(5) ACQUISITIONS

The Merck PKU Business

On October 1, 2015, the Company entered into a Termination and Transition Agreement with Ares Trading S.A. (Merck Serono), as amended and restated on December 23, 2015 (the A&R Kuvan Agreement), to terminate the Development, License and Commercialization Agreement, dated May 13, 2005, as amended (the License Agreement), between the Company and Merck Serono, including the license to Kuvan the Company had granted to Merck Serono under the License Agreement. Also on October 1, 2015, the Company and Merck Serono entered into a Termination Agreement (the Pegvaliase Agreement) to terminate the license to pegvaliase the Company had granted to Merck Serono under the License Agreement. On January 1, 2016, pursuant to the A&R Kuvan Agreement and the Pegvaliase Agreement, the Company completed the acquisition from Merck Serono and its affiliates of certain rights and other assets with respect to Kuvan and pegvaliase (the Merck PKU Business). As a result, the Company acquired all global rights to Kuvan and pegvaliase from Merck Serono, with the exception of Kuvan in Japan. Previously, the Company had exclusive rights to Kuvan in the United States (U.S.) and Canada and pegvaliase in the U.S. and Japan. In connection with the acquisition of the Merck PKU Business, the Company recognized transaction costs of $0.6 million, of which $0.3 million was recognized in each of the years ended December 31, 2016 and 2015.

Pursuant to the A&R Kuvan Agreement, the Company paid Merck Serono $374.5 million, in cash and is obligated to pay Merck Serono up to a maximum of €60.0 million, in cash, if future sales milestones are met. Pursuant to the Pegvaliase Agreement, the Company is obligated to pay Merck Serono up to a maximum of €125.0 million, in cash, if future development milestones are met. Merck Serono transferred certain inventory, regulatory materials and approvals, and intellectual property rights to the Company and will perform certain transition services for the Company. As of December 31, 2016, the inventory acquired from Merck Serono has been sold through to customers.

The Company and Merck Serono have no further rights or obligations under the License Agreement with respect to pegvaliase. As of December 31, 2016, the License Agreement, as amended in December 2016, will continue in effect in order for Merck Serono to provide critical transition services for the sales and distribution of Kuvan in four remaining countries until marketing authorizations can be transferred in such countries.

Prior to the consummation of the transactions described above, the Company sold Kuvan to Merck Serono at a price near its manufacturing costs, and Merck Serono resold the product to end users outside the U.S., Canada and Japan. The royalty earned by the Company from Kuvan product sold by Merck Serono was included as a component of Net Product Revenues in the period earned.

Kuvan is a commercialized product for the treatment of patients with phenylketonuria (PKU) and/or for primary BH4 deficiency in certain countries. Pegvaliase is currently in pivotal studies as a potential therapeutic option for adult patients with PKU. In March 2016, the Company announced that its pivotal Phase 3 PRISM-2 study of pegvaliase met the primary endpoint of change in blood Phe compared with placebo (p<0.0001); and the Company also announced its plans to submit a marketing application in the U.S. Kuvan has Orphan Drug exclusivity in the European Union (EU) until 2020, and pegvaliase has Orphan Drug designation in the U.S. and the EU.

The acquisition date fair value of the contingent acquisition consideration payments, Kuvan global marketing rights, with the exception of Japan, and pegvaliase IPR&D acquired was estimated by applying a probability-based income approach utilizing an appropriate discount rate. This estimation was based on significant inputs that are not observable in the market, referred to as level 3 inputs. Key assumptions include a discount rate and various probability factors. The range of outcomes and assumptions used to develop these estimates has been updated to estimate the fair value of the contingent acquisition consideration payable at December 31, 2016. See Note 12 to these Consolidated Financial Statements for additional discussion regarding fair value measurements of the contingent acquisition consideration payable included on the Company’s Consolidated Balance Sheet.

The following table presents the final allocation of the purchase consideration for the Merck PKU Business acquisition, including the contingent acquisition consideration payable based on the acquisition date fair value. The allocation of the purchase price below reflects an inventory adjustment in the second quarter of 2016.

Cash payments	$	374,545
Estimated fair value of contingent acquisition consideration payable		138,974
Total consideration	$	513,519

Kuvan intangible assets	$	172,961
Pegvaliase IPR&D		326,359
Inventory		14,199
Total identifiable assets acquired	$	513,519

The amount allocated to the Kuvan intangible assets is considered to be finite-lived and will be amortized on a straight-line basis over its estimated useful life through 2024.

The amount allocated to acquired pegvaliase IPR&D is considered to be indefinite-lived until the completion or abandonment of the associated R&D efforts. During the period the assets are considered indefinite-lived, they will not be amortized but will be tested for impairment on an annual basis and between annual tests if the Company becomes aware of any events occurring or changes in circumstances that would indicate the reduction in the fair value of the IPR&D assets below their respective carrying amounts. When development is complete, which generally occurs if and when regulatory approval to market a product is obtained, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives at that point. See Note 7 to these Consolidated Financial Statements for further discussion of the indefinite-lived intangible asset.

Pro Forma Financial Information

The following unaudited pro forma financial information presents the combined results of operations of the Company and the Merck PKU Business as if the acquisition occurred on January 1, 2015. This unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of future operations that would have been achieved had the acquisitions taken place at the beginning of 2015.

	2015
Total revenues	$	962,853
Net loss	$	(143,506	)
Net loss per share, basic and dilutive	$	(0.90	)
Weighted average common shares outstanding, basic and diluted		160,025

Prosensa Holding N.V.

On January 29, 2015, the Company completed the acquisition of Prosensa Holding N.V. (Prosensa), a public limited liability company organized under the laws of the Netherlands, for a total purchase price of $751.5 million. Prosensa was an innovative biotechnology company engaged in the discovery and development of ribonucleic acid (RNA)-modulating therapeutics for the treatment of genetic disorders. Prosensa’s primary focus was on rare neuromuscular and neurodegenerative disorders with a large unmet medical need, including subsets of patients with Duchenne muscular dystrophy (DMD), myotonic dystrophy and Huntington’s disease.

In connection with its acquisition of Prosensa, the Company made cash payments totaling $680.1 million, which consisted of $620.7 million for approximately 96.8% of Prosensa’s ordinary shares (the Prosensa Shares), $38.6 million for the options that vested pursuant to the Company’s tender offer for the Prosensa Shares and $20.8 million to the remaining Prosensa shareholders that did not tender their shares under the tender offer. The fair value of non-transferable contingent value rights and acquired in-process research and development (IPR&D) on the acquisition date was $71.4 million and $772.8 million, respectively. In connection with the acquisition of Prosensa, the Company recognized transaction costs of $9.7 million, of which $7.0 million and $2.7 million, was recognized in the years ended December 31, 2015 and 2014, respectively.

The following table presents the allocation of the purchase consideration for the Prosensa acquisition based on fair value.

Cash and cash equivalents	$	141,669
Trade accounts receivable		3,086
Other current assets		1,537
Property, plant and equipment		2,683
Intangible assets		497
Other assets		104
Acquired IPR&D		772,808
Total identifiable assets acquired		922,384
Accounts payable and accrued expenses		(68,799	)
Debt assumed		(57,053	)
Deferred tax liability		(193,202	)
Total liabilities assumed		(319,054	)
Net identifiable assets acquired		603,330
Goodwill		148,134
Net assets acquired	$	751,464

See Note 7 to these Consolidated Financial Statements for further discussion of the indefinite-lived intangible assets.

The deferred tax liability relates to the tax impact of future amortization or possible impairments associated with the identified intangible assets acquired, which are not deductible for tax purposes.

Prosensa’s results of operations prior to and since the acquisition date are insignificant to the Company’s Consolidated Financial Statements.