Business Acquisition

9 Months Ended

Sep. 30, 2022

Business Acquisition

Business Acquisition

Note 4. Business Acquisition

On September 28, 2022, in accordance with the terms of an Agreement and Plan of Merger (the “Merger Agreement”), the Company acquired 100% of the outstanding security interests of Aceragen in a “stock-for-stock” transaction whereby all Aceragen outstanding equity interests were exchanged for a combination of shares of Idera common stock, shares of Series Z, and shares of the newly designated Series X non-voting preferred stock, par value $0.01 per share (the “Series X) (such acquisition, the “Aceragen Acquisition”, “of the Acquisition”).  Under the terms of the Merger Agreement, Aceragen stockholders received (i) 4,398,762 shares of the Company’s common stock, (ii) 80,656 shares of Series Z and (iii) five shares of Series X. In addition, all outstanding restricted shares subject to repurchase, options and warrants to purchase Aceragen common stock were converted into restricted shares, stock options and warrants to purchase shares of the Company’s common stock and Series Z on terms substantially identical to those in effect prior to the Aceragen Acquisition, except for adjustments to the underlying number of shares and the exercise price based on the Merger Agreement exchange ratio. Subject to stockholder approval of the conversion and an increase in authorized shares and certain beneficial ownership limitations set by each holder, each share of Series Z will automatically convert into 1,000 shares of common stock. Holders of shares of Series X are entitled to receive distributions on shares of Series X. The Acquisition was unanimously approved by the Board of Directors of the Company and the Board of Directors of Aceragen. The closing of the transaction was not subject to the approval of the Company’s stockholders.

Pursuant to the Merger Agreement, the Company has agreed to hold a stockholders’ meeting (the “Special Meeting”) to submit certain matters to its stockholders for their consideration, including: (i) the approval of the conversion of the Series Z preferred stock into shares of common stock in accordance with Nasdaq Listing Rule 5635(a) (the “Conversion Proposal”) and (ii) the approval to effect a reverse stock split of all of the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split Proposal” and, together with the Conversion Proposal, the “Merger Agreement Meeting Proposals”). In accordance with the Term Sheet (as defined below), the Company will also ask its stockholders at the Special Meeting to consider approving the issuance of common stock in connection with certain Convertible Notes (as defined below) that the Company expects to issue to certain former stockholders of Arrevus, Inc. In connection with these matters, the Company intends to file with the SEC a proxy statement and other relevant materials.

The Company’s transaction costs of $2.8 million were expensed as incurred and included in the “Acquisition-related costs” financial statement line item in the Company’s condensed consolidated statement of operations.

The transaction was accounted for under the acquisition method of accounting. Under the acquisition method, the total purchase price of the acquisition is allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on the fair values as of the date of the acquisition. The preliminary fair value of the consideration totaled approximately $55.7 million, summarized as follows:

(In thousands)
Common stock issued to Aceragen stockholders	$	1,672
Series Z issued to Aceragen stockholders (Note 9)		26,971
Series X liability in connection with Aceragen Acquisition (Note 8)		20,400
Stock options, restricted stock and warrants allocated to consideration paid		6,670
Total Consideration paid	$	55,713

The Company recorded the assets acquired and liabilities assumed as of the date of the acquisition based on the information available at that date. The following table presents the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date:

(In thousands)
Assets acquired:
Cash, cash equivalents and restricted cash	$	5,482
Receivables		1,914
Prepaid expenses and other assets		575
In-process research and development assets		63,067
Goodwill		9,934
	$	80,972
Liabilities assumed:
Accounts Payable and accrued expenses	$	7,827
Acquisition Obligation (Note 7)		7,476
Operating lease liabilities		22
Deferred tax liabilities		9,934
	$	25,259
Net assets acquired	$	55,713

The above allocation of the purchase price is based upon certain preliminary valuations and other analyses that have not been completed as of the date of this filing. Any changes in the estimated fair values of the net assets recorded for this business combination upon the finalization of more detailed analyses of the facts and circumstances that existed at the date of the transaction will change the allocation of the purchase price. As such, the purchase price allocations for the Acquisition are preliminary estimates, which are subject to change within the measurement period.

The fair value of IPR&D was capitalized as of the Acquisition date and accounted for as indefinite-lived intangible assets until completion or disposition of the assets or abandonment of the associated research and development efforts. Upon successful completion of the development efforts, the useful lives of the IPR&D assets will be determined based on the anticipated period of regulatory exclusivity and will be amortized within operating expenses. Until that time, the IPR&D assets will be subject to impairment testing and will not be amortized. The goodwill recorded related to the acquisition is the excess of the fair value of the consideration transferred by the acquirer over the fair value of the net identifiable assets acquired and liabilities assumed at the date of acquisition. The goodwill recorded is not deductible for tax purposes.

Pro Forma Financial Information

The following unaudited pro forma financial information reflects the consolidated results of operations of the Company as if the Acquisition of Aceragen had taken place on January 1, 2021. The pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transactions been effected on the assumed date.

	Three Months Ended					Nine Months Ended
(In thousands)	September 30,					September 30,
	2022		2021		2022		2021
Net revenues	$	3,865	$	79	$	13,334	$	79
Net (loss) income	$	(10,229)	$	(2,982)	$	(27,646)	$	100,723

Nonrecurring pro forma transaction costs directly attributable to the acquisition were $7.8 million and $0 for the three and nine months ended September 30, 2022 and 2021, respectively, have been deducted from the

net loss presented above. The costs deducted included a success fee of $3.4 million to be paid to a financial advisor following the closing of the Acquisition. Additionally, the Company incurred $0.8 million in retention costs as a result of stay bonuses to employees immediately following the closing of the Acquisition. The Company also incurred $2.8 million restructuring costs related to the 2022 reduction-in-workforce. These costs are excluded from the pro forma financial information for the three and nine months ended September 30, 2022. In addition, the Company recognized the $6.0 million income tax benefit for the three and nine months ended September 30, 2021 as if the transaction was completed on January 1, 2021.