Quarterly report pursuant to Section 13 or 15(d)

Business Combination

v3.5.0.2
Business Combination
3 Months Ended
Mar. 31, 2016
Business Combinations [Abstract]  
Business Combination
Business Combination

On January 8, 2016, the Company acquired substantially all of the assets and liabilities of OMT. OMT is a biotechnology company engaged in the genetic engineering of animals for the generation of human therapeutic antibodies through its OmniAb® technology, which currently offers three transgenic animal platforms for license, including OmniRat®, OmniMouse® and OmniFlic®. The transaction, which was accounted for as a business combination, added 16 partnered programs to the Company's portfolio and provides the Company with opportunities for further licensing and collaborations in the area.

The aggregate acquisition consideration was $174.0 million, consisting of (in thousands):

Cash consideration
$
96,359

Total share consideration:
 
     Actual number of shares issued
793

     Multiplied by: Ligand closing share price on January 8, 2016
$
97.92

Total share consideration
77,658

Total consideration
$
174,017



The acquisition consideration is subject to certain customary post-closing adjustments up to 15 months from January 8, 2016, in accordance with the terms and subject to the conditions contained in the Merger Agreement between the Company and OMT.
    The acquisition consideration was preliminarily allocated to the acquisition date fair values of acquired assets and assumed liabilities as follows (in thousands):

     Cash and cash equivalents
$
3,504

     Accounts receivable
5

     Income tax receivable
140

     Prepaid expenses and other current assets
2

     Deferred tax liabilities, net
(56,114
)
     Intangible asset with finite life - core technology
167,000

     Liabilities assumed
(1,279
)
     Goodwill
60,759

Total consideration
$
174,017


The fair value of the core technology, or OMT's OmniAb technology, was based on the discounted cash flow method that estimated the present value of a hypothetical royalty stream derived from the licensing of the OmniAb technology. These projected cash flows were discounted to present value using a discount rate of 15.5%. The fair value of the core technology is being amortized on a straight-line bases over the estimated useful life of 20 years.

The excess of the acquisition date consideration over the fair values assigned to the assets acquired and the liabilities assumed of $60.8 million was recorded as goodwill, which is not deductible for tax purposes and is primarily attributable to OMT’s revenue growth from combining the OMT and Ligand businesses and workforce, as well as the benefits of access to different markets and customers.

The purchase price allocations were prepared on a preliminary basis and are subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed. Any measurement period adjustments to the OMT purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.

The following table presents supplemental pro forma information for the three months ended March 31, 2016 and March 31, 2015, as if the acquisition of OMT had occurred on January 1, 2015 (in thousands except for EPS):

 
March 31,
March 31,
 
2016
2015
Revenue
$
32,124

$
17,152

Net income
$
8,877

$
(474
)
 
 
 
Basic earnings per share:
$
0.43

$
(0.02
)
Diluted earnings per share:
$
0.40

$
(0.02
)


The unaudited pro forma consolidated results include pro forma adjustments that assume the acquisition occurred on January 1, 2015. The primary adjustments include: (i) the $0.3 million share based compensation expenses  related to the stock awards issued to the retained OMT employees after the acquisition, and (ii) additional intangible amortization expense of $0.2 million and $2.1 million was included in the quarter ended March 31, 2016 and 2015, respectively. The adjustments also include $2.5 million license revenue recognized by OMT from January 1, 2016 to the acquisition date. The unaudited pro forma consolidated results are not necessarily indicative of what our consolidated results of operations actually would have been had we completed the acquisition on January 1, 2015. In addition, the unaudited pro forma consolidated results do not purport to project the future results of operations of the combined company nor do they reflect the expected realization of any cost savings associated with the acquisition.