Business Acquisition

3 Months Ended

Mar. 31, 2016

Business Acquisition [Abstract]

Business Acquisition

Note 3. Business Acquisition

Acquisition of EXINI Diagnostics AB

On November 12, 2015, we acquired 92.45 % of the outstanding shares of EXINI, a Lund, Sweden based leader in the development of advanced imaging analysis tools and solutions for medical decision support. EXINI's operations are included in our condensed consolidated financial statements beginning November 12, 2015, the date we acquired control. Through the end of the extended acceptance period of November 20, 2015, we acquired additional outstanding shares and, as of March 31, 2016, we own 96.81 % of the voting shares of EXINI. We commenced a judicial process in Sweden for acquiring the remaining shares and EXINI was delisted and ceased to be publicly traded effective as of the close of trading on December 4, 2015.

EXINI is expected to complement our strategy to support its imaging and therapeutic agents with sophisticated analytical tools and other technologies that help physicians and patients visualize, understand, target, and treat cancer. The acquisition provides us with in-house development capabilities in these areas that we can apply to our own pipeline, including our prostate cancer imaging agents 1404 and PyL.

During the year ended December 31, 2015, we incurred $391 thousand in transaction costs related to the acquisition, which primarily consisted of legal, accounting, and valuation-related expenses. The transaction costs were recorded in general and administrative expenses in our consolidated statements of operations.

Purchase Price Allocation

We accounted for the EXINI acquisition as a business combination by allocating the consideration we paid to the fair values of the assets acquired, liabilities assumed, and noncontrolling interests at the effective date of the acquisition. Acquired intangible assets, including goodwill, are not deductible for tax purposes.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date (amounts in thousands):

	Amount
Cash and cash equivalents	$	7
Accounts receivable		18
Other current assets		108
Property and equipment, net		22
Accounts payable and accrued expenses		(807	)
Other current liabilities		(127	)
Intangible assets – technology		2,120
Total identifiable net assets		1,341
Noncontrolling interests		(504	)
Goodwill		5,372
Total consideration transferred	$	6,209

The replacement cost method, a variation of the cost approach, was applied to assess the value of the technology asset acquired by us. The principle behind this method is that the value represents the current cost of a similar new asset having the nearest equivalent utility as the asset being valued. It generally represents the maximum amount that a prudent investor will pay for a comparable asset. The cost approach provides a systematic framework for estimating the value of tangible or intangible assets based on the economic principle of substitution, and that no prudent investor will purchase an existing asset for more than it will cost to create a comparable asset. Under this approach, value is estimated by developing the cost to either replace or reproduce (replicate) the asset of similar utility.

Our approach to valuing the acquired technology asset was to determine the total employee cost and effort required to replicate the technology asset in the state it existed at the acquisition date. In determining the total all-inclusive, fully-burdened employee cost to replicate the technology asset, we determined that it would take approximately four years of five senior employees working full-time to recreate the technology asset of similar utility. We then took the present value, discounted at 3.5 %, of the total fully-burdened annual cost of these senior employees (including annual salary, bonuses, and benefits) to arrive at a total employee cost to recreate the technology asset acquired of approximately $2.1 million. Based on our assessment of the acquired technology functionality, rate of technological change in the industry and in our Company, as well as our experience with similar technology assets, we estimated the remaining useful life for this acquired asset to be approximately 10 years at the date of acquisition.

The noncontrolling interests were calculated based on the quoted share price of EXINI as of the acquisition date multiplied by the quantity of shares that constituted the noncontrolling interests.