Acquisition

3 Months Ended

Mar. 31, 2020

Patent License Acquisition

In January 2017, the Company entered into a license agreement with a biotechnology company, KeyGene N.V. (“KeyGene”). An arbitration was initiated between the parties in 2018. In March 2020, the Company and KeyGene entered into a settlement and patent license agreement (the “SPLA”) to resolve the dispute and to acquire an extended worldwide non-exclusive license to certain patent rights with respect to KeyGene’s Next Generation Sequencing technologies along with certain covenant rights and research and development technology for a one-time payment of $18.5 million, ending all future royalty obligations to KeyGene. This transaction was accounted for as an asset acquisition as the purchase did not meet the definition of a business. The total consideration, including $0.6 million of certain capitalizable transaction costs, was allocated to various components of the SPLA.

The Company allocated $9.4 million to the patent and covenant rights granted under the SPLA, which have useful lives in the range of 6-12 years. The Company allocated $8.5 million to IPR&D technology, which have no alternative future use and was included in research and development expenses for the three months ended March 31, 2020. The remaining $1.2 million was allocated to the settlement of the prior dispute between the parties and was included in general and administrative expenses for the three months ended March 31, 2020.

Amortization of capitalized license fees relating to the January 2017 license agreement was immaterial for the three months ended March 31, 2020 and $0.2 million for the three months ended March 31, 2019.

Acquisition of Bellwether Bio

In April 2019, the Company purchased all of the outstanding shares of Bellwether Bio, Inc. (“Bellwether Bio”), a privately-held company developing a method for early blood-based cancer detection. The Company accounted for the acquisition as a business combination. The total purchase consideration was $8.7 million, which consisted of i) $7.6 million in cash paid upon closing; and ii) future contingent consideration liability with a fair value of $1.1 million on the acquisition date. The contingent consideration is subject to the achievement of certain commercialization milestones with a maximum payout amount of $10.0 million. The Company will also pay additional earn-out consideration of up to $10.0 million subject to the achievement of certain commercialization milestones and the continued provision of services to the Company by certain former employees and consultants of Bellwether Bio. The contingent consideration and earn-out consideration may be paid, at the Company’s election, in cash or in the Company’s common stock. As of March 31, 2020, the Company did not believe the earn-out consideration is probable to be achieved, and therefore, did not record any compensation expense. The following table summarizes the allocation of the total consideration to the estimated fair values of assets acquired and liabilities assumed:



	Amount
	(in thousands)
Cash	$	521
Identified intangible assets	6,700
Goodwill	3,289
Net liabilities assumed	(1,802		)
Total	$	8,708

The following table presents details of the identified intangible assets acquired from the Bellwether Bio acquisition:



	Fair Value		Estimated Useful Life
	(in thousands)
Acquired license	$	5,100	10 years
IPR&D	1,600		*
Total	$	6,700


*	IPR&D assets are not subject to amortization.

In connection with the acquisition of Bellwether Bio, the Company also entered into non-compete agreements with certain key individuals based on their experience and importance to the operation of Bellwether Bio. The Company accounted for the covenants not to compete as purchases of intangible assets separate from the business combination as these non-compete agreements were initiated by the Company to protect its interests. The fair value of acquired

covenants not to compete is estimated to be $2.5 million, which is recorded within intangible assets, net on the condensed consolidated balance sheet and will be amortized over an estimated useful life of 6 years using the straight-line method. Acquisition-related contingent consideration is measured at fair value on a quarterly basis and change in estimated contingent consideration to be paid are included in operating expenses in the condensed consolidated statements of operations.