Business combinations

12 Months Ended

Dec. 31, 2015

Business Combinations [Abstract]

Business combinations

11. 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 405,401 unregistered shares of common stock and $5.1 million in cash. The consideration for the transaction also included an additional 94,117 shares of common stock that was held for a period of 18 months after the acquisition to settle potential claims for indemnification for breaches or inaccuracies in Pregenen’s representations and warranties, covenants, and agreements and an additional 2,119 shares relating to a working capital adjustment. On December 29, 2015, 94,117 shares of common stock were granted in full to Pregenen’s former equityholders. The Stock Purchase Agreement also provides for up to $135.0 million in future contingent cash payments upon the achievement of certain preclinical, clinical and commercial milestones related to the Pregenen technology, $134.0 million of which have not yet been achieved as of December 31, 2015, which is comprised of $14.0 million in preclinical milestones, $20.1 million in clinical milestones and $99.9 million in commercial milestones. During 2015, a $1.0 million milestone under the Stock Purchase Agreement was achieved and paid to the former equityholders of Pregenen.

The acquisition-date fair value of the purchase consideration is as follows (in thousands):

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 $15.6 million in common stock issued in June 2014, $3.6 million in common stock that was held back for a period of 18 months and issued in December 2015 and $0.1 million related to a working capital adjustment issued in July 2014.

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 (in thousands):

	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 $3.8 million and $1.9 million for the years ended December 31, 2015 and 2014, respectively, and accumulated amortization as of December 31, 2015 and 2014 was $5.6million and $1.9 million, respectively. The estimated amortization of intangible assets for the year ended December 31, 2016 and for each of the five succeeding years and thereafter is as follows (in thousands):

2016	$	3,763
2017		3,763
2018		3,763
2019		3,763
2020		3,763
2021 and thereafter		5,641
Total	$	24,456

The deferred tax liabilities acquired of $11.8 million 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 14 “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 that 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 $0.2 million in transaction costs in connection with the acquisition, which were included in general and administrative expenses within the consolidated statements of operations and comprehensive loss for the year ended December 31, 2014.

In connection with the acquisition, the Company issued 3,267 shares of common stock to a former consultant of Pregenen and recognized $0.2 million of expense within general and administrative expenses in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2014.