In May 2022, the Company purchased certain assets and assumed certain liabilities associated with the V-Go wearable insulin delivery device from Zealand Pharma A/S and Zealand Pharma US, Inc. (together “Zealand”).

Under the terms of the agreement with Zealand, the Company paid up-front consideration of $15.3 million for certain assets and assumed liabilities related to V-Go. In addition, the Company will be obligated to make one-time sales-based milestone payments to Zealand totaling up to a maximum of $10.0 million upon the achievement of specified annual revenue milestones between $40 million and $100 million.

The total purchase consideration for V-Go was as follows (in thousands):


Fair value of consideration:	Amount
Cash consideration	$	15,341
Fair value of contingent consideration(1)		610
Total	$	15,951

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(1)

Subsequent changes in the fair value are reported in general and administrative expenses. As of June 30, 2023, the fair value of the contingent milestone liability was $0.6 million. The fair value of the contingent milestone liability as of December 31, 2022 was consistent with the fair value on the acquisition date.

The fair value of the contingent milestone liability was estimated using the Monte Carlo simulation method for the calculation of the potential payment and the Geometric Brownian Motion forecasting model to estimate the underlying revenue. Market based inputs and other level 3 inputs were used to forecast future revenue. The key inputs used included a risk-free rate of 3.92%, dividend yield of 0%, volatility of 43%, period of 15 years and credit risk of 17%.

The transaction was accounted for using the acquisition method of accounting, which requires, among other things, the assets acquired and liabilities assumed to be recognized at their respective fair values as of the acquisition date. The excess of the purchase price over those fair values was recorded as goodwill, which will be amortized over a period of 15 years for tax purposes. The estimates and assumptions used include the projected timing and amount of future cash flows and discount rates to reflect the risk inherent in the future cash flows. In May 2023, the Company finalized the fair value for assets acquired and liabilities assumed for V-Go.

Inventory of $11.2 million consisted of raw materials, semi-finished goods and finished goods. The fair value of the inventory was determined based on the estimated selling price to be generated from the finished goods, less costs to sell, including a reasonable margin, which are level 3 inputs not observable in the market. Property and equipment and assumed liabilities were recorded at their carrying amounts which were deemed to approximate their fair values based on level 3 unobservable inputs. The fair values of the right-of-use assets and lease liabilities for assumed operating leases were assessed in accordance with ASC 842, Leases, based on discounted cash flow from lease payments, utilizing the Company’s incremental borrowing rate of 7.25%.

The fair value of the intangible asset was determined by applying the income approach based on significant level 3 unobservable inputs. The income approach estimates fair value based on the present value of cash flow that the assets could be expected to generate in the future. The Company developed internal estimates for expected cash flows in the present value calculation using inputs and significant assumptions that include historical revenues and earnings, long-term growth rate, discount rate, contributory asset charges and future tax rates, among others.

The information below reflects the amounts of identifiable assets acquired and liabilities assumed as of May 31, 2023 (in thousands):


	Amount
Assets:
Inventory(1)	$	11,152
Property and equipment		2,921
Goodwill(1)		1,931
Intangible asset - Developed technology		1,200
Operating lease right-of-use assets		1,812
Total assets		19,016
Liabilities:
Liabilities assumed(1)		1,253
Operating lease liability		1,812
Total liabilities		3,065
Net assets acquired	$	15,951

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(1)

Through May 2023, goodwill related to the acquisition of V-Go was adjusted for a reduction in rebate-related liabilities partially offset by a reserve for inventory obsolescence.

There were no acquisition-related costs incurred during the three and six months ended June 30, 2023.

For the three and six months ended June 30, 2023, net revenue for V-Go was $4.8 million and $10.0 million, respectively, and loss from operations was $0.5 million and $1.5 million, respectively. For each of the three and six month periods ended June 30, 2022, net revenue and loss from operations for V-Go was $2.1 million and $0.3 million, respectively.

The following unaudited pro forma summary presents consolidated information of the Company as if the acquisition had occurred on January 1, 2022 (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Net revenue	$	48,611		$	24,992		$	89,237		$	43,082
Net loss		(5,265	)		(28,763	)		(15,060	)		(54,505	)
Net loss per share - basic and diluted		(0.02	)		(0.11	)		(0.06	)		(0.22	)

These pro forma amounts have been calculated by applying the Company’s accounting policies assuming transaction costs had been incurred beginning January 1, 2022. The Company did not have any other material nonrecurring pro forma adjustments directly attributable to the acquisition included in the reported pro forma revenue and loss.