Note

- Business Combination

December 21, 2018 (

the Acquisition Date), we completed the acquisition of all the capital stock of CVie Investments Limited (CVie Investments), an exempted company with limited liability incorporated under the laws of the Cayman Islands, by issuing

5,418,686

shares of its common stock (CVie Acquisition). The purchase price for the CVie Acquisition was approximately

$67.5

million. We operate CVie and its wholly-owned subsidiary, CVie Therapeutics Limited (CVie Therapeutics, and together with CVie Investments, CVie), a Taiwan corporation organized under the laws of the Republic of China and CVie Investments’ operating company, as a subsidiary focused on development of drug product candidates in cardiovascular diseases. The CVie Acquisition was undertaken as part of a strategic initiative to create stockholder value and resulted from a multi-year process focused on identifying strategic opportunities, including potential strategic alliances, collaborations (primarily outside the United States), joint development opportunities, acquisitions, technology licensing arrangements, as well as potential combinations (including by merger or acquisition) or other corporate transactions.

In connection with the CVie Acquisition, our board of directors declared a dividend to the holders of record of outstanding shares of common stock, and holders of certain warrants to purchase common stock, that were outstanding on

December 20, 2018

0.6148

Series H AEROSURF Warrant, for each share of common stock held by a shareholder or each warrant held by a warrant holder, as applicable, on the record date (AEROSURF Warrants). The AEROSURF Warrants are exercisable for an aggregate of

987,722

shares of common stock. Each AEROSURF Warrant has a term of

five

years and provides for automatic exercise into

one

share of common stock, without any exercise price, upon our public announcement of the dosing of the

first

human subject enrolled in our phase

clinical trial for AEROSURF. The AEROSURF Warrants are derivatives that qualify for an exemption from liability accounting as provided for in ASC Topic

815,

Derivatives and Hedging - Contracts in Entity’s own Equity

, and have been classified as equity. The

$12.5

million fair value at issuance of the AEROSURF Warrants was determined using the Black- Scholes option-pricing model. The input assumptions used in the valuation are the historical volatility of our common stock price, the expected term of the warrants of

two

and a half years based on the expected date of the

first

human subject enrollment in our phase

clinical trial for AEROSURF, and the risk-free interest rate based on the average

two

-year and

three

-year treasury bill rate in effect at the measurement date.

Significant Input Assumptions of Warrant Valuation
Historical volatility	116	%
Expected term (in years)	2.5
Risk-free interest rate	2.62	%

On the Acquisition Date, we entered into an indemnification letter agreement (the Indemnification Letter Agreement) with Lee’s Pharmaceutical Holdings Limited (Lee’s), pursuant to which Lee’s agreed to indemnify the holders of issued and outstanding shares of common stock on

December 20, 2018 (

the Indemnitees) for any loss, liability, damage or expense, including reasonable attorney’s fees and expenses incurred by us in connection with or, as a result of, any material inaccuracy in any representation or warranty made by CVie in the Merger Agreement (notwithstanding that the representations and warranties made by CVie do

not

survive after the closing of the merger). To secure Lee’s performance of this indemnity obligation,

328,000

of the shares issued to Lee’s affiliate in the Merger were placed in escrow with our transfer agent, Continental Stock Transfer & Trust Company for

one

year. The shares were released from escrow as of

December 31, 2019.

The aggregate purchase price has been allocated based on the fair value of assets acquired and liabilities assumed as of the acquisition date. The excess of the

$67.5

million acquisition consideration over the acquired net assets was recorded as goodwill. The goodwill recorded is

not

deductible for tax purposes. The following table summarizes the allocation of the purchase price to the estimated fair value of the net assets acquired and liabilities assumed.

(in thousands)
Cash and cash equivalents	$	193
Restricted cash		31
Prepaid expenses and other current assets		387
Property and equipment, net		76
Intangible assets		77,090
Total identifiable assets acquired	$	77,777

Current liabilities	$	(2,590	)
Loans payable, current		(7,944	)
Deferred tax liabilities, noncurrent		(15,418	)
Other liabilities, noncurrent		(7	)
Net identifiable assets acquired		51,818
Goodwill		15,682
Net assets acquired	$	67,500

The acquired identifiable intangible assets consist of in-process research and development (“IPR&D”) of approximately

$77.1

million with an indefinite useful life.

See,

Note

for further discussion.

From the Acquisition Date to

December 31, 2018,

we recorded net loss from the CVie Acquisition of approximately

$0.5

million.

The following table presents unaudited consolidated pro forma results of operations based on our historical financial statements and adjusted for the acquisition of CVie as if it occurred on

January 1, 2018.

The unaudited pro forma amounts were prepared for comparative purposes only and are

not

indicative of what actual consolidated results of our operations would have been, nor are they indicative of the consolidated results of operations in the future.

	Year Ended December 31,
(in thousands, except per share data)	2018

Pro forma net loss attributable to common shareholders	$	(38,082	)
Pro forma EPS - basic and diluted	$	(3.60	)

For the year ended

December 31, 2018,

net loss excludes the impact of transaction costs related to the CVie Acquisition and the impact of interest expense related to liabilities that were converted into common stock as part of the private placement.