2.	Acquisitions, Goodwill and Other Intangible Assets

Acquisitions

Refine Technology, LLC

On June 2, 2014, pursuant to the terms of the Asset Purchase Agreement, dated as of June 2, 2014 (the “Asset Purchase Agreement”), by and among the Company, Refine Technology, LLC (a limited liability company formed under the laws of the State of New Jersey) (“Refine”), the members of Refine Technology, LLC, Jerry Shevitz, Refine Technology Sales LLC (a limited liability company formed under the laws of the State of New Jersey) and Refine Technology Sales Asia PTE. LTD. (a limited private company organized in the Republic of Singapore), the Company acquired the business of Refine, including Refine’s Alternating Tangential Flow (“ATF”) System, a market-leading device used to significantly increase product yield during the fermentation step of the biologic drug manufacturing process (the “Refine Business” and the acquisition of the Refine Business, the “Refine Acquisition”). Pursuant to the Asset Purchase Agreement, Repligen purchased all of the assets related to Refine’s ATF system and assumed certain specified liabilities related to Refine’s ATF system. This acquisition strengthens Repligen’s bioprocessing business by adding a complementary product line while expanding our direct sales presence worldwide. The transaction is accounted for as a purchase of a business under ASC 805, Business Combinations. The terms of the acquisition included an upfront cash payment of $21,235,937 which is subject to a potential adjustment upon a final determination of working capital, issuance of 215,285 of the Company’s $0.01 par value common stock valued at $4,000,000, future potential milestone payments totaling up to $10,900,000 if specific sales targets are met for the years 2014, 2015 and 2016, and future potential payments up to $7,500,000 out of any amounts that might be received in connection with the resolution, withdrawal or settlement of certain patent disputes with a third party. The $10,900,000 contingent consideration had an initial probability weighted fair value at acquisition of $1,400,000. The $7,500,000 contingent consideration had only a nominal probability weighted fair value at acquisition. In addition to the initial consideration, approximately $725,000 will be paid to Refine in monthly installments over six months under a Transition Services Agreement under which certain employees of Refine will continue to provide services to the Company in support of the Refine Business. Since these payments are contingent upon the future service they will be recognized as operating expense ratably as the services are provided. For the three and six months ended June 30, 2014, $122,000 was recorded in the consolidated statement of operations related to the Transition Services Agreement.

Consideration Transferred

The Company accounted for the Refine Acquisition as the purchase of a business under U.S. GAAP. Under the acquisition method of accounting, the assets of the Refine Business were recorded as of the acquisition date, at their respective fair values, and consolidated with those of Repligen. The fair value of the net assets acquired was approximately $26,635,937.

The preparation of the valuation required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable. However, actual results may differ from these estimates.

The total consideration transferred follows:


Cash consideration	$	21,235,937
Value of common stock issued		4,000,000
Estimated fair value of contingent consideration		1,400,000

Total consideration transferred	$	26,635,937

The fair value of contingent consideration was determined based upon a probability weighted analysis of expected future milestone and settlement payments to be made to the seller. The Company could make payments of up to $10,900,000 if specific sales targets are met for years 2014, 2015 and 2016 and up to $7,500,000 out of any receipts that might be received in connection with the resolution, withdrawal or settlement of certain patent disputes with a third party. The liability for contingent consideration is included in current and long-term liabilities on the consolidated balance sheets and will be remeasured at each reporting period until the contingency is resolved.

Acquisition related costs are not included as a component of consideration transferred, but are expensed in the periods in which the costs are incurred. The Company expects to incur approximately $795,000 in transaction costs related to the Refine Acquisition. The transaction costs are included in selling, general and administrative expenses in the consolidated statements of operations.

Fair Value of Net Assets Acquired

The allocation of purchase price was based on preliminary estimates of the fair value of assets acquired and liabilities assumed as of June 2, 2014. The components and allocation of the purchase price consists of the following approximate amounts:


Accounts receivable	$	1,646,746
Inventory		1,053,959
Other current assets		59,081
Fixed assets		353,505
Customer relationships		6,400,000
Developed technology		2,000,000
In process research and development (“IPR&D”)		1,600,000
Trademark and trade name		700,000
Accounts payable and other liabilities assumed		(357,399	)
Goodwill		13,180,045

Net assets acquired	$	26,635,937

Of the consideration paid, approximately $6,400,000 represents the fair value of customer relationships that will be amortized over the determined useful life of 10 years and approximately $2,000,000 represents the fair value of developed technology that will be amortized over a determined useful life of 15 years. Approximately $700,000 represents the fair value of trademark and trade name determined to have an indefinite useful life and not subject to amortization.

Approximately $1,600,000 of the consideration paid represents the fair value of acquired IPR&D projects that are considered identifiable assets as of the acquisition date. Those assets are considered indefinite lived until efforts associated with the projects are completed or abandoned. The major acquired technology IPR&D relates to the development of a single use system product extension to the ATF system business.

The excess of the purchase price over the fair value of tangible and intangible assets acquired was recorded to goodwill. The goodwill recognized is attributable to expected synergies that the Company will realize from this acquisition. This goodwill is deductible for tax purposes over the next 15 years.

The assessment of fair value is preliminary and is based on information that was available to management at the time the condensed consolidated financial statements were prepared. The Company is waiting for additional information from the seller and, accordingly, such amounts may change. The most significant open items include the working capital adjustment, finalization of the intangible asset valuation and obtaining certain information from the seller related to fixed assets.

Revenue, Net Loss and Pro Forma Presentation

The Company recorded revenue from Refine of $465,993 and net income of $56,292 in the period from June 2, 2014 through June 30, 2014.

The Company has included the operating results of Refine in its consolidated statements of operations since the June 2, 2014 acquisition date. The following table presents unaudited supplemental pro forma information as if the Refine Acquisition had occurred as of January 1, 2013.


	Three Months ended June 30,				Six Months ended June 30,
	(in thousands, except per share amounts)				(in thousands, except per share amounts)
	2014		2013		2014		2013
Total revenue	$	17,707	$	19,047	$	35,659	$	37,343
Net income		3,818		4,394		7,996		6,373
Earnings per share:
Basic	$	0.12	$	0.14	$	0.25	$	0.20
Diluted	$	0.12	$	0.14	$	0.24	$	0.20

The unaudited pro forma information for the three and six months ended June 30, 2013 and 2014 was calculated after applying the Company’s accounting policies and the impact of acquisition date fair value adjustments. Unaudited pro forma net income for the three and six months ended June 30, 2014 was adjusted to exclude acquisition-related transaction costs. These expenses have been added to the unaudited pro forma net income for the three and six months ended June 30, 2013. In addition, the unaudited pro forma net income for the three and six months ended June 30, 2014 was adjusted to exclude nonrecurring expenses related to the fair value adjustments associated with the acquisition of Refine that were recorded by the Company. The unaudited pro forma net income for the three and six months ended June 30, 2013 was adjusted to include these acquisition-related transaction costs and expenses related to the fair value adjustments.

These pro forma condensed consolidated financial results have been prepared for comparative purposes only and include certain adjustments to reflect the pro forma results of operations as if the acquisition had occurred as of the beginning of the periods presented, such as fair value adjustments to inventory and increased amortization for the fair value of acquired intangible assets. The pro forma information does not reflect the effect of costs or synergies that would have been expected to result from the integration of the acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred at the beginning of each period presented, or of future results of the consolidated entities.

Goodwill

Goodwill is not amortized and is reviewed for impairment at least annually. There was no evidence of impairment to goodwill at June 30, 2014. There were no goodwill impairment charges during the three or six-month periods ended June 30, 2014.

Other Intangible Assets

Intangible assets are amortized over their useful lives using the estimated economic benefit method, as applicable, and the amortization expense is recorded within selling, general and administrative expense in the Company’s statements of comprehensive income (loss). Intangible assets and their related useful lives are reviewed at least annually to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable. More frequent impairment assessments are conducted if certain conditions exist, including a change in the competitive landscape, any internal decisions to pursue new or different technology strategies, a loss of a significant customer, or a significant change in the marketplace, including changes in the prices paid for our products or changes in the size of the market for our products. An impairment results if the carrying value of the asset exceeds the estimated fair value of the asset. If the estimate of an intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. The Company continues to believe that its intangible assets are recoverable at June 30, 2014.

Other intangible assets consisted of the following at June 30, 2014:


	Gross Carrying Amount		Accumulated Amortization			Weighted Average Useful Life (in years)
Technology – developed	$	3,428,573	$	(629,007	)		12
In process research and development	$	1,600,000		—			—
Patents		240,000		(132,500	)		8
Customer relationships		13,047,732		(2,135,034	)		9
Trademark / tradename		700,000		—			—

Total other intangible assets	$	19,016,305	$	(2,896,541	)		10

Other intangible assets consisted of the following at December 31, 2013:


	Gross Carrying Amount		Accumulated Amortization			Weighted Average Useful Life (in years)
Technology – developed	$	1,455,382	$	(537,589	)		8
Patents		240,000		(117,500	)		8
Customer relationships		6,897,052		(1,749,713	)		8

Total other intangible assets	$	8,592,434	$	(2,404,802	)		8

Amortization expense for amortized intangible assets was approximately $570,000 for the six months ended June 30, 2014. The Company expects to record amortization expense of approximately $1,765,000 in each of the next five years related to these intangible assets.