Business combinations

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Business combinations

7. Business combinations

On June 30, 2014, the Company completed its acquisition of Pregenen, a privately-held biotechnology company, upon which Pregenen became a wholly-owned subsidiary. As a result, the Company obtained gene editing and cell signaling technology with a broad range of potential therapeutic applications.

Under the terms of the Stock Purchase Agreement, the Company purchased all of Pregenen’s outstanding capital stock in exchange for 405 unregistered shares of common stock and $5,093 in cash. The consideration for the transaction also includes an additional 94 shares of common stock that will be held for a period of 18 months after the acquisition and may be used to settle certain claims for indemnification for breaches or inaccuracies in Pregenen’s representations and warranties, covenants, and agreements and an additional 2 shares relating to a working capital adjustment. The Stock Purchase Agreement also provides for up to $135,000 in future contingent cash payments upon the achievement of certain preclinical, clinical and commercial milestones related to the Pregenen technology, of which $15,000 relates to preclinical milestones, $20,100 relates to clinical milestones and $99,900 relates to commercial milestones.

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

Cash	$	5,093
Common stock		19,348
Contingent consideration		6,550
Total purchase consideration	$	30,991

Common stock in the table above is comprised of $15,636 in common stock transferred, $3,630 in common stock that will be held back for a period of 18 months and $82 related to a working capital adjustment.

The transaction was accounted for as a business combination under the acquisition method of accounting. Accordingly, the tangible and identifiable intangible assets acquired and liabilities assumed were recorded at estimated fair value as of the date of acquisition, with the remaining consideration transferred recorded as goodwill.

The purchase price allocation has been finalized and the following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:

	Acquisition date fair value
Cash	$	420
Gene editing platform intangible asset		30,100
Goodwill		13,128
Other assets acquired		111
Total assets acquired		43,759
Deferred tax liabilities		11,797
Other liabilities assumed		971
Total liabilities assumed		12,768
Net assets acquired	$	30,991

The fair value of the gene editing platform intangible asset was determined using a relief from royalty approach, including assumptions of projected revenues and royalty rate in addition to a discount rate of 15.5% applied to the projected cash flows. The Company considers the intangible asset acquired to be developed technology, as at the date of the acquisition it could be used the way it is intended to be used in certain ongoing research and development activities. The Company believes the assumptions are representative of those a market participant would use in estimating fair value. The gene editing platform intangible asset will be amortized to research and development expense over its expected useful life of approximately eight years.

Amortization expense for the gene editing platform intangible asset was $941 for the three and nine months ended September 30, 2014. The estimated amortization of intangible assets for the year ended December 31, 2014 and for each of the five succeeding years and thereafter is as follows:

2014	$	1,881
2015		3,763
2016		3,763
2017		3,763
2018		3,763
2019 and thereafter		13,167
Total	$	30,100

The deferred tax liabilities of $11,797 primarily relate to the tax impact of future amortization or impairments associated with the identified intangible asset, which is not deductible for tax purposes. See Note 9 “Income taxes,” for additional information.

Goodwill is calculated as the difference between the acquisition-date fair value of the consideration transferred and the fair values of the assets acquired and liabilities assumed and is not expected to be deductible for income tax purposes. Goodwill is recorded as an indefinite-lived asset and is not amortized but tested for impairment on an annual basis or when indications of impairment exist. Among the factors which resulted in goodwill for the Pregenen acquisition was the opportunity to recognize synergies with the Company’s existing gene insertion platform and deferred tax liabilities recognized in connection with the acquisition.

The Company incurred a total of $171 in transaction costs in connection with the acquisition, which were included in general and administrative expenses within the condensed consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2014.

In connection with the acquisition, the Company issued 3 shares of common stock to a former consultant of Pregenen and recognized $151 of expense within general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2014.