Business Combination

3 Months Ended

Mar. 31, 2014

Business Combination

Business Combination

H. Business Combination

As part of our strategy to expand our portfolio with additional commercial-stage specialty products, in June 2013, we entered into the Access License Agreement pursuant to which we obtained an exclusive, royalty-bearing license, with the right to grant sublicenses, to certain intellectual property rights, including know-how, patents and trademarks, to use, import, offer for sale, sell, manufacture and commercialize MuGard in the U.S. Territory for the management of all diseases or conditions of the oropharyngeal cavity, including mucositis.

In consideration for the license, we paid Access an upfront payment of $3.3 million in June 2013. We are required to pay royalties to Access on future net sales of MuGard until the later of (a) the expiration of the licensed patents or (b) the tenth anniversary of the first commercial sale of MuGard under the Access License Agreement in the U.S. Territory, or the Royalty Term. These tiered, double-digit royalty rates decrease for any part of the Royalty Term occurring after the expiration of the licensed patents and are subject to off-set against certain of our expenses. After the expiration of the Royalty Term, the license shall become a fully paid-up, royalty-free and perpetual license in the U.S. Territory. In addition to making an upfront payment of $3.3 million, we also acquired $0.2 million of existing MuGard inventory from Access, which was included in our condensed consolidated balance sheet as of the Acquisition Date.

We did not assume any pre-existing liabilities related to the MuGard business, contingent or otherwise, arising prior to the Acquisition Date. We are accounting for the acquisition of the MuGard Rights as a business combination under the acquisition method of accounting. The following table summarizes the total consideration for the MuGard Rights (in thousands):

Consideration:
Cash	$	3,434
Acquisition-related contingent consideration	13,700
Total consideration	$	17,134

The $17.1 million total consideration includes the estimated fair value of the contingent consideration at the Acquisition Date.

The following table summarizes the estimated fair values of the assets acquired related to the business combination as of the Acquisition Date (in thousands):

Assets Acquired:
MuGard intangible asset	$	16,893
Inventory	241
Net identifiable assets acquired	$	17,134

Transaction costs are not included as a component of consideration transferred and are expensed as incurred. We incurred approximately $0.8 million of acquisition-related costs in the second quarter of 2013. These costs were primarily related to professional and legal fees and are included in selling, general and administrative expenses in our condensed consolidated statements of operations for the second quarter of 2013.