NewLink Merger

9 Months Ended

Sep. 30, 2020

The Company completed the Merger on March 18, 2020. The Merger was accounted for as a reverse asset acquisition as NewLink did not meet the definition of a business pursuant to Topic 805, Business Combinations, as NewLink did not have the ability to generate outputs. Private Lumos was deemed to be the accounting acquirer because immediately following the Merger: (i) Lumos stockholders owned approximately 50% of outstanding common stock of the Company, (ii) the board of directors of the Company (the "Board") consists of three members designated by Private Lumos, three members designated by NewLink and the Board unanimously appointed an independent seventh member and (iii) the Company is led by Private Lumos’ then current chief executive officer and chief scientific officer, with other current members of senior management from both Private Lumos and NewLink.

For accounting purposes: (i) the assets acquired and liabilities assumed were recorded based on their estimated fair values on the Merger date, (ii) the reported historical operating results of the combined company prior to the Merger will be those of Private Lumos and not of NewLink after retroactively giving effect to the common stock exchange ratio, reverse stock split and change in par value for all periods presented, and (iii) for periods prior to the transaction, shareholders’ authorized capital of the combined company is presented based on the historical authorized capital of NewLink.

As the fair value of the NewLink net assets acquired, including the intangible assets of the PRV and IPR&D not previously reflected on NewLink’s balance sheet, were more clearly evident, fair valuing the net assets was determined to be a more reliable approach in determining the cost of net assets acquired. Except for the items noted herein, the fair value of the net assets acquired were determined to be the carrying value due to their short-term nature and ability to convert to cash. Based on most current observable inputs and trends in the market of the PRVs, we determined an estimated transaction price of the acquired PRV under the precedent transaction method to be $95.0 million, which is the observed median guideline in the range of publicly disclosed transactions of $80.0 million to $111.0 million from 2018 and through 2020. We applied a present value factor and estimated selling costs to the estimated transaction price to arrive at a fair value of the PRV. The PRV was recorded at an asset value of $87.9 million along with a corresponding liability due to Merck Sharp & Dohme Corp. (“Merck”) of $35.7 million. In addition, we recorded a deferred tax liability of $9.5 million for the step up in book basis over tax basis for the net value of the PRV. The fair value assigned to the acquired IPR&D was estimated based on the estimated expected net proceeds from the sales of these assets as intellectual property. As these assets are no longer being actively pursued in further clinical development by the Company, the IPR&D fair value of $426,000 were expensed to research and development expenses in the statement of operations for the three months ended March 31, 2020.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed on March 18, 2020, the date of the Merger (in thousands):


Assets acquired:
Cash and cash equivalents	$	84,179
Prepaid and other current assets	2,999
Income tax receivable	192
Property and equipment	1,020
Economic interest in PRV	87,920
Other intangible assets	426
Other non-current assets	517
Total Assets Acquired	177,253

Liabilities assumed:
Accounts payable	285
Accrued expenses and other current liabilities	8,788
PRV-related liability owed to Merck	35,720
Royalty obligation payable to Iowa Economics Development Authority	6,000
Deferred tax liability	9,500
Other long-term liabilities	12
Total liabilities assumed	60,305
Total net assets acquired	$	116,948