fair value of common stock issued for upfront payment |  | $ | 73,397 |
Fair value of contingent consideration |  | 44,200 |
Kolltan transaction expenses paid in cash by the Company |  | 3,768 |
Total consideration transferred |  | $ | 121,365 |
The contingent consideration relates to the achievement of certain regulatory and sales milestones as described in the agreement. The estimated fair value of contingent consideration of $48.6 million and $44.2 million at June 30, 2017 and December 31, 2016, respectively, is recorded as a noncurrent liability. The Company determined the fair value of these obligations to pay additional milestone payments using various estimates, including probabilities of success, discount rates and amount of time until the conditions of the milestone payments are met. This fair value measurement is based on significant inputs not observable in the market, representing a Level 3 measurement within the fair value hierarchy. The resulting probability-weighted cash flows were discounted using a cost of debt rate ranging from 10-11% for the milestones. The range of estimated milestone payments is from zero, if no milestones are achieved, to $172.5 million if all milestones are met. Changes in the fair value of the contingent consideration are recognized in operating earnings. Changes in fair values reflect new information about the probability and timing of meeting the conditions of the milestone payments or changes in discount rates. In the absence of new information, changes in fair value will only reflect the interest component of contingent consideration related to the passage of time as development work progresses towards the achievement of the milestones. Allocations of Assets and Liabilities The Company has allocated the consideration transferred for Kolltan to net tangible assets, intangible assets, and goodwill. The difference between the aggregate consideration transferred and the fair value of assets acquired and liabilities assumed was allocated to goodwill. This goodwill relates to the potential synergies from the Kolltan Acquisition and deferred tax liabilities related to acquired IPR&D intangible assets. None of the goodwill is expected to be deductible for income tax purposes. The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):
Cash and cash equivalents |  | $ | 8,160 |
Other current and long-term assets |  | 799 |
Property and equipment, net |  | 2,072 |
In-process research and development (IPR&D) |  | 61,690 |
Goodwill |  | 82,011 |
Deferred tax liabilities, net |  | (23,393 | )
Other assumed liabilities |  | (9,974 | )
Total |  | $ | 121,365 |
The purchase price allocation has been prepared on a preliminary basis and is subject to change as additional information becomes available concerning the fair value and tax basis of the acquired assets and liabilities. Any adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the acquisition date. Pro Forma Financial Information If the operations of the Company and Kolltan were combined as of January 1, 2016, the unaudited pro forma net loss for the three and six months ended June 30, 2016 would have been $39.5 million and $84.8 million, respectively, or $(0.34) and $(0.73) per share, respectively. The unaudited pro forma combined results are not necessarily indicative of the actual results that would have occurred had the acquisition been consummated at that date or of the future operations of the combined entities.

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