BUSINESS COMBINATIONS

12 Months Ended

Dec. 31, 2011

BUSINESS COMBINATIONS

BUSINESS COMBINATIONS

(3) BUSINESS COMBINATIONS

Acquisition of CuraGen Corporation (CuraGen)

        On October 1, 2009, the Company acquired CuraGen, a former publicly-traded company. Following the CuraGen acquisition, the financial statements reflect the financial position, results of operation and cash flows of the combined companies. In connection with the CuraGen acquisition, effective October 1, 2009, the Company (i) issued 15,722,713 shares of common stock of the Company, or 0.2739 shares, in exchange for each share of outstanding CuraGen common stock, plus cash in lieu of fractional shares (the "CuraGen Exchange Ratio"), (ii) assumed the obligations under CuraGen's 2007 Stock Plan (the "CuraGen 2007 Plan") and each outstanding option to purchase common stock (a "CuraGen Stock Option") granted under the CuraGen 2007 Plan and (iii) assumed the $12.5 million in 4% convertible subordinated debt due February 15, 2011 (the "CuraGen Debt").

        The transaction was accounted for under the acquisition method of accounting. The acquisition-date fair value of the consideration transferred consisted of the fair value of the Company's common stock issued of $85.4 million and fair value of CuraGen Stock Options that were attributed to precombination service of $2.9 million. Of the CuraGen Stock Options assumed, all but 1%, were immediately vested upon closing in accordance with the terms of the stock option agreements and employment agreements.

        The Company recorded the fair value of acquired assets and liabilities to net tangible assets, intangible assets, goodwill and a severance obligation. The difference between the aggregate consideration transferred and the fair value of assets acquired and liabilities assumed was recorded to goodwill. This goodwill relates to synergies from the CuraGen acquisition and a deferred tax liability related to acquired IPR&D intangible assets. None of the goodwill is expected to be deductible for income tax purposes. The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

Cash and cash equivalents	$	51,654
Marketable securities		18,638
Identifiable intangible assets:
IPR&D		11,800
Amgen Amendment		14,500
TopoTarget Agreement		2,400
Other current and long-term assets		756
Goodwill		8,965
CuraGen Debt		(11,503	)
Net deferred tax liability		(5,190	)
Other assumed liabilities		(3,778	)
Total	$	88,242

        The values assigned to the intangible assets acquired, including the IPR&D, were determined based on fair market value using a risk adjusted discounted cash flow approach. The values assigned to IPR&D related to the development of CDX-011. At the date of acquisition, CDX-011 had not yet reached technological feasibility nor did it have any alternative future use. In December 2011, the Company completed enrollment in a randomized Phase 2b controlled study for CDX-011 in patients with heavily pre-treated, advanced breast cancer. The Company expects to incur approximately $1.4 million in 2012 on the Phase 2b study. Estimated revenues from CDX-011 are expected to be generated by 2016. The remaining acquired intangible assets arising from the acquisition are being amortized on a straight line basis over their estimated lives. The net deferred tax liability primarily relates to the temporary differences associated with the IPR&D intangible assets, which are not deductible for tax purposes.

        In connection with the CuraGen acquisition, effective October 1, 2009, the Company, CuraGen, and The Bank of New York Mellon (the "Trustee") amended the CuraGen Debt to provide that the CuraGen Debt shall be convertible into 353,563 shares of the Company's common stock at the rate of 28.27823 shares of the Company's common stock per $1,000 principal amount of notes, or $35.36 per share. The initial carrying value of the CuraGen Debt was accreted ratably, over the term of the CuraGen Debt, to $12.5 million due at maturity. Interest expense on the CuraGen Debt was $0.2 million, $1.2 million and $0.3 million for the years ended December 31, 2011, 2010 and 2009 and included $0.1 million, $0.7 million and $0.2 million in discount accretion, respectively. In February 2011, the Company paid the Trustee $12.8 million to satisfy all outstanding principal and accrued interest related to the CuraGen Debt.

        CuraGen employees who did not receive offers of employment were terminated upon the consummation of the CuraGen acquisition. These employees were eligible for severance payments upon termination of employment under certain circumstances, including following the CuraGen acquisition. U.S. GAAP requires severance obligations that are incurred by the acquiree for the benefit of the acquirer to be recognized as an expense in the post-combination period. Because the offer of employment was at the option of the Company, the Company has deemed the CuraGen Severance to be at its benefit. Accordingly, the Company recorded $3.3 million and $0.9 million in CuraGen severance expenses to general and administrative and research and development, respectively, in the consolidated statements of operations for the year ended December 31, 2009. In addition, the Company incurred $2.9 million in acquisition-related expenses including investment banking, legal, accounting, and valuation services in the consolidated statements of operations for the year ended December 31, 2009.