Business Combination

On September 20, 2016, the Company entered into an agreement with Viventia Bio Inc., a corporation incorporated under the laws of the Province of Ontario, Canada (“Viventia”), the shareholders of Viventia named therein (the “Selling Shareholders”) and, solely in its capacity as seller representative, Clairmark Investments Ltd., a corporation incorporated under the laws of the Province of Ontario, Canada (“Clairmark”) (the “Share Purchase Agreement”), pursuant to which the Company agreed to and simultaneously completed the acquisition of all of the outstanding capital stock of Viventia from the Selling Shareholders (the “Acquisition”). 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. The Selling Shareholders includes Clairmark, an affiliate of one of the Company’s directors, and the Company’s CEO.

In addition, under the Share Purchase Agreement, the Company is obligated to pay to the Selling Shareholders certain post-closing contingent cash payments upon the achievement of specified milestones and based upon net sales, in each case subject to the terms and conditions set forth in the Share Purchase Agreement, including: (i) a one-time milestone payment of $12.5 million payable upon the first sale of Vicinium^TM or any variant or derivative thereof, other than Proxinium^TM (the “Purchased Product”), in the United States; (ii) a one-time milestone payment of $7.0 million payable upon the first sale of the Purchased Product in any one of certain specified European countries; (iii) a one-time milestone payment of $3.0 million payable upon the first sale of the Purchased Product in Japan; and (iv) and quarterly earn-out payments equal to two percent (2%) of net sales of the Purchased Product during specified earn-out periods. Such earn-out payments are payable with respect to net sales in a country beginning on the date of the first sale in such country and ending on the earlier of (i) December 31, 2033 and (ii) fifteen years after the date of such sale, subject to early termination in certain circumstances if a biosimilar product is on the market in the applicable country (collectively, the "Contingent Consideration"). Under the Share Purchase Agreement, the Company, its affiliates, licensees and subcontractors are required to use commercially reasonable efforts, for the first seven years following the closing of the Acquisition, to achieve marketing authorizations throughout the world and, during the applicable earn-out period, to commercialize the Purchased Product in the United States, France, Germany, Italy, Spain, United Kingdom, Japan, China and Canada. Certain of these payments are payable to individuals or affiliates of individuals that became employees or members of the Company's Board.

Each of the Company, Viventia and the Selling Shareholders has agreed to customary representations, warranties and covenants in the Share Purchase Agreement. The Share Purchase Agreement also includes indemnification obligations in favor of the Company from the Selling Shareholders, including for breaches of representations, warranties, covenants and agreements made by Viventia and the Selling Shareholders in the Share Purchase Agreement. In connection with the closing of the Acquisition, the Company deposited 401,343 shares of its common stock (representing approximately 10% of the Company's common stock portion of the aggregate closing consideration owed to the Selling Shareholders pursuant to the Share Purchase Agreement) into an escrow fund for the purposes of securing the indemnification obligations of the Selling Shareholders to the Company for any and all losses for which the Company is entitled to indemnification pursuant to the Share Purchase Agreement. The Share Purchase Agreement also includes indemnification obligations in favor of the Selling Shareholders from the Company, including for breaches of representations, warranties, covenants and agreements made by the Company in the Share Purchase Agreement.

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 and the fair value of the Contingent Consideration.

The Company valued the shares issued at $13.5 million, based on the closing price of the Company's common stock on September 20, 2016 (the “Acquisition Date”). The Contingent Consideration was preliminarily valued at $46.2 million, using a probability-adjusted, discounted cash flow estimate as of the Acquisition Date. The total fair value of consideration for the acquisition was $59.7 million.

As of December 31, 2016, purchase accounting for the Acquisition is preliminary and subject to completion upon obtaining the necessary remaining information, which principally includes information with respect to the market for Vicinium outside the U.S. The Company is in the process of obtaining this information and will update the valuation for the changes as the information is obtained. Changes to these assumptions could cause an impact to (1) the valuation of the Contingent Consideration, (2) the identification and valuation of assets acquired, including intangible assets and related goodwill and (3) the related tax impacts of the Acquisition. The Company has preliminarily valued the acquired assets and liabilities based on their estimated fair value. The preliminary fair values included in the consolidated balance sheet as of December 31, 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 price for the transaction as of the Acquisition Date (in thousands):



Cash and cash equivalents	$	136
Prepaid expenses and other assets	1,162
Property and equipment	867
In-process research and development - U.S. Vicinium	12,200
In-process research and development - E.U. Vicinium	41,100
In-process research and development - R.O.W. Vicinium	7,200
Goodwill	16,864
Accounts payable	(1,163		)
Accrued expenses	(1,494		)
Other liabilities	(812		)
Deferred tax liability	(16,335		)
	$	59,725

The preliminary allocation of the purchase consideration presented in the preceding table has been updated from the preliminary allocation of the purchase consideration presented in the Company’s Form 10-Q as of and for the three- and nine-month periods ended September 30, 2016, to reflect new information related to facts and circumstances existing as of the Acquisition Date, which impacted the determination of the fair value of the IPR&D assets for Vicinium and Proxinium, the fair value of the Contingent Consideration, the related deferred tax liability and goodwill. During the fourth quarter of 2016, the Company gathered additional information around the market for Vicinium outside of the U.S., which enabled the Company to update the fair value of the IPR&D - Vicinium asset, the Contingent Consideration, the related deferred tax liability and goodwill. In addition, the Company increased the discount rate applied to determine the fair value the IPR&D assets to reflect the increased risk associated with international markets. The previously reported fair values and the currently reported fair values as of the Acquisition Date, including Contingent Consideration, are reflected in the following table (in thousands):



	Previously Reported			Currently Reported
In-process research and development - Vicinium	$	35,400		$	—
In-process research and development - U.S. Vicinium	$	—		$	12,200
In-process research and development - E.U. Vicinium	$	—		$	41,100
In-process research and development - R.O.W. Vicinium	$	—		$	7,200
In-process research and development - Proxinium	$	800		$	—
Goodwill	$	10,312		$	16,864
Deferred tax liability	$	(9,774	)	$	(16,335	)
Contingent Consideration	$	(21,900	)	$	(46,200	)

The revised fair values noted above did not have an impact on the Company’s consolidated statement of operations and comprehensive income (loss), as the effected assets are indefinite-lived and therefore, not amortized. The revised Contingent Consideration also did not result in an impact to the consolidated statement of operations and comprehensive income (loss) as the change was to the initial value used to complete the preliminary purchase price allocation and not based on facts and circumstances that arose subsequent to the Acquisition Date.

The preliminary fair value of the acquired intangible assets 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 for each geographical region; as well as a discount rate of 26.1% applied to the projected cash flows. The remaining estimated cost of development for the Vicinium U.S. IPR&D asset is $48.0 million, with an expected completion date of no earlier than 2019. The remaining estimated cost of development for the Vicinium E.U. IPR&D asset is $25.0 million with an expected completion date of no earlier than 2022. The remaining estimated cost of development for the Vicinium R.O.W. IPR&D asset is $25.0 million, with an expected completion date of no earlier than 2024.

The Company believes the assumptions described above are representative of those a market participant would use in estimating fair value.

The deferred tax liability of $16.3 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 cannot 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 December 31, 2016, there was no impairment related to the IPR&D.

The preliminary fair value of the Company’s Contingent Consideration was determined using probabilities of successful achievement of regulatory milestones and commercial sales, the period in which these milestones and sales are expected to be achieved ranging from 2019 to 2033, the level of commercial sales of Vicinium, and discount rates ranging from 8.6% to 13.7%. Significant changes in any of these assumptions would result in a significantly higher or lower fair value measurement.

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 December 31, 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.

The operating results of Viventia for the period from September 20, 2016 to December 31, 2016, which includes no revenue and an operating loss of $3.5 million, have been included in the Company’s consolidated financial statements as of and for the year ended December 31, 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 general and administrative expense within the consolidated statements of operations and other comprehensive income (loss) for the year ended December 31, 2016.

The Company’s financial results for the year ended December 31, 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 (in thousands):



	Year Ended December 31,
	2016			2015
Revenue	$	29,981		$	990
Net loss	(3,026		)	(47,483		)