Business Combinations and Other Strategic Investments

6 Months Ended

Jun. 30, 2016

Business Combinations [Abstract]

BUSINESS COMBINATIONS AND OTHER STRATEGIC INVESTMENTS

BUSINESS COMBINATIONS AND OTHER STRATEGIC INVESTMENTS

Akorn AG (formerly Excelvision AG)

On July 22, 2014, Akorn International S.à r.l., entered into a share purchase agreement with Fareva SA, a private company headquartered in France to acquire all of the issued and outstanding shares of capital stock of its wholly-owned subsidiary, Excelvision AG for 21.7 million CHF (“Swiss Francs”), net of certain working capital and inventory amounts, Excelvision AG was a contract manufacturer located in Hettlingen, Switzerland specializing in ophthalmic products.

On January 2, 2015, the Company completed the aforementioned acquisition of all of the outstanding shares of capital stock of Excelvision AG for $28.4 million U.S. dollars (“USD”) funded through available cash on hand. The Company’s acquisition of Excelvision AG is being accounted for as a business combination in accordance with ASC 805 - Business Combinations. The purpose of the acquisition was to expand the Company’s manufacturing capacity. On April 1, 2016 the name of Excelvision AG was changed to Akorn AG.

During the three month periods ended June 30, 2016 and 2015, the Company recorded $0 and $0.1 million, respectively in acquisition-related expenses in connection with the Akorn AG Acquisition, while during the six month periods ended June 30, 2016 and 2015, the Company recorded $0 and $0.1 million, respectively in acquisition-related expenses in connection with the Akorn AG Acquisition. These expenses principally consisted of various legal fees and other acquisition costs which have been recorded within “acquisition related costs” as part of operating expenses in the Company’s condensed consolidated statement of comprehensive income.

The following table sets forth the consideration paid for the Akorn AG Acquisition and the fair values of the acquired assets and assumed liabilities (in millions of USD) as of the acquisition date adjusted in accordance with GAAP. The figures below may differ from historical financial results of Akorn AG.

Consideration:
Amount of cash paid	$	25.9
Outstanding amount payable to Fareva		2.5
Total consideration at closing	$	28.4
Recognized amounts of identifiable assets acquired:
Cash and cash equivalents	$	1.2
Accounts receivable		3.4
Inventory		4.2
Other current assets		0.9
Property and equipment		26.6
Total assets acquired		36.3
Assumed current liabilities		(1.7	)
Assumed non-current liabilities		(3.9	)
Deferred tax liabilities		(1.4	)
Total liabilities assumed		(7.0	)
Bargain purchase gain		(0.9	)
Fair value of assets acquired	$	28.4

Through its acquisition of Excelvision AG the Company recognized a bargain purchase gain of $0.9 million which was largely derived from the difference between the fair value and the book value of the property and equipment acquired through the acquisition. This bargain purchase gain has been recognized within net income for the six month period ended June 30, 2015.

During the three month periods ended June 30, 2016 and 2015, the Company recorded net revenue of approximately $3.7 million and $8.8 million related to sales from the Akorn AG, while for the six month periods ended June 30, 2016 and 2015, the Company recorded net revenue of approximately $10.6 million and $15.3 million, respectively related to external customer sales from the Akorn AG location subsequent to acquisition.

Other Strategic Investments

On August 1, 2011, the Company entered into a Series A-2 Preferred Stock Purchase Agreement to acquire a minority ownership interest in Aciex Therapeutics Inc. (“Aciex”), a private ophthalmic development pharmaceutical company based in Westborough, MA, for $8.0 million in cash.  Subsequently, on September 30, 2011, the Company entered into Amendment No. 1 to Series A-2 Preferred Stock Purchase Agreement to acquire additional shares of Series A-2 Preferred Stock in Aciex for $2.0 million in cash.  On April 17, 2014, the Company entered into a Secured Note and Warrant Purchase Agreement to acquire secured, convertible promissory notes of Aciex for $0.4 million in cash.  On June 27, 2014, the Company entered into a second Secured Note and Warrant Purchase Agreement to acquire additional secured, convertible promissory notes of Aciex for an additional amount of $0.4 million. The Company’s aggregate investment in Aciex was $10.8 million at cost.  Aciex was an ophthalmic drug development company focused on developing novel therapeutics to treat ocular diseases. Aciex’s pipeline consists of both clinical stage assets and pre-Investigational new drug stage assets.  The investments detailed above provided the Company with an ownership interest in Aciex of below 20%.  The Aciex Agreement and Aciex Amendment contain certain customary rights and preferences over the common stock of Aciex and further provide that the Company shall have the right to a seat on the Aciex board of directors.

On July 2, 2014, Nicox S.A., (“Nicox”) an international company, entered into an arrangement to acquire all of the outstanding equity of Aciex (the “Aciex Acquisition”).

On October 22, 2014, Nicox shareholders voted at the Nicox General Meeting to approve the Aciex Acquisition. The transaction was consummated on October 24, 2014, following the completion of certain legal conditions and formalities. As consideration for its carried investment in Aciex, the Company received from the Aciex Acquisition pro-rata shares of Nicox which are publically traded on the Euronext Paris exchange. Through the closing the Company received 4.3 million shares of Nicox which were subject to certain lockup provisions preventing immediate sale of underlying shares received.

Through the years ended December 31, 2015 and 2014, the Company sold 1.1 million and 0.2 million unrestricted shares for $2.6 million and $0.6 million, realizing a loss of $0.2 million and an immaterial gain on the sale of shares, respectively. During the three and six months ended June 30, 2016 the Company sold $6.0 million of the available-for-sale securities, realizing an immaterial loss through the sales.

In accordance with ASC 820 - Fair Value Measurement, the Company records unrealized holding gains and losses on available-for-sale securities in the “Accumulated other comprehensive income” caption in the condensed consolidated Balance Sheet.  As of June 30, 2016, the Company recognized an unrealized holding loss of $0.1 million as calculated based on the discounted value of the investment given the contractual lockup provisions. The Company has determined that all of the $1.5 million of unrealized fair value associated with the investment is available to be converted to cash within one year from the balance sheet date and has been classified as a current asset.

Other Individually Insignificant Product Acquisitions

During the three months ended June 30, 2016 and 2015, the Company paid $2.4 million and $0.8 million, respectively, while during the six months ended June 30, 2016 and 2015, the Company paid $3.4 million and 0.8 million, respectively, for the acquisition of drug product licensing rights (NDA, ANDA and ANADA rights) which were not individually significant. No assets were acquired other than the drug rights, and no liabilities were assumed.