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Veloce
9 Months Ended
Dec. 31, 2012
Variable Interest Entity, Measure of Activity [Abstract]  
VELOCE
VELOCE
On June 20, 2012 (the “Closing Date”), the Company completed its acquisition of Veloce pursuant to the terms of the Agreement and Plan of Merger, entered into as of May 17, 2009 (the “Initial Agreement”), as amended by Amendment No. 1 to Agreement and Plan of Merger, entered into as of November 8, 2010 (the “First Amendment”), and Amendment No. 2 to Agreement and Plan of Merger, entered into as of April 5, 2012 (the “Second Amendment” and, collectively with the Initial Agreement and the First Amendment, the “Merger Agreement”). The First Amendment was amended, restated and replaced in its entirety by the Second Amendment.
The terms of the Merger Agreement include the payment of initial consideration of up to $60.4 million, payable in shares of Company common stock and/or cash (at the Company's election) to holders of Veloce common stock, Veloce stock options that were vested on the Closing Date, and holders of Veloce stock equivalents (collectively, “Veloce Equity Holders”). During the three and nine months ended December 31, 2012, as part of the above arrangement, the Company issued 0.2 million shares valued at $1.1 million and 2.9 million shares valued at $16.0 million, respectively, and paid approximately $1.1 million and $15.9 million in cash, respectively. Of the $60.4 million that relates to the initial consideration, $31.9 million has been paid to date. To the extent payments of the $60.4 million are paid in the Company's common stock and relate to shares of Veloce stock that were outstanding at the date of the closing of the Merger, the value of the Company's common stock is fixed at $5.546 per share (“fixed shares”). The balance of the $60.4 million or approximately $28.5 million will be paid over multiple quarters and will include approximately 1.2 million fixed shares and at least $10.2 million in cash for a total value of $16.9 million.
The remaining $11.6 million of the $28.5 million will be paid in a combination of cash and shares of the Company's common stock valued at the then-current market price.
For accounting purposes, the consideration to be paid under the Merger Agreement is considered compensatory and is recognized as research and development expense when incurred. Recognition of these costs as expense will occur when the specific development and performance milestones become probable of achievement and the amount of expense will be based upon the estimated stage of product development to date. As of March 31, 2012, the first development and performance milestone set forth under the Merger Agreement was considered probable of achievement and the Company recognized $60.4 million of research and development expense.
The total estimated value to the Veloce Equity Holders is based on the Company achieving certain performance benchmarks defined under the Merger Agreement within a certain time period. The Company performed various simulations during the three months ended December 31, 2012. The results of the simulations exceeded expectations for certain of the benchmarks defined under the Merger Agreement, and as a result the estimated maximum value to the Veloce Equity Holders was increased from approximately $135 million to the contractual maximum of $178.5 million, based on the Company's current expectations regarding the achievement of such product development milestones. As such, the total expense that the company expects to recognize has been updated to be in the range of $117M (recognized through December 31, 2012) up to $178.5 million, depending upon the achievement of multiple product development cycles and technical performance results. The increase in the estimated value to the Veloce Equity Holders also resulted in an increase of the estimated value of the first performance milestone. Research and Development expense recognized during the three months ended December 31, 2012 relating to the first performance milestone was based upon the estimated stage of the development of the first milestone as of December 31, 2012 and the estimated value tied to the first performance milestone. The remaining costs associated with the first performance milestone, estimated value of the first milestone less expense recognized through December 31, 2012, will be recognized on a straight line basis, subject to adjustment for actual progress towards the milestones, over the remaining period of expected development which is currently estimated not to exceed the next three fiscal quarters.
Additionally, during the three months ended December 31, 2012, the second development and performance milestone set forth under the Merger Agreement was considered probable of achievement. The Company recognized research and development expenses that were based upon the estimated stage of development and estimated value tied to the second performance milestone. The remaining costs associated with the second performance milestone will be recognized on a straight line basis, subject to adjustment for actual progress towards the milestones, over the remaining period of expected development which is currently estimated not to exceed the next three fiscal quarters.
The third and last development and performance milestone set forth under the Merger Agreement was not yet considered probable of achievement as of December 31, 2012.
Total research and development expenses expected to be recognized upon completion of the first and second performance milestones is approximately $142.8 million (including the initial consideration of $60.4 million), of which approximately $117 million has been recognized through December 31, 2012. During the three and nine months ended December 31, 2012, expenses recognized in connection with first and second performance milestones were $51.9 million and $56.6 million, respectively. The amount and timing of expense recognition is determined based upon the probability of the respective performance milestone being achieved, the estimated progress of development, and estimated date of the milestone attainment. Timing of payments will be based upon actual attainment of the development and performance milestones, and upon vesting, if any, associated with outstanding Veloce' stock equivalents.