Quarterly report pursuant to Section 13 or 15(d)

Business Combination

v3.5.0.2
Business Combination
6 Months Ended
Jun. 30, 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, initially added 16 partnerships to the Company's portfolio and provides the Company with opportunities for further licensing and collaborations in the area.

The aggregate acquisition consideration was $173.4 million, consisting of (in thousands):

Cash consideration
$
96,006

Total share consideration:
 
     Actual number of shares issued
790

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

Total share consideration
77,373

Total consideration
$
173,379



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
60,121

Total consideration
$
173,379


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 basis 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 and recorded $60.1 million as goodwill, which is not deductible for tax purposes and is primarily attributable to OMT’s potential 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 and six months ended June 30, 2016 and June 30, 2015, as if the acquisition of OMT had occurred on January 1, 2015 (in thousands except for EPS):

 
Three months ended
Six months ended
 
June 30,
June 30,
 
2016
 
2015
2016
 
2015
Revenue
$
19,521

 
$
19,818

$
51,645

 
$
36,971

Net (loss) income
$
(6,170
)
 
$
19,483

$
2,758

 
$
18,166

 
 
 
 
 
 
 
Basic (loss) income per share:
$
(0.30
)
 
$
0.99

$
0.13

 
$
0.92

Diluted (loss) income per share:
$
(0.30
)
 
$
0.92

$
0.13

 
$
0.87



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 and $0.6 million for the three and six months ended June 30, 2015, respectively, for share based compensation expenses related to the stock awards issued to the retained OMT employees after the acquisition, (ii) additional intangible amortization expense of  $2.1 million and $4.2 million was included in the three and six months ended June 30, 2015, respectively and (iii) a platform license fee of $3.0 million paid by OMT during the three and six months ended June 30, 2015. The license agreement was terminated upon acquisition by Ligand. 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.