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ACQUISITIONS
12 Months Ended
Dec. 31, 2015
Business Combinations [Abstract]  
ACQUISITIONS

(5) ACQUISITIONS

 

Prosensa Holding N.V.

On January 29, 2015, the Company completed the acquisition of Prosensa Holding N.V. (Prosensa), a public limited liability company organized under the laws of the Netherlands, for a total purchase price of $751.5 million. In connection with the acquisition of Prosensa, the Company recognized transaction costs of $9.7 million, of which $7.0 million and $2.7 million, was recognized in the years ended December 31, 2015 and 2014, respectively.

Prosensa was an innovative biotechnology company engaged in the discovery and development of ribonucleic acid (RNA)-modulating therapeutics for the treatment of genetic disorders. Prosensa’s primary focus was on rare neuromuscular and neurodegenerative disorders with a large unmet medical need, including subsets of patients with Duchenne muscular dystrophy (DMD), myotonic dystrophy and Huntington’s disease. Prosensa’s clinical portfolio of RNA-based product candidates was focused on the treatment of DMD. Each of Prosensa’s DMD compounds has been granted orphan drug status in the United States (the U.S.) and the European Union (the EU). Prosensa’s lead product, Kyndrisa (drisapersen), was under review during most of 2015 as part of a rolling new drug application (NDA) with the Food and Drug Administration (the FDA). In January 2016 the FDA issued a complete response letter to the Company’s NDA for Kyndrisa concluding that the standard of substantial evidence of effectiveness for Kyndrisa had not been met. On June 8, 2015, the Company announced the submission of a marketing authorization application (MAA) for Kyndrisa with the European Medicines Agency (the EMA).

In connection with its acquisition of Prosensa, the Company made cash payments totaling $680.1 million, which consisted of $620.7 million for approximately 96.8% of Prosensa’s ordinary shares (the Prosensa Shares), $38.6 million for the options that vested pursuant to the Company’s tender offer for the Prosensa Shares and $20.8 million to the remaining Prosensa shareholders that did not tender their shares under the tender offer. Additionally, for each Prosensa Share, the Company issued one non-transferable contingent value right (the CVR), which represents the contractual right to receive a cash payment of up to $4.14 per Prosensa Share, or an aggregate of approximately $160.0 million (undiscounted), upon the achievement of certain product approval milestones. The fair value of the CVRs and acquired in-process research and development (IPR&D) on the acquisition date was $71.4 million and $772.8 million, respectively. The acquisition date fair value of the CVRs and IPR&D was estimated by applying a probability-based income approach utilizing an appropriate discount rate. Key assumptions include a discount rate and various probability factors. See Note 13 to these Consolidated Financial Statements for additional discussion regarding fair value measurements of the CVRs, which is included in contingent acquisition consideration payable.

The following table presents the allocation of the purchase consideration for the Prosensa acquisition, including the CVRs, based on fair value.

Cash and cash equivalents

 

$

141,669

 

Trade accounts receivable

 

 

3,086

 

Other current assets

 

 

1,537

 

Property, plant and equipment

 

 

2,683

 

Intangible assets

 

 

497

 

Other assets

 

 

104

 

Acquired IPR&D

 

 

772,808

 

Total identifiable assets acquired

 

 

922,384

 

Accounts payable and accrued expenses

 

 

(68,799

)

Debt assumed

 

 

(57,053

)

Deferred tax liability

 

 

(193,202

)

Total liabilities assumed

 

 

(319,054

)

Net identifiable assets acquired

 

 

603,330

 

Goodwill

 

 

148,134

 

Net assets acquired

 

$

751,464

 

A substantial portion of the assets acquired consisted of IPR&D related to Prosensa’s product candidates Kyndrisa and exons PRO 044 and PRO 045, which are considered to be indefinite-lived assets until completion or abandonment of the associated research and development (R&D) efforts. The Company determined that the estimated acquisition-date fair value of the intangible assets related to Kyndrisa, and Prosensa’s other primary product candidates, PRO 044 and PRO 045, was $731.8 million, $16.9 million and $24.1 million, respectively.

The deferred tax liability relates to the tax impact of future amortization or possible impairments associated with the identified intangible assets acquired, which are not deductible for tax purposes.  

Prosensa’s results of operations prior to and since the acquisition date are insignificant to the Company’s Consolidated Financial Statements.

See Note 8 to these Consolidated Financial Statements for further discussion of the indefinite-lived intangible assets.

San Rafael Corporate Center

 

In March 2014, the Company completed the acquisition of the real estate commonly known as the San Rafael Corporate Center (SRCC), located in San Rafael, California. SRCC is a multi-building, commercial property where, prior to the transaction, the Company was leasing a certain portion of the space for its headquarters and related operating activities. The purpose of this acquisition is to allow for future expansion of the Company’s corporate headquarters to accommodate anticipated headcount growth. The acquisition of SRCC has been accounted for as a business combination because the building and the in-place leases met the definition of a business in Accounting Standards Codification 805 (ASC 805), Business Combinations. The fair value of the consideration paid was $116.5 million, all of which was paid in cash.

The following table summarizes the estimated fair values of assets acquired as of the date of acquisition:

 

 

 

Estimated

Fair Value

 

 

Estimated

Useful Lives

Building and improvements

 

$

94,414

 

 

50 years

Land

 

 

14,565

 

 

 

Land improvements

 

 

3,616

 

 

10 years

Intangible assets

 

 

3,905

 

 

Remaining

lease terms

Total identifiable net assets

 

$

116,500

 

 

 

 

The fair values assigned to tangible and identifiable intangible assets acquired are based on management’s estimates and assumptions using the information that was available as of the date of the acquisition. The Company believes that the information provides a reasonable basis for estimating the fair values of assets acquired.

The following table sets forth the fair value of the components of the identifiable intangible assets acquired by asset class as of the date of acquisition:

 

Above market leases

 

$

351

 

In-place leases

 

 

3,554

 

Total intangible assets subject to amortization

 

$

3,905

 

 

The value of any lease intangible assets (such as in-place and above-market leases) is estimated to be equal to the property owners’ avoidance of costs necessary to release the property for a lease term equal to the remaining primary in-place lease term and the value of investment-grade tenancy, which is derived by estimating, based on a review of the market, the cost to be borne by a property owner to replicate a market lease for the remaining in-place term. These costs consist of: (i) rent lost during downtime (e.g., assumed periods of vacancy), (ii) estimated expenses that would be incurred by the property owner during periods of vacancy, (iii) rent concessions (e.g., free rent), (iv) leasing commissions and (v) tenant improvement allowances. The Company determined these values using management’s estimates along with third-party appraisals. The Company will amortize the capitalized value of lease intangible assets over the remaining lives of the underlying leases.  Lease intangible assets are amortized as a reduction in (addition to) third-party tenant revenue, which is included in Royalty, License and Other Revenues on the Company’s Consolidated Statements of Operations for the years ended December 31, 2015 and 2014.

The amount of third-party tenant revenue (included in the line item Royalty, License and Other Revenues) included in the Company’s Consolidated Statements of Operations for the years ended December 31, 2015 and 2014, was $2.7 million and $4.0 million, respectively. Amortization expense recorded as a reduction of third-party tenant revenues for the years December 31, 2015 and 2014 were $1.2 million and $1.8 million, respectively. The amount of net income/loss from third-party tenants for the years ended December 31, 2015 and 2014, was insignificant the to the Company’s Consolidated Statement of Operations.

SRCC’s results of operations prior to the acquisition were insignificant to the Company’s Consolidated Financial Statements.

Included in Selling, General and Administrative (SG&A) expenses are transaction costs incurred in connection with the acquisition of SRCC of $0.3 million during 2014. In connection with the purchase of SRCC, the Company recognized a gain of $8.8 million in the year ended December 31, 2014, due to the early termination of the Company’s pre-existing lease and the realization of the remaining balance in deferred rent and the reversal of the related asset retirement obligation upon acquisition of the SRCC. $2.7 million and $6.1 million of the gain were included in SG&A and R&D expenses, respectively. The allocation of the gain to SG&A and R&D is consistent with the Company’s allocation practices for facility costs for this previously leased space.