XML 31 R11.htm IDEA: XBRL DOCUMENT
v3.19.2

Acquisitions | 6 Months Ended
--- | ---
Jun. 30, 2019
Business Combinations [Abstract] |
Acquisitions | Acquisitions Adapt On October 15, 2018, the Company acquired Adapt, a company focused on developing new treatment options and commercializing products addressing opioid overdose and addiction. Adapt's NARCAN® (naloxone HCl) Nasal Spray marketed product is the first needle-free formulation of naloxone approved by the FDA and Health Canada for the emergency treatment of known or suspected opioid overdose as manifested by respiratory and/or central nervous system depression. This acquisition includes approximately 50 employees, located in the U.S., Canada, and Ireland, including those responsible for supply chain management, research and development, government affairs, and commercial operations. The products and product candidates within Adapt's portfolio are consistent with the Company's mission and expands the Company's core business of addressing public health threats. Under the acquisition method of accounting, the assets and liabilities of Adapt have been recorded as of October 15, 2018, the acquisition date, at their respective fair values, and combined with those of the Company. As the Company continues to finalize the fair value of assets acquired and liabilities assumed, purchase price adjustments have been recorded and additional purchase price adjustments may be recorded during the measurement period. The Company reflects measurement period adjustments in the period in which the adjustments occur. The adjustments for the six months ended June 30, 2019 resulted from the receipt of additional financial information associated with certain acquired contract assets and the value of associated contingent purchase consideration. These adjustments did not impact the Company's statements of operations. As of June 30, 2019, certain fair value estimates relating to intangible assets acquired and income taxes could be subject to further adjustment. The total purchase price, revised for current period adjustments is summarized below:
|  | October 15, 2018
Cash |  | $ | 581.5 |
Equity |  | 37.7 |
Fair value of contingent purchase consideration |  | 48.0 |
Preliminary purchase consideration |  | 667.2 |
Adjustments |  | 1.5 |
Updated purchase consideration |  | $ | 668.7 |
The Company issued 733,309 shares of common stock at $60.44 per share, the closing price of Emergent's common stock on October 15, 2018, with a total value of $44.3 million. The $44.3 million value of the common shares issued has been adjusted to a fair value of $37.7 million considering a discount for lack of marketability due to a two-year lock-up period beginning on October 15, 2018. The remaining contingent consideration payable for the acquisition consists of up to $100 million in cash based on the achievement of certain sales milestones through 2022, which the Company has determined had a fair value of 48.0 million as of June 30, 2019 and for the payment of additional consideration based on the collectability of identified acquired contract assets. The fair value of the contingent purchase consideration is based on management’s assessment of the potential future realization of the contingent purchase consideration payments. This assessment is based on inputs that have no observable market inputs (Level 3). The obligation is measured using a discounted cash flow model. The table below summarizes the preliminary allocation of the purchase price based upon estimated fair values of assets acquired and liabilities assumed at October 15, 2018 updated for measurement period adjustments recorded through June 30, 2019.
| October 15, 2018 |  | Measurement Period Adjustments |  | Updated October 15, 2018
Estimated fair value of tangible assets acquired and liabilities assumed: |  |  |  |  |
Cash | $ | 17.7 |  |  | $ | — |  |  | $ | 17.7 |
Accounts receivable | 21.3 |  |  | — |  |  | 21.3 |
Inventory | 41.4 |  |  | — |  |  | 41.4 |
Prepaid expenses and other assets | 7.8 |  |  | 3.0 |  |  | 10.8 |
Accounts payable | (32.2 | ) |  | — |  |  | (32.2 | )
Accrued expenses and other liabilities | (50.4 | ) |  | — |  |  | (50.4 | )
Deferred tax liability, net | (62.4 | ) |  | (0.5 | ) |  | (62.9 | )
Total estimated fair value of tangible assets acquired and liabilities assumed | (56.8 | ) |  | 2.5 |  |  | (54.3 | )
Acquired in-process research and development | 41.0 |  |  | — |  |  | 41.0 |
Acquired intangible assets | 534.0 |  |  | — |  |  | 534.0 |
Goodwill | 149.0 |  |  | (1.0 | ) |  | 148.0 |
Total purchase price | $ | 667.2 |  |  | $ | 1.5 |  |  | $ | 668.7 |
The Company determined the estimated fair value of the intangible asset using the income approach. The preliminary estimated fair value of the intangible asset acquired for Adapt's marketed product NARCAN® Nasal Spray is valued at $534.0 million. The Company has determined the useful life of the NARCAN® Nasal Spray intangible asset to be 15 years. The Company estimated the fair value of the NARCAN® Nasal Spray intangible asset using the income approach which is based on the present value of future cash flows with a discount rate of 10.5%, which is based on the estimated weighted-average cost of capital for companies with profiles substantially similar to that of Adapt. This is comparable to the estimated internal rate of return for the acquisition and represents the rate that market participants would use to value these intangible assets. The projected cash flows from the NARCAN® Nasal Spray intangible asset were based on key assumptions including: estimates of revenues and operating profits, and risks related to the viability of and potential alternative treatments in any future target markets. The fair value measurements are based on significant unobservable inputs that are developed by the Company using estimates and assumptions of the respective market and market penetration of the acquired company's products. The intangible asset associated with the IPR&D acquired from Adapt is related to a product candidate. Management determined that the estimated acquisition-date fair value of intangible assets related to IPR&D was $41.0 million. The estimated fair value was determined using the income approach, which discounts expected future cash flows to present value. The Company estimated the fair value using a discount rate of 11.0%, which is based on the estimated weighted-average cost of capital for companies with profiles substantially similar to that of Adapt and IPR&D assets at a similar stage of development as the product candidate. This is comparable to the estimated internal rate of return for the acquisition and represents the rate that market participants would use to value the IPR&D. The projected cash flows for the product candidate were based on key assumptions including: estimates of revenues and operating profits, the stage of development of pipeline programs on the acquisition date; the time and resources needed to complete the development and approval of the product candidate; the life of the potential commercialized product and associated risks, including the inherent difficulties and uncertainties in developing a product candidate, such as obtaining marketing approval from the FDA and other regulatory agencies; and risks related to the viability of and potential for alternative treatments in any future target markets. IPR&D assets are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts (see Note 7). The Company determined the fair value of inventory using the comparative sales method, which estimates the expected sales price reduced for all costs expected to be incurred to complete/dispose of the inventory with a profit on those costs. The Company has recorded $148.0 million in goodwill related to the Adapt acquisition, which is calculated as the purchase price paid in excess of the fair value of the tangible and intangible assets acquired representing the future economic benefits the Company expects to receive as a result of the acquisition. The goodwill created from the Adapt acquisition is associated with early stage pipeline products. Substantially all of the goodwill generated from the Adapt acquisition is not expected to be deductible for tax purposes due to the legal structure of the transaction. PaxVax On October 4, 2018, the Company completed the acquisition of PaxVax, a company focused on developing, manufacturing, and commercializing specialty vaccines that protect against existing and emerging infectious diseases. This acquisition includes Vivotif® (Typhoid Vaccine Live Oral Ty21a), the only oral vaccine licensed by the FDA for the prevention of typhoid fever, Vaxchora® (Cholera Vaccine, Live, Oral), the only FDA-licensed vaccine for the prevention of cholera, and clinical-stage vaccine candidates targeting chikungunya and other emerging infectious diseases, European-based current good manufacturing practices (cGMP) biologics manufacturing facilities, and approximately 250 employees including those in research and development, manufacturing, and commercial operations with a specialty vaccines salesforce in the U.S. and in select European countries. The products and product candidates within PaxVax's portfolio are consistent with the Company’s mission and will expand the Company’s core business of addressing PHTs. In addition, the acquisition expands the Company's manufacturing infrastructure and related capabilities. The Company paid cash consideration of $273.1 million for PaxVax. As of the date of this filing, the accounting for the PaxVax acquisition is preliminary due to the Company's need to gather data to assess the fair value of property, plant and equipment, intangible assets and accounting for taxes. The table below summarizes the preliminary allocation of the purchase price based upon estimated fair values of assets acquired and liabilities assumed at October 4, 2018 updated for measurement period adjustments recorded through June 30, 2019.
| October 4, 2018 |  | Measurement Period Adjustments |  | Updated October 4, 2018
Estimated fair value of tangible assets acquired and liabilities assumed: |  |  |  |  |
Cash | $ | 9.0 |  |  | $ | — |  |  | $ | 9.0 |
Accounts receivable | 4.1 |  |  | — |  |  | 4.1 |
Inventory | 19.7 |  |  | — |  |  | 19.7 |
Prepaid expenses and other assets | 12.2 |  |  | — |  |  | 12.2 |
Property, plant and equipment | 57.8 |  |  | — |  |  | 57.8 |
Deferred tax assets | 3.8 |  |  | — |  |  | 3.8 |
Accounts payable | (3.5 | ) |  | — |  |  | (3.5 | )
Accrued expenses and other liabilities | (33.6 | ) |  | (0.4 | ) |  | (34.0 | )
Total estimated fair value of tangible assets acquired and liabilities assumed | 69.5 |  |  | (0.4 | ) |  | 69.1 |
Acquired in-process research and development | 9.0 |  |  | (9.0 | ) |  | — |
Acquired intangible assets | 133.0 |  |  | — |  |  | 133.0 |
Goodwill | 61.6 |  |  | 9.4 |  |  | 71.0 |
Total purchase price | $ | 273.1 |  |  | $ | — |  |  | $ | 273.1 |
The preliminary estimated fair value of the intangible assets acquired for PaxVax's marketed products is a total of $133.0 million. The Company determined the estimated fair value of the intangible assets using the income approach, which is based on the present value of future cash flows. The fair value measurements are based on significant unobservable inputs that are developed by the Company using estimates and assumptions of the respective market and market penetration of the acquired products. The Company has determined that the weighted average useful lives of the intangible assets to be 19 years. The Company estimated the fair value of the Vivotif and Vaxchora intangible assets using a present value discount rate of 14.5% and 15.0%, respectively, which is based on the estimated weighted-average cost of capital for companies with profiles substantially similar to that of PaxVax. This is comparable to the estimated internal rate of return for the acquisition and represents the rate that market participants would use to value these intangible assets. The projected cash flows from these intangible assets were based on key assumptions, including: estimates of revenues and operating profits, and risks related to the viability of and potential alternative treatments in any future target markets. The intangible asset associated with the IPR&D the measurement of the amounts recognized as of that date. The Company estimates the fair value based on the income approach. The Company determined the fair value of the inventory using the comparative sales method, which estimates the expected sales price reduced for all costs expected to be incurred to complete/dispose of the inventory with a profit on those costs. The Company determined the fair value of the property, plant and equipment utilizing both the cost approach and the sales comparison approach. The cost approach is determined by establishing replacement cost of the asset and then subtracting any value that has been lost due to economic obsolescence, functional obsolescence, or physical deterioration. The sales comparison approach values an asset based on the market price of assets with comparable features such as design, location, size, construction, materials, use, capacity, specification, operational characteristics and other features or descriptions. The Company recorded approximately $71.0 million in goodwill related to the PaxVax acquisition, calculated as the purchase price paid in the acquisition that was in excess of the fair value of the tangible and intangible assets acquired representing the future economic benefits the Company expects to receive as a result of the acquisition. The goodwill created from the PaxVax acquisition is associated with early stage pipeline products along with potential contract manufacturing services. The majority of the goodwill generated from the PaxVax acquisition is expected to be deductible for tax purposes based upon the structure used in the acquisition. Impact of Business Acquisitions The operations of each of the two business acquisitions discussed above were included in the consolidated financial statements as of each of their respective acquisition dates. The following table presents their revenue and earnings as reported within the consolidated financial statements.
| Three months ended June 30, |  | Six months ended June 30,
| 2019 |  | 2019
Revenue | $ | 88.2 |  |  | $ | 163.1 |
Operating income | 8.2 |  |  | 4.4 |

X
- 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
Name: | us-gaap_BusinessCombinationDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration

X
- References No definition available. + Details
Name: | us-gaap_BusinessCombinationsAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration