5. Acquisition

On September 9, 2015, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) whereby it acquired 100% of the voting interests of Bioceros Holding B.V. (“Bioceros”), enabling the Company to expand its biosimilar pipeline and vertically integrate product development capabilities.

Bioceros was a privately-held, Netherlands-based biopharmaceutical R&D company focused on the development of mAbs and generation of GMP-ready cell lines. From the Bioceros platform, the Company will expand its pipeline with the addition of three preclinical product candidates: BOW080, a proposed biosimilar to eculizumab (reference biologic Soliris®); BOW090, a proposed biosimilar to ustekinumab (reference biologic STELARA®); and BOW100, a proposed biosimilar to golimumab (reference biologic SIMPONI®). Soliris, marketed by Alexion Pharmaceuticals, is currently indicated to treat ultra-rare blood disorders, including paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS). SIMPONI and STELARA are marketed by Janssen Pharmaceuticals and indicated in inflammatory and immune mediated disorders.

The Company will pay a total of $14,100 in consideration consisting of: (i) an initial cash payment of $3,400 at closing, (ii) a second cash payment of $1,700, to be paid on the first anniversary of the closing date , (iii) an initial issuance of 788,960 shares of the Company’s common stock, $0.001 par value per share (the “Common Stock”), with a value of $4,000 using a 10 day pre-closing date average price for issuance of $5.07 (value of $4,568 on acquisition date) and (iv) a second issuance of shares of Common Stock with a value of $5,000, calculated based on the Company’s stock price as set forth in the Stock Purchase Agreement, to be issued on the date that is six months after the closing date (“Second Installment Shares”) , subject to the Company’s setoff rights with regard to the second cash payment and Second Installment Shares. Of the Second Installment Shares, shares with an undiscounted value of $1,015 are to be issued to Bioceros key employees and are subject to those employees’ continued employment. In addition, the shareholders of Bioceros would receive a pro rata share of a net cash payout equal to the aggregate amount of: (a) Bioceros’ net working capital as the acquisition date; plus (b) revenue agreements signed from select Bioceros customers subsequent to the acquisition date and through December 31, 2015; in excess of (c) $1,200, calculated as set forth in the Stock Purchase Agreement. As of September 9, 2015, the Company estimated this amount to be $409.

Second Installment Shares

As described above, shares with an undiscounted value of $1,015 from the Second Installment Shares are to be issued to Bioceros key employees and are subject to those employees’ continued employment. Pursuant to the Stock Purchase Agreement, 75% of the shares to be issued to Bioceros key employees on March 9, 2016 in connection with the Second Installment Shares will be held in an escrow account and released in three equal installments 12, 18 and 24 months after the closing date, unless the employee is terminated for cause or voluntarily resigns prior to each release date. The other 25% will be issued as of March 9, 2016, unless the employee is terminated for cause or voluntarily resigns prior to this date. As a result, the consideration related to such $1,015 of shares was determined to be attributable to post-combination service to Epirus and will be recognized as stock-based compensation expense by the combined company as the shares vest. The Company recognized $126 of stock-based compensation expense related to the Second Installment Shares for the key employees in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2015.

The acquisition-date fair value of the consideration transferred is as follows:


Initial equity consideration paid at closing
Initial shares issued to Bioceros shareholders		788,960
Price per Epirus share at issuance	$	5.79
	$	4,568
Initial cash consideration paid at closing		3,400
Total consideration paid at closing		7,968

Settlement of preexisting Epirus accounts payable to Bioceros (1)		(87)
Second Installment Shares, excluding key employee stock compensation expense (2)		3,788
Net cash payout (3)		409
Final payment of cash consideration (4)		1,535
Preliminary estimated purchase price	$	13,613


(1)	Represents the settlement of preexisting accounts payable to Bioceros as a result of activity prior to the transaction.

(2)	Represents the fair value of the undiscounted $3,985 of Second Installment Shares to be paid and issued on March 9, 2016, which excludes the undiscounted $1,015 of shares to be issued to Bioceros key employees contingent upon the delivery of postcombination service to the Company, as described above. This amount has been recorded as a liability on the Company’s consolidated balance sheet, because it represents an obligation to issue a variable number of shares based on a fixed dollar amount of $3,985, and recorded at fair value utilizing a discount rate of 10.7%.

(3)	Represents the fair value of the net cash payout to be made pursuant to the Stock Purchase Agreement. This amount has been recorded as a contingent consideration liability on the Company’s consolidated balance sheet as of September 9, 2015 and recorded at fair value utilizing a discount rate of 10.7%. The amount of the net cash payout is dependent on revenue agreements signed from select Bioceros customers subsequent to the acquisition date and through December 31, 2015.

(4)	Represents the fair value of the final cash payment of $1,700, which, pursuant to the Stock Purchase Agreement, the Company will pay on September 9, 2016. This amount has been recorded as a liability on the Company’s consolidated balance sheet as of September 9, 2016 and recorded at fair value utilizing a discount rate of 10.7%.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:


	(in thousands)
Cash and cash equivalents	$	889
Deferred tax assets		161
Accounts receivable		49
Prepaid expenses and other current assets		226
Property and equipment, net		447
Intangible assets, net		3,191
Goodwill		10,734
Accounts payable		(146)
Accrued expenses and other current liabilities		(704)
Deferred revenue		(436)
Deferred tax liabilities		(798)
Net assets acquired	$	13,613

During the measurement period, the Company made adjustments to the provisional amounts reported as the estimated fair values of assets acquired and liabilities assumed as part of the Acquisition. Compared to the provisional values reported as of September 30, 2015, the fair values presented in the table above reflect increases to cash and cash equivalents of $56, intangible assets of $1,199, accounts payable of $25 and decreases to prepaid expenses, other current assets and accounts receivable of $112, goodwill of $1,478, accrued expenses of $232, deferred tax assets of $168 and deferred tax liability of $300.

As of December 31, 2015, the Company evaluated the net cash payout liability of $409 and reduced the fair value to $0. This reduction was recorded as a credit to general and administrative expenses in the Company’s consolidated statement of operations for the fiscal year ended December 31, 2015.

As of December 31, 2015, the liability associated with the Second Installment shares and the final cash payment were $3,909 and $1,584, respectively, and are presented on the consolidated balance sheet as accrued purchase price liability.

In March 2016, there was an amendment to the Stock Purchase Agreement (Note 22).

The purchase price allocation has been prepared on a preliminary basis and is subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and the liabilities assumed. The purchase price allocation will remain preliminary until Epirus completes a final valuation of the assets acquired and liabilities assumed, including deferred tax assets and liabilities, deferred revenue and the identification and valuation of all intangible assets, as of the transaction closing date. The excess of consideration transferred over the estimated fair value of net identifiable assets acquired will be allocated to goodwill, which represents the expected synergies between the companies and acquired workforce. Goodwill is not expected to be deductible for tax purposes. The final determination of the allocation of consideration transferred is expected to be completed as soon as practicable, but will in no event exceed one year from September 9, 2015, the closing date. The final amounts allocated to assets acquired and liabilities assumed could differ significantly from the amounts presented above.

For acquired working capital accounts such as accounts receivable, prepaid expenses and other current assets, including deferred tax assets, accounts payable and certain accrued expenses, Epirus determined that no preliminary fair value adjustments were required due to the short timeframe until settlement for these assets and liabilities. The Company acquired gross contractual accounts receivable of $49, which it determined represents fair value and expects to collect in full.

Intangible asset, or acquired know how technology, currently represent the preliminary estimated fair value for the CHOBC® cell line platform and cell line technology platform which will be the platform for future research. Based on the estimated time to commercialization and other factors, the intangible asset is being amortized over a six year expected useful life, which is the estimated period of time the Company expects to receive benefit from the platform during its development processes. The estimated fair value of the intangible was determined based on a cost approach. The present value of the investment costs was then determined utilizing an estimated risk-adjusted discount rate. The estimated fair value may be adjusted based upon the final valuation and any such adjustments could be significant. The final valuation is expected to be completed within one year from the acquisition closing date. If the platform becomes impaired or is abandoned, the carrying value of the related intangible asset will be written down to its fair value and an impairment charge will be recorded in the period in which the impairment occurs.

Goodwill represents the excess of the preliminary estimated purchase price over the preliminary estimated fair value of the assets acquired and liabilities assumed and recognizes results from the expected synergies from combining operations of the Bioceros technical team’s expertise and the Company’s existing pipeline and management expertise. The Company believes that the addition of Bioceros staff and capabilities, combined with existing in-house expertise, provides the Company with a strong technical foundation to accelerate product development and optimize product quality. Goodwill will not be amortized, but will be evaluated for impairment on an annual basis or more frequently if an event occurs or circumstances change that would more-likely-than-not reduce the fair value below its carrying amount. In the event that Epirus determines that the value of goodwill has become impaired, an impairment charge will be recorded in the period in which the determination is made.

Deferred revenue balances were preliminarily adjusted to amounts that represent the estimated costs to fulfill the underlying obligations plus a normal profit margin, consistent with what the Company determined to be a market participant’s estimate of such costs and profit margin.

The deferred tax liability relates to the temporary difference associated with the preliminary estimated value of the intangible asset and has been estimated using a 25% effective tax rate.

The operating results of Bioceros for the period from September 10, 2015 to December 31, 2015, include net revenue of $186 and net loss of $96 which have been included in the Company’s consolidated financial statements as of and for the year ended December 31, 2015.

The Company incurred a total of approximately $754 in transaction costs in connection with the transaction, excluding Bioceros transaction costs, which were included in selling, general and administrative expense within the consolidated statement of operations and comprehensive loss for the year ended December 31, 2015. The following supplemental unaudited pro forma information represents the Company’s financial results as if the acquisition had occurred on January 1, 2014.



	Years Ended December 31,
	2015		2014

Total revenues, net	$	1,728	$	2,474
Net loss	$	(50,985)	$	(41,720)

The above unaudited pro forma information was determined based on the historical GAAP results of the Company and Bioceros. The unaudited pro forma consolidated results are not necessarily indicative of what the Company’s consolidated results of operations and comprehensive loss actually would have been if the acquisition was completed on January 1, 2014. The unaudited pro forma consolidated net loss includes pro forma adjustments primarily relating to the following non-recurring items directly attributable to the business combination.

(1)

Elimination of $964 transaction costs for both the Company and Bioceros from the year ended December 31, 2015, and inclusion of these transactions costs in the year ended December 31, 2014;

(2)

The adjustment for stock compensation expense that would have been charged assuming the key employees of Bioceros, increased the expense by $374 and $500 for the years ended December 31, 2015 and 2014, respectively;

(3)

To eliminate intercompany net revenue from Bioceros to Epirus recorded in Bioceros’ historical financial statements and the corresponding amount recorded as research and development expense in the Epirus historical financial statements;

(4)

To eliminate the income recorded related to the change in the net cash payout contingent consideration liability from the year ended December 31, 2015, and include this gain in the year ended December 31, 2014.