In September 2020, the Company entered into a stock purchase agreement to acquire 100% of the outstanding equity of Oscine Corp. (Oscine), a privately-held early-stage biotechnology company whose primary asset was IPR&D related to its ex vivo glial progenitor cell technology focused on brain disorders. The Company acquired Oscine for a purchase price of $8.5 million, of which $7.6 million was an upfront cash payment, and $0.9 million was set aside to satisfy certain general representations and warranties set forth in the stock purchase agreement (Oscine Holdback Amount). The Oscine Holdback Amount was paid in full in December 2021.

The Company evaluated the acquisition and determined the screen test, as permitted under ASC 805, Business Combinations, was met, as the $8.5 million purchase price represented consideration for a single identifiable asset related to the technology. The Company concluded the asset acquired did not meet the definition of a business, and the asset had no alternative future use. The transaction was accounted for as an asset acquisition, and the purchase price of $8.5 million was recorded in research and development expense for the year ended December 31, 2020.

The Company is required to make up to an aggregate of $225.8 million in future milestone payments upon the achievement of certain development and commercial milestones.

In November 2019, the Company acquired 100% of the outstanding equity of Cytocardia, Inc. (Cytocardia), a privately-held early-stage biotechnology company whose primary asset was IPR&D related to its ex vivo cell engineering technology focused on replacement of damaged heart cells. The Company acquired Cytocardia for a purchase price of $8.0 million, of which $6.8 million was an upfront cash payment, and $1.2 million was set aside to satisfy certain general representations and warranties set forth in the stock purchase agreement (Cytocardia Holdback Amount). The Cytocardia Holdback Amount was paid in full in February 2021.

The Company evaluated the acquisition and determined the screen test, as permitted under ASC 805, Business Combinations, was met, as the $8.0 million purchase price represented consideration for a single identifiable asset related to the technology. The Company concluded the asset acquired did not meet the accounting definition of a business, and the asset had no alternative future use. The transaction was accounted for as an asset acquisition, and the purchase price of $8.0 million was recorded in research and development expense for the year ended December 31, 2019.

The Company is required to make future milestone payments of up to an aggregate of $140.0 million upon the achievement of certain pre-specified development and commercial milestones.

In February 2019, the Company acquired 100% of the outstanding equity in Cobalt, a privately-held early-stage biotechnology company developing a platform technology using its fusogen technology to specifically and consistently deliver various biological payloads to cells. The Company issued 36.4 million shares of its Series A-2 convertible preferred stock, valued at $136.0 million, in consideration for this transaction. Of the 36.4 million shares of Series A-2 convertible preferred stock issued, 12.1 million shares were restricted based on the achievement of a pre-specified development milestone, which was achieved in July 2019. Additionally, 0.7 million RSAs and 0.3 million RSUs were granted to former employees of Cobalt. Upon the closing of the Company’s IPO in February 2021, the Series A-2 convertible preferred stock issued in connection with the acquisition of Cobalt converted into common stock.

The Company accounted for the Cobalt acquisition as a business combination using the acquisition method of accounting. Under this method, the assets acquired and liabilities assumed are measured at their fair values as of the acquisition date. The elements of the purchase consideration are as follows (in thousands):

Series A-2 convertible preferred stock issued⁽¹⁾	$	97,178
First milestone - restricted Series A-2 convertible preferred stock⁽²⁾		38,769
Success payment⁽³⁾		2,428
Fair value of contingent consideration⁽⁴⁾		51,248
Other		66
Total consideration	$	189,689

(2)

The Company concluded the value of the first milestone, to be paid in restricted shares of Series A-2 convertible preferred stock, met the definition of being indexed to common stock. The restricted Series A-2 convertible preferred shares were recorded in convertible preferred stock valued at $38.8 million based on the estimated probability and timing of the milestone achievement on the date of acquisition and are not subject to remeasurement upon achievement of the milestone. In July 2019, the first milestone was achieved, and the Company issued a total of 12.1 million shares of its Series A-2 convertible preferred stock.

(3)

The fair value of the success payment was determined using a Monte Carlo simulation methodology, which models the estimated fair value of the liability based on several key assumptions including the term of the success payment, expected volatility, risk-free interest rate, estimated number and timing of valuation measurement dates on the basis of which payment may be triggered, and the estimated future value of the Company implied by the estimated future per share value of the Company’s Series B convertible preferred stock at issuance.

The allocation of the purchase price is based on the estimated fair value of the assets acquired and liabilities assumed as of the date of acquisition. The components of the purchase price allocation are as follows (in thousands):

Net working capital	$	(3,275	)
Property and equipment		689
Net liabilities assumed		(2,586	)
Deferred tax liability		(7,547	)
Acquired in-process research and development		59,195
Goodwill		140,627
Total consideration	$	189,689

As part of the Cobalt acquisition, the Company recorded an intangible asset of $59.2 million, which consists of IPR&D that is classified as indefinite-lived until the successful completion of the associated research and development technology, at which point it becomes a finite-lived asset and will be amortized over its estimated useful life. If the research and development technology is abandoned, an impairment charge will be recorded. The Company is actively developing the fusogen technology and, accordingly, the intangible asset is not complete. Amortization will begin when regulatory approval is obtained in a major market, typically either the United States or the European Union.

The Company recognized $140.6 million of goodwill as a result of the Cobalt acquisition, which is primarily attributable to the value the acquisition provides the Company by complementing the Company’s ex vivo portfolio with in vivo cell engineering technology and furthering the Company’s research in using engineered cells as medicines. The goodwill is not deductible for income tax purposes.

Pursuant to the terms and conditions in the Cobalt acquisition agreement, the Company has an obligation to pay to certain former Cobalt stockholders up to an aggregate of $500.0 million in contingent consideration (Cobalt Contingent Consideration) upon the achievement of certain pre-specified development milestones, and a success payment (Cobalt Success Payment) of up to $500.0 million, payable in cash or stock. The Cobalt Success Payment is payable if, at pre-determined valuation measurement dates, including the closing of the Company’s IPO, the Company’s market capitalization equals or exceeds $8.1 billion, and the Company is advancing a program based on the fusogen technology in a clinical trial pursuant to an investigational new drug application (IND), or has filed for, or received approval for, a biologics license application (BLA) or new drug application (NDA). The Cobalt Success Payment can be achieved over a maximum of 20 years from the date of the Cobalt acquisition, but this period could be shorter upon the occurrence of certain events. As of December 31, 2021, a Cobalt Success Payment had not been triggered.

In addition to our IPO, a valuation measurement date would be triggered upon a change of control of the Company if at least one Company product based on the fusogen technology is the subject of an active research program at the time of such change of control. If there is a change of control and the Company’s market capitalization is below $8.1 billion as of the date of the change of control,

the amount of the potential Cobalt Success Payment will decrease, and the amount of potential Cobalt Contingent Consideration will increase.

The following table sets forth various thresholds for the Company’s market capitalizations as of the date of a change of control and the resulting potential Cobalt Success Payment and additional potential Cobalt Contingent Consideration:

Sana market capitalization upon a change of control and resulting impact to Cobalt Success Payment and additional potential Cobalt Contingent Consideration	Cobalt Success Payment		Additional potential Cobalt Contingent Consideration
	(in millions)
Equal to or exceeds $8.1 billion	$	500	$	-
Equal to or exceeds $7.4 billion, but less than $8.1 billion		150		350
Equal to or exceeds $6.8 billion, but less than $7.4 billion		100		400
Less than $6.8 billion		-		500

The Cobalt Success Payment and Cobalt Contingent Consideration liabilities are carried at fair value with changes in fair value recognized in research and development related success payments and contingent consideration. As of December 31, 2021 and 2020, the estimated fair value of the Cobalt Success Payment liability was $88.3 million and $64.7 million, respectively, and was recorded in long-term liabilities in the consolidated balance sheets. As of December 31, 2021, the estimated fair value of the Cobalt Contingent Consideration was $153.7 million, of which $51.4 million was recorded in short-term liabilities and $102.3 million was recorded in long-term liabilities in the consolidated balance sheet. As of December 31, 2020, the estimated fair value of the Cobalt Contingent Consideration was $121.9 million and was recorded in long-term liabilities in the consolidated balance sheet. For the years ended December 31, 2021, 2020, and 2019 the Company recognized $23.6 million, $62.3 million, and an immaterial amount, respectively, in connection with the change in fair value of the Cobalt Success Payment, and $31.8 million, $52.8 million, and $17.9 million, respectively, in connection with the change in fair value of the Cobalt Contingent Consideration.