Business Combination

9 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

Business Combination

Business Combination

On September 20, 2016, the Company entered into a Share Purchase Agreement pursuant to which the Company agreed to and simultaneously completed the Acquisition (See Note 1). In connection with the closing of the Acquisition, the Company issued 4,013,431 shares of its common stock to the Selling Shareholders, which represented approximately 19.9% of the voting power of the Company as of immediately prior to the issuance of such shares of the Company's common stock. A portion of these total shares, equal to 401,343 shares, were placed in escrow and are still in escrow as of September 30, 2016.

The Company concluded that the transaction included inputs and processes that have the ability to create outputs and accordingly accounted for the transaction as a business combination in accordance with ASC 805. As such, the assets acquired and liabilities assumed were recorded at fair value, with the remaining purchase price recorded as goodwill.

The purchase price consisted of the issuance of the 4,013,431 shares of the Company's common stock to the Selling Shareholders. In addition, under the Share Purchase Agreement, the Company will be obligated to pay to the Selling Shareholders certain post closing contingent cash payments upon the achievement of specified milestones and based upon net sales (See Note 1). Certain of these payments are payable to individuals or affiliates of individuals that became employees or members of the Board.

The Company valued the shares issued at approximately $13.5 million, based on the closing price of the Company's common stock on the acquisition date. The contingent consideration was preliminarily valued at approximately $21.9 million, using a probability-adjusted, discounted cash flow estimate as of the acquisition date. The total fair value of consideration for the acquisition was approximately $35.4 million.

As of September 30, 2016, purchase accounting for the Acquisition is preliminary and subject to completion upon obtaining the necessary remaining information, including (1) the valuation of the consideration transferred, including contingent consideration and whether any consideration is compensatory, (2) the identification and valuation of assets acquired and liabilities assumed, including intangible assets, fixed assets, and related goodwill, (3) the finalization of the opening balance sheet, including certain accruals and prepaid expenses, and (4) the related tax impacts of the Acquisition. The Company has preliminarily valued the acquired assets and liabilities based on their estimated fair value. These estimates are subject to change as additional information becomes available. The preliminary fair values included in the balance sheet as of September 30, 2016 are based on the best estimates of the Company. Any adjustments to the preliminary fair values will be made as such information becomes available, but no later than September 19, 2017. The following table presents the preliminary allocation of the purchase consideration for the transaction as of September 20, 2016 (the “Acquisition Date”), including the contingent consideration (in thousands):

Cash and cash equivalents	$	136
Prepaid expenses and other assets	1,189
Property and equipment	867
In-process research and development - Vicinium	35,400
In-process research and development - Proxinium	800
Goodwill	10,312
Accounts payable	(1,163		)
Accrued expenses	(1,530		)
Other liabilities	(812		)
Deferred tax liability	(9,774		)
	$	35,425

The preliminary fair value of the Vicinium IPR&D was determined using a risk-adjusted discounted cash flow approach, which includes probability adjustments for projected revenues and operating expenses based on the success rates assigned to each stage of development; as well as a discount rate of 17.4% applied to the projected cash flows. The remaining estimated cost of development for this asset is approximately $48.0 million, with an expected completion date of no earlier than 2019. The Company believes the assumptions are representative of those a market participant would use in estimating fair value.

The preliminary fair value of the Proxinium IPR&D was determined using a risk-adjusted discounted cash flow approach, which includes probability adjustments for projected revenues and operating expenses based on the success rates assigned to each stage of development; as well as a discount rate of 17.4% applied to the projected cash flows. The remaining estimated cost of development for this asset is approximately $27.0 million, with an expected completion date of no earlier than 2020. The Company believes the assumptions are representative of those a market participant would use in estimating fair value.

The deferred tax liability of $9.8 million primarily relates to the potential future impairments or amortization associated with IPR&D intangible assets, which is not deductible for tax purposes, and which can not be used as a source of income to realize deferred tax assets. As a result, the Company recorded the deferred tax liability with an offset to goodwill.

The amount allocated to the IPR&D is considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. As of September 30, 2016, there was no impairment related to the IPR&D.

The Company allocated the excess of the purchase price over the identifiable intangible assets to goodwill. Such goodwill is not deductible for tax purposes and represents the value placed on expected synergies and deferred tax liabilities recognized in connection with the acquisition. As of September 30, 2016, there was no impairment of goodwill. All goodwill has been assigned to the Company’s single reporting unit.

These fair value measurements were based on significant inputs not observable in the market and thus represent Level 3 fair value measurements.

As of September 30, 2016, the estimated fair value of the Company’s contingent consideration liability did not change, compared to the Acquisition Date.

The operating results of Viventia for the period from September 20, 2016 to September 30, 2016, which includes $0 revenue and an operating loss of $0.5 million, have been included in the Company’s condensed consolidated financial statements as of and for the three and nine months ended September 30, 2016.

The Company incurred a total of $2.5 million in transaction costs in connection with the transaction, excluding Viventia transaction costs, which were included in selling, general and administrative expense within the condensed consolidated statement of operations and other comprehensive income (loss) for the three and nine months ended September 30, 2016.

The Company’s financial results for the nine months ended September 30, 2016 are inclusive of Viventia financial results since the Acquisition Date. The unaudited estimated pro forma results presented below include the effects of the Acquisition as if it had been consummated as of the beginning of each period. The pro forma results include the direct expenses of Viventia as well as the additional depreciation expense as a result of the increase in the fair value of the fixed assets. The pro forma results exclude the costs of the transaction, severance and stock-based compensation expenses, the Viventia forgiveness of debt and the related interest expense in connection with the Acquisition. In addition, the pro forma results do not include any anticipated synergies or other expected benefits of the Acquisition. Accordingly, the unaudited estimated pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the Acquisition been consummated as of the beginning of each period.

	Nine Months Ended September 30, 2016		Nine Months Ended September 30, 2015
Revenue	$	29,156	$	425
Net income (loss)	$	566	$	(31,367	)