Attached files

file filename
8-K - FORM 8-K - MEDIVATION, INC.d63009d8k.htm
EX-2.1 - EX-2.1 - MEDIVATION, INC.d63009dex21.htm
EX-23.1 - EX-23.1 - MEDIVATION, INC.d63009dex231.htm
EX-99.2 - EX-99.2 - MEDIVATION, INC.d63009dex992.htm
EX-99.1 - EX-99.1 - MEDIVATION, INC.d63009dex991.htm

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Introductory Note

Description of Transaction

On October 23, 2014, Medivation, Inc. (the “Company”) entered into a License Agreement with CureTech, Ltd. (“CureTech”) pursuant to which the Company could acquire an exclusive license to the worldwide rights to CureTech’s late-stage clinical molecule, pidilizumab (“MDV9300”), an immunomodulatory antibody for all potential indications pursuant to a license from CureTech. On December 19, 2014, the Company delivered to CureTech a continuation notice and, as a result of the delivery of the continuation notice, obtained the exclusive rights to MDV9300. Under the License Agreement, the Company will be responsible for all development, regulatory, manufacturing, and commercialization activities for MDV9300 for all indications.

In connection with the License Agreement, the Company made upfront cash payments to CureTech totaling $5.0 million during the fourth quarter of 2014. In addition, CureTech is entitled to contingent payments totaling up to $85.0 million upon attainment of certain development and regulatory milestones, up to $245.0 million upon the achievement of certain annual worldwide net sales thresholds, and tiered royalties ranging from 5% to 11% on annual worldwide net sales. CureTech is also entitled to a $5.0 million milestone payment upon completion of the Manufacturing Technology Transfer, as defined in the License Agreement.

Basis of Presentation

The determination of the accounting for the MDV9300 acquisition as a business acquisition was based on a review of all of the pertinent facts and circumstances and was based on a number of factors outlined in Financial Accounting Standards Board Accounting Standards Codification, or ASC, 805, “Business Combinations,” which provides guidance in identifying transactions as an asset acquisition or a business acquisition. After consideration of the factors outlined in the prescribed ASC guidance as well as the stage of development of the late-stage molecule acquired from CureTech pursuant to the License Agreement, it was determined that the MDV9300 acquisition should be accounted for as a business acquisition and accounted for using the “acquisition method” of accounting.

The following unaudited pro forma condensed combined financial statements combine the historical financial information of the Company and CureTech. The unaudited pro forma condensed combined balance sheet at September 30, 2014 gives effect to the acquisition as if the acquisition had been consummated at that date. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2013 and the nine months ended September 30, 2014 are presented as if the acquisition had been completed on January 1, 2013. The unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting and also in accordance with Article 11 of Regulation S-X.

The unaudited pro forma condensed combined financial information presented below is based on, and should be used in conjunction with (i) the Company’s historical audited consolidated financial statements, and related notes thereto, for the year ended December 31, 2013, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, (ii) the Company’s historical unaudited consolidated financial statements, and related notes thereto, for the nine months ended September 30, 2014 and 2013, included in the Company’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2014, (iii) the historical audited financial statements, and related notes thereto, of CureTech for the year ended December 31, 2013 included as Exhibit 99.1 to this Form 8-K and (iv) the historical unaudited financial statements, and related notes thereto, of CureTech for the nine months ended September 30, 2014 and 2013 included as Exhibit 99.2 to this Form 8-K.


The Company’s historical consolidated financial information has been adjusted to give effect to pro forma events that are (1) directly attributable to the transaction, (2) factually supportable, and (3) with respect to the statements of operations, expected to have a continuing impact on the combined results. CureTech’s historical financial statements were prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. The Company is not aware of any material differences between the accounting policies of the Company and CureTech. Accordingly, the accompanying unaudited pro forma condensed combined financial statements do not assume any material differences in accounting policies between the Company and CureTech. The unaudited pro forma condensed combined financial information should be read in conjunction with the accompanying notes.

The unaudited pro forma condensed combined financial statements do not reflect the realization of potential cost savings, or any related restructuring, integration costs, or transition costs that may result from the transaction. These unaudited pro forma condensed combined financial statements are not necessarily indicative of the results of operations that would have been achieved had the transaction actually taken place at the dates indicated and do not purport to be indicative of future financial position or operating results.


MEDIVATION, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED

BALANCE SHEET

As of September 30, 2014

(in thousands of U.S. dollars)

 

     Medivation, Inc.
(Historical)
    CureTech
(Historical)
    Pro Forma
Adjustments
    See Note
4
  Pro Forma
Combined
 

ASSETS

          

Current assets:

          

Cash and cash equivalents

   $ 321,053      $ 268      $ (5,268   (a)   $ 316,053   

Receivable from collaboration partner

     208,090        —          —            208,090   

Prepaid expenses and other current assets

     20,918        92        (92   (b)     20,918   

Restricted cash

     410        —          —            410   
  

 

 

   

 

 

   

 

 

     

 

 

 

Total current assets

     550,471        360        (5,360       545,471   

Property and equipment, net

     41,075        927        (927   (b)     41,075   

Intangible assets

     —          —          101,000      (c)     101,000   

Restricted cash, net of current

     11,562        —          —            11,562   

Goodwill

     —          —          10,000      (d)     10,000   

Other non-current assets

     15,076        5        (5   (b)     15,076   
  

 

 

   

 

 

   

 

 

     

 

 

 

Total assets

   $ 618,184      $ 1,292      $ 104,708        $ 724,184   
  

 

 

   

 

 

   

 

 

     

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

          

Current liabilities:

          

Accounts payable, accrued expenses and other current liabilities

   $ 109,060      $ 515        (515   (b)   $ 109,060   

Deferred revenue

     4,233        —          —            4,233   

Contingent consideration

     —          —          10,000      (e)     10,000   

Current portion of build-to-suit lease obligation

     781        —          —            781   
  

 

 

   

 

 

   

 

 

     

 

 

 

Total current liabilities

     114,074        515        9,485          124,074   

Contingent consideration

     —          —          96,000      (e)     96,000   

Convertible Notes

     218,555          —            218,555   

Build-to-suit lease obligation, excluding current portion

     18,249        —          —            18,249   

Other non-current liabilities

     18,060        13        (13   (b)     18,060   
  

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities

     368,938        528        105,472          474,938   

Stockholders’ Equity

          

Preferred stock

     —          —          —            —     

Common stock

     1,552        1        (1   (b)     1,552   

Treasury stock

     —          (110,054     110,054      (b)     —     

Accumulated other comprehensive loss

     —          (3,365     3,365      (b)     —     

Capital reserves

     —          643        (643   (b)     —     

Additional paid-in capital

     469,608        52,745        (52,745   (b)     469,608   

Accumulated deficit

     (221,914     60,794        (60,794   (b)     (221,914
  

 

 

   

 

 

   

 

 

     

 

 

 

Total stockholders’ equity

     249,246        764        (764       249,246   
  

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities and stockholders’ equity

   $ 618,184      $ 1,292      $ 104,708        $ 724,184   
  

 

 

   

 

 

   

 

 

     

 

 

 

See notes to unaudited pro forma condensed combined financial statements which are an integral part of these financial statements.


MEDIVATION, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED

STATEMENTS OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014

(in thousands of U.S. dollars, except per share data)

 

     Medivation, Inc.
(Historical)
    CureTech
(Historical)
    Pro Forma
Adjustments
    See Note
4
  Pro Forma
Combined
 

Collaboration revenue

   $ 435,757      $ —        $ —          $ 435,757   

Operating Expenses:

          

Research and development expenses

     131,693        2,809        —            134,502   

Selling, general and administrative expenses

     165,695        559        (559   (f)     165,695   

Other income, net

     —          (5,352     5,352      (f)     —     
  

 

 

   

 

 

   

 

 

     

 

 

 

Total operating expenses

     297,388        (1,984     (559       300,197   
  

 

 

   

 

 

   

 

 

     

 

 

 

Income (loss) from operations

     138,369        1,984        559          135,560   

Other income (expense), net

          

Interest expense

     (16,101     (409     409      (f)     (16,101

Interest income

     26        38        (38   (f)     26   

Other income (expense), net

     (76     —          —        (f)     (76
  

 

 

   

 

 

   

 

 

     

 

 

 

Total other income (expense), net

     (16,151     (371     371          (16,151
  

 

 

   

 

 

   

 

 

     

 

 

 

Income before income tax expense

     122,218        1,613        930          119,409   

Income tax (expense) benefit

     (9,971     —          983      (g)     (8,988
  

 

 

   

 

 

   

 

 

     

 

 

 

Net income

   $ 112,247      $ 1,613      $ 1,913        $ 110,421   
  

 

 

   

 

 

   

 

 

     

 

 

 

Net income per common share:

          

Basic

   $ 0.73            $ 0.72   

Diluted

   $ 0.70            $ 0.68   

Weighted-average common shares:

          

Basic

     153,258              153,258   

Diluted

     161,448              161,448   

See notes to unaudited pro forma condensed combined financial statements which are an integral part of these financial statements.


MEDIVATION, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED

STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2013

(in thousands of U.S. dollars, except per share data)

 

     Medivation, Inc.
(Historical)
    CureTech
(Historical)
    Pro Forma
Adjustments
    See Note
4
  Pro Forma
Combined
 

Collaboration revenue

   $ 272,942      $ —        $ —          $ 272,942   

Operating Expenses:

          

Research and development expenses

     118,952        4,726        —            123,678   

Selling, general and administrative expenses

     176,231        705        (705   (f)     176,231   

Other income, net

     —          (10     10      (f)     —     
  

 

 

   

 

 

   

 

 

     

 

 

 

Total operating expenses

     295,183        5,421        (695       299,909   
  

 

 

   

 

 

   

 

 

     

 

 

 

Income (loss) from operations

     (22,241     (5,421     695          (26,967

Other income (expense), net

          

Interest expense

     (20,249     (112     112      (f)     (20,249

Interest income

     193        75        (75   (f)     193   

Other income (expense), net

     (201     110,823        (110,823   (f)     (201
  

 

 

   

 

 

   

 

 

     

 

 

 

Total other income (expense), net

     (20,257     110,786        (110,786       (20,257
  

 

 

   

 

 

   

 

 

     

 

 

 

Income (loss) before income tax benefit

     (42,498     105,365        (110,091       (47,224

Income tax (expense) benefit

     (115     —          1,654      (g)     1,539   
  

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss)

   $ (42,613   $ 105,365      $ (108,437     $ (45,685
  

 

 

   

 

 

   

 

 

     

 

 

 

Net loss per common share:

          

Basic

   $ (0.28         $ (0.30

Diluted

   $ (0.28         $ (0.30

Weighted-average common shares:

          

Basic

     150,330              150,330   

Diluted

     150,330              150,330   

See notes to unaudited pro forma condensed combined financial statements which are an integral part of these financial statements.


MEDIVATION, INC.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands of U.S. dollars)

 

1. Basis of Presentation

The historical CureTech balance sheet at September 30, 2014 has been converted from New Israeli Shekels (NIS) to U.S. dollars using the exchange rate of approximately 3.68 NIS to $1 on September 30, 2014. The historical CureTech condensed statement of income for the year ended December 31, 2013 has been converted from NIS to U.S. dollars using a historical average exchange rate of approximately 3.60 NIS to $1 and the historical CureTech condensed statement of income for the nine months ended September 30, 2014 has been converted from NIS to U.S. dollars using a historical average exchange rate of approximately 3.58 NIS to $1.

On September 15, 2015, the Company effected a two-for-one stock split of its common stock in the form of a stock dividend. The information of the Company’s common stock (except par value per share), par, and additional paid-in capital as of September 30, 2014, and the information of the net income (loss) per common share for the year ended December 31, 2013 and the nine months ended September 30, 2014 and 2013 have been retroactively adjusted to reflect the effect of the stock split.

 

2. Accounting Policies

During the preparation of the accompanying unaudited pro forma condensed combined financial statements, the Company was not aware of any material differences between the accounting policies of the Company and CureTech. Accordingly, the accompanying unaudited pro forma condensed combined financial statements do not assume any material differences in accounting policies between the Company and CureTech.

 

3. Purchase Price Allocation

The transaction is accounted for as a business acquisition using the acquisition method accounting in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic No. 805, “Business Combinations,” whereby the net assets acquired were recognized based on their estimated fair values on the acquisition date.

In connection with the closing of the transaction, the Company made upfront cash payments to CureTech totaling $5.0 million during the fourth quarter of 2014. In addition, CureTech is entitled to contingent payments totaling up to $85.0 million upon attainment of certain development and regulatory milestones, up to $245.0 million upon the achievement of certain annual worldwide net sales thresholds, and tiered royalties ranging from 5% to 11% on annual worldwide net sales. CureTech is also entitled to a $5.0 million milestone payment upon completion of the Manufacturing Technology Transfer, as defined in the License Agreement.

The following table presents the final allocation of the purchase consideration, including the contingent consideration payable, based on fair value:


Purchase consideration:

  

Cash

   $ 5,000   

Acquisition-date fair value of contingent consideration

     106,000   
  

 

 

 

Total purchase consideration

   $ 111,000   
  

 

 

 

Allocation of the purchase consideration:

  

Assets:

  

Identifiable intangible assets- IPR&D

   $ 101,000   
  

 

 

 

Net identifiable assets acquired

     101,000   

Goodwill

     10,000   
  

 

 

 

Net assets acquired

   $ 111,000   
  

 

 

 

The acquisition-date fair value of the contingent consideration payments totaled $106.0 million and was estimated by applying a probability-based income model with key assumptions that included estimated revenues or completion of certain development and sales milestone targets during the earn-out period, volatility, and estimated discount rates corresponding to the periods of expected payments.

Identifiable intangible assets totaled $101.0 million and consist entirely of in-process research and development (or “IPR&D”) for MDV9300. As of the valuation date, the Company determined that MDV9300 was the only R&D project with substance, such that the project had undergone conceptual stages, and research, development, and preproduction had been started for the project. As such, no other intangible assets were identified in the transaction other than MDV9300 as separate from goodwill. The excess of the total purchase consideration over the fair values assigned to the net assets acquired was $10.0 million, which represents the amount of goodwill resulting from the acquisition.

 

4. Pro Forma Adjustments

The following is a summary of the adjustments included under the heading “Pro Forma Adjustments” in the unaudited pro forma condensed financial statements.

 

a. Represents a $5.0 million reduction to the Company’s cash and cash equivalents for the upfront cash payment to CureTech upon closing of the transaction. The amount also represents the elimination of approximately $0.3 million of CureTech’s cash and cash equivalents that were not acquired by the Company in connection with the License Agreement.

 

b. Reflects the elimination of CureTech’s historical assets, liabilities, and stockholders’ equity which were not acquired or assumed by the Company in connection with the License Agreement.

 

c. Represents the portion of the purchase price allocated to IPR&D for MDV9300. As of the valuation date, the Company determined that MDV9300 was the only R&D project with substance, such that the project had undergone conceptual stages, and research, development, and preproduction had been started for the project. As such, no other intangible assets were identified in the transaction other than MDV9300 as separate from goodwill. The amount represents the fair value assigned to the incomplete project acquired from CureTech, which at the time of the acquisition, had not yet reached technological feasibility. The fair value assigned to the IPR&D was determined using the “income approach,” which is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life. Some of the more significant assumptions used in the income approach from the perspective of a market participant include the estimated net cash flows for each year (including revenues, costs of sales, research and development costs, selling, general, and administrative costs, and working capital/contributory asset charges), the discount rate that measures the risk inherent in each future cash flow stream, the assessment of the asset’s life cycle, competitive trends impacting the asset and each cash flow stream, as well as other factors.


The amounts are capitalized and accounted for as indefinite-long term assets, subject to impairment testing until completion or abandonment of the projects. Upon successful completion of the project, the Company will make a determination as to the then useful life of the intangible asset and begin amortization over that period. No amortization of the intangible asset is included in the pro forma financial statements.

 

d. Reflects the goodwill resulting from the difference between the purchase price and the fair value of the net assets acquired as a result of the License Agreement.

 

e. Represents the fair value estimate of contingent consideration associated with the License Agreement, which was estimated utilizing a model with key assumptions that included estimated revenues or completion of certain regulatory and sales-based milestones during the earn-out period, volatility, and estimated discount rates corresponding to the periods of expected payments. The contingent consideration has been classified as current or long-term based upon the Company’s estimate of the timing of the potential contingent payments.

 

f. Represents the elimination of CureTech’s historical expenses and income that were not directly attributable to clinical development activities associated with MDV9300.

 

g. Reflects the estimated income tax impact of CureTech’s historical research and development expense, computed at the Federal statutory tax rate of approximately 35%.