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Acquisition of Txcell S.A. | 12 Months Ended
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Dec. 31, 2018
Business Combinations [Abstract] |
Acquisition of Txcell S.A. | NOTE 6 – ACQUISITION OF TXCELL S.A. On July 20, 2018, Sangamo entered into a SPA with certain shareholders of TxCell S.A., a French société anonyme (“TxCell”), and the Company and TxCell entered into a TOA, pursuant to which the Company agreed to acquire 100% of the equity interests of TxCell. On October 1, 2018 (the “Acquisition Date”), the Company completed the acquisition of 13,519,036 ordinary shares of TxCell (“TxCell Ordinary Shares”), representing approximately 53% of the outstanding share capital and voting rights of TxCell, pursuant to the SPA (the “Block Transaction”). TxCell specializes in developing cellular immunotherapy platforms that use regulator T cells (“Tregs”) to treat severe autoimmune and inflammatory diseases and the Company expects that the acquisition of TxCell will accelerate its entry into the clinic with a CAR-Treg therapy. The Company also entered into arrangements with the holders of approximately 477,000 “free shares” of TxCell pursuant to which the Company has the right to purchase (call option) such shares from the holders thereof and such holders have the right to sell (put option) to the Company such shares from time to time through mid-2021 (the “Free Shares Options”). Of the 477,000 approximately 453,000 are related to vested free shares, with the remaining related to unvested free shares. The purchase price for each such free share acquired by the Company upon exercise of a Free Shares Option will be based on the performance of the Company’s stock price from the announcement of the transactions contemplated by the SPA and TOA through the time of purchase (as of October 1, 2018 (“the Acquisition Date”) the Free Shares Options purchase price was valued at €2.58 per share or approximately $2.99 per share using an exchange rate of $1.16). For example, if the Company’s stock price increases during that time period, the Free Shares Options purchase price per share will proportionately increase. However, if the Company’s stock price decreases the Free Shares Options purchase price is limited to a minimum purchase price of €2.58 per share, subject to certain exceptions. The fair value of the Free Shares Options was estimated to be $0.2 million, based on an option pricing method, and such value is included in the purchase consideration. The fair value of the Free Shares Options will vary based on future changes in the Company’s stock price during the option period with such changes in fair value being recognized in operations. The fair value of the outstanding shares of TxCell, to which the Free Share Options relate, is recorded as a noncontrolling interest (see further details related to noncontrolling interest below). In September 2018, the Company also provided TxCell with a $5.2 million loan (the “TxCell Loan”) that was deemed to be part of the purchase consideration for accounting purposes. The TxCell Loan, together with the cash paid to acquire the TxCell Ordinary Shares, $40.5 million, and the estimated fair value of the Free Shares Options, $0.2 million, comprise the aggregate purchase consideration of $45.9 million, as of the Acquisition Date. Management estimated the fair value of tangible and intangible assets and liabilities in accordance with the applicable accounting guidance for business combinations and utilized the services of third-party valuation consultants. Balances subject to adjustment primarily include the valuations of acquired assets (tangible and intangible), liabilities assumed, as well as tax-related matters. During the measurement period, the Company may record adjustments to the provisional amounts recognized. The Company expects the allocation of the consideration transferred to be final within the measurement period (up to one year from the Acquisition Date). The TxCell Acquisition was accounted for as a business combination in accordance with ASC Topic 805, Business Combinations. The operating results of TxCell after the Acquisition Date have been included in the Company’s Consolidated Statements of Operations. For the three months ended December 31, 2018, TxCell did not contribute any revenue. For the three months ended December 31, 2018, operating expenses related to TxCell were approximately $3.7 million. Fair Value Estimate of Assets Acquired and Liabilities Assumed Under ASC Topic 805, an acquirer recognizes and consolidates assets acquired, liabilities assumed, and any non-controlling interest at 100% of their fair values as of the acquisition date (regardless of the acquirer’s percentage ownership in the acquiree). As goodwill is calculated as a residual, all goodwill of the acquired business, not just the acquirer’s share, is recognized under this “full-goodwill” approach. Recognized goodwill is allocated between the controlling and non-controlling interests. Although this allocation is not presented separately on the acquirer’s balance sheet, it is necessary so that a goodwill impairment charge recognized in a period following the business combination by an acquirer is appropriately allocated between controlling and non-controlling interests. There were no goodwill impairments during 2018 and, as noted below, substantially all of the non-controlling interest on the Acquisition Date was subsequently acquired by the Company and, accordingly, substantially all of the goodwill is allocated to the Company as of December 31, 2018. The following table summarizes the estimated fair value of the net assets acquired as of the Acquisition Date (in thousands):
|  | October 1, 2018 |
Consideration transferred |  | $ | 45,911 |
Fair value of non-controlling interest |  |  | 35,829 |
Fair value of TxCell |  | $ | 81,740 |
Cash |  |  | 4,779 |
Current assets |  |  | 2,427 |
Property and equipment |  |  | 1,857 |
IPR&D |  |  | 55,019 |
Other assets |  |  | 155 |
Current liabilities |  |  | (9,761 | )
Assumed debt liabilities |  |  | (4,933 | )
Deferred tax liability, net |  |  | (6,798 | )
Fair value of net identifiable assets acquired |  |  | 42,745 |
Goodwill |  |  | 38,995 |
Total fair value of net assets acquired |  | $ | 81,740 |
Consideration Transferred Consideration transferred as of October 1, 2018 consists of the 13,519,036 TxCell Ordinary Shares acquired by the Company on the Acquisition Date of approximately $2.99 per share, the $5.2 million TxCell Loan and approximately $0.2 million for the fair value of the free shares. Noncontrolling Interest The fair value of the non-controlling interest at the Acquisition Date was based on the $2.99 acquisition price per share for the 11,981,867 Ordinary Shares that were not purchased by the Company on the Acquisition Date. On November 1, 2018, pursuant to the TOA, the Company commenced a cash tender offer (the “Offer”) to acquire all of the TxCell Ordinary Shares not held by the Company for the same per share price paid in the Block Transaction. Following the completion of the Offer on November 23, 2018, the Company initiated compulsory squeeze-out procedures applicable to French public companies to acquire the remaining TxCell Ordinary Shares, other than the free shares that were subject to the Free Share Options. Subsequent to the Acquisition Date and through December 31, 2018, the Company acquired 11,528,635 TxCell Ordinary Shares which, when aggregated with the 13,519,036 Ordinary Shares acquired at the Acquisition Date, resulted in the Company owning 98.2% of all TxCell Ordinary Shares as of December 31, 2018. The 11,528,635 shares acquired subsequent to the Acquisition Date were acquired for total consideration of approximately $33.9 million, or $2.94 per share. As of December 31, 2018 the aggregate purchase consideration was approximately $80.4 million through the completion of this purchase, with approximately 453,000 Ordinary Shares (vested free shares), which remain outstanding and are subject to purchase by the Company as noted above, with an estimated fair value of approximately $1.3 million. Non-controlling interest as of December 31, 2018 was as follows (in thousands):
|  | Total |
Non-controlling interest at January 1, 2018 |  | $ | — |
Non-controlling interest at acquisition |  |  | 35,829 |
Shares acquired post acquisition |  |  | (34,516 | )
Non-controlling interest of acquired entity |  |  | 1,313 |
Foreign currency effect |  |  | (19 | )
Loss attributable to non-controlling interest |  |  | (555 | )
Non-controlling interest at December 31, 2018 |  | $ | 739 |
Intangible Assets Identified intangible assets of $55.0 million primarily relates to IPR&D. The fair value of this asset was determined utilizing a weighted market, cost, and income valuation approach. IPR&D is an intangible asset classified as indefinite-lived until the completion or abandonment of the associated research and development effort, and will be amortized over an estimated useful life to be determined at the date the project is completed. The IPR&D is tested for impairment annually and if the Company concludes the technology is no longer realizable, the asset will be immediately expensed. There was no impairment for the year ended December 31, 2018. Goodwill Goodwill of $39.0 million represents the excess of the fair value of the consideration transferred plus the fair value of the noncontrolling interest in TxCell over the fair value of the assets acquired and liabilities assumed. Goodwill represents the anticipated benefits of using TxCell’s expertise within the emerging fields of Treg and CAR-Treg (which are Tregs genetically modified with a chimeric antigen receptor). The Company tests goodwill for impairment on an annual basis or sooner, if deemed necessary. As of December 31, 2018, there were no changes in the goodwill recorded from the TxCell Acquisition. This goodwill is not deductible for income tax purposes. There was no impairment or the year ended December 31, 2018. Pro Forma Information The following unaudited supplemental pro forma information presents the Company’s financial results as if the TxCell Acquisition had occurred on January 1, 2017. This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the TxCell Acquisition been made on January 1, 2017, nor are they indicative of any future results.
|  | Year Ended December 31, |
|  | 2018 |  |  | 2017 |
|  | (in thousands, except per share amounts) |
Revenue |  | $ | 86,182 |  |  | $ | 39,091 |
Loss from operations |  |  | (86,253 | ) |  |  | (68,221 | )
Net loss |  |  | (79,735 | ) |  |  | (66,350 | )
Net loss per share, basic |  |  | (0.82 | ) |  |  | (0.85 | )
To complete the purchase transaction, the Company incurred approximately $2.1 million of acquisition costs, which were recognized as general and administrative expense for the year ended December 31, 2018.

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- 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
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