16. Acquisitions

Revivicor, Inc.

In July 2011, we acquired all of the outstanding stock of Revivicor, Inc. (Revivicor), a company focused on developing genetic biotechnology platforms to provide alternative tissue sources for treatment of human degenerative disease. We acquired Revivicor to pursue early stage development of products to treat end-stage lung disease through tissue and organ transplantation. The acquisition date fair value of the consideration consisted of $4.2 million in cash and $3.4 million in contingent consideration. Pursuant to the terms of the acquisition agreement, contingent consideration consists of up to $25.0 million upon the achievement of specific developmental and regulatory milestones. We estimated the fair value of the contingent consideration using a probability-weighted discounted cash flow model (DCF). Significant inputs to the DCF model included a present value factor equivalent to Revivicor's estimated borrowing rate and the anticipated amounts and timing of cash flows. Accordingly, the fair value of the contingent consideration has been estimated using significant unobservable inputs, which are classified as Level 3 inputs within the fair value hierarchy.

Acquisition date fair value of the assets acquired and liabilities assumed included the following (in thousands):

	July 11, 2011

Tangible assets	$	592
Identifiable intangible assets(1)		7,100
Goodwill(2)		2,753

Total assets acquired	$	10,445

Current liabilities	$	1,588
Long-term liabilities		1,227

Total liabilities assumed	$	2,815

(1): Consisted of a licensing arrangement to which Revivicor was a party. We were amortizing the related intangible asset over its estimated economic life of twenty years. However, in April 2012, Revivicor received a termination notice from the counterparty to the licensing arrangement. Accordingly, we recognized a corresponding impairment charge of $6.8 million during the quarter ended June 30, 2012 to write off the remaining net carrying value of the asset, which has been included within selling, general and administrative expenses on our consolidated statement of operations for the year ended December 31, 2012.
(2): Goodwill is not deductible for tax purposes.

Tyvaso Inhalation System

In September 2009, we acquired all of the assets used to manufacture the Tyvaso Inhalation System from NEBU-TEC Med Products Eike Kern GmbH (NEBU-TEC). The acquisition date fair value of the consideration transferred included $6.8 million in cash and $4.8 million in contingent consideration, of which $9.8 million was allocated to identifiable intangible assets and $1.3 million to goodwill. Pursuant to the terms of the acquisition agreement, we agreed to pay NEBU-TEC up to €10.0 million in contingent consideration in specified increments if the number of patients using the Tyvaso Inhalation System meets or exceeds certain thresholds measured at designated intervals. The acquisition agreement also granted us an option to purchase the assets associated with NEBU-TEC's next generation nebulizer, the SIM-Neb.

In December 2011, we exercised our option to acquire all of the assets associated with the development of the SIM-Neb in order to obtain control over the development and future production of the nebulizer, which would be included in the Tyvaso Inhalation System in the event that we obtain regulatory approval for its use. We believed that the assets acquired contained the necessary inputs, processes and outputs to be accounted for as a business combination. The acquisition-date fair value of the consideration transferred included $439,000 in cash and $2.5 million in contingent consideration. Pursuant to the terms of the acquisition agreement, we agreed to pay NEBU-TEC up to €4.0 million in milestone payments contingent upon receiving regulatory approvals for the SIM-Neb. In addition, we may pay NEBU-TEC up to €10.0 million in specified increments if the number of commercial patients using the SIM-Neb exceeds certain thresholds at designated intervals. We measured the fair value of the contingent consideration using a probability weighted discounted cash flow model which considered, among other factors, the likelihood of the SIM-Neb receiving regulatory approvals, our estimate of patients on therapy, and the possible impact of the introduction of future new therapies. The acquisition-date fair values of assets acquired included tangible assets of $439,000 and goodwill of $2.9 million.