2. Acquisitions, Goodwill and Other Intangible Assets

Acquisition of 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, 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 strengthened Repligen’s bioprocessing business by adding a complementary product line while expanding its direct sales presence worldwide. The transaction was accounted for as a purchase of a business under Accounting Standards Codification (“ASC”) 805, Business Combinations. The terms of the acquisition included an upfront cash payment of $21,236,000 less $66,000 as a result of the final determination of working capital, issuance of 215,285 shares of the Company’s $0.01 par value common stock valued at $4,000,000, potential milestone payments totaling up to $10,900,000 for the achievement of specific sales targets in 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. During the nine months ended September 30, 2015, the Company paid Refine a $1,000,000 milestone payment for achievement of the 2014 sales target under the Asset Purchase Agreement. The $10,900,000 contingent consideration had an initial probability weighted fair value at acquisition of $1,370,000. The $7,500,000 contingent consideration had only a nominal probability weighted fair value at acquisition. In addition to the initial consideration, approximately $774,000 was paid to Refine following the acquisition under a Transition Services Agreement under which certain employees of Refine provided services to the Company for up to six months in support of the Refine Business. As these payments were contingent upon future service, they were recognized ratably as operating expense while the services were provided.

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 $26,540,000.

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 (in thousands):


Cash consideration,	$	21,170
Value of common stock issued		4,000
Estimated fair value of contingent consideration		1,370

Total consideration transferred	$	26,540

The fair value of contingent consideration was determined based upon a probability weighted analysis of expected future payments to be made to Refine. The Company paid to Refine $1,000,000 during the nine months ended September 30, 2015 for achievements of sales targets met in 2014, and could make payments of up to $9,900,000 if specific sales targets are met for years 2015 and 2016. In addition, the Company could pay Refine 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. Please see Note 8—Fair Value Measurement for further details.

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 incurred approximately $818,000 in transaction costs related to the Refine Acquisition. The transaction costs are included in 2014 selling, general and administrative expenses in the consolidated statements of comprehensive income.

Fair Value of Net Assets Acquired

The allocation of purchase price was based on 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 amounts (in thousands):


Accounts receivable	$	1,647
Inventory		1,003
Other current assets		184
Fixed assets		85
Customer relationships		6,400
Developed technology		2,000
In process research and development (“IPR&D”)		1,600
Trademark and trade name		700
Accounts payable and other liabilities assumed		(431	)
Goodwill		13,352

Net assets acquired	$	26,540

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

$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 IPR&D project assets are not currently amortized and are reviewed for impairment at least annually. There was no evidence of impairment to IPR&D as of September 30, 2015. 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 15 years from the date of acquisition.

Revenue, Net Income and Pro Forma Presentation

The Company recorded revenue from Refine of $466,000 from June 2, 2014 through June 30, 2014. For the three months ended September 30, 2015 and 2014, the Company recorded revenue of approximately $3.8 million and $2.2 million, respectively. For the nine months ended September 30, 2015 and 2014, the Company recorded revenue of approximately $9.2 million and $2.6 million, respectively. 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 for the three- and nine-month periods ended September 30, 2014, as if the Refine Acquisition had occurred as of January 1, 2013.


	(in thousands, except per share amounts)
	Three months ended September 30, 2014		Nine months ended September 30, 2014
Total revenue	$	15,278	$	50,937
Net income		1,848		9,890
Earnings per share:
Basic	$	0.04	$	0.29
Diluted	$	0.04	$	0.28

The unaudited pro forma information for the three- and nine-month periods ended September 30, 2015 and 2014 was calculated after applying the Company’s accounting policies and the impact of acquisition date fair value adjustments.

Other Intangible Assets

Intangible assets, except for the Refine Technology, LLC tradename and in-process research and development, 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. The Refine Technology, LLC tradename and in-process research and development are not amortized. The Company reviews its indefinite-lived intangible assets not subject to amortization to determine if adverse conditions exist or a change in circumstances exists that would indicate an impairment. 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 Company’s 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 its products or changes in the size of the market for its 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 September 30, 2015.

Other intangible assets consisted of the following at September 30, 2015:


(In thousands)	Gross Carrying Amount		Accumulated Amortization			Weighted Average Useful Life (in years)
Technology – developed	$	3,295	$	(953	)		12
In process research and development		1,600		—			—
Patents		240		(170	)		8
Customer relationships		11,804		(3,362	)		9
Trademark/ tradename		700		—			—

Total other intangible assets	$	17,639	$	(4,485	)		10

Other intangible assets consisted of the following at December 31, 2014:


(In thousands)	Gross Carrying Amount		Accumulated Amortization			Weighted Average Useful Life (in years)
Technology – developed	$	3,338	$	(750	)		12
In process research and development		1,600		—			—
Patents		240		(148	)		8
Customer relationships		12,202		(2,546	)		9
Trademark/ tradename		700		—			—

Total other intangible assets	$	18,080	$	(3,444	)		10

Amortization expense for amortized intangible assets was approximately $1,201,000 for the nine-month period ended September 30, 2015. In each of the next five years, the Company expects to record amortization expense (in thousands) of:


Years Ending	Amortization Expense
December 31, 2015 (three months remaining)	$	443
December 31, 2016		1,703
December 31, 2017		1,703
December 31, 2018		1,539
December 31, 2019		1,524
December 31, 2020		1,202