Acquisitions

12 Months Ended

Dec. 31, 2019

Business Acquisitions

Exonics Therapeutics, Inc.

On July 16, 2019, the Company completed its acquisition of Exonics Therapeutics, Inc. (“Exonics”), a privately held biotechnology company focused on creating transformative gene-editing therapies to repair mutations that cause DMD and other severe neuromuscular diseases, including DM1. The Company acquired Exonics for an upfront payment of approximately $245.0 million, customary working capital adjustments and approximately $70.0 million in deferred payments. Exonics’ equity holders may receive an additional $728.0 million upon the successful achievement of specified development and regulatory milestones for the DMD and DM1 programs.

The Company concluded that Exonics’ intellectual property, assembled workforce and scientific expertise, has the potential to produce therapies for patients with DMD and DM1; therefore, it accounted for the acquisition as a business combination. The Company determined that the purchase price related to the Exonics business combination was $438.4 million, which consisted of (i) the upfront payment as adjusted for customary working capital adjustments, and (ii) the estimated fair value related to $678.3 million of contingent development and regulatory milestones attributable to the purchase of Exonics’ outstanding shares on July 16, 2019. The remaining portion, or $49.7 million, of the development and regulatory milestones and the $70.0 million in deferred payments were determined to be compensatory, as they relate to post-acquisition services, and will be expensed to “Research and development expenses” as incurred.

The purchase price consisted of the following:



	(in thousands)
Upfront payment (adjusted for customary working capital adjustments)	$	266,315
Fair value of contingent development and regulatory payments	172,041
Total purchase price	$	438,356

The Company’s methodology for determining the fair value of the contingent development and regulatory payments is described in Note E, “Fair Value Measurements.”

The Company allocated the purchase price to the following assets acquired and liabilities assumed:



	July 16, 2019
	(in thousands)
Cash and cash equivalents	$	19,535
Goodwill	397,141
Intangible asset	13,000
Net other assets	8,680
Total purchase price	$	438,356

The “Goodwill” represents the difference between the fair value of the consideration transferred and the fair value of the assets and liabilities acquired. The goodwill was attributable to Exonics’ technological expertise, assembled workforce, the potential additional therapeutic programs that may be discovered utilizing Exonics’ DMD and DM1 programs and synergies

from combining these programs with the Company’s current gene-editing capabilities through its collaboration with CRISPR. None of the goodwill is expected to be deductible for income tax purposes. The “Intangible asset” is a single in-process research and development asset related to Exonics’ DMD and DM1 programs. The Company concluded that the intangible asset was a single asset based on similarities between the DMD and DM1 programs including (i) their pre-clinical stage of development, (ii) the development activities and technologies necessary to further develop them, which will be managed on a combined basis, (iii) anticipated pricing and (iv) patient populations. The fair value of the intangible asset was determined through a discounted cash flow analysis utilizing Level 3 fair value inputs related to the development and commercialization of therapies for DMD and DM1. As of December 31, 2019, the Company’s accounting for the Exonics business combination is complete.

Semma Therapeutics, Inc.

On October 10, 2019, the Company completed its acquisition of Semma Therapeutics, Inc. (“Semma”), a privately held biotechnology company primarily focused on the use of stem cell-derived human islets as a potentially curative treatment for type 1 diabetes. The Company acquired Semma in exchange for a purchase price of $936.8 million.

The Company allocated the purchase price to the following assets acquired and liabilities assumed:



	October 10, 2019
	(in thousands)
Cash and cash equivalents	$	29,331
Property and equipment, net	17,111
Goodwill	554,633
Intangible assets	387,000
Deferred tax liability	(54,160		)
Net other assets	2,849
Total purchase price	$	936,764

The “Goodwill” represents the difference between the fair value of the consideration transferred and the fair value of the assets and liabilities acquired. The goodwill was attributable to the technological expertise in cell therapy of Semma’s assembled workforce, the potential synergies from combining Semma’s proprietary platform with the Company’s clinical development capabilities and the potential additional therapeutic programs that may be discovered utilizing Semma’s proprietary platform. None of the goodwill is expected to be deductible for income tax purposes.

The “Intangible assets” are in-process research and development assets of $379.0 million and $8.0 million related to Semma’s pre-clinical treatments for device-assisted cells and naked islets, respectively. Semma produces human pancreatic beta cells, or islets, that could potentially help type 1 diabetes patients produce appropriate levels of insulin and safely control hypoglycemia. The “naked islets treatment” is intended for a small portion of the type 1 diabetes patient population who are already receiving immunosuppression therapy and can receive the islets without their immune system destroying them. For the majority of type 1 diabetes patients, who are not receiving immunosuppression therapy, Semma is seeking to develop a “device-assisted cells treatment” alternative, which includes a novel device that is designed to encapsulate and protect the islets from the immune system. The device could potentially enable durable implantation without the need for ongoing immunosuppressive therapy.

The Company determined that device-assisted cells and the naked islets were two separate assets based on, among other things, (i) the separate type 1 diabetes patient populations expected to receive the treatments and (ii) the clinical and regulatory risks and costs associated with developing the islets versus developing and manufacturing the device.

The fair values of the intangible assets were determined through a discounted cash flow analysis utilizing Level 3 fair value inputs including (i) assumptions regarding the probability of obtaining marketing approval for the treatments;(ii) estimates regarding the timing of and the expected costs to develop and commercialize the treatments; (iii) estimates of future cash flows from potential product sales with respect to treatments; and (iv) appropriate discount and tax rates.

The Company’s “Deferred tax liability” in the table above is recorded as a reduction to “Deferred tax assets” on the Company’s consolidated balance sheet.

As of December 31, 2019, the Company’s accounting for the Exonics and Semma business combinations is complete. The Company has not provided pro forma information because the operations of Exonics and Semma did not have a material effect on its consolidated financial statements. The Company’s consolidated financial statements reflect the operations of Exonics and Semma as of December 31, 2019 and for the periods from July 16, 2019 and October 10, 2019 to December 31, 2019, respectively.

Asset Acquisition

Concert Pharmaceuticals

In 2017, the Company acquired certain CF assets including VX-561 (the “Concert Assets”) from Concert Pharmaceuticals Inc. (“Concert”) pursuant to an asset purchase agreement (the “Concert Agreement”). VX-561 is an investigational CFTR potentiator that has the potential to be used as part of combination regimens of CFTR modulators to treat CF. Pursuant to the Concert Agreement, the Company paid Concert $160.0 million in cash for the Concert Assets. If VX-561 is approved as part of a combination regimen to treat CF, Concert could receive up to an additional $90.0 million in milestones based on regulatory approval in the United States and reimbursement in the United Kingdom, Germany or France. The Company determined that substantially all of the fair value of the Concert Agreement was attributable to a single in-process research and development asset, VX-561, which did not constitute a business. The Company concluded that it did not have any alternative future use for the acquired in-process research and development asset. Thus, the Company recorded the $160.0 million upfront payment to “Research and development expenses” in 2017. The total cost of the transaction was $165.1 million including $5.1 million of transaction costs that were recorded to “Sales, general and administrative expenses.”