Acquisitions

12 Months Ended

Dec. 31, 2020

Asset Acquisition [Abstract]

Acquisitions

Acquisitions

Asset Acquisition of Modis

On September 6, 2019, the date the transaction closed, we acquired all of the outstanding equity interests of Modis, a privately-held biopharmaceutical company, to expand our late-stage development pipeline. Modis was formed in May 2016 through a collaboration with academic experts in mitochondrial biology. Modis holds an exclusive worldwide license from Columbia University in New York City (Columbia) to certain intellectual property rights owned or controlled by Columbia to develop and commercialize MT1621. MT1621 is an investigational deoxynucleoside substrate enhancement therapy (SET) for the treatment of TK2d, an inherited mitochondrial DNA depletion disease that predominantly affects children and is often fatal. Aggregate upfront consideration transferred of approximately $246.5 million consisted of $175.5 million in cash payments made and 1,595,025 unregistered shares of our common stock issued to the outstanding shareholders of Modis as well as employee award holders under the legacy Modis 2017 Stock Plan (Modis Plan). The fair value of common stock issued as acquisition consideration was $68.1 million on the date the transaction closed. Also included in the aggregate upfront consideration transferred were $3.5 million of transaction costs incurred, reduced by a net working capital adjustment receivable of $0.6 million. Pursuant to the terms of the Modis purchase agreement, certain unvested awards held by employees under the Modis Plan converted into the right to receive a pro-rata share of the purchase consideration at the date of acquisition, with no future service requirement. A component of the total consideration transferred was attributed to the unvested awards with a fair value of $4.9 million and was accounted for as a separate transaction from the asset acquisition. This amount was immediately expensed and included in acquired in-process research and development and related costs in the consolidated statements of operations for the year ended December 31, 2019.

Of the upfront cash consideration, $25.0 million was deposited into an escrow account to fund post-closing net working capital adjustments, and general representations and warranties for a one-year period, which was subsequently released in 2020. In addition, the former shareholders of Modis were eligible to receive milestone payments consisting of $100.0 million upon FDA approval and $50.0 million upon EMA approval of MT1621, as well as a 5% royalty on any future net sales of specified Modis products. The upfront cash consideration was funded by cash and marketable securities on hand. The shares of our common stock provided as consideration were subsequently registered under our existing shelf registration statement on Form S-3 (No. 333-220759).

We determined substantially all of the fair value of Modis was concentrated in a single IPR&D asset group, which included license rights, clinical trial data, clinical trial development plans, research and development materials, formulations and intellectual property related to MT1621. Accordingly, the acquired set of assets and activities did not meet the definition of a business. As a result, we accounted for the transaction as an asset acquisition and allocated the remaining upfront consideration transferred to the identifiable tangible and intangible assets acquired and liabilities assumed based on their relative fair values resulting in $244.5 million being assigned to the IPR&D asset associated with MT1621 and $2.8 million for assumed net liabilities.

As of the acquisition date, Modis had completed a pivotal Phase 2 retrospective treatment clinical trial study (RETRO) of MT1621 substrate enhancement therapy in patients with TK2d and commenced a Phase 2 prospective, open-label extension clinical trial study of patients with TK2d. As the MT1621 program had not yet reached technological feasibility and had no alternative future use, the purchased IPR&D asset was expensed immediately subsequent to the acquisition within our consolidated statements of operations. As we had no tax basis in the acquired IPR&D asset, and the acquired IPR&D asset was expensed prior to the measurement of any deferred taxes, no deferred taxes were recognized for the initial differences between the amounts recognized for financial reporting and tax purposes.

The milestone payments due upon FDA or EMA approval and royalty payments on future net sales of MT1621 products were determined to be contingent consideration and not subject to derivative accounting. Any contingent consideration will be recognized when the contingency is resolved and the consideration becomes payable. For the years ended December 31, 2020 and 2019, no such amounts were deemed to be payable.

The nature of the remaining efforts for completion of the MT1621 program primarily consist of performing clinical trials and validating contract manufacturing abilities, the cost, length and success of which are extremely difficult to determine. Numerous risks and uncertainties can delay or stop clinical development of a pharmaceutical

product prior to the receipt of marketing approval, including, but not limited to, results from clinical trials that do not support continuing development, issues related to manufacturing or intellectual property protection, and other events or circumstances that cause unanticipated delays, technical problems or other difficulties. Given these risks and uncertainties, there can be no assurance that the development of MT1621 will be successfully completed. If the development of MT1621 is not successful, in whole or in part, or completed in a timely manner, we may not realize the expected financial benefits from the development of MT1621.