Inception 4 Acquisition

12 Months Ended

Dec. 31, 2020

Asset Acquisition [Abstract]

Inception 4 Acquisition

Inception 4 Acquisition

In October 2018, the Company entered into an Agreement and Plan of Merger (the “Inception 4 Merger Agreement”) by and among the Company, Orion Ophthalmology Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of the Company (“Merger Sub I”), Orion Ophthalmology LLC, a Delaware limited liability company and a direct, wholly owned subsidiary of the Company (“Orion”), Inception 4, Inc., a Delaware corporation ("Inception 4"), and, solely in its capacity as the representative, agent and attorney-in-fact of the equityholders of Inception 4, Fortis Advisors LLC, a Delaware limited liability company.  Pursuant to the Inception 4 Merger Agreement, in October 2018, the Company acquired Inception 4 through the merger of Merger Sub I with and into Inception 4, with Inception 4 surviving as a direct, wholly owned subsidiary of the Company, and as part of the same overall transaction, the merger of Inception 4 with and into Orion, with Orion surviving as a direct, wholly owned subsidiary of the Company (the transactions are collectively referred to as the "Inception 4 Merger").  Prior to the Inception 4 Merger, Inception 4 was a privately held biotechnology company focused on the research and development of small molecule HtrA1 inhibitors for age-related retinal diseases in humans.

Pursuant to the terms of the Inception 4 Merger Agreement, as upfront consideration, the Company issued approximately 5.2 million shares of the Company’s common stock to the former equityholders of Inception 4, which were valued at approximately $11.7 million based on the closing price of the Company’s common stock on the acquisition date equal

to $2.26 per share. Additionally, subject to the terms and conditions of the Inception 4 Merger Agreement, the former equityholders of Inception 4 will be entitled to receive contingent payments up to an aggregate of $105.0 million from the Company for the achievement of specified clinical and regulatory milestones, with $45 million of such potential payments relating to GA and $60 million of such potential payments relating to wet AMD. The future milestone payments will be payable in the form of shares of the Company's common stock, calculated based on the price of its common stock over a five-trading day period preceding the achievement of the relevant milestone, unless and until the issuance of such shares would, together with all other shares issued in connection with the Inception 4 Merger, exceed an overall maximum limit of approximately 7.2 million shares, which is equal to 19.9% of the number of issued and outstanding shares of the Company's common stock as of the close of business on the business day prior to the closing date of the Inception 4 Merger, and will be payable in cash thereafter.

At closing, the Company acquired all of Inception 4's assets, which included intellectual property and in-process research and development (“IPR&D”) associated with Inception 4’s HtrA1 inhibitor program and approximately $6.1 million in cash. There were no other tangible assets, leases or liabilities.

The Company evaluated the acquisition of Inception 4 under ASU No. 2017-01, Business Combinations: Clarifying the Definition of a Business. Based on the results of the analysis performed, the Company concluded that substantially all of the fair value of the gross assets acquired under the Inception 4 Merger Agreement is concentrated in a single identifiable asset. As a result, the Company concluded that the acquisition of Inception 4 does not represent an acquisition of a business and does not qualify as a business combination to be accounted for under ASC 805. Further, the Company concluded that the legal entity is not a variable interest entity under ASC 810 - Consolidation. Consequently, the Company concluded that the acquisition of Inception 4 should be accounted for as an asset acquisition under ASC 805-50. As the contingent consideration is not a derivative under ASC 815 - Derivatives and Hedging, any contingent payments will be recognized when earned or achieved and such amounts will be expensed upon payment for pre-commercial activities and capitalized for regulatory approvals and post-commercial activities. Further, as the acquired IPR&D has no alternative future use, in accordance with ASC 730, at closing, the Company charged to expense its allocated fair value of $6.9 million, which is the total acquisition consideration including transaction costs of $1.3 million less the cash acquired.