USWM Acquisition

9 Months Ended

Sep. 30, 2021

Business Combination and Asset Acquisition [Abstract]

USWM Acquisition

USWM AcquisitionOn June 9, 2020 (the Closing Date), the Company completed its acquisition of all of the outstanding equity of USWM Enterprises LLC (USWM Enterprises), a privately-held biopharmaceutical company, pursuant to a Sale and Purchase Agreement with US WorldMeds Partners, LLC (Seller), dated April 28, 2020 (the Agreement). Under the terms of the Agreement, the Company acquired the right to further develop and commercialize APOKYN, XADAGO, and the Apomorphine Infusion Pump (SPN-830; the In Process Research and Development (IPR&D) asset) in the U.S. and MYOBLOC worldwide (the Products) for an upfront cash payment of $297.2 million, subject to working capital adjustments, and the potential for additional contingent consideration payments of up to $230 million. In the second quarter of 2021 and within one year from the Closing Date, the Company finalized its accounting for the business combination, including the purchase price allocation.

The potential $230 million in contingent consideration payments includes up to $130 million for the achievement of certain SPN-830 regulatory and commercial activities (regulatory and developmental contingent consideration payments) and up to $100 million related to future sales performance of the Products (sales-based contingent consideration payments). The regulatory and developmental contingent consideration payments include a $25 million milestone due upon the FDA's acceptance of the SPN-830 New Drug Application (NDA) for review. The remaining $105 million of the $130 million regulatory and developmental contingent consideration includes payments upon the FDA's regulatory approval and subsequent commercial launch by the Company of SPN-830, if approved. One of the regulatory milestones has a time-based mechanism for full or partial achievement. The $100 million sales-based contingent consideration payments include a $35 million milestone due upon achievement of certain U.S. net product sales of APOKYN during 2021. The remaining $65 million of the $100 million sales-based contingent consideration payments relate to the achievement of certain net product sales of the Products in 2022 and 2023. Refer to “Contingent Consideration” section below for further discussion.

Purchase Price Consideration

The following table summarizes the purchase price consideration (unaudited):

	Amount
Cash consideration	$	306,485
Fair value of contingent consideration	74,800
Total purchase consideration	$	381,285
Cash consideration to Seller - net of cash acquired	$	299,491

Contingent Consideration

In addition to the cash paid to the Seller, contingent payments of up to $230 million are also due to the Seller upon the achievement of certain milestones related to the development of SPN-830 and sale of the Products. The possible outcomes for the contingent consideration range from $0, if no milestone is achieved, to $230 million on an undiscounted basis if all milestones are achieved.

The Company initially recorded a contingent consideration liability of $115.7 million as of the Closing Date to reflect the estimated fair value of the contingent consideration based on information available at that time. The estimated fair value of the contingent consideration was determined using a Monte Carlo simulation for the sales-based contingent consideration payments and an income approach for the regulatory and developmental contingent consideration payments. The key assumptions considered in estimating the fair value include the estimated probability and timing of milestone achievement, such as the probability and timing of obtaining regulatory approval, discount rate, the estimated revenue volatility and the estimated amount and timing of projected revenues from the Products. Subsequent to the Closing Date, the Company adjusted the contingent consideration fair value based on new information related to the facts and circumstances that existed as of the acquisition date related to the timing of meeting the conditions of the milestone payments that are contingent upon regulatory approval and commercial launch of the acquired IPR&D asset as well as the estimated timing of projected revenues from the Products. As a result, the Company recorded in the fourth quarter of 2020, a measurement period adjustment of $40.9 million, which decreased the estimated fair value of the contingent consideration liability as of the Closing Date to $74.8 million. Refer to contingent consideration discussion in Note 6, Fair Value of Financial Instruments and Contingent Consideration.

Fair Value of Net Assets Acquired

The following table presents the total purchase price and the fair value of assets acquired and liabilities assumed as of the Closing Date (unaudited, dollars in thousands):

	Fair Value
Cash and cash equivalents	$	6,994
Accounts receivable, net	18,474
Inventories, net	11,600
Prepaid expenses and other current assets	3,564
Property and equipment, net	454
Operating lease asset (1)	11,029
Intangible assets	355,000
Other assets	340
Total fair value of assets acquired	407,455
Accounts payable	(2,573)
Accrued expenses and other current liabilities	(23,339)
Operating lease liability (1)	(11,029)
Deferred income tax liabilities, net (2)	(67,192)
Total fair value of liabilities assumed	(104,133)
Total identifiable net assets	$	303,322
Goodwill	77,963
Total purchase price	$	381,285

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(1) Refer to Note 12, Leases, for further discussion of the acquired lease asset and assumed lease liability.

(2) Includes tax attributes that are subject to tax limitations.

Acquired Inventory

The fair value of the inventory was determined using the comparative sales method, which estimated the expected sales price of the product, reduced by all costs expected to be incurred to complete or to dispose of the inventory, as well as a profit on the sale.

Acquired Intangible Assets

The acquired intangible assets include the acquired IPR&D asset and the acquired developed technology and product rights. The Company determined the fair value of the acquired intangible assets as of the Closing Date using the income approach. The fair value measurements of the acquired intangible assets were determined based on significant unobservable inputs and therefore, represent a Level 3 fair value measurement. Some of the more significant inputs and assumptions used in the intangible assets valuation include: the timing and probability of success of clinical and regulatory approvals for the IPR&D asset, the estimated future cash flows from Product sales, the timing and projection of costs and expenses, discount rates and tax rates.

The following table summarizes the purchase price allocation, and the average remaining useful lives for identifiable intangible assets (unaudited, dollars in thousands):

	Fair Value		Estimated Useful Lives as of Closing Date (in years)
Acquired IPR&D	$	124,000	n/a
Acquired developed technology and product rights	231,000		10.5 - 12.5
Total intangible assets	$	355,000

Acquired intangible assets, excluding the acquired IPR&D asset, are amortized over their estimated useful lives on a straight-line basis. The IPR&D asset is considered indefinite-lived, until the successful completion or abandonment of the associated research and development efforts.

Goodwill

Goodwill was calculated as the excess of the consideration paid consequent to completing the acquisition, compared to the net assets recognized. Goodwill represents the future economic benefits from the other acquired assets, and which could not be individually identified and separately valued. Goodwill is primarily attributable to the additional acquired growth platforms and an expanded revenue base. Goodwill is not deductible for tax purposes.

MDD Enterprises Operations

The operations of MDD US Enterprises, LLC ("MDD Enterprises") (formerly USWM Enterprises, LLC) and its subsidiaries have been included in the Company's condensed consolidated statements of earnings for the period subsequent to the Closing Date. The following table summarizes the total revenues for MDD Enterprises, (dollars in thousands):

	Three Months ended September 30,				Nine Months ended September 30,
	2021		2020		2021		2020
	(unaudited)				(unaudited)
Net product sales	$	32,499	$	40,863	$	96,205	$	51,493

The Company is unable to provide the results of operations attributable to MDD US Enterprises, LLC and its subsidiaries as those operations were substantially integrated into our business.