Business Combinations

12 Months Ended

Dec. 31, 2016

Business Combinations [Abstract]

Business Combinations

Note 6. Business Combination

In August 2015, the Company acquired Cardiogen, a biotechnology company focused on the discovery and development of AAV gene therapy products for rare, inherited arrhythmogenic diseases. As consideration for the acquisition, the Company issued 1,293,058 shares of common stock, of which 133,986 shares were held back from the Cardiogen shareholders to cover potential indemnification requirements through November 17, 2016, as specified in the merger agreement, and 46,969 shares of Series B preferred stock. Additionally, upon first dosing of a patient in a human clinical study involving AT307 for the treatment of CASQ2-CPVT, the Company is obligated to pay to former Cardiogen shareholders $4.2 million in common stock plus an additional $5.8 million in either cash or common stock, at the Company’s election, for aggregate contingent consideration of $10.0 million.

The acquisition of Cardiogen was accounted for as the purchase of a business. The related acquisition costs, consisting primarily of legal and accounting expenses in the amount of $0.4 million for the year ended December 31, 2015, were expensed. These legal and accounting expenses are included in general and administrative expenses on the consolidated statements of operations and comprehensive loss for the year ended December 31, 2015.

The following is the total consideration paid for the business combination:

	Amount
	(in thousands)
Fair value of shares issued	$	4,142
Fair value of contingent payments		4,147
Total consideration	$	8,289

The estimated fair value of the shares issued was determined by the Company’s board of directors. The estimated fair value of the contingent payments is based on the risk adjusted present value of management’s estimated likelihood and timing of the first dosing of a patient in a human clinical study involving AT307.

In connection with the Company’s acquisition of Cardiogen, it acquired a license agreement previously entered into by Cardiogen with Fondazione Salvatore Maugeri, or FSM, an Italian non-profit organization. Under the license agreement, the Company obtained an exclusive worldwide license to certain intellectual property to develop, use and commercialize products related to recessive CPVT, as well as to several additional inherited arrhythmias. The Company may terminate the license agreement with FSM for convenience upon prior written notice. Either party may terminate the agreement upon prior written notice for the uncured material breach of the agreement by the other party, or the other party’s bankruptcy or liquidation.

The acquisition of Cardiogen provided the Company with certain intellectual property through the license agreement with FSM, including Cardiogen’s lead program for CASQ2-CPVT. The Company determined that the fair value of such intellectual property was approximately $8.0 million. The fair value of the intellectual property was determined using the excess earnings approach. The excess earnings approach considers the economics related to the intellectual property. The assumptions underlying the fair value calculation include: estimated revenue attributable to the intellectual property, future research and development expenses, an estimated effective income tax rate and an estimated discount rate.

Primarily as a result of the deferred tax liability recognized in the acquisition, the Company recognized goodwill of $3.6 million equal to the excess of the purchase consideration over the fair value of the assets acquired and liabilities assumed. See Note 2 for accounting policies for goodwill, intangible assets and contingent consideration payable.

The following table summarizes the allocation of the consideration paid of $8.3 million to the fair values of the assets acquired and liabilities assumed at the acquisition date:

	Amount
	(in thousands)
In process research and development	$	8,000
Deferred tax liability		(3,260	)
Goodwill		3,631
Liabilities assumed (net of cash acquired)		(82	)
	$	8,289