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424B3
BIOTIME INC filed this Form 424B3 on 02/04/2019
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These IPR&D assets are indefinite-lived intangible assets until the completion or abandonment of the associated R&D efforts. Once the R&D efforts are completed or abandoned, the IPR&D will either be amortized over the asset life as a finite-lived intangible asset or be impaired, respectively, in accordance with ASC 350, Intangibles – Goodwill and Other. In accordance with ASC 350, goodwill and acquired IPR&D are determined to have indefinite lives and, therefore, are not amortized. Instead, they are tested for impairment at least annually and between annual tests if BioTime becomes aware of an event or a change in circumstances that would indicate the asset may be impaired.

 

Because the IPR&D (prior to completion or abandonment of the R&D) is considered an indefinite-lived asset for accounting purposes, the fair value of the IPR&D on the acquisition date creates a deferred income tax liability (“DTL”) in accordance with ASC 740, Income Taxes. This DTL is computed using the fair value of the IPR&D assets on the acquisition date multiplied by BioTime’s federal and state income tax rates, net of the federal benefit. While this DTL would reverse on impairment or sale or commencement of amortization of the related intangible assets, those events are not anticipated under ASC 740 for purposes of predicting reversal of a temporary difference to support the realization of deferred tax assets. As a result, the reversal of the DTL with respect to the acquired IPR&D is not considered a source of future taxable income in accordance with ASC 740. BioTime has a full valuation allowance on its deferred tax assets for all periods presented and this IPR&D DTL is not expected to have any impact on the valuation allowance at the effective date of the Merger or in BioTime’s historical consolidated financial statements for any period presented.

 

Deferred license revenue: Deferred license revenue in the context of a business combination represents an obligation to provide future products or services when payment for such products or services has been made prior to the products being delivered or services being rendered. In September 2018, Asterias and Novo Nordisk A/S (“Novo Nordisk”) entered into an option for Novo Nordisk or its designated U.S. affiliate to license, on a non-exclusive basis, certain intellectual property related to culturing pluripotent stem cells, such as hES cells, in suspension. Under the terms of the option, Asterias received a one-time upfront payment of $1.0 million, in exchange for a 24-month period to negotiate a non-exclusive license during which time Asterias has agreed to not grant any exclusive licenses inconsistent with the Novo Nordisk option. This option is considered a performance obligation as it provides Novo Nordisk with a material right that it would not receive without entering into the contract.

 

For business combination purposes under ASC 805, the fair value of this performance obligation to BioTime, from a market participant perspective, is the estimated costs BioTime may incur, plus a normal profit margin for the level of effort required to perform under the contract after the acquisition date, assuming Novo Nordisk exercised its option, including, but not limited to, negotiation costs, legal fees, arbitration, if any, and other related costs. Management has estimated those costs, plus a normal profit margin, to be approximately $300,000 in the preliminary purchase price allocation.

 

Liability classified warrants: On May 13, 2016, in connection with a common stock offering, Asterias issued 2,959,559 warrants (the “Asterias Warrants”) with an exercise price of $4.37 per share that expire in five years from the issuance date, or May 13, 2021. As of September 30, 2018, there were 2,813,159 Asterias Warrants outstanding. The Asterias Warrants contain certain provisions in the event of a Fundamental Transaction, as defined in the warrant agreement governing the Asterias Warrants (“Warrant Agreement”), that Asterias or any successor entity will be required to purchase, at a holder’s option, exercisable at any time concurrently with or within thirty days after the consummation of the fundamental transaction, the Asterias Warrants for cash. This cash settlement will be in an amount equal to the calculated value of the unexercised portion of such holder’s warrants, determined in accordance with the Black-Scholes option pricing model with significant inputs as specified in the Warrant Agreement. The Merger, if completed, will be considered a Fundamental Transaction.

 

The estimated fair value of the Asterias Warrants for purposes of the Pro Forma Financial Statements was determined by using a combination of the Binomial Lattice and Black-Scholes option pricing models under various probability-weighted outcomes which take into consideration the probability of the fundamental transaction, which for purposes of the above valuation was assumed to be at 100% and net cash settlement occurring, using the contractual remaining term of the warrants. In applying these models, these inputs have included assumptions related to the estimated future price of BioTime Common Shares, using the per share price as of January 30, 2019, the assumed Merger date (see Note 2), volatility and the timing of, and varying probabilities that certain events will occur. Changes in any of the key assumptions used to value the Asterias Warrants could materially impact the fair value of the Asterias Warrants and ultimately the settlement amount of those warrants at the time of the Merger.

 

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