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 a period of fifteen months 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. As of December 31, 2017, all such shares of common stock have been released from escrow and delivered to the Selling Shareholders.

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.

The Company finalized its purchase accounting for the Acquisition during the third quarter of 2017. The fair values included in the consolidated balance sheet as of December 31, 2017 are based on the best estimates of the Company. The consideration for the Acquisition and the final allocation of the purchase consideration presented was updated to reflect new information related to facts and circumstances which existed as of the Acquisition Date. The changes in assumptions were primarily due to additional information gathered regarding the potential market for Vicinium outside of the U.S., which resulted in adjustments to the fair value of contingent consideration as of the Acquisition Date and the in-process research and development assets for Vicinium in the European Union ("E.U.") and the rest of world. The assumptions related to the U.S. market were not updated as sufficient information had previously been gathered to support this estimate. The update of these assumptions also had an effect on the discount rate and certain other valuation assumptions used to value the acquired assets due to an adjustment in the Company specific risk factors, which effected the in-process research and development assets for Vicinium in the U.S., E.U., and the rest of world. As a result of these changes, the Company updated (1) the fair value of the in-process research and development assets for Vicinium, which resulted in a reduction in the fair value of the in-process research and development asset for Vicinium in the rest of the world to a de minimus amount, (2) the fair value of the contingent consideration, and (3) the related deferred tax liability and goodwill.

The preliminary estimate of the purchase price and the final purchase price as of the Acquisition Date are reflected in the following table (in thousands):



	Preliminary Fair Value of Consideration as of December 31, 2016		Adjustment			Final Fair Value of Consideration
Shares Issued	$	13,525	$	—		$	13,525
Contingent Consideration	46,200		(14,600		)	31,600
	$	59,725	$	(14,600	)	$	45,125

The preliminary allocation of the purchase consideration and the final allocation of the purchase consideration as of the Acquisition Date are reflected in the following table (in thousands):



	Preliminary Allocation as of December 31, 2016			Adjustment			Final Allocation
Cash and cash equivalents	$	136		$	—		$	136
Prepaid expenses and other assets	1,162			—			1,162
Property and equipment	867			—			867
In-process research and development assets (all markets)	60,500			(14,100		)	46,400
Goodwill	16,864			(3,800		)	13,064
Accounts payable	(1,163		)	—			(1,163		)
Accrued expenses	(1,494		)	(507		)	(2,001		)
Other liabilities	(812		)	—			(812		)
Deferred tax liability	(16,335		)	3,807			(12,528		)
	$	59,725		$	(14,600	)	$	45,125

The revised fair values of indefinite-lived intangible assets, deferred tax liability and goodwill noted above did not have an impact on the Company’s consolidated statement of operations and comprehensive income (loss), as the effected assets are not amortized. The Company is required to revalue its contingent consideration at each balance sheet date. As such, changes in the fair value of contingent consideration since the Acquisition Date due to updated assumptions and estimates are recognized within the consolidated statements of operations and comprehensive income (loss).

The deferred tax liability of $12.5 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, 2017, 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 December 31, 2017, 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		)