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Note 4 - Business Combination

12 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Business Combination Disclosure [Text Block]

Note 4 – Business Combination

On October 2, 2024, the Company and Ipsen Biopharmaceuticals, Inc. (“Ipsen”), a subsidiary of Ipsen S.A., entered into an Asset Purchase Agreement (the “Purchase Agreement”), whereby the Company agreed to acquire Increlex® (mecasermin injection) from Ipsen. Increlex® is a biologic product used to treat children and adolescents from two-to 18-years-old who suffer from severe primary insulin-like growth factor 1 deficiency (SPIGFD). The primary reason for the Increlex® product acquisition was due to the Company’s expertise and strong relationships in pediatric endocrinology in addition to leveraging the Company’s existing sales team to increase awareness of SPIGFD.

Under the terms of the Purchase Agreement, the Company acquired Increlex® for $22,500 at closing, plus an additional $7,500 for product inventory. The Company will also make payments to Ipsen of $2,500 on each of the first and second anniversaries of closing. In addition, the Company will be obligated to purchase additional inventory over 30 months, in an amount not to exceed €15,000. The Company also entered into an amendment to its existing credit agreement with SWK Holdings Corporation (“SWK”) that was contingent upon the closing of the Purchase Agreement. Under the terms of the amendment, the Company expanded its existing credit facility by $25,700 to $30,000, extended the facility’s maturity to three years from closing, and reduced the facility’s annual interest rate to Secured Overnight Financing Rate (“SOFR”) plus 6.75%. - refer to Note 6, “Debt” for further details. In connection with the closing of Purchase Agreement, the Company issued a warrant to the lender for the purchase of up to 289,736 shares of common stock at a price of $5.32 per share. On December 19, 2024, the Company completed the acquisition of Increlex®.

The Company determined that the asset purchase agreement met the definition of a business under ASC 805; therefore, the Company accounted for the Purchase Agreement as a business combination and applied the acquisition method of accounting.

The allocation of the purchase consideration was as follows:

		*Purchase Price*
		*Allocation*
Cash consideration		$	30,000
Deferred payments (1)			4,276
Total consideration		$	34,276

Inventory (2)			13,010
Intangible assets (3)			21,250
Goodwill (4)			16
Assets acquired			34,276
Net assets acquired		$	34,276

(1) Deferred payments represent the acquisition date fair value of the $5,000 in deferred consideration to be paid to Ipsen. The Company will make payments of $2,500 on each of the first and second anniversaries of closing, which the closing date of the acquisition was December 19, 2024. The Company will accrete the $724, which represents the difference between the total deferred payments amount due of $5,000 and the acquisition date fair value of $4,276, to interest expense in its Statements of Operations over the course of the two-year period using the effective interest rate methodology.

(2) Inventory consists of raw materials, semi-finished goods and finished goods. Finished goods, semi-finished goods and raw materials inventory were valued on the acquisition date at fair value and resulted in a $5,510 step-up in inventory value compared to a $7,500 carrying value. Determining the fair value of inventory included making estimates of costs to complete and to sell semi-finished and finished goods inventory.

(3) Intangible assets consist of the transferred intellectual property as a part of the license agreement. The estimated fair value of the intangible asset was determined using the multi-period excess earnings method (“MPEEM”), which is a form of income approach, which incorporates the estimated future cash flows to be generated from the product utilizing the existing customer base. Excess earnings are the earnings remaining after deducting the market rates of return on the estimated value of contributory assets, including debt-free net working capital, tangible assets, other long-term assets and other identifiable intangible assets. The excess earnings are thereby calculated from each year of a multi-year projection period and discounted to present value. The primary components of this method consist of the discount rate and contributory asset charges. The imputed fair value of the Increlex® intangible asset of $21,250 will be amortized over its useful life of ten years.

(4) Goodwill represents the excess of the purchase price consideration over the fair value of the net assets acquired. Due to the immateriality of the implied value of goodwill, the Company elected to expense the $16 in goodwill, which was expensed to general and administrative expenses for the year ended December 31, 2024 in the Company Statements of Operations.

Transition services agreement

Concurrent with the Purchase Agreement, the Company entered into a transition services agreement (the “TSA”) with Ipsen to govern Ipsen providing transitional pharmaceutical marketing services, distribution services and other related support and assistance with operations outside the U.S. The services being provided under the TSA have been priced at market rates, and the Company is not receiving a discount from Ipsen for these services. As a result, there was no portion of the purchase price allocated to the TSA consideration. The separate consideration under the TSA will be expensed as occurred and when services are received.

Acquisition related costs

For the year ended December 31, 2024, the Company incurred acquisition related costs of $415, which were expensed as incurred and included in general and administrative expenses in the Statements of Operations.

Unaudited actual and pro forma information

For the year ended December 31, 2024, the Company recognized $166 of net sales related to Increlex® in the Statements of Operations.

The following unaudited pro forma summary presents information of the Company, including Increlex®, as if the Purchase Agreement had occurred on January 1, 2023:

		*Year Ended December 31,*
		2024				2023
Net sales		$	53,206			$	50,362
Net loss		$	(6,590	)		$	(1,612	)

These pro forma results are for illustrative purposes and are not indicative of the actual results of operations that would have been achieved, nor are they indicative of future results of operations. The unaudited pro forma information for all periods presented was adjusted to give effect to pro forma events that are directly attributable to the Purchase Agreement and are factually supportable. The adjustments are based on information available to the Company at this time. Accordingly, the adjustments are subject to change, and the impact of such changes may be material. The unaudited pro forma results do not include any incremental cost savings that may result from the integration.