Hemosphere Acquisition

12 Months Ended

Dec. 31, 2015

Hemosphere Acquisition [Abstract]

Hemosphere Acquisition

6.  Hemosphere Acquisition

Overview  

On May 16, 2012 CryoLife completed its acquisition of Hemosphere, a privately held company, and its HeRO Graft product line for a total purchase price of approximately $22.0 million, net of $3.2 million cash acquired.  CryoLife used cash on hand to fund the transaction and operated Hemosphere as a wholly owned subsidiary until December 31, 2014, when it was merged into the CryoLife, Inc. parent entity.  The HeRO Graft is a proprietary graft-based solution for ESRD hemodialysis patients with limited access options and central venous obstruction. 

Contingent Consideration

As of the acquisition date, CryoLife recorded a contingent consideration liability of $1.8 million in long-term liabilities on its Consolidated Balance Sheet, representing the estimated fair value of the contingent consideration expected to be paid to the former shareholders of Hemosphere upon the achievement of certain revenue-based milestones.  The acquisition agreement provides for a maximum of $4.5 million in future consideration payments through December 2015 based on specified sales targets.

The fair value of the contingent consideration liability was estimated by discounting to present value the contingent payments expected to be made based on a probability-weighted scenario approach.  The Company applied a risk-based estimate of the probability of achieving each scenario and then applied a cost of debt based discount rate.  This fair value measurement was based on unobservable inputs, including management estimates and assumptions about future revenues, and was, therefore, classified as Level 3 within the fair value hierarchy presented in Note 2.  The Company remeasured this liability at each reporting date and recorded changes in the fair value of the contingent consideration in other (income) expense on the Company’s Consolidated Statements of Operations and Comprehensive Income.  Increases or decreases in the fair value of the contingent consideration liability can result from changes in discount periods and rates, as well as changes in the timing and amount of Company revenue estimates.  As of December 31, 2014 the Company reviewed the full year revenue performance of Hemosphere for 2014 and 2013, and reviewed its 2015 annual budgets, which were updated in the fourth quarter of 2014.  As a result of this review, as of December 31, 2014 the Company believed that achievement of the minimum revenue target to trigger payment was remote, and, therefore, estimated the fair value of the contingent consideration to be zero.

The Company recorded gains of zero,  $1.9 million and $28,000 the years ended December 31, 2015,  2014, and 2013, respectively, on the remeasurement of the contingent consideration liability.  The balance of the contingent consideration liability was zero as of December 31, 2015 and 2014.