RESEARCH CASE-CELGENE\'S ACQUISITION OF RECEPTOs, INC. On August 27, 2015, Celge
ID: 2565163 • Letter: R
Question
RESEARCH CASE-CELGENE'S ACQUISITION OF RECEPTOs, INC. On August 27, 2015, Celgene Corporation acquired all of the outstanding stock of Receptos, Inc., in exchange for $7.6 billion in cash. Referring to Celgene's 2015 financial statements and its July 14, 2015, press release announcing the acquisition, answer the following questions regarding the Receptos acquisition. ·Why did Celgene acquire Receptos? 2. What accounting method was used, and for what amount, to record the acquisition? 3. What amount did Celgene include in pre-combination service compensation in the total consider- sk ation transferred? What support is provided for this treatment in the Accounting Standards Codifica- 4. What allocations did Celgene make to the assets acquired and liabilities assumed in the acquisition? 5. Describe the nature of the in-process research and development product rights acquired by Celgene 6. How will Celgene account for the in-process research and development product rights acquired in tion (see ASC 805-30-30, paragraphs 9-13)? Provide a calculation showing how Celgene determined the amount allocated to goodwill. in its acquisition of Receptos. the Receptos combination?
Explanation / Answer
Answer - 1
The Receptos acquisition provides a transformational opportunity for Celgene to impact multiple therapeutic areas.
This acquisition enhances our I&I portfolio and allows us to leverage the investments made in our global organization to accelerate our growth in the medium and long-term.
Answer – 2
The acquisition has been accounted for using the acquisition method of accounting which requires that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date and requires the fair value of acquired IPR&D to be classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts.
The total consideration for the acquisition of Receptos is summarized as follows:
Cash paid for outstanding common stock = $7,311.3
Cash for equity compensation attributable to pre-combination service = $314.9
Total consideration = $7,626.2
Answer – 3
Cash for equity compensation attributable to pre-combination service = $314.9
Answer – 4
During the fourth quarter of 2015, adjustments were recorded to increase the amounts initially recorded for deferred tax assets, deferred tax liabilities and goodwill as of the Acquisition Date.
Working capital $479.2
Property, plant and equipment $5
In-process research and development product rights $6,842
Current deferred tax assets $241.3
Other non-current assets $7.9
Non-current deferred tax liabilities $(2,519.2)
Total identifiable net assets $5,056.2
Goodwill $2,570
Total net assets acquired $7,626.2
Answer – 5
The acquisition has been accounted for using the acquisition method of accounting which requires that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date and requires the fair value of acquired IPR&D to be classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts.
Answer – 6
The fair value assigned to acquired IPR&D was based on the present value of expected after-tax cash flows attributable to ozanimod, which is in phase II and III testing.
Acquired IPR&D will be accounted for as an indefinite-lived intangible asset until regulatory approval in a major market or discontinuation of development.
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