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SEC Filings

10-Q
OREXIGEN THERAPEUTICS, INC. filed this Form 10-Q on 05/12/2017
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The Company may also be obligated to pay Takeda milestone payments of $10 million, $20 million, $30 million and $50 million, based on the achievement of annual Contrave net sales milestones of $200 million, $300 million $400 million and $600 million, respectively, in any future year. Each such milestone payment shall be payable only once but more than one may be payable with respect to net sales in a single year. The contingent consideration liability will be re-measured to fair value at each reporting date until the contingencies are resolved and any changes in fair value are recognized in earnings. See Footnote 6 for valuation methodology of contingent consideration. As a result of the Contrave acquisition and the resulting settlement of its pre-existing relationship with Takeda, the Company recorded a settlement gain of $80.2 million representing the remaining Contrave deferred revenue on August 1, 2016.

 

Purchase Consideration

 

The estimated fair value of the total consideration at the date of acquisition (August 1, 2016) is as follows (in thousands):

 

Prepaid purchase price payment to Takeda in March 2016

 

$

60,000

 

Fair value of contingent consideration due to Takeda

 

 

18,800

 

Payment due to Takeda for Contrave inventory

 

 

7,762

 

Estimated payment due to Takeda for charge-backs and rebates

 

 

823

 

Cash received from Takeda for estimated returns as of August 1, 2016

 

 

(1,667

)

Total Purchase Price

 

$

85,718

 

 

 

On the acquisition date, the estimated fair value of net assets acquired was $85.7 million. The preliminary allocation of the total consideration to the fair value of the assets acquired and liabilities assumed is subject to finalization of estimating the fair value of the assets acquired and liabilities assumed. The estimated fair values of the assets acquired and liabilities assumed, including the fair value of purchased intangibles, are preliminary estimates pending the finalization of our valuation analyses. The estimated fair value of the inventory and accrued expenses will be finalized as further information is received regarding these items and analysis of this information is completed. The allocation as of the date of the acquisition is as follows (in thousands):

 

Developed technology intangible

 

$

74,967

 

Tradename

 

 

4,400

 

Inventory

 

 

14,261

 

Assumption of accrued expenses (savings card program)

 

 

(5,687

)

Assumption of accrued expenses (returns reserve)

 

 

(2,223

)

Total Fair Value of Assets Acquired and Liabilities Assumed

 

$

85,718

 

 

The fair value of intangible assets (developed technology intangible and tradename) is determined primarily using the “income method,” which starts with a forecast of all expected future cash flows. Some of the more significant assumptions inherent in the intangible asset values, from the perspective of a market participant, include: the amount and timing of projected future cash flows (including net revenue, cost of product sales, research and development costs, sales and marketing expenses, capital expenditures and working capital requirements) as well as estimated contributory asset charges; the discount rate selected to measure the risks inherent in the future cash flows; and the assessment of the asset’s life cycle and the competitive trends impacting the asset, among other factors.

 

The remaining estimated amortization expense related to the intangible assets recorded in connection with the Contrave acquisition for 2017 through 2021 and thereafter is as follows (in thousands):

 

2017

 

 

5,953

 

2018

 

 

7,938

 

2019

 

 

7,938

 

2020

 

 

7,938

 

2021

 

 

7,938

 

Thereafter

 

 

36,372

 

 

 

$

74,077

 

 

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