ALBIREO PHARMA, INC. - FORM 8-K/A - EX-99.5

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8-K/A - 8-K/A - ALBIREO PHARMA, INC.	d290119d8ka.htm

Exhibit 99.5

PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Introduction

As used herein:

•

the words the “Company,” “we,” “us,” and “our” refer to Albireo Pharma, Inc. and its direct and indirect subsidiaries, as applicable;

•

the word “Albireo” refers to Albireo Limited and its direct and indirect subsidiaries, as applicable, prior to the completion of the Transaction;

•

the word “Biodel” refers to the Company prior to the completion of the Transaction; and

•

the word “Transaction” refers to the share exchange transaction pursuant to which Albireo’s shareholders agreed to exchange their Albireo shares for a number of newly issued shares of Biodel common stock determined based on an exchange ratio.

Biodel, Albireo and security holders of Albireo entered into a definitive share exchange agreement on May 24, 2016, and the share exchange agreement was amended and restated on July 13, 2016. Under the terms of the share exchange agreement, Albireo’s shareholders agreed to the Transaction, with the exchange ratio defined in the share exchange agreement as 0.06999 shares of Biodel common stock for each ordinary share of Albireo (subject to potential adjustment based on the actual “net cash” balances of Biodel and Albireo, taking into account certain obligations and transaction costs, as of the date that is 10 days prior to Biodel’s 2016 Annual Meeting of Stockholders (the Determination Date)). Based on an exchange ratio of 0.06999, holders of Biodel securities own approximately one-third, and holders of Albireo securities own approximately two-thirds, of the combined organization (defined below).

In addition to the above, in connection with the Transaction, the following also occurs:

•

a syndicate of Albireo’s existing investors subscribes for $10 million in Series C Convertible Preference Shares prior to the closing of the Transaction;

•

the outstanding Albireo warrants issued to Kreos Capital IV (Expert Fund) Limited (Kreos Capital), an affiliate of Albireo’s lender, is replaced with warrants to purchase shares of the Company’s common stock; and

•

Biodel consummates a reverse stock split of its common stock in a ratio of 1 for 30.

The Transaction is accounted for as a reverse acquisition under the acquisition method of accounting for business combinations. For accounting purposes, Albireo is considered to be the accounting acquirer due to the following:

•

Albireo’s former equity owners collectively own a majority voting interest in Biodel and therefore control Biodel and Albireo and its direct and indirect wholly owned subsidiaries (collectively, the combined organization); and

•

Albireo appoints a majority of the board of directors of Biodel, which is renamed Albireo Pharma, Inc.

Because Albireo is considered the accounting acquirer, Albireo allocates the total purchase consideration to the fair value of Biodel’s assets and liabilities as of the assumed acquisition date, with any excess purchase consideration being recorded as goodwill.

The Transaction was completed on November 3, 2016. The Unaudited Pro Forma Condensed Combined Balance Sheet is presented as of September 30, 2016, giving effect to the Transaction as if it occurred on September 30, 2016. The Unaudited Pro Forma Condensed Combined Statements of Operations for the year ended December 31, 2015 and for the nine months ended September 30, 2016 give effect to the Transaction as if it occurred on January 1, 2015, the beginning of the earliest period presented.

This Unaudited Pro Forma Condensed Combined Financial Statements have been derived from, and should be read in conjunction with, the following:

•

The historical audited financial statements of Biodel as of and for the fiscal year ended September 30, 2016, included in Biodel’s Annual Report on Form 10-K filed on December 22, 2016;

•

The historical audited financial statements of Biodel as of and for the fiscal year ended September 30, 2015 included in Biodel’s Annual Report on Form 10-K filed on December 22, 2015;

•

The historical unaudited financial statements of Biodel as of and for the three months ended December 31, 2015 included in Biodel’s Quarterly Report on Form 10-Q filed on February 16, 2016;

•

The historical audited financial statements of Albireo as of and for the fiscal year ended December 31, 2015 included in Biodel’s definitive proxy statement on Schedule 14A filed on September 19, 2016; and

•

The historical unaudited financial statements of Albireo as of and for the nine months ended September 30, 2016 included in Albireo Pharma, Inc.’s Form 8-K/A filed on December 22, 2016.

The Unaudited Pro Forma Condensed Combined Statement of Operations is based upon the year end of Albireo, as the accounting acquirer, using its audited financial statements for the fiscal year ended December 31, 2015. Biodel’s historical financial information included in the Unaudited Pro Forma Condensed Combined Statement of Operations for the nine months ended September 30, 2016 was derived from Biodel’s audited financial statements for the year ended September 30, 2016, adjusted by backing out Biodel’s unaudited financial statements for the three months ended December 31, 2015. Biodel’s historical financial information included in the Unaudited Pro Forma Condensed Combined Statement of Operations for the twelve months ended December 31, 2015 was derived from Biodel’s audited financial statements for the fiscal year ended September 30, 2015, recasted to include Biodel’s unaudited financial statements for the three months ended December 31, 2015 and to back out Biodel’s unaudited financial statements for the three months ended December 31, 2014.

The Unaudited Pro Forma Condensed Combined Financial Statements were prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The unaudited pro forma adjustments reflecting the acquisition have been prepared in accordance with the business combination accounting guidance and reflect the preliminary allocation of the purchase price to the acquired assets and liabilities based upon the preliminary estimate of fair values, using the assumptions set forth in the notes to the Unaudited Pro Forma Condensed Combined Financial Statements. The detailed adjustments and underlying assumptions used to prepare the Unaudited Pro Forma Condensed Combined Financial Statements are contained in the notes hereto and should be reviewed in their entirety.

The Unaudited Pro Forma Condensed Combined Financial Statements are provided for illustrative purposes only and are not necessarily indicative of what the operating results or financial position of the combined organization would have been had the Transaction occurred on the respective dates indicated above, nor are they indicative of the future results or financial position of the combined organization. In connection with the Unaudited Pro Forma Condensed Combined Financial Statements, the total purchase consideration was allocated based on the best estimates of fair value of the assets acquired and liabilities assumed. The allocation is dependent upon certain valuation and other analyses that are not yet final. Accordingly, the pro forma acquisition price adjustments are preliminary and subject to further adjustments as additional information become available and as additional analyses are performed. There can be no assurances that the final valuations will not result in material changes to the preliminary estimated purchase price allocation.

The Unaudited Pro Forma Condensed Combined Financial Statements also does not give effect to the potential impact of current financial conditions, regulatory matters, any anticipated synergies, operating efficiencies or cost savings that may result from the Transaction or any integration costs. Furthermore, the Unaudited Pro Forma Condensed Combined Statements of Operations do not include certain nonrecurring charges resulting directly from the acquisition as described in the accompanying notes.

As contemplated by the share exchange agreement, the holders of currently exercisable warrants to purchase ordinary A shares of Albireo are offered, effective as of the closing of the Transaction, a replacement stock option, subject to vesting, exercisable for the Company’s common stock or another equity-based award based on shares of the Company’s

common stock. Based on an exchange ratio of 0.06999, an aggregate of 1,498,533 exercisable warrants are replaced with stock options to purchase an aggregate of 104,879 shares of the Company’s common stock at an exercise price of $1.00 per share. Based on the same exchange ratio, stock options exercisable for an aggregate of 3,524,329 ordinary A shares of Albireo are replaced with stock options to purchase an aggregate of 246,666 shares of the Company’s common stock at an exercise price of $1.00 per share, with the vesting terms of the replacement stock options continuing from the original awards (four years from the grant date of the original awards). Stock compensation expense is recorded based on the original fair value plus any excess incremental fair value at the date of replacement, if any.

Unaudited Pro Forma Condensed Combined Balance Sheet

As of September 30, 2016

(in thousands)


	Historical						Pro Forma Adjustments												Pro Forma
	Albireo			Biodel			Capital Structure				Preliminary Purchase Accounting				Other				Combined
ASSETS
Current assets:
Cash and cash equivalents	$	1,715		$	28,684		$	10,000		B	$	(1,590	)	H	$	(2,195	)	M	$	35,591
								(1	)	D		(1,022	)	J
Restricted cash		—			21			—				—				—				21
Trade receivables		37			—			—				—				—				37
Prepaid expenses and other assets		55			130			—				—				—				185
Other receivables		195						—				—				—				195

Total current assets		2,002			28,835			9,999				(2,612	)			(2,195	)			36,029
Equipment, net		25			—			—				—				—				25
Goodwill		—			—			—				17,748		I		—				17,748
Intellectual property, net		—			34			—				116		K		—				150

Total assets	$	2,027		$	28,869		$	9,999			$	15,252			$	(2,195	)		$	53,952

LIABILITIES, CONVERTIBLE PREFERENCE SHARES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Trade payables	$	1,109		$	150		$	—			$	—			$	—			$	1,259
Accrued expenses		4,264			—			(459	)	A		—				1,921		O		5,726
Payroll and related		—			354			—				—				(354	)	O		—
Accounting and legal fees		—			192			—				—				(192	)	O		—
Other		—			1,375			—				—				(1,375	)	O		—
Advances from customers		37			—			—				—				—				37
Long-term debt, current portion		3,170			—			—				—				—				3,170
Warrants liability		504			—			473		N		—				—				977
Other liabilities		53			—			—				—				—				53

Total current liabilities		9,137			2,071			14				—				—				11,222
Long-term debt		3,740			—			(3,091	)	A		—				—				649
Share-based compensation liability		194			—			(194	)	E		—				—				—
Common stock warrant liability		—			1			(1	)	D		—				—				—
Restructuring and other long-term liabilities		—			358			—				—				(358	)	O		—
Restructuring liability		—			—			—				—				358		O		358
Derivative liabilities		2,257			—			(2,257	)	A		—				—				—

Total liabilities		15,328			2,430			(5,529	)			—				—				12,229

Convertible preference shares		520			—			(520	)	C		—				—				—
Stockholders’ equity (deficit):
Albireo ordinary and ordinary A shares		56			—			(56	)	C		—				—				—
Biodel common stock		—			21			4		A		(21	)	G		—				63
								7		B		21		F
								31		C
Additional paid-in capital		73			288,469			545		C		41,670		F		—				62,083
								9,993		B		(288,469	)	G
								8,533		A
								194		E
								369		E
								706		L

Accumulated other comprehensive income		775			—			—				—				—				775
Accumulated deficit		(14,725	)		(262,051	)		(369	)	E		262,051		G		(2,195	)	M		(21,198	)
								(2,730	)	A
								(473	)	N
								(706	)	L

Total stockholders’ equity (deficit)		(13,821	)		26,439			16,048				15,252				(2,195	)			41,723

Total liabilities, convertible preference shares and stockholders’ equity (deficit)	$	2,027		$	28,869		$	9,999			$	15,252			$	(2,195	)		$	53,952

See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Statements.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Nine Months Ended September 30, 2016

(in thousands, except per share data)


	Historical							Pro Forma Adjustments											Pro Forma
	Albireo			Biodel				Capital Structure				Preliminary Purchase Accounting			Other				Combined
Revenue	$	8,125		$	—			$	—			$	—		$	—			$	8,125
Operating expenses:
Research and development		6,372			2,088		P		—				—			—				8,460
General and administrative		5,680			8,657		P		348		S		—							14,685
Other income, net		193			—				—				—			—				193

Total operating expenses		12,245			10,745				348				—			—				23,338

Operating loss		(4,120	)		(10,745	)			(348	)			—			—				(15,213	)
Interest income		—			247				—				—			(247	)	T		—
Interest income (expense)		(1,546	)		—				431		Q		—			247		T		(868	)
Adjustments to fair value of common stock warrant liability		—			2				—				—			—				2
Non-operating income (expense)		536			—				153		R		—			—				689

Loss before income taxes		(5,130	)		(10,496	)			236				—			—				(15,390	)
Income (benefit) tax		—			44				—		U		—	U		—		U		44

Net loss	$	(5,130	)	$	(10,540	)		$	236			$	—			—			$	(15,434	)

Net loss per share attributable to holders of ordinary shares and holders of ordinary A shares, basic and diluted	$	(1.26	)	$	(4.93	)													$	(2.45	)

Weighted-average shares used in computing net loss per share attributable to holders of ordinary shares and holders of ordinary A shares, basic and diluted		4,082			2,138													V		6,295

See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Statements.

Unaudited Pro Forma Condensed Combined Statement of Operations (Continued)

For the Year Ended December 31, 2015

(in thousands, except per share data)


	Historical						Pro Forma Adjustments												Pro Forma
	Albireo			Biodel			Capital Structure				Preliminary Purchase Accounting				Other				Combined
Revenue	$	5,099		$	—		$	—			$	—			$	—			$	5,099
Operating expenses:
Research and development		5,634			11,552			—				(3	)	AA		—				17,183
General and administrative		4,462			6,201			468		Z		—				—				11,131
Other (income) expense, net		(271	)		—			—				—				2		BB		(269	)

Total operating expenses		9,825			17,753			468				(3	)			2				28,045

Operating loss		(4,726	)		(17,753	)		(468	)			3				(2	)			(22,946	)
Interest income		—			60			—				—				(60	)	BB		—
Interest income (expense)		(1,722	)		—			247		W		—				60		BB		(1,415	)
Adjustments to fair value of common stock warrant liability		—			465			(465	)	Y		—				—				—
Loss on fixed asset		—			(2	)		—				—				2		BB		—
Non-operating income (expense)		(320	)		—			172		X		—				—				(148	)

Loss before income taxes		(6,768	)		(17,230	)		(514	)			3				—				(24,509	)
Income tax		—			35			—		CC		—		AA		—				35

Net loss	$	(6,768	)	$	(17,265	)	$	(514	)		$	3			$	—			$	(24,544	)

Net loss per share attributable to holders of ordinary shares and holders of ordinary A shares, basic and diluted	$	(1.78	)	$	(0.34	)													$	(3.90	)

Weighted-average shares used in computing net loss per share attributable to holders of ordinary shares and holders of ordinary A shares, basic and diluted		3,794			51,137													DD		6,295

See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Statements.

Basis of presentation

The Transaction is accounted for as a reverse acquisition using the acquisition method of accounting for business combinations. The excess fair values of the consideration transferred over assets acquired and liabilities assumed is recorded as a gain on the Transaction.

The historical financial information has been adjusted to give pro forma effect to events that are (i) directly attributable to the Transaction, (ii) factually supportable, and (iii) with respect to the Unaudited Pro Forma Condensed Combined Statements of Operations, expected to have a continuing impact on the combined results. The pro forma adjustments are preliminary and based on estimates of the fair value and useful lives of the assets acquired and liabilities assumed and have been prepared to illustrate the effect of the Transaction.

Under the acquisition method, acquisition-related transaction costs such as advisory, legal, valuation and other professional fees are not included as consideration transferred but are accounted for as expenses in the periods in which the costs are incurred. These costs are not presented or reflected as pro forma adjustments in the Unaudited Pro Forma Combined Consolidated Statements of Operations because they will not have a continuing impact on the combined results.

Description of transaction

Biodel, Albireo and security holders of Albireo entered into a definitive share exchange agreement on May 24, 2016, and the share exchange agreement was amended and restated on July 13, 2016. Under the terms of the share exchange agreement, Albireo’s shareholders agreed to exchange their shares for a number of newly issued shares of Biodel common stock determined based on an exchange ratio (the Transaction). The exchange ratio is defined in the share exchange agreement as 0.06999 shares of Biodel common stock for each ordinary share of Albireo, subject to adjustment if, as of the date that is 10 days prior to Biodel’s 2016 Annual Meeting of Stockholders (the Determination Date), either or both of (a) Biodel’s net cash, calculated as provided in the share exchange agreement, is greater than $22,000,000 or less than $21,000,000 and (b) Albireo’s net cash, calculated as provided in the share exchange agreement is at least $500,000 greater or less than Albireo forecasted net cash. Based on an exchange ratio of 0.06999, holders of Biodel securities own approximately one-third and holders of Albireo securities own approximately two-thirds of the combined organization.

In addition to the above, in connection with the Transaction, the following also occurs:

•

a syndicate of Albireo’s existing investors subscribe for $10 million in Series C Convertible Preference Shares prior to the closing of the Transaction;

•

the outstanding Albireo warrants issued to Kreos Capital are replaced with warrants to purchase shares of the Company’s common stock; and

•

Biodel consummates a reverse stock split of its common stock in a ratio of 1-for-30.

The exercise price of the replacement warrants to Kreos Capital is determined by dividing $0.824 per warrant, which is the price at which the 2015 Convertible Loans is converted into Series C Convertible Preference Shares, by the exchange ratio. Based on an exchange ratio of 0.06999, the exercise price is $11.77. The replacement warrants are exercisable for a term of five years. If during the term of the replacement warrants the combined organization issues new shares of capital stock, other than specified exceptions, at a per share price less than the then-current exercise price of the replacement warrants, the number of shares for which the replacement warrants would be exercisable would increase based on a formula.

Purchase consideration

The purchase consideration in a reverse acquisition is determined with reference to the fair value of equity interests retained by the current owners of the legal acquirer, Biodel. The fair value was determined based on the closing price of Biodel’s common stock on NASDAQ on November 3, 2016.


	Amount
	(in thousands, except per share data)
Number of Biodel shares outstanding at September 30, 2016		64,148
Reverse stock split factor		30

Estimated Biodel shares outstanding at closing		2,138

Closing price of Biodel common stock on November 3, 2016	$	0.65
Reverse stock split factor		30

Closing price of Biodel common stock on November 3, 2016 (adjusted for reverse stock split)	$	19.50

Estimated fair value of share consideration to be transferred	$	41,691

Preliminary purchase consideration allocation

The following table summarizes the preliminary allocation of the estimated purchase consideration to the fair values of assets acquired and liabilities assumed of Biodel, with the difference recorded as goodwill:


	Amount
	(in thousands)
Cash and cash equivalents	$	26,071
Restricted cash		21
Prepaid and other assets		130
In-process research and development		150
Trade payable		(150	)
Accrued expenses		(1,921	)
Restructuring liabilities, noncurrent		(358	)

Net assets acquired		23,943
Estimate of consideration transferred		41,691

Estimated goodwill to be recognized	$	17,748

Pro forma adjustments

The pro forma adjustments reflected in the Unaudited Condensed Combined Financial Statements represent estimated values and amounts based on available information.

Pro forma adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2016:

Capital Structure Adjustments

Adjustment reflects the conversion of outstanding principal balances of convertible loan notes issued by Albireo in December 2014 (2014 Convertible Loans) and October and December 2015 (2015 Convertible Loans) to certain of its shareholders and their affiliates and members of management, including some considered to be related parties, into Series C Convertible Preference shares and subsequently into ordinary

shares of Albireo immediately prior to the closing of the Transaction. The 2014 Convertible Loans are converted into Series C Convertible Preference shares at an agreed-upon price of €0.7491 per share as provided in the share exchange agreement. The 2015 Convertible Loans are converted into Series C Convertible Preference shares at an agreed-upon price of $0.824 per share as provided in the share exchange agreement.


	(in thousands, except per share data)
Conversion of 2014 Convertible Loans €1,251 at a price of €0.7491 per share		1,670
Conversion of 2015 Convertible Loans $3,501 at a price of $0.824 per share		4,249

Number of Albireo convertible preference shares received upon conversion		5,919
Share exchange ratio		.06999

Number of Biodel shares at Transaction		414

Closing price of Biodel common stock on November 3, 2016 (adjusted for reverse stock split)	$	19.50

Fair value of equity upon conversion	$	8,073
Carrying value of convertible debt and related derivative liabilities, including accrued interest:
2014 convertible loan	$	1,000
2015 convertible loan		2,091
Derivative liabilities		2,257
Accrued interest		459

	$	5,807

Gain on debt extinguishment	$	2,266

Common stock upon share exchange¹	$	4
Additional paid in capital upon share exchange		8,069

Equity recognized at conversion	$	8,073

(1)	Common stock value was determined by taking the 414 Biodel shares to be received in the Transaction multiplied by the Biodel common stock par value per share of $0.01.

Adjustment reflects the issuance of 9,708,740 Albireo Series C Convertible Preference shares committed to by a syndicate of Albireo’s existing investors for cash proceeds of $10.0 million, prior to the closing of the Transaction.


	(in thousands, except per share data)
Number of Albireo Series C Convertible Preference Shares received upon purchase		9,709
Share exchange ratio		.06999

Number of Biodel shares at Transaction		679

Common stock upon share exchange¹	$	7
Additional paid in capital upon share exchange¹		9,993

Share Exchange value of the Series C Convertible Preference Shares	$	10,000

(1)

Common stock value was determined by taking the of the 679 Biodel shares to be received in the Transaction multiplied by the Biodel common stock par value per share of $0.01. Additional paid in capital represents the difference between the $10 million investment and the par value, as this is considered a capital transaction.

Adjustment reflects the conversion of Albireo Convertible Preference shares and Ordinary and Ordinary A shares.


	(in thousands)
Albireo convertible preference shares at September 30, 2016	$	520
Albireo ordinary and ordinary A shares at September 30, 2016		56

Albireo ordinary, ordinary A and convertible preference shares upon conversion at par	$	576

Number of convertible preference shares to be exchanged		39,354
Number of ordinary and ordinary A shares to be exchanged		4,405

Convertible preference shares and ordinary and ordinary A shares to be exchanged		43,759
Pro forma exchange ratio		.06999

Biodel shares received upon exchange		3,063

Adjustment:
Common stock	$	31
Additional paid in capital		545

Equity value upon conversion	$	576

Adjustment reflects the cash settlement of Biodel’s warrants for cash as a result of the existing change of control provisions.

Adjustments reflect the estimated changes to the existing Albireo stock options as a result of the Transaction that are non-recurring in nature. Additional stock compensation expense has been reflected in the amount of $369,000 for the vesting of stock options contingent upon the Transaction. This adjustment has not been reflected in the Unaudited Pro Forma Condensed Combined Income Statement as there is no continuing impact expected. However, the classification of the stock options (originally denominated in Euro and denominated in USD at the time of replacement) is expected to change from a liability to equity at the time of replacement. The reclassification of the liability to equity in the amount of $194,000, has been reflected.

Preliminary Purchase Price Accounting Adjustments

Adjustment reflects the Common Stock and additional paid-in capital of Biodel post reverse stock split. The adjustment is based on the 30:1 reverse stock split utilizing the closing price per share of Biodel’s common stock on NASDAQ on November 3, 2016.


	(in thousands)
Biodel outstanding shares of common stock		64,148
Reverse stock split ratio		30

Biodel outstanding shares of common stock post reverse stock split		2,138
Estimated price per share of Biodel common stock post reverse split	$	19.50

Estimated fair value of consideration transferred	$	41,691

Common Stock ($0.01 par value)	$	21
Additional paid in capital		41,670

Increase in equity	$	41,691

Adjustment made to eliminate Biodel’s historical stockholders’ equity.


	(in thousands)
Common Stock	$	(21	)
Additional paid in capital		(288,469	)
Accumulated deficit		262,051

Total Adjustments to Stockholders’ equity	$	(26,439	)

Adjustment reflects $1.2 million of transaction costs estimated to have been incurred by Biodel as a result of the Transaction not previously recorded in its historical financial statements, with no expected tax benefit. As there is no continuing impact of the combination-related costs, the impact of these costs has not been included in the Unaudited Pro Forma Condensed Combined Statements of Operations.

Adjustment made to reflect the preliminary excess of consideration transferred over assets acquired less the liabilities assumed, which has been recorded as goodwill (as of September 30, 2016) and has been determined using Biodel share price, post reverse stock split, as of November 3, 2016.

Adjustment reflects $1.0 million of Biodel employee bonuses contingent upon a transaction occurring in 2016 not previously recorded in its historical financial statements, with no expected tax benefit. As there is no continuing impact of the combination-related costs, the impact of these costs has not been included in the Unaudited Pro Forma Condensed Combined Statements of Operations.

Adjustments made to reflect the intangible assets at fair value of $150,000 from a market participant’s view in conjunction with the preliminary purchase accounting, in addition to the write-off of the carrying value of the pre-existing patents, resulting in a net adjustment of $116,000.

Adjustment reflects the additional stock option expense due to the replacement of fully vested warrants with stock options in the amount of $706,000 that vest immediately due to close of the Transaction that are non-recurring in nature. This adjustment has not been reflected in the Unaudited Pro Forma Condensed Combined Income Statement as there is no continuing impact expected.

Other Adjustments

Adjustment made to accrue the estimated transaction costs to be incurred by Albireo related to the Transaction in the amount of $2.2 million not previously recorded in its historical financial statements, with no expected tax benefit. As there is no continuing impact of the combination-related costs, the impact of these costs has not been included in the Unaudited Pro Forma Condensed Combined Statements of Operations.

Adjustment made to reflect the fair value of the warrants at the time of their replacement. A summary of the calculation is as follows:


	Amount
	(in thousands)
Kreos Capital warrants available at September 30, 2016 (using Euro to USD exchange rate at September 30, 2016)	$	807
Exchange price at closing¹	$	0.82

Estimated number of Kreos Capital warrants replaced, based on estimated share price at closing		980
Exchange ratio in the Transaction		.06999

Number of Kreos Capital warrants estimated to be replaced		69
Estimated fair value for each Kreos Capital warrant²	$	14.24

Fair value of total Kreos Capital warrants to be replaced	$	976
Amount recognized for Kreos Capital Warrants at September 30, 2016		504

Estimated loss recognized to earnings upon replacement	$	472

(1)	The conversion price has been defined in the share exchange agreement and assumes a 20% discount to the price per share paid by the investors of $1.03 (€0.94), or $0.82 (€0.75), as detailed in the original terms of the convertible loan instruments.

(2)

The fair value in the amount of $14.24 for the Kreos Capital warrants replaced was estimated using a binomial model. The future common stock price is simulated to the estimated timing for the first financing after issuance of the warrants based on the estimated cash and cash equivalents of the combined organization upon closing of the

Transaction and program plans. For the remaining term of the warrants, subsequent payout amounts are estimated using a Black-Scholes model. Those estimated payouts are then discounted through the binomial model. No dividend is expected to occur.

Adjustments reflect reclassifications between financial statement line items to conform the Albireo financial statement presentation.

Pro forma adjustments to the Unaudited Pro Forma Condensed Combined Statement of Operations for the nine months ended September 30, 2016:

Restructuring costs in the amount of $3.0 million were incurred as part of prior activities initiated by Biodel and included in its Condensed Consolidated Statement of Operations for the nine months ended September 30, 2016. These restructuring costs related to severance and other employee benefits and were nonrecurring. These restructuring costs were not directly attributable to the Transaction. No adjustment has been made in the Unaudited Pro Forma Condensed Combined Statement of Operations for the nine months ended September 30, 2016.

Capital Structure Adjustments

Adjustment to eliminate the interest expense and the accretion of the discount incurred on the 2014 Convertible Loans and 2015 Convertible Loans for the nine months ended September 30, 2016 and to reflect the conversion and exchange of shares of Albireo to be received in respect of the 2014 Convertible Loans and the 2015 Convertible Loans for shares of Biodel common stock, as though the Transaction closed on January 1, 2015.

Adjustment eliminates the fair value adjustments recognized on Albireo’s derivative liabilities for the nine months ended September 30, 2016, related to the conversion features of the 2014 Convertible Loans and 2015 Convertible Loans, assuming the conversion and exchange of Albireo shares received upon conversion of the 2014 Convertible Loans and the 2015 Convertible Loans into shares of Biodel common stock, as though the Transaction closed on January 1, 2015.

Adjustment reflects the additional stock option expense due to the replacement of fully vested warrants with stock options expected to vest within the next 36 months as though the Transaction closed on January 1, 2015.

Other Adjustments

Adjustments reflect reclassifications between financial statement line items to conform to the Albireo financial presentation.

Tax benefit or expense is not expected for these pro forma adjustments.

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except for share data):


	Pro Forma (unaudited)
	Nine Months Ended September 30, 2016			Twelve Months Ended December 31, 2015
Net loss	$	(15,434	)	$	(24,544	)

Weighted average number of combined organization shares in issue¹		6,295			6,295

(1)	The number of shares estimated as of September 30, 2016 to be outstanding upon closing of the Transaction is as follows:


	Amount
	(in thousands, except per share data)
Number of Albireo shares outstanding as of September 30, 2016		4,405
Number of Albireo shares issued upon conversion of convertible preference shares²		54,982

Albireo shares as of September 30, 2016 outstanding upon closing		59,387
Exchange ratio		.06999

Number of shares of Biodel common stock issued to Albireo shareholders		4,157

Number of shares of Biodel common stock outstanding as of September 30, 2016		64,148
Reverse stock split		30

Number of shares of Biodel common stock outstanding upon closing		2,138

Number of combined organization shares outstanding upon closing		6,295

The pro forma diluted net loss per share excludes the ordinary equivalent shares because they would be antidilutive. The ordinary equivalent shares expected after the Transaction include stock options and warrants. The total number of antidilutive ordinary equivalent shares is estimated to be 557 shares based on activity through September 30, 2016. While these ordinary equivalent shares are currently antidilutive, they could be dilutive in the future.

The estimated number of outstanding share equivalents has been calculated as follows:


	Amount
	(in thousands except price per share)
Kreos warrant value at September 30, 2016 (using Euro to U.S. Dollar exchange ratio at September 30, 2016)	$	807
Exchange price at closing³	$	0.82

Estimated number of Albireo warrants outstanding, based on estimated share price at closing²		980
Exchange ratio in the Transaction		.06999

Number of Kreos warrants estimated upon closing		69

2016 Warrants outstanding at September 30, 2016		1,499
Exercise price	$	0.07

Assumed proceeds	$	105
Exchange price at closing³	$	0.82

Shares repurchased		127

Remaining 2016 warrants outstanding		1,372
Exchange ratio in the Transaction		.06999

Number of 2016 Albireo warrants estimated upon closing		96

2016 Albireo options outstanding at September 30, 2016		3,524
Exercise price	$	0.07

Assumed proceeds	$	247
Exchange price at closing³	$	0.82

Shares repurchased		299

Remaining 2016 warrants outstanding		3,225
Exchange ratio in the Transaction		.06999

Number of 2016 Albireo options estimated upon closing		226
Number of Biodel options outstanding at September 30, 2016		4,151
Number of Biodel options vested and exercisable at September 30, 2016		(2,523	)

Estimated number of unvested Biodel options at the time of reverse stock split		1,628
Reverse stock split factor		30

Number of Biodel options estimated upon closing		54

Total combined warrants and options excluded from pro forma diluted loss per share		445

(2)	A summary of the number of Albireo preference shares converted into Albireo ordinary shares upon closing is as follows:


	Amount
	(in thousands)
Number of Series A Convertible Preference shares - voting		1,504
Number of Series A Convertible Preference shares - nonvoting		3,175
Number of Series B Convertible Preference shares - voting		34,675
Number of Series C Convertible Preference shares issued upon conversion of 2014 Convertible Loans at a price of €0.75 per share³		1,670
Number of Series C Convertible Preference shares issued upon conversion of 2015 Convertible Loans at a price of $0.82 per share³		4,249
Number of Series C Convertible Preference shares issued upon receipt of cash proceeds in the amount of $10.0 million at a price of $1.03 per share		9,709

Conversion of Albireo preferred shares into ordinary shares		54,982

(3)	The conversion price has been defined in the share exchange agreement and assumes a 20% discount to the price per share paid by the investors of $1.03 (€0.94), or $0.82 (€0.75), as detailed in the original terms of the convertible loan instruments.

Pro forma adjustments to the Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2015:

Capital Structure Adjustments

Adjustment eliminates the interest expense incurred on 2014 Convertible Loans and 2015 Convertible Loans for the twelve months ended December 31, 2015, to reflect the conversion and exchange of shares of Albireo to be received in respect of the 2014 Convertible Loans and the 2015 Convertible Loans for shares of Biodel common stock, as though the Transaction closed on January 1, 2015.

Adjustment eliminates the fair value adjustments recognized on Albireo’s derivative liabilities for the twelve months ended December 31, 2015, related to the conversion features of the 2014 Convertible Loans and 2015 Convertible Loans, to reflect the conversion and exchange of shares of Albireo to be received in respect of the 2014 Convertible Loans and the 2015 Convertible Loans for shares of Biodel common stock, as though the Transaction closed on January 1, 2015.

Adjustment eliminates the fair value adjustment in the amount of $0.5 million recognized on the Biodel warrants for the twelve months ended December 31, 2015, which is to be settled in cash as a result of the change of control provisions of the existing agreements. This adjustment reflects the Transaction as though it closed on January 1, 2015.

Purchase Price Accounting Adjustments

AA.

Adjustment represents the elimination of amortization expense recognized by Biodel on its pre-existing patents. The fair value of the intangible recognized in purchase accounting represents an in-process research and development asset, which has an indefinite life until completion of the associated research and development efforts or its abandonment. No amortization expense is recorded until such time.

Other Adjustments

BB.

Adjustments reflect reclassifications between financial statement line items to conform the financial presentation.

CC.

Tax benefit or expense is not expected for these pro forma adjustments.

DD.

The estimated number of outstanding shares outstanding after the closing of the Transaction is the same as the nine months ended September 30, 2016, noted in Item U for that period.

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ALBIREO PHARMA, INC. Reports