Acquisition

12 Months Ended

Dec. 31, 2023

Acquisition

Acquisition

4. ACQUISITION

On October 10, 2023, the Company completed a tender offer to purchase the outstanding common stock of Zynerba (“Zynerba Common Stock”) for (i) $1.1059 per share of Zynerba Common Stock (the “Common Cash Amount”), plus (ii) one contingent value right (each, a “CVR”) per share of Zynerba Common Stock (the “Common CVR Amount”), which represents the right to receive up to approximately $2.5444 per share of Zynerba Common Stock, subject to the achievement of certain clinical, regulatory and sales-based milestones. Both the Common Cash Amount and Common CVR Amount are to be paid in cash, subject to any applicable withholding of taxes and without interest. The aggregate amount of consideration to acquire Zynerba Common Stock was $60,000, excluding transaction related fees of $2,645 and was paid by the Company using cash on hand.

The total purchase consideration for Zynerba was as follows:

Cash consideration paid to selling shareholders (i)	$	55,960
Cash consideration paid to settle Zynerba restricted stock awards ("RSAs") as stock options (ii)		4,040
Transaction costs		2,645
Total purchase consideration	$	62,645

(i) The cash consideration paid to selling shareholders was determined based on the total number of Zynerba shares tendered at closing of 50,602,656 at a per share price of $1.1059.

(ii) The cash consideration paid to settle Zynerba restricted stock awards (“RSAs”) and stock options under Zynerba equity incentive plans was determined based on the total number of underlying shares of 4,000,169 at a per share price of $1.1059, less exercise price for the stock options.

All consideration was paid during the year ended December 31, 2023.

The Zynerba Acquisition was accounted for as an asset acquisition under ASC Topic 805, Business Combinations, because substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable IPR&D asset, ZYN002, Zynerba’s lead asset. ZYN002 is the first and only pharmaceutically manufactured, synthetic cannabidiol, a non-euphoric cannabidiol, formulated as a patent-protected permeation-enhanced gel for transdermal delivery through the skin and into the circulatory system and is currently in Phase III clinical trial for the potential treatment of Fragile X Syndrome. The Company recognized the acquired assets and assumed liabilities based on the consideration paid, including transaction costs, on a relative fair value basis, and after first allocating the preliminary excess of the fair value of net assets acquired over the purchase price consideration to certain qualifying assets, principally, the IPR&D asset. In accordance with the accounting for asset acquisitions, an entity that acquires IPR&D assets in an asset acquisition follows the guidance in ASC Topic 730 Research and Development, which requires that both tangible and intangible identifiable research and development assets with no alternative future use be allocated a portion of the consideration transferred and recorded as

research and development expense at the acquisition date. As a result, the Company recorded a charge of $2,260 related to acquired in-process research and development expense related to the ZYN002 IPR&D asset during the year ended December 31, 2023.

The following table shows the allocation of the purchase consideration based on the relative fair value of assets acquired and liabilities assumed by the company, after reducing the excess fair value of the IPR&D asset as described above:

Assets acquired
Cash and cash equivalents	$	25,658
Prepaid expenses and other current assets		3,540
Deferred tax asset		44,800
Restricted cash		20
Acquired in-process research and development		2,260
Total assets acquired	$	76,278
Liabilities assumed
Accounts payable		4,995
Accrued expenses and accrued compensation		8,479
Other current liabilities		159
Total liabilities assumed	$	13,633
Net assets acquired	$	62,645

Subsequent to the acquisition, The Company incurred $7,544 in severance charges related to the acquisition, of which $3,858 was included in general administrative expenses and $3,686 was included in research and development expenses, within the consolidated statements of operations for the year ended December 31, 2023. As of December 31, 2023, the Company had accrued $7,544 related to these severance charges, which is included in accrued compensation in the consolidated balance sheet.

The amount of Zynerba’s net loss included in the consolidated statements of operations and comprehensive income for the year ended December 31, 2023, was $14,451. There was no revenue from Zynerba included in the consolidated statements of operations and comprehensive income for the year ended December 31, 2023, as Zynerba has no historical sales.

Unaudited Pro Forma Financial Information

Unaudited pro forma net income was $108,350 and $135,567 for the year ended December 31, 2023, and 2022, respectively and there was no adjustment to unaudited pro forma net product revenue for the year ended December 31, 2023, and 2022, as Zynerba has no historical sales through December 31, 2023.

The unaudited pro forma combined financial information presented above has been prepared from historical financial statements that have been adjusted to give effect to the acquisition of Zynerba as though it had occurred on January 1, 2022. They include adjustments for severance expense and acquired in-process research and development expense. The unaudited pro forma financial information is not intended to reflect the actual results of operations that would have occurred if the acquisition had occurred on January 1, 2022, nor is it indicative of future operating results.