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Earn-out Milestone Liability

12 Months Ended

Dec. 31, 2018

12. EARN-OUT MILESTONE LIABILITY

The total aggregate purchase price for the EGEN Acquisition included potential future Earn-out Payments contingent upon achievement of certain milestones. The difference between the aggregate $30.4 million in future Earn-out Payments and the $13.9 million included in the fair value of the acquisition consideration at June 20, 2014 was based on the Company’s risk-adjusted assessment of each milestone (10% to 67%) and utilizing a discount rate based on the estimated time to achieve the milestone (1.5 to 2.5 years). The earn-out milestone liability will be fair valued at the end of each quarter and any change in their value will be recognized in the financial statements.

At December 31, 2018, the Company fair valued the earn-out milestone liability at $8.9 million and recognized a non-cash gain of $3.6 million during 2018 as a result of the change in the fair value of earn-out milestone liability of $12.5 million at December 31, 2017. Included in the non-cash gain during 2018, was the reduction of the liability by $3.9 million during the third quarter of 2017 related to the write down of one of the in-process research and development assets (see Note 5) as the Company believes there is a de minimis probability of the payout of the related earn-out milestone liabilities. The fair value of the remaining earn-out milestone liabilities at December 31, 2018 was based on the Company’s risk-adjusted assessment of each milestone (80%) utilizing a discount rate based on the estimated time to achieve the milestone (1.25 years).

At December 31, 2017, the Company fair valued the earn-out milestone liability at $12.5 million and recognized a non-cash gain of $0.6 million during 2017 as a result of the change in the fair value of earn-out milestone liability of $13.2 million at December 31, 2016. The non-cash gain during 2017 resulted from the reduction of the liability by $1.4 million during the third quarter of 2017 related to the partial write down of one of the in-process research and development assets (see Note 5) as the Company believes there is a reduced probability of the payout of the related earn-out milestone liabilities. The fair value of the remaining earn-out milestone liabilities at December 31, 2017 was based on the Company’s risk-adjusted assessment of each milestone (50% to 80%) utilizing a discount rate based on the estimated time to achieve the milestone (1.3 to 1.5 years).

The following is a summary of the changes in the earn-out milestone liability for 2017 and 2018:

Balance at January 1, 2017	$	13,188,226
Non-cash gain from the adjustment for the change in fair value included in 2017 net loss		(649,701	)
Balance at December 31, 2017		12,538,525
Non-cash gain from the adjustment for the change in fair value included in 2018 net loss		(3,630,861	)
Balance at December 31, 2018	$	8,907,664