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BUSINESS COMBINATION | 9 Months Ended
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Sep. 30, 2022
BUSINESS COMBINATION |
BUSINESS COMBINATION | 2. BUSINESS COMBINATION Summary On March 10, 2022, the Company completed the acquisition of all the outstanding shares of VCN (the “VCN Shares”) from the shareholders of VCN. VCN is a clinical-stage biopharmaceutical company developing new oncolytic adenoviruses for the treatment of cancer. VCN’s lead product candidate, VCN-01, is being studied by the Company in clinical trials for pancreatic cancer and retinoblastoma with additional investigator sponsored trials in indications including head and neck squamous cell carcinoma (HNSCC). VCN-01 is designed to be administered systemically, intratumorally or intravitreally, either as a monotherapy or in combination with standard of care, to treat a wide variety of cancer indications. VCN-01 is designed to replicate selectively and aggressively within tumor cells, and to degrade the tumor stroma barrier that serves as a significant physical and immunosuppressive barrier to cancer treatment. Degrading the tumor stroma has been shown to improve access to the tumor by the virus and additional therapies such as chemo- and immuno-therapies. Importantly, degrading the stroma exposes tumor antigens, turning “cold” tumors “hot” and enabling a sustained anti-tumor immune response. VCN has the rights to four exclusive patents for proprietary technologies, as well as technologies developed in collaboration with the Virotherapy Group of the Catalan Institute of Oncology (ICO-IDIBELL) and with Hospital Sant Joan de Deu (HSJD), with a number of additional patents pending. As consideration for the purchase of the VCN Shares, the Company paid $4,700,000 to Grifols Innovation and New Technologies Limited, the owner of approximately 86% of the equity of VCN, and issued to the remaining sellers and certain key VCN employees and consultants of VCN an aggregate of 2,639,530 shares of its common stock In addition to the consideration described above, under the terms of the Purchase Agreement, the Company assumed up to $2,390,000 of existing liabilities of VCN and has agreed to make cash payments of up to $70.2 million to Grifols upon the achievement of certain clinical and commercialization milestones. In September 2022, the trial received “safe to proceed” from the FDA for its phase 2 clinical trial of VCN-01. Due to this approval, the company will pay Grifols $3.0 million in Q4 2022. In anticipation of the Acquisition, prior to the Closing, the Company loaned VCN $417,000 to help finance the costs of certain of VCN’s research and development activities. At the Closing, VCN and Grifols entered into a sublease agreement for the sublease by VCN of laboratory and office space as well as a transitional services agreement. As a post-Closing covenant, the Company has agreed to commit to fund VCN’s research and development programs, including but not limited to VCN-01 in a pancreatic ductal adenocarcinoma PDAC phase 2 trial, VCN-01 in a retinoblastoma (RB) phase 2/3 trial and necessary G&A within a budgetary plan of approximately $27.8 million. Total purchase consideration including cash, restricted shares and contingent consideration was valued at approximately $23.9 million, as follows (in thousands):
​ | ​ | ​ | ​
Cash paid at Closing |  | $ | 4,700
Receivable from VCN “effectively settled“ | ​ |  | 417
FV of common shares issued | ​ |  | 6,599
FV of contingent consideration | ​ |  | 12,159
​ | ​ | $ | 23,875
​ As of March 31, 2022, the fair value of the contingent consideration was approximately $12.2 million. During the nine months ended September 30, 2022 the Company recognized a non-cash gain of $257,000 related to the decrease in the fair value of the contingent consideration. This gain was recorded as a reduction of general and administrative expense in the accompanying condensed consolidated statement of operations. The Company acquired VCN due to its track record of being a research and development engine capable of fueling sustainable growth, to expand the Company’s research and development pipeline, and to diversify the Company’s potential future revenue opportunities. 2. BUSINESS COMBINATION - (continued) The preliminary allocation of the fair value of the VCN acquisition is shown in the table below. ​
​ | ​ | ​ | ​
​ |  | Estimated fair value
​ | ​ | ($in thousands)
Cash and cash equivalents | ​ | $ | 837
Receivables | ​ |  | 1,707
Property and equipment | ​ |  | 216
In-process research and development intangible asset | ​ |  | 21,703
Goodwill | ​ |  | 5,765
Deferred tax assets (liabilities), net | ​ |  | (3,699)
Accounts payable | ​ |  | (814)
Accrued expenses | ​ |  | (113)
Accrued employee benefits | ​ |  | (90)
Loan Payable-current | ​ |  | (67)
Other long-term liabilities | ​ |  | (1,570)
​ | ​ | ​ | ​
Total purchase consideration | ​ | $ | 23,875
​ The above allocation of the purchase price is based upon certain preliminary valuations and other analyses that have not been finalized as of the date of this filing. Any changes in the estimated fair values of the purchase consideration and of the net assets recorded for this business combination upon the finalization of more detailed analyses of the facts and circumstances that existed at the date of the transaction may change the amount and allocation of the purchase price. As such, the purchase price amount and allocations for this transaction are preliminary estimates including in-process research and development, goodwill and contingent consideration, which may be subject to change within the measurement period. The net assets were recorded at their estimated fair value. In valuing acquired assets and liabilities, fair value estimates were based primarily on future expected cash flows, market rate assumptions for contractual obligations, and appropriate discount rates. In connection with the acquisition, we recognized $21.7 million of indefinite-lived in-process research and development intangible assets. Goodwill is considered an indefinite-lived asset and relates primarily to intangible assets that do not qualify for separate recognition, such as the assembled workforce and synergies between the entities. Goodwill of $5.8 million was established as a result of the Acquisition and is not tax deductible. VCN operations recorded a net loss of $5.8 million from the date of acquisition through September 30, 2022. During the three months ended June 30, 2022 the Company recognized a measurement period adjustment related to the estimate of acquired liabilities resulting in a $277,000 reduction in accrued expenses and goodwill and during the three months ended September 30, 2022 the Company recognized another measurement period adjustment related to the estimated fair value of its in-process R&D resulting in a $810,000 increase in in-process R&D, an increase of $202,000 in deferred tax liabilities and a decrease of $607,000 in goodwill. The cumulative impact of the re-measurements as of the nine month ended September 30, 2022 was a reduction in accrued liabilities of $277,000, an increase in in-process R&D of $810,000; an increase in deferred tax liabilities of $202,000 and a decrease in goodwill of $884,000. Pro Forma Consolidated Financial Information (unaudited) The following unaudited pro forma consolidated financial information summarizes the results of operations for the periods indicated as if the VCN acquisition had been completed as of January 1, 2021 (in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended September 30, | ​ | Nine Months Ended September 30,
(in thousands) |  | 2022 |  | 2021 |  | 2022 |  | 2021
Net revenues | ​ | $ | — | ​ | $ | — | ​ | ​ | — | ​ | $ | —
Net loss | ​ | $ | (4,853) | ​ | $ | (3,808) | ​ | ​ | (14,956) | ​ | $ | (10,810)
​ 2. BUSINESS COMBINATION - (continued) Transaction Costs In conjunction with the Acquisition, the Company incurred approximately $1.2 million and $0.2 million in 2021 and 2022, respectively, in transaction costs, which were expensed as general, and administrative expense in the consolidated statements of operations.

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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 https://asc.fasb.org/topic&trid=2303972 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 5 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472 + Details
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