Acquisitions

Incline Therapeutics, Inc.

In January 2013, the Company acquired Incline, a company focused on the development of IONSYS, a compact, disposable, needleless patient-controlled system for the short-term management of acute postoperative pain in the hospital setting.

Under the terms of the Company's agreement with Incline, the Company paid to the holders of Incline's capital stock and the holders of options to purchase shares of Incline's capital stock (collectively, the Incline equityholders) an aggregate of approximately $155.2 million in cash. In addition, the Company also paid approximately $13.0 million to Cadence Pharmaceuticals, Inc. (Cadence) to terminate Cadence's option to acquire Incline pursuant to an agreement between Cadence and Incline and deposited an additional $18.5 million in cash into an escrow fund for the purposes of securing the indemnification obligations of the Incline equityholders to the Company for any and all losses for which the Company is entitled to indemnification pursuant to the merger agreement and to provide the source of recovery for any amounts payable to the Company as a result of the post-closing purchase price adjustment process.

The Company also agreed to pay up to $205 million in cash in the aggregate, less certain transaction expenses and taxes, upon its entering into a license agreement in Japan and achieving certain regulatory approval and certain sales milestones with respect to IONSYS.

The Company accounted for the transaction as a business combination. The results of Incline's operations have been included in the consolidated statements of income from the date of acquisition.

In accordance with the acquisition method of accounting, the Company allocated the acquisition cost for the Incline transaction to the underlying assets acquired and liabilities assumed by the Company, based upon estimated fair values of those assets and liabilities at the date of acquisition and classified the fair value of acquired IPR&D as an indefinite-lived asset until the successful completion or abandonment of the associated research and development efforts.

The Company recognized as goodwill from the transaction an amount equal to the excess of the purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed by the Company. The goodwill recorded as part of the acquisition is primarily related to establishing a deferred tax liability for the IPR&D intangible assets which have no tax basis and, therefore, will not result in a future tax deduction. The Company does not expect any portion of this goodwill to be deductible for tax purposes. The Company has recorded the goodwill attributable to the acquisition as a non-current asset on its consolidated balance sheets. The goodwill attributable to the acquisition is not amortized, but the Company reviews its goodwill annually for impairment.

Acquisition related costs during 2013 of approximately $2.2 million for advisory, legal and regulatory costs incurred in connection with the Incline acquisition have been expensed in selling, general and administrative expenses.

Total purchase price is summarized as follows:



	(in thousands)
Upfront cash consideration	$	186,699
Fair value of contingent purchase price	87,200
Total purchase price	$	273,899

Below is a summary which details the allocation of assets acquired and liabilities assumed as a result of this acquisition:




Assets Acquired:	(in thousands)
Cash and cash equivalents	$	1,563
Prepaid expenses and other current assets	624
Fixed assets, net	12,577
In-process research and development	250,000
Goodwill	102,613
Other assets	34
Total Assets	$	367,411
Liabilities Assumed:
Accrued expenses	$	1,413
Contingent purchase price	87,200
Deferred tax liabilities	92,099
Total Liabilities	$	180,712

Total cash price paid upon acquisition	$	186,699

Recothrom

In February 2013, pursuant to a master transaction agreement with Bristol-Myers Squibb Company (BMS), the Company acquired the right to sell, distribute and market Recothrom on a global basis for the collaboration term and BMS transferred to the Company certain limited assets exclusively related to Recothrom, primarily the biologics license application for Recothrom and certain related regulatory assets. BMS also granted to the Company, under the master transaction agreement, an option to purchase from BMS and its affiliates, following the expiration or earlier termination of the collaboration term, certain other assets, including certain patent and trademark rights, contracts, inventory, equipment and related books and records, held by BMS which are exclusively related to Recothrom.

Under the master transaction agreement, the Company paid to BMS a one-time collaboration fee equal to $105.0 million and a one-time option fee equal to $10.0 million.

The Company did not assume any pre-existing liabilities related to the Recothrom business, contingent or otherwise, arising prior to the collaboration period, and the Company did not acquire any significant tangible assets related to the Recothrom business. Under the master transaction agreement, the Company paid BMS quarterly tiered royalty payments during the collaboration term equal to a percentage of worldwide net sales of Recothrom.

Under the terms of the agreement, if the Company exercises the option, it would, at the closing of the purchase of the option assets, acquire such assets and assume certain liabilities of BMS and its affiliates related to the assets and to pay to BMS a purchase price equal to the net book value of inventory included in the acquired assets, plus either:


•	a multiple of average net sales over each of the two 12-month periods preceding the closing of the purchase (unless the purchase closing occurs less than 24 months after February 8, 2013, in which case the measurement period would be the 12-month period preceding the purchase closing); or


•	if BMS has delivered a valid notice terminating the collaboration term early as a result of a material breach by the Company under the master transaction agreement, the amount described above plus an amount intended to give BMS the economic benefit of having received royalty fees for a 24-month collaboration term.

On February 6, 2015, the Company completed the acquisition of Recothrom assets from Bristol-Myers Squibb Company, or BMS. Please refer to Note 22 Subsequent Events.

In connection with the master transaction agreement, the Company also entered into a supply agreement with BMS. Under the supply agreement, BMS or one or more of its affiliates will manufacture Recothrom and serve as the exclusive supplier of Recothrom to the Company during the collaboration term at specified purchase prices.

In accordance with the acquisition method of accounting, the Company allocated the acquisition cost for the Recothrom transaction to the underlying assets acquired by the Company based primarily upon the estimated fair values of those assets at the date of acquisition.

The Company recognized as goodwill from the transaction an amount equal to the excess of purchase price over the fair value amounts assigned to the assets acquired by the Company. The goodwill recorded as part of the acquisition is primarily related to cost synergies and the acquired assembled workforce. The Company expects this goodwill to be deductible for tax purposes. The goodwill attributable to the acquisition is not amortized, but the Company reviews its goodwill annually for impairment.

The Company accounted for the transaction as a business combination since it acquired the biologics license application for Recothrom and certain related regulatory assets, employees and an option to acquire certain other assets, including certain patent and trademark rights, contracts, inventory, equipment and related books and records, held by BMS which are exclusively related to Recothrom (inputs), including the infrastructure to the sell the product (processes) and net sales of Recothrom (outputs). In addition, the Company has control over sales and marketing of the product during the collaboration period.

Acquisition related costs during 2013 of approximately $1.6 million for advisory, legal and regulatory costs incurred in connection with the Recothrom acquisition have been expensed in selling, general and administrative expenses.

Below is a summary which details the purchase price allocation of assets acquired as a result of this acquisition:




Assets Acquired:	(in thousands)
Product license	$	32,000
Option	62,000
Goodwill	21,000
Total Assets	$	115,000
Total cash price paid upon acquisition	$	115,000

ProFibrix B.V.

In June 2013, the Company entered into a share purchase agreement (Purchase Agreement) with ProFibrix B.V., the equityholders of ProFibrix, certain members of the management team of ProFibrix in their capacities as warrantors of certain information in the Purchase Agreement, and the holders of options to acquire equity interests in ProFibrix and Stichting ProFibrix Sellers Representative, solely in its capacity as representative. In connection with the signing of the Purchase Agreement, the Company paid ProFibrix a $10.0 million option payment for the right to acquire ProFibrix in the event that the Company was satisfied with the results of the then pending FINISH-3 Phase 3 clinical trial of Raplixa, a dry powder topical formulation of fibrogen and thrombin being developed for use as an aid to stop mild to moderate bleeding during surgery. On July 20, 2013, ProFibrix delivered to the Company the results of the Phase 3 trial. Following the Company’s review of the Phase 3 trial results, on August 2, 2013, the Company notified ProFibrix that it wished to proceed with the closing of its acquisition of ProFibrix. On August 5 2013, the Company completed its acquisition of ProFibrix, and ProFibrix became a wholly owned subsidiary of the Company.

Upon the closing of the transactions contemplated by the Purchase Agreement, the Company paid an aggregate purchase price of $90.9 million in cash in connection with its acquisition of all the outstanding equity of ProFibrix. The Company deposited $9.0 million of the purchase price into an escrow fund for the purpose of (i) securing the indemnification obligations of the ProFibrix equityholders and optionholders to the Company for any and all losses for which the Company is entitled to indemnification under the Purchase Agreement, and (ii) providing the source of recovery for any amounts payable to the Company as a result of the post-closing purchase price adjustment process.

Under the terms of the Purchase Agreement, the Company is also obligated to pay up to an aggregate of $140.0 million in cash to the ProFibrix equityholders and optionholders upon the achievement of certain U.S. and European regulatory approvals prior to January 1, 2016 and certain U.S. and European sales milestones during the 24 month period that follows the initial commercial sale of Raplixa. As a result of the Company's acquisition of ProFibrix, the Company acquired a portfolio of patents and patent applications, including patents licensed from Quadrant Drug Delivery Limited (Quadrant), which included the U.S. patent directed to the composition of matter of Raplixa. Under the terms of a license agreement between ProFibrix and Quadrant, the Company is required to pay low single digit percentage royalties based on annual worldwide net sales of licensed products, including Raplixa, by the Company or its affiliates and sublicensees. The royalties are subject to reduction in specified circumstances.

The Company accounted for the transaction as a business combination and the results of ProFibrix's operations have been included in the consolidated statements of income from the date of acquisition.

In accordance with the acquisition method of accounting, the Company allocated the acquisition cost for the ProFibrix transaction to the underlying assets acquired and liabilities assumed by the Company, based upon estimated fair values of those assets and liabilities at the date of acquisition and will classify the fair value of acquired IPR&D as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts.

Acquisition related costs during 2013 of approximately $3.1 million for advisory, legal and regulatory costs incurred in connection with the ProFibrix acquisition have been expensed in selling, general and administrative expenses.

Total purchase price is summarized as follows:



	(in thousands)
Upfront cash consideration	$	105,395
Fair value of contingent purchase price	82,550
Total purchase price	$	187,945

Below is a summary which details the allocation of assets acquired and liabilities assumed as a result of this acquisition:




Assets Acquired:	(in thousands)
Cash	$	7,880
Prepaid assets	528
Fixed assets, net	124
In-process research and development	176,000
Goodwill	52,037
Total Assets	$	236,569
Liabilities Assumed:
Accounts payable	$	1,074
Accrued expenses	3,544
Contingent purchase price	82,550
Deferred tax liabilities	44,006
Total Liabilities	$	131,174

Total cash price paid upon acquisition	$	105,395

Rempex Pharmaceuticals, Inc.

In December 2013, the Company acquired Rempex Pharmaceuticals, Inc. (Rempex), a company focused on the discovery and development of new antibacterial drugs to meet the growing clinical need created by multi-drug resistant gram-negative bacterial pathogens. As a result of the transaction, the Company acquired Rempex's marketed product, Minocin IV, a broad-spectrum tetracycline antibiotic, and Rempex’s portfolio of product candidates, including RPX-602, a proprietary reformulation of Minocin IV, Carbavance, an investigational agent that combines RPX-7009, a proprietary, novel beta-lactamase inhibitor, with a marketed carbapenem antibiotic, and Rempex’s other product candidates.

At the closing, the Company paid to the holders of Rempex’s capital stock, the holders of options to purchase shares of Rempex’s capital stock and the holders of certain phantom stock units (collectively, the Rempex equityholders) an aggregate of approximately $140.0 million in cash, and an additional $0.3 million in purchase price adjustments. The amount paid to the Rempex equityholders at the closing was subject to a post-closing purchase price adjustment process with respect to the net amount of cash, unpaid transaction expenses and other debt and liabilities of Rempex as of the date of the closing.

In addition, the Company agreed to pay to the Rempex equityholders milestone payments subsequent to the closing, if the Company achieves certain development and regulatory approval milestones and commercial sales milestones with respect to Rempex’s Minocin IV product, Rempex’s RPX-602 product candidate, a proprietary reformulation of Minocin IV, Rempex’s Carbavance product candidate, an investigational agent that is a combination of a novel beta-lactamase inhibitor with a marketed carbapenem antibiotic, and certain of Rempex’s other product candidates, at the times and on the conditions set forth in the Merger Agreement. In the event that all of the milestones set forth in the Merger Agreement are achieved in accordance with the terms of the Merger Agreement, the Company will pay the Rempex equityholders an additional $214.0 million in cash in the aggregate for achieving development and regulatory milestones and an additional $120.0 million in cash in the aggregate for achieving commercial milestones, in each case, less certain transaction expenses and employer taxes owing because of the milestone payments. In the event that any milestone payments become due within eighteen months following the Closing, the Company will enter into an escrow agreement (the Escrow Agreement) and will deposit the first $14.0 million of the aggregate milestone payments into an escrow fund for the purposes of securing the indemnification rights of the Company for any and all losses for which it is entitled to indemnification pursuant to the Merger Agreement or the Escrow Agreement and to provide the source of recovery for any amounts payable to the Company as a result of a post-closing purchase price adjustment process. To the extent that any amounts remain in the escrow fund after June 3, 2015 and not subject to claims by the Company, such amounts will be released to the Rempex Equityholders, subject to certain conditions set forth in the Merger Agreement.

The Company accounted for the transaction as a business combination and the results of Rempex operations have been included in the consolidated statements of income from the date of acquisition. In accordance with the acquisition method of accounting, the Company allocated the acquisition cost for the Rempex transaction to the underlying assets acquired and liabilities assumed by the Company, based upon estimated fair values of those assets and liabilities at the date of acquisition and will classify the fair value of acquired IPR&D as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts.

Acquisition related costs during 2013 of approximately $2.6 million for advisory, legal and regulatory costs incurred in connection with the Rempex acquisition have been expensed in selling, general and administrative expenses.

Total purchase price is summarized as follows:



	(in thousands)
Upfront cash consideration	$	140,251
Fair value of contingent cash payment	96,700
Total purchase price	$	236,951

Below is a summary which details the allocation of assets acquired and liabilities assumed as a result of this acquisition:




Assets Acquired:	(In thousands)
Cash and cash equivalents	$	4,218
Accounts receivable, net	399
Inventory	566
Prepaid expenses and other current assets	2,465
Fixed assets, net	331
Intangible assets	530
In-process research and development	224,680
Goodwill	68,632
Total Assets	301,821
Liabilities Assumed:
Accounts payable	1,413
Accrued expenses	5,867
Deferred tax liabilities	57,590
Total Liabilities	64,870

Total purchase price	$	236,951

Tenaxis Medical, Inc.

On April 21, 2014, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with Tenaxis, Napa Acquisition Corp., a Delaware corporation and wholly owned subsidiary of the Company, and Fortis Advisors LLC, a Delaware limited liability company, solely in its capacity as the representative and agent of the stockholders and optionholders of Tenaxis (the Representative). On May 1, 2014, the Company completed its acquisition of Tenaxis and Tenaxis became a wholly owned subsidiary of the Company.

Tenaxis’s sole product, PreveLeak, is a vascular and surgical sealant that mechanically seals both human tissue and artificial grafts. In the United States, PreveLeak received premarket approval from the U.S. Food and Drug Administration in March 2013 for use as a vascular sealant, however PreveLeak has not yet been commercialized in the United States. In the European Union, the product is approved for sale with a European CE Mark as a surgical sealant indicated for vascular, cardiac and soft tissue reconstructions to achieve hemostasis by mechanically sealing areas of leakage. Pursuant to this approval, PreveLeak has been sold in the European Union since September 2008.

Under the Merger Agreement, the Company paid to the holders of Tenaxis’s capital stock, the holders of options to purchase shares of Tenaxis’s capital stock (whether or not such capital stock or options were vested or unvested as of immediately prior to the closing) and the holders of certain warrants and side letters (collectively, the Tenaxis Equityholders) an aggregate of $58.9 million in cash, subject to customary adjustments at and after the closing. At the closing, the Company deposited approximately $5.4 million in cash from the $58.9 million purchase price into an escrow fund for the purposes of securing the indemnification obligations of the Tenaxis Equityholders to the Company for any and all losses for which the Company is entitled to indemnification pursuant to the Merger Agreement and to provide the source of recovery for any amounts payable to the Company as a result of the post-closing purchase price adjustment process. To the extent that any amounts remain in the escrow fund after October 1, 2015 and not subject to claims by the Company, such amounts will be released to the Tenaxis Equityholders, subject to certain conditions set forth in the merger agreement.

In addition, the Company has agreed to pay to the Tenaxis Equityholders milestone payments subsequent to the closing, if the Company achieves certain regulatory approval milestones and commercial net sales milestones with respect to PreveLeak, at the times and on the conditions set forth in the Merger Agreement. In the event that all of the milestones set forth in the Merger Agreement are achieved in accordance with the terms of the Merger Agreement, the Company will pay the Tenaxis Equityholders up to an additional $112 million in cash in the aggregate.

The Company accounted for the transaction as a business combination. During the third quarter of 2014, the purchase price adjustment process was finalized and resulted in an insignificant adjustment to the purchase price. The results of Tenaxis operations have been included in the consolidated statements of income from the date of acquisition.

In accordance with the acquisition method of accounting, the Company allocated the acquisition cost for the Tenaxis transaction to the underlying assets acquired and liabilities assumed by the Company, based upon estimated fair values of those assets and liabilities at the date of acquisition and plan to classify the fair value of developed product rights as an intangible asset with the amortization recorded through the life of the products patents.

The Company recognized as goodwill from the transaction an amount equal to the excess of the purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed by the Company. The goodwill recorded as part of the acquisition is primarily related to establishing a deferred tax liability for the developed product intangible asset which has no tax basis and, therefore, will not result in a future tax deduction. The Company does not expect any portion of this goodwill to be deductible for tax purposes. The Company has recorded the goodwill attributable to the acquisition as a non-current asset on its consolidated balance sheets. The goodwill attributable to the acquisition is not amortized, but the Company reviews its goodwill annually for impairment.

Acquisition related costs during 2014 of approximately $0.6 million for advisory, legal and regulatory costs incurred in connection with the Tenaxis acquisition have been expensed in selling, general and administrative expenses.

Total purchase price is summarized as follows:



	(In thousands)
Upfront cash consideration	$	58,871
Fair value of contingent purchase price	37,900
Total purchase price	$	96,771

Below is a summary which details the allocation of assets acquired and liabilities assumed as a result of this acquisition:



Assets Acquired:	(In thousands)

Cash and cash equivalents	$	914
Inventory	307
Developed product rights	93,900
Goodwill	25,063
Other assets	131
Total assets	$	120,315

Liabilities assumed:

Accounts payable	161
Contingent purchase price	37,900
Deferred tax liability	23,160
Other liabilities	223
Total liabilities	$	61,444

Total cash price paid upon acquisition	$	58,871

The following unaudited pro forma financial information reflects the consolidated statements of income of the Company for the years ended December 31, 2014 as if the acquisition of Tenaxis had occurred as of January 1, 2013, and as if the 2013 acquisitions had occurred as of January 1, 2012.




	Year Ended December 31,
	2014			2013
	(in thousands, except per share amounts)
Net revenue	$	724,599		$	695,473
Net loss	$	(35,023	)	$	(32,743	)
Basic loss per common share	$	(0.54	)	$	(0.56	)
Diluted loss per common share	$	(0.54	)	$	(0.56	)