(12)

Acquisitions

Crescendo Bioscience, Inc.

On February 28, 2014, the Company completed the acquisition of privately-held Crescendo Bioscience, Inc. (“Crescendo”), pursuant to an Amended and Restated Agreement and Plan of Merger, dated February 2, 2014 (the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, Myriad acquired Crescendo for total consideration of $259 million as detailed below, by means of a reverse triangular merger in which Crescendo survived the merger as the surviving corporation and a wholly-owned subsidiary of Myriad. The surviving corporation operates under the name Crescendo Bioscience, Inc.

The following table reconciles consideration transferred to the total cash paid to acquire Crescendo:


(In thousands)
Total consideration transferred	$	258,950
Share-based compensation to Crescendo employees		6,929
Change of control payments to Crescendo employees		5,695
Offset: Non-cash fair value purchase option		(8,000	)

Total cash paid	$	263,574

The total consideration of $259 million consisted of (i) $225.1 million in cash, (ii) $25.9 million in elimination of intercompany balances related to accrued interest and the term loan the Company issued to Crescendo on September 8, 2011, and (iii) $8 million related to the fair value of the purchase option granted to the Company on September 8, 2011 by Crescendo through a definitive merger agreement (“Option Agreement”) entered into in association with the term note. Of the cash consideration, $20 million was deposited into an escrow account to fund (i) any post-closing adjustments payable to Myriad based upon differences between the estimated working capital and the actual working capital of Crescendo at closing, and (ii) any indemnification claims made by Myriad against Crescendo, for a period of time, based upon the completion of an audit of Crescendo’s financial statements, of no fewer than twelve nor more than fifteen months following closing.

Of the total cash paid, $6.9 million was accounted for as share-based compensation expense resulting from the accelerated vesting of employee options immediately prior to the acquisition and $5.7 million was accounted for as change of control bonuses paid to Crescendo employees and directors. The Company recognized the share-based compensation expense and change of control bonuses in post-acquisition Condensed Consolidated Statements of Income for the year ended June 30, 2014.

Total consideration transferred was allocated to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values at the acquisition date as set forth below. The Company believes that the acquisition of Crescendo facilitates the Company’s entry into the high growth autoimmune market, diversifies its product revenue and enhances its strength in protein-based diagnostics. These factors contributed to consideration transferred in excess of the fair value of Crescendo’s net tangible and intangible assets acquired, resulting in the Company recording goodwill in connection with the transaction. Management estimated the fair values of tangible and intangible asset and liabilities in accordance with the applicable accounting guidance for business combinations and utilized the services of third-party valuation consultants.

The Company’s allocation of consideration transferred for Crescendo is as follows (in thousands):


(In thousands)	Estimated Fair Value
Other assets acquired	$	15,826
Intangible assets		196,600
Goodwill		112,331

Total assets acquired		324,757

Deferred tax liability		44,213
Other liabilities assumed		21,594

Total net assets acquired	$	258,950

Identifiable Intangible Assets

The Company acquired intangible assets that consisted of developed technology which had an estimated fair value of $165.4 million and a laboratory database with an estimated fair value of $31.2 million. The fair values of the assets were determined using a probability-weighted income approach that discounts expected future cash flows to present value. The estimated net cash flows were discounted using a discount rate of 19% which is based on the estimated internal rate of return for the acquisition and represents the rate that market participants might use to value the intangible assets. The projected cash flows were based on key assumptions such as: estimates of revenues and operating profits; the time and resources need to recreate databases and product and commercial development and approval; the life of the commercialized product; and associated risks related to viability and product alternatives. The Company will amortize the intangible assets on a straight-line basis over their estimated useful lives of 18 years. This amortization is not deductible for income tax purposes.

Goodwill

The $112.3 million of goodwill represents the excess of consideration transferred over the fair value of assets acquired and liabilities assumed and is attributable to the benefits expected from combining the Company’s research and commercial operations with Crescendo’s. This goodwill is not deductible for income tax purposes.

Subsequent to the acquisition date, the Company completed a study on net operating loss tax limitations resulting in a reduction of deferred tax assets of $2.4 million that were previously recorded in conjunction with the acquisition of Crescendo. The Company determined that the adjustment related to facts and circumstances that existed at the acquisition date. As a result of this new information, the acquisition date net deferred tax liability was retrospectively increased by $2.4 million with a corresponding increase to goodwill. The adjustment did not impact the Company’s results from operations and is reflected above in the Company’s allocation of consideration transferred.

Share-Based Compensation

The share-based compensation expense recognized for the accelerated vesting of employee options immediately prior to the acquisition was reported in the Company’s Consolidated Statements of Comprehensive Income for the year ended June 30, 2014 as follows:


(In thousands)
Cost of molecular diagnostic testing	$	185
Research and development expense		2,075
Selling, general, and administrative expense		4,669

Total share-based compensation	$	6,929

Change of Control

The change of control expense recognized for bonuses paid to Crescendo employees and directors for completion of the acquisition with Myriad was reported in the Company’s Consolidated Statements of Comprehensive Income for the year ended June 30, 2014 as follows:


(In thousands)
Cost of molecular diagnostic testing	$	238
Research and development expense		1,710
Selling, general, and administrative expense		3,747

Total change of control bonuses	$	5,695

Both the share-based compensation and change of control expenses are one-time items and will not impact future reporting periods.

Other

The Company also recorded interest income related to accretion of the note receivable that was settled at the acquisition date, for the year ended June 30, 2014 of $4.5 million, respectively, in the Consolidated Statements of Comprehensive Income. From the date of acquisition through June 30, 2014, the Company recorded Crescendo revenue of approximately $14.0 million and a net loss from Crescendo of approximately $26.0 million that included non-recurring acquisition related charges of $12.6 million.

Pro Forma Information

The unaudited pro-forma results presented below include the effects of the Crescendo acquisition as if it had been consummated as of July 1, 2012, with adjustments to give effect to pro forma events that are directly attributable to the acquisition which includes adjustments related to the amortization of acquired intangible assets, interest income and expense, stock-based compensation expense, and depreciation. The unaudited pro forma results do not reflect any operating efficiency or potential cost savings which may result from the consolidation of Crescendo. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the period presented nor are they indicative of future results of operations and are not necessarily indicative of either future results of operations or results that might have been achieved had the acquisition been consummated as of July 1, 2012.


(In thousands)
	June 30,
	2014		2013
Revenue	$	807,509	$	619,835
Income from operations		252,634		177,998
Net income	$	155,924	$	108,024

Net income per share, basic	$	2.06	$	1.33
Net income per share, diluted	$	1.99	$	1.30