ACQUISITIONS, INVESTMENTS AND LICENSES

Bio-Reference acquisition

In August 2015, we completed the acquisition of Bio-Reference, the third largest full service clinical laboratory in the United States, known for its innovative technological solutions and pioneering leadership in the areas of genomics and genetic sequencing. Holders of Bio-Reference common stock received 76,566,147 shares of OPKO Common Stock for the outstanding shares of Bio-Reference common stock. The transaction was valued at approximately $950.1 million, based on a closing price per share of our Common Stock of $12.38 as reported by the New York Stock Exchange, or $34.05 per share of Bio-Reference common stock. Included in the transaction value is $2.3 million related to the value of replacement stock option awards attributable to pre-merger service.

The following table summarizes the preliminary purchase price allocation and the estimated fair value of the net assets acquired and liabilities assumed at the date of acquisition. The purchase price allocation for Bio-Reference is preliminary pending completion of the fair value analysis of acquired assets and liabilities:



(In thousands)	Bio-Reference
Purchase price:
Value of OPKO Common Stock issued to Bio-Reference shareholders	$	947,889
Value of replacement stock options awards to holders of Bio-Reference stock options	2,259
Total purchase price	$	950,148

Preliminary value of assets acquired and liabilities assumed:
Current assets
Cash and cash equivalents	$	15,800
Accounts receivable	168,164
Inventory	19,674
Other current assets, principally deferred tax assets	99,116
Total current assets	302,754
Property, plant and equipment	112,457
Intangible assets:
Trade name	47,100
Customer relationships	395,200
Technology	100,600
Other intangible assets	7,750
Total intangible assets	550,650
Goodwill	386,858
Investments	5,326
Other assets	13,265
Total assets	1,371,310
Accounts payable and accrued expenses	(108,217		)
Income taxes payable	(1,014		)
Lines of credit and notes payable	(65,701		)
Capital lease obligations	(18,293		)
Deferred tax liability (non-current)	(227,937		)
Total purchase price	$	950,148

During 2016, we continued to finalize our purchase price allocation during the measurement period and obtained new fair value information related to certain assets acquired and liabilities assumed of Bio-Reference. As a result, for the six months ended June 30, 2016 we adjusted the purchase price allocation by increasing Other current assets by $38.0 million, increasing Other intangible assets by $7.8 million, decreasing Goodwill by $54.3 million, decreasing Accrued expenses by $0.5 million, increasing Income taxes payable by $0.6 million and decreasing Deferred tax liability (non-current) by $8.6 million. As a result of these adjustments, Amortization of intangible assets in our Condensed Consolidated Statement of Operations for the six months ended June 30, 2016 increased $2.2 million.

The purchase price allocation adjustments are largely due to an approval we received from the Internal Revenue Service during 2016 on an application for a change in accounting method. As a result of the change, we recognized an additional $51.2 million of income tax benefits, of which $39.4 million was recognized as a receivable in Other current assets and $11.8 million was recognized as a reduction of our Deferred tax liability (non-current). In addition, Goodwill was reduced by $51.2 million.

Goodwill from the acquisition of Bio-Reference principally relates to intangible assets that do not qualify for separate recognition (for instance, Bio-Reference’s assembled workforce), our expectation to develop and market new products, and the deferred tax liability generated as a result of the transaction. Goodwill is not tax deductible for income tax purposes and was assigned to the diagnostics reporting segment.

The weighted average amortization periods for intangible assets recognized in the Bio-Reference acquisition are 5 years for trade name, 19.3 years for customer relationships, 10.2 years for technology and 13.7 years in total.

Pro forma disclosure for Bio-Reference acquisition

The pro forma information has been prepared utilizing period ends that differ by less than 93 days, as permitted by Regulation S-X. We are a registrant with a fiscal year that ends on December 31 and Bio-Reference was a registrant with a fiscal year that ended on October 31. The pro forma results for the three and six months ended June 30, 2015 combines the results of operations of OPKO and Bio-Reference, giving effect to the merger as if it occurred on January 1, 2014, and are based on the individual condensed consolidated statements of operations of OPKO as of June 30, 2015 and Bio-Reference as of April 30, 2015.



(In thousands)	Three months ended June 30, 2015	Six months ended June 30, 2015
Revenues	$266,415	$505,333
Net loss	(40,252)	(157,880)
Net loss attributable to common shareholders	(39,777)	(156,480)

The unaudited pro forma financial information is presented for information purposes only. The unaudited pro forma financial information may not necessarily reflect our future results of operations or what the results of operations would have been had we owned and operated Bio-Reference as of the beginning of the period presented.

EirGen Pharma Limited acquisition

In May 2015, we acquired all of the issued and outstanding shares of EirGen, a specialty pharmaceutical company incorporated in Ireland focused on the development and commercial supply of high potency, high barrier to entry pharmaceutical products, for $133.8 million. We acquired the outstanding shares of EirGen for approximately $100.2 million in cash and delivered 2,420,487 shares of our Common Stock valued at approximately $33.6 million based on the closing price per share of our Common Stock as reported by the New York Stock Exchange on the closing date of the acquisition, $13.88 per share.

The following table summarizes the final purchase price allocation and the fair value of the net assets acquired and liabilities assumed in the acquisition of EirGen at the date of acquisition:



(In thousands)	EirGen
Current assets ⁽¹⁾	$	11,795
Intangible assets:
IPR&D assets	560
Customer relationships	34,155
Currently marketed products	3,919
Total intangible assets	38,634
Goodwill	83,373
Property, plant and equipment	8,117
Other assets	1,232
Accounts payable and other liabilities	(6,254		)
Deferred tax liability	(3,131		)
Total purchase price	$	133,766

(1)Current assets include cash, accounts receivable, inventory and other assets of $5.5 million, $2.7 million, $2.2 million and $1.4 million, respectively, related to the EirGen acquisition. The fair value of the accounts receivable equals the gross contractual amount at the date of acquisition.

Goodwill from the acquisition of EirGen principally relates to intangible assets that do not qualify for separate recognition (for instance, EirGen’s assembled workforce), our expectation to develop and market new products, and the deferred tax liability generated as a result of this being a partial stock transaction. Goodwill is not tax deductible for income tax purposes and was assigned to the pharmaceutical reporting segment.

Revenue and Net income (loss) in the Condensed Consolidated Statement of Operations for the six months ended June 30, 2015 includes revenue and net loss of EirGen from the date of acquisition to June 30, 2015 of $2.3 million and $0.8 million, respectively.

Our IPR&D assets will not be amortized until the underlying development programs are completed. Upon obtaining regulatory approval, the IPR&D assets are then accounted for as finite-lived intangible assets and amortized on a straight-line basis over its estimated useful life. The weighted average amortization periods for amortizing intangible assets recognized in the EirGen acquisition are 15.8 years for customer relationships, 10.0 years for currently marketed product and 15.0 years in total.

Pro forma disclosure for EirGen acquisition

The following table includes the pro forma results for the three and six months ended June 30, 2015 and combines the results of operations of OPKO and EirGen as though the acquisition of EirGen had occurred on January 1, 2014.



(In thousands)	Three months ended June 30, 2015	Six months ended June 30, 2015
Revenues	$43,848	$76,769
Net loss	(43,420)	(162,331)
Net loss attributable to common shareholders	(42,945)	(160,931)

The unaudited pro forma financial information is presented for information purposes only. The unaudited pro forma financial information may not necessarily reflect our future results of operations or what the results of operations would have been had we owned and operated EirGen as of the beginning of the period presented.

Investments

The following table reflects the accounting method, carrying value and underlying equity in net assets of our unconsolidated investments as of June 30, 2016:



(in thousands)
Investment type	Investment Carrying Value		Underlying Equity in Net Assets
Equity method investments	$	27,429	$	16,254
Variable interest entity, equity method	620		—
Available for sale investments	5,312
Warrants and options	888
Total carrying value of investments	$	34,249

Equity Method Investments

Our equity method investments consist of investments in Pharmsynthez (ownership 17%), Cocrystal Pharma, Inc. (“COCP”) (8%), Sevion Therapeutics, Inc. (“Sevion”) (3%), Non-Invasive Monitoring Systems, Inc. (1%), Neovasc (4%), VBI (17%) and InCellDx, Inc. (27%). The total assets, liabilities, and net losses of our equity method investees as of and for the six months ended June 30, 2016 were $421.4 million, $(167.8) million, and $(125.7) million, respectively. We have determined that we and/or our related parties can significantly influence the success of our equity method investments through our board representation and/or voting power. Accordingly, we account for our investment in these entities under the equity method. For investments classified under the equity method of accounting, we record our proportionate share of their losses in Loss from investments in investees in our Condensed Consolidated Statement of Operations. The aggregate value of our equity method investments based on the quoted market price of their common stock and the number of shares held by us as of June 30, 2016 is $57.7 million.

Available for Sale Investments

Our available for sale investments consist of investments in RXi Pharmaceuticals Corporation (“RXi”) (ownership 3%), ChromaDex Corporation (2%), MabVax Therapeutics Holdings, Inc. (“MabVax”) (1%), ARNO Therapeutics, Inc. (“ARNO”) (4%) and Xenetic Biosciences, Inc. (“Xenetic”) (6%). We have determined that our ownership, along with that of our related parties, does not provide us with significant influence over the operations of our available for sale investments. Accordingly, we account for our investment in these entities as available for sale, and we record changes in these investments as an unrealized gain or loss in Other comprehensive income (loss) each reporting period.

Sales of Investments

Gains (losses) included in earnings from sales of our investments are recorded in Other income (expense), net in our Condensed Consolidated Statement of Operations. We did not have any such activity in the six months ended June 30, 2016 and 2015. The cost of securities sold is based on the specific identification method. Refer to Investment in SciVac below.

Warrants and Options

In addition to our equity method investments and available for sale investments, we hold options to purchase 1.0 million additional shares of Neovasc, which are fully vested as of December 31, 2015, and 1.0 million, 0.8 million, 0.5 million, 1.8 million and 0.7 million of warrants to purchase additional shares of COCP, ARNO, Sevion, MabVax and InCellDx, Inc., respectively. We recorded the changes in the fair value of the options and warrants in Fair value changes of derivative instruments, net in our Condensed Consolidated Statements of Operations. We record the fair value of the options and warrants in Investments, net in our Condensed Consolidated Balance Sheets. See further discussion of the Company’s options and warrants in Note 8 and Note 9.

Investments in Variable Interest Entities

We have determined that we hold variable interests in Zebra Biologics, Inc. (“Zebra”). We made this determination as a result of our assessment that Zebra does not have sufficient resources to carry out its principal activities without additional financial support.

We own 1,260,000 shares of Zebra Series A-2 Preferred Stock and 900,000 shares of Zebra restricted common stock (ownership 29% at June 30, 2016). Zebra is a privately held biotechnology company focused on the discovery and development of biosuperior antibody therapeutics and complex drugs. Dr. Richard Lerner, M.D., a member of our Board of Directors, is a founder of Zebra and, along with Dr. Frost, serves as a member of Zebra’s Board of Directors.

In order to determine the primary beneficiary of Zebra, we evaluated our investment and our related parties’ investment, as well as our investment combined with the related party group’s investment to identify if we had the power to direct the activities that most significantly impact the economic performance of Zebra. We determined that we do not have the power to direct the activities that most significantly impact Zebra’s economic performance. Based on the capital structure, governing documents and overall business operations of Zebra, we determined that, while a VIE, we do not have the power to direct the activities that most significantly impact Zebra’s economic performance. We did determine, however, that we can significantly influence the success of Zebra through our board representation and voting power. Therefore, we have the ability to exercise significant influence over Zebra’s operations and account for our investment in Zebra under the equity method.

Investment in SciVac

In June 2012, we acquired a 50% stock ownership in SciVac from FDS Pharma LLP (“FDS”). SciVac was a privately-held Israeli company that produced a third-generation hepatitis B-vaccine. From November 2012 through June 30, 2015, we loaned to SciVac a combined $7.9 million for working capital purposes. We determined that we held variable interests in SciVac based on our assessment that SciVac did not have sufficient resources to carry out its principal activities without financial support. We had also determined we were the primary beneficiary of SciVac through our representation on SciVac’s board of directors. As a result of this conclusion, we consolidated the results of operations and financial position of SciVac through June 2015 and recorded a reduction of equity for the portion of SciVac we do not own.

On July 9, 2015, SciVac Therapeutics Inc., formerly Levon Resources Ltd. (“STI”) completed a reverse takeover transaction (the “Arrangement”) pursuant to which STI acquired all of the issued and outstanding securities of SciVac. As a result of this transaction, OPKO’s ownership in STI decreased to 24.5%.

Upon completion of the Arrangement, we determined that STI was not a VIE. We also determined that we do not have the power to direct the activities that most significantly impact the economic performance of STI that would require us to consolidate STI. We recorded a $15.9 million gain on the deconsolidation of SciVac in Other income (expense), net in our Condensed Consolidated Statement of Operations for the year ended December 31, 2015. The recognized gain was primarily due to the fair value of the retained interest in STI based on Levon’s cash contribution of approximately $21.2 million under the Arrangement.

Following the deconsolidation, we account for our investment in STI under the equity method as we have determined that we and/or our related parties can significantly influence STI through our voting power and board representation. STI is considered a related party as a result of our board representation in STI and executive management’s ownership interests in STI.

In May, 2016, STI completed a merger transaction pursuant to which a wholly-owned subsidiary of STI merged with and into VBI Vaccines Inc. with VBI Vaccines Inc. surviving the merger as a wholly-owned subsidiary of STI, and STI changed its name to VBI Vaccines Inc. (“VBI”) . We recorded a $2.5 million gain in connection with the merger transaction in Other income (expense), net in our Condensed Consolidated Statement of Operations for the six months ended June 30, 2016. In June 2016, we invested an additional $5.7 million in VBI for 1,362,370 shares of its common stock. As a result of these two transactions, OPKO’s ownership in VBI changed to 17%.

We account for our investment in VBI under the equity method as we have determined that we can significantly influence VBI through our board representation.

Other

On January 5, 2016, we completed a stock exchange agreement (the “Exchange Agreement”) with Relative Core Cyprus Limited (“Relative Core”) pursuant to which Relative Core agreed to transfer and sell to us that certain number shares of Xenetic having a fair market value of $5.0 million in exchange for that number of shares of our common stock having a fair market value of $5.0 million. We issued 494,462 shares of our common stock to Relative Core and received 10,204,082 shares of Xenetic common stock from Relative Core. The number of shares exchanged in the transaction was calculated based on the average closing sale price for our common stock on the NYSE for the ten (10) consecutive trading day period ending on the second day prior to the closing and the average closing sale price for Xenetic’s common stock on the OTC “Pink Sheet” for the ten (10) consecutive trading day period ending on the second day prior to the closing. We account for investment in Xenetic as an available for sale investment.

In March 2016, we entered into an agreement with Relative Core pursuant to which we delivered $5.0 million to Relative Core in exchange for a $5.0 million promissory note (“Relative Note”) which bears interest at 10% and is due in March 2017. The Relative Note is secured by 4,000,000 shares of common stock of Xenetic and 494,462 shares of OPKO common stock. We recorded the Relative Note within Other current assets and prepaid expenses in our Condensed Consolidated Balance Sheet.