UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share data)
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share data)
Insmed Incorporated, a Virginia corporation (“Insmed” or the “Company”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Transave, Inc., a Delaware corporation (“Transave Inc.”), certain wholly owned subsidiaries of the Company and the Stockholders Agent (as defined in the Merger Agreement) on December 1, 2010, pursuant to which one of the Company’s wholly owned subsidiaries was merged with and into Transave Inc., with Transave Inc. as the surviving corporation and, immediately thereafter and as part of an integrated transaction, Transave Inc. was merged with and into Transave, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company (“Transave LLC”), with Transave LLC as the surviving company (collectively, the “merger”). As a result of the merger, the separate corporate existence of Transave Inc. ceased to exist and Transave LLC survived the merger as a wholly owned subsidiary of the Company. For purposes hereof, “Transave” means either Transave Inc. (prior to the merger) or Transave LLC (following the merger), as the context requires.
The merger has been accounted for using the acquisition method of accounting and, accordingly, the tangible and intangible assets acquired and liabilities assumed were recorded at their estimated fair values as of the date of the acquisition. As of the date of this Form 8-K, Xxxxxx has not completed the detailed valuations necessary to finalize the estimate of the fair value of the assets acquired and the liabilities assumed from Transave and the related allocations of purchase price, finalized its calculations of the fair value of the preferred stock issued in the transaction, nor completed its analysis of the deductibility of the net operating losses associated with the consolidated company. Thus, the purchase price allocation below is preliminary, and is subject to further adjustment. The provisional items pending finalization are the valuation of the acquired intangible assets, goodwill, property and equipment and income tax related matters. The adjustments may be material resulting in a retrospective change to our unaudited pro forma condensed combined financial statements.
Our estimate of the total purchase price of Transave, before consideration of the net liabilities assumed by the Company, is summarized as follows:
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25,938,818 shares of common stock issued
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$ | 18,452,875 | ||
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91,745,892 shares of preferred stock issued
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55,964,994 | |||
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Cash consideration paid
|
561,280 | |||
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Transave debt (paid by Xxxxxx at closing)
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7,982,752 | |||
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Total estimated purchase price of acquisition
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$ | 82,961,901 |
The Merger Agreement includes a holdback of approximately 17,652,707 shares of Series B Conditional Convertible Preferred Stock with an estimated fair value of $10,768,151, which were included in the 91,745,892 shares of preferred stock issued as part of the purchase price. Such shares were held back to satisfy any indemnification claims by Insmed against Transave with respect to breaches of representations, warranties and covenants by Transave, which will be treated as post closing purchase price adjustments. Such shares will be delivered to Transave stockholders that have not perfected appraisal rights under the Delaware General Corporation Law and that are otherwise entitled to Merger Consideration (“Eligible Stockholders”), with necessary adjustments made for indemnity claims, on the distribution dates specified in the Merger Agreement.
In accordance with current accounting rules, the Company has made its best estimate of the shares to be issued at the conclusion of this holdback period at arriving at the above estimate of the purchase price.
Our fiscal year and Transave’s fiscal year end on December 31 of each year. The following unaudited pro forma condensed combined consolidated financial statements have been prepared to assist you in your analysis of the financial effects of the merger, and is presented in accordance with accounting principles generally accepted in the United States of America. The unaudited pro forma condensed combined consolidated statements of operations for the nine months ended September 30, 2010 and the twelve months ended December 31, 2009, combine the historical results for Insmed and Transave for the nine months ended September 30, 2010 and the twelve months ended December 31, 2009, respectively, as if the acquisition had occurred on January 1, 2009. The unaudited pro forma condensed combined consolidated balance sheet as of September 30, 2010 combines the historical results for Insmed and Transave as of September 30, 2010, as if the acquisition had occurred on September 30, 2010.
The pro forma information is being furnished solely for informational purposes and is not necessarily indicative of the combined results of operations that might have been achieved for the period indicated, nor is it necessarily indicative of the future results of the combined company. The pro forma information does not reflect cost savings expected to be realized from the elimination of certain expenses and from synergies expected to be created or the costs to achieve such cost savings or synergies. No assurance can be given that cost savings or synergies will be realized. Income taxes do not reflect the amounts that would have resulted had Xxxxxx and Xxxxxxxx filed consolidated income tax returns during the period presented. The pro forma adjustments are based upon information and assumptions available at the time of the filing of this Form 8-K. You should read our pro forma condensed combined consolidated financial information in conjunction with (i) the Company’s consolidated financial statements and the related notes, the Company’s “Selected Consolidated Financial and Operating Data,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which all appear in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, (ii) the Company’s condensed consolidated unaudited financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which appear in the Company’s Quarterly Report on Form 10-Q as of September 30, 2010.
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INSMED INCORPORATED
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Consolidated Balance Sheets
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As of September 30, 2010
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(in thousands)
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Historical
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Pro Forma
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||||||||||||||||
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Insmed
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Transave
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Adjustments
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Pro Forma
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Assets
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Current assets:
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|||||||||||||||||
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Cash and cash equivalents
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$ | 9,687 | $ | 1,209 | $ | (5,105 | ) |
(a)
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$ | 5,791 | |||||||
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Short-term investments
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114,605 | - | (8,000 | ) |
(a)
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106,605 | |||||||||||
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Income tax receivable
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59 | - | - | 59 | |||||||||||||
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Accounts receivable, net
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178 | - | - | 178 | |||||||||||||
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Prepaid expenses
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364 | 43 | - | 407 | |||||||||||||
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Total current assets
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124,893 | 1,252 | (13,105 | ) | 113,040 | ||||||||||||
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Long-term assets:
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Certificate of deposit
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2,085 | - | - | 2,085 | |||||||||||||
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Fixed assets, net of depreciation
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- | 1,238 | - | 1,238 | |||||||||||||
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Deferred financing fees
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- | 100 | - | 100 | |||||||||||||
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In-process R & D & other intangible assets
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- | - | 87,517 |
(b)
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87,517 | ||||||||||||
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Other assets
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- | 91 | - | 91 | |||||||||||||
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Total long-term assets
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2,085 | 1,429 | 87,517 | 91,031 | |||||||||||||
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Total assets
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$ | 126,978 | $ | 2,681 | $ | 74,412 | $ | 204,071 | |||||||||
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Liabilities and stockholders' equity
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Current liabilities:
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Accounts payable
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$ | 431 | $ | 2,926 | $ | - | $ | 3,357 | |||||||||
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Accrued project costs & other
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1,150 | 1,778 | (1,150 | ) |
(c)
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1,778 | |||||||||||
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Capital lease obligations, current
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- | 92 | - | 92 | |||||||||||||
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Payroll liabilities
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481 | - | - | 481 | |||||||||||||
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Interest payable
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- | - | - | - | |||||||||||||
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Deferred rent
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132 | - | - | 132 | |||||||||||||
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Deferred revenue
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98 | - | - | 98 | |||||||||||||
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Venture debt, current
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- | 5,054 | (4,252 | ) |
(d)
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802 | |||||||||||
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Total current liabilities
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2,292 | 9,850 | (5,402 | ) | 6,740 | ||||||||||||
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Long-term liabilities:
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Warrant liability
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- | 3,868 | (3,868 | ) |
(d)
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- | |||||||||||
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Convertible notes
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- | 17,660 | (17,660 | ) |
(d)
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- | |||||||||||
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Venture debt, net of current
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- | 3,275 | (3,275 | ) |
(d)
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- | |||||||||||
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Capital lease obligations, net of current maturities
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- | 94 | - | 94 | |||||||||||||
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Total long-term liabilities
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- | 24,897 | (24,803 | ) | 94 | ||||||||||||
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Total liabilities
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2,292 | 34,747 | (30,205 | ) | 6,834 | ||||||||||||
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Stockholders' equity:
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Common stock
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1,303 | 22 | 237 |
(e)
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1,562 | ||||||||||||
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Preferred stock
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- | 91,843 | (91,843 | ) |
(e)
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- | |||||||||||
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Convertible preferred stock
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- | - | 917 |
(e)
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917 | ||||||||||||
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Additional paid-in capital
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350,458 | 8,775 | 65,384 |
(e)
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424,617 | ||||||||||||
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Accumulated deficit
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(228,666 | ) | (132,706 | ) | 127,796 |
(e)
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(233,576 | ) | |||||||||
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Accumulated other comprehensive income:
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Unrealized gain on investment
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1,591 | - | - | 1,591 | |||||||||||||
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Net stockholders' equity
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124,686 | (32,066 | ) | 102,491 | 195,111 | ||||||||||||
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Total liabilities and stockholders' equity
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$ | 126,978 | $ | 2,681 | $ | 72,286 | $ | 201,945 | |||||||||
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INSMED INCORPORATED
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Consolidated Statements of Operations
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For the Nine Months Ended September 30, 2010
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(in thousands, except per share data)
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Historical
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Pro Forma
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Insmed
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Transave
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Adjustments
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Pro Forma
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Royalties
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$ | 3 | $ | - | $ | - | $ | 3 | |||||||||
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Other expanded access program income, net
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5,597 | - | - | 5,597 | |||||||||||||
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Total revenues
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5,600 | - | - | 5,600 | |||||||||||||
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Operating expenses:
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Research and development
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2,304 | 8,616 | - | 10,920 | |||||||||||||
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Selling, general and administrative
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5,058 | 2,579 | - | 7,637 | |||||||||||||
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Other expenses
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- | 642 | - | 642 | |||||||||||||
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Total expenses
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7,362 | 11,837 | - | 19,199 | |||||||||||||
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Operating loss
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(1,762 | ) | (11,837 | ) | - | (13,599 | ) | ||||||||||
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Investment income
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1,280 | 2 | - | 1,282 | |||||||||||||
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Interest expense
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(28 | ) | (3,547 | ) | 3,547 |
(f)
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(28 | ) | |||||||||
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Other income
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- | 4 | - | 4 | |||||||||||||
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Change in fair value of warrant liability
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- | 330 | (330 | ) | - | ||||||||||||
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Income (loss) before taxes
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(510 | ) | (15,048 | ) | 3,217 | (12,341 | ) | ||||||||||
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Income tax (expense) benefit
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(80 | ) | 10 | (64 | ) |
(h)
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(134 | ) | |||||||||
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Net (loss) income
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$ | (590 | ) | $ | (15,038 | ) | $ | 3,153 | $ | (12,475 | ) | ||||||
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Basic net (loss) income per share
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$ | (0.00 | ) | $ | (0.08 | ) | |||||||||||
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Shares used in computing basic net (loss) income per share
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130,253 | 25,939 |
(g)
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156,192 | |||||||||||||
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Diluted net (loss) income per share
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$ | (0.00 | ) | $ | (0.05 | ) | |||||||||||
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Shares used in computing diluted net (loss) income per share
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130,253 | 117,685 |
(g)
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247,938 | |||||||||||||
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INSMED INCORPORATED
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Consolidated Statements of Operations
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For the Twelve Months Ended December 31, 2009
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(in thousands, except per share data)
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|||||||||||||||||
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Historical
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Pro Forma
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Insmed
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Transave
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Adjustments
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Pro Forma
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Sales, net
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$ | - | $ | - | $ | - | $ | - | |||||||||
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Royalties
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129 | - | - | 129 | |||||||||||||
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License income
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- | - | - | - | |||||||||||||
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Grant revenue
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1,044 | 2,325 | - | 3,369 | |||||||||||||
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Other expanded access program income, net
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9,200 | - | - | 9,200 | |||||||||||||
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Total revenues
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10,373 | 2,325 | - | 12,698 | |||||||||||||
| - | |||||||||||||||||
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Operating expenses:
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- | ||||||||||||||||
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Research and development
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9,207 | 18,227 | - | 27,434 | |||||||||||||
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Selling, general and administrative
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9,840 | 3,951 | (1,150 | ) | 12,641 | ||||||||||||
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Other expense
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- | 235 | - | 235 | |||||||||||||
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Total expenses
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19,047 | 22,413 | (1,150 | ) | 40,310 | ||||||||||||
| - | |||||||||||||||||
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Operating loss
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(8,674 | ) | (20,088 | ) | 1,150 | (27,612 | ) | ||||||||||
| - | |||||||||||||||||
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Investment income
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808 | 3 | - | 811 | |||||||||||||
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Realized loss on investments
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- | - | - | - | |||||||||||||
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Interest expense
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(781 | ) | (2,026 | ) | 2,026 |
(f)
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(781 | ) | |||||||||
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Gain on sale of asset, net
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127,474 | - | - | 127,474 | |||||||||||||
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Change in fair value of warrant liability
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- | 79 | (79 | ) | - | ||||||||||||
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Income (loss) before taxes
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118,827 | (22,032 | ) | 3,097 | 99,892 | ||||||||||||
| - | |||||||||||||||||
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Income tax expense
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477 | 21 | 62 |
(h)
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560 | ||||||||||||
| - | |||||||||||||||||
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Net income (loss)
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$ | 118,350 | $ | (22,053 | ) | $ | 3,035 | $ | 99,332 | ||||||||
| - | |||||||||||||||||
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Basic net income (loss) per share
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$ | 0.93 | $ | 0.41 | |||||||||||||
| - | |||||||||||||||||
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Shares used in computing basic net income (loss) per share
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127,115 | 117,685 |
(g)
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244,800 | |||||||||||||
| - | |||||||||||||||||
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Diluted net income (loss) per share
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$ | 0.93 | $ | 0.41 | |||||||||||||
| - | |||||||||||||||||
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Shares used in computing diluted net income (loss) per share
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127,270 | 117,685 |
(g)
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244,955 | |||||||||||||
INSMED INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND THE TWELVE MONTHS ENDED DECEMBER 31, 2009 AND UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2010
(in thousands)
1. Basis of Presentation
The unaudited pro forma condensed combined consolidated statements of operations for the nine months ended September 30, 2010 and the twelve months ended December 31, 2009 give effect to the Transave acquisition as if it had occurred on January 1, 2009. The unaudited pro forma condensed combined consolidated balance sheet as of September 30, 2010 gives effect to the Transave acquisition as if it had occurred on September 30, 2010. The acquisition was recorded using the acquisition method of accounting.
2. Pro Forma Adjustments
(a) To reflect the cash paid in conjunction with the merger on December 1, 2010. This amount includes $8.0 million in debt payments, $0.6 million in cash consideration and $4.6 million in costs related to the closing of the merger.
(b) To reflect the estimated value of the in-process research and development and other intangible assets related to the purchase price of the acquisition.
(c) To reflect the elimination of an accrual of acquisition-related transaction costs paid at the close of the merger.
(d) To reflect the elimination of the warrant liability, convertible notes and venture debt which were paid in cash or settled in stock at the closing of the merger. The remaining $0.8 million in venture debt was subsequently paid in October and November by Xxxxxxxx.
(e) To reflect elimination of the shareholders’ equity account of Transave and to reflect issuance of 25,938,818 shares of Insmed common stock (par value $0.01) and 91,745,892 shares of Insmed’s Series B Conditional Convertible Preferred Stock (par value $0.01). Additional adjustments of approximately $65.4 million in additional paid-in capital reflect fair value of the common and preferred stock issued in excess of the par value. Additional adjustments in accumulated deficit reflect $4.6 million of acquisition-related transaction costs and $0.3 million in charges relating to the release of the venture debt.
(f) To reflect reversal of interest expense and deferred financing cost amortization related to Transave borrowings paid down as a result of the merger totaling $2.0 million and $3.5 million for the twelve months ended December 31, 2009 and nine months ended September 30, 2010, respectively.
(g) To reflect the issuance of 25,938,818 shares of Insmed common stock and 91,745,892 shares of Insmed’s Series B Conditional Convertible Preferred Stock on the date of acquisition. The preferred shares do not share in any of the company’s losses, therefore are not included in shares used for basic net income for the nine months ended September 30, 2010
(h) To reflect alternative minimum tax (AMT) after consideration of AMT net operating loss carryforwards
