3. Acquisitions

Shape Pharmaceuticals

On April 14, 2014 (“the acquisition date”), we acquired by merger 100% of Shape Pharmaceuticals. Shape Pharmaceuticals was a development stage pharmaceutical company developing SHAPE, a novel, tissue-targeted HDAC inhibitor in a topical gel formulation to treat stage IA-IIA Cutaneous T-Cell Lymphoma (CTCL). The acquisition added a second clinical-stage oncology compound to the TetraLogic portfolio. A member of our Board of Directors also served as Chief Executive Officer and a member of the Board of Directors of Shape Pharmaceuticals.

The acquisition date fair value of consideration transferred totaled $13.0 million, all of which was in cash.

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


Allocation of purchase price
Cash and cash equivalents	$	71,792
Other current assets		320,464
Accounts payable		(138,645)
Deferred taxes		(16,879,659)
Contingent consideration		(28,932,339)
Legal expenses		121,873
Indefinite-lived intangible assets		41,575,516
Goodwill		16,902,466
Total purchase price	$	13,041,468

The purchase price allocation has been finalized based on fair values of the acquired assets and liabilities. The intangible assets acquired represent indefinite-lived intangible assets relating to the technology acquired from Shape Pharmaceuticals. These intangibles will not be amortized until FDA approval has been obtained for a product that uses this technology. Goodwill resulted primarily from the recognition of deferred tax liabilities in connection with the acquisition. There is no goodwill recognized or deductible for tax purposes.

The acquisition of Shape Pharmaceuticals includes a contingent consideration arrangement that may require us to pay additional consideration in the form of milestone payments and tiered royalty payments upon commercialization. We currently estimate that the milestone payments will occur between 2017 and 2021. The range of undiscounted amounts that we could be required to pay under our agreement for the milestone payments is between zero and $64.5 million. We determined the fair value of the liability for the contingent consideration based on a probability-weighted discounted cash flow analysis. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the contingent consideration liability associated with future milestones and royalties was based on several factors including:

estimated cash flows projected from the success of unapproved product candidates in the U.S. and Rest of World, or ROW;

the probability of success for product candidates including risks associated with uncertainty, achievement, and payment of milestone events;

the time and resources needed to complete the development and approval of product candidates;

the life of the potential commercialized products and associated risks of obtaining regulatory approvals in the U.S. and ROW;

the risk adjusted discount rate for fair value measurements; and.

the credit risk of TetraLogic.

Changes in the fair value of contingent consideration are recorded in earnings. The change in fair value that was recognized as an operating expense for the period between April 14, 2014 and December 31, 2014 was $2.6 million, and for the year ended December 31, 2015 was $(10.4) million. At December 31, 2015, the fair value of the liability was $21.1 million.

We recognized $0.4 million of acquisition related costs that were expensed in 2014. These costs are included in operating expenses in our consolidated statement of operations.

The following unaudited pro forma information presents results as if the acquisition occurred at the beginning of the annual reporting period presented:


	Year Ended December 31,
	2014

Revenue	$	—
Net loss attributable to TetraLogic Pharmaceuticals Corporation		(36,469,877)
Basic loss per common share attributable to TetraLogic Pharmaceuticals Corporation	$	(1.64)
Diluted loss per common share attributable to TetraLogic Pharmaceuticals Corporation	$	(1.65)