Business Acquisition

12 Months Ended

Dec. 31, 2014

Business Combinations [Abstract]

Business Acquisition

NOTE 4. BUSINESS ACQUISITION

In the fourth quarter of 2014, the Company entered into a License Agreement with Israel-based CureTech, pursuant to which it licensed exclusive worldwide rights to CureTech’s late-stage clinical molecule, pidilizumab, an immune modulatory anti-PD-1 monoclonal antibody. Under the License Agreement, the Company will be responsible for all development, regulatory, manufacturing, and commercialization activities for pidilizumab for all indications, including oncology. Immuno-oncology is a rapidly evolving field that focuses on harnessing the ability of the immune system in the fight against cancer. The Company believes that pidilizumab may have utility in immuno-oncology. The Company has concluded that the in-license transaction is an acquisition of a business and will account for it in accordance with ASC 805-10, “Business Combinations.”

In connection with the acquisition, the Company made upfront cash payments to CureTech totaling $5.0 million during the fourth quarter of 2014. In addition, CureTech is entitled to contingent payments totaling up to $85.0 million upon attainment of certain development and regulatory milestones, up to $245.0 million upon the achievement of certain annual worldwide net sales thresholds, and tiered royalties ranging from 5% to 11% on annual worldwide net sales. CureTech is also entitled to a $5.0 million milestone payment upon completion of the Manufacturing Technology Transfer as described in Note 14, “Commitments and Contingencies.” The acquisition-date fair value of the contingent consideration payments totaled $106.0 million and was estimated by applying a probability-based income approach using an appropriate discount rate. The estimation was based on significant inputs that are not observable in the market, referred to as Level 3 inputs, as described in more detail in Note 13, “Fair Value Measurements.”

The following table presents the final allocation of the purchase consideration for the CureTech acquisition, including the contingent consideration payable, based on fair value.

Purchase consideration:
Cash	$	5,000
Acquisition-date fair value of contingent consideration		106,000
Total purchase consideration	$	111,000
Allocation of the purchase consideration:
Assets:
Identifiable intangible assets- IPR&D	$	101,000
Net identifiable assets acquired		101,000
Goodwill		10,000
Net assets acquired	$	111,000

Identifiable intangible assets totaled $101.0 million and consist entirely of IPR&D for pidilizumab. As of the valuation date, the Company determined that pidilizumab was the only R&D project with substance, such that the project had undergone conceptual stages, and research, development, and preproduction had been started for the project. As such, no other intangible assets were identified in the transaction other than pidilizumab as separate from goodwill. The Company utilized the multi-period excess earnings model of the “income method” to determine the fair value of the IPR&D as of the acquisition date. The excess of the consideration over the fair values assigned to the net assets acquired was $10.0 million, which represents the amount of goodwill resulting from the acquisition. The Company believes that the goodwill primarily represents benefits to it, such as the potential to diversify its product portfolio into the area of immuno-oncology, that do not qualify for separate recognition as acquired intangible assets. The amount of goodwill that is expected to be deductible for income tax purposes is $10.0 million. The Company recorded the goodwill on its consolidated balance sheet as of the acquisition date.