Acquisition-related costs are not included as a component of consideration transferred, but are expensed in the periods in which the costs are incurred. The Company has incurred $3,378,000 and $5,761,000 in costs related to the Spectrum Acquisition for the three- and nine-month periods ended September 30, 2017, respectively. These costs are primarily included in selling, general and administrative expenses in the consolidated statements of operations.

Fair Value of Net Assets Acquired

The allocation of purchase price was based on the fair value of assets acquired and liabilities assumed as of August 1, 2017, based on the preliminary valuation. The components and allocation of the purchase price consists of the following amounts (in thousands):

Of the consideration paid, $78.4 million represents the fair value of customer relationships that will be amortized over the weighted average determined useful life of 16 years, and $38.6 million represents the fair value of developed technology that will be amortized over a determined useful life of 20 years. $960,000 represents the fair value ofnon-competition agreements that will be amortized over a determined life of 3 years. $2.2 million represents the fair value of trademarks and trade names that are determined to have an indefinite useful life. The aforementioned intangible assets will be amortized on a straight-line basis.

The goodwill of $265.1 million represents future economic benefits expected to arise from synergies from combining operations and commercial organizations to increase market presence and the extension of existing customer relationships. None of the goodwill recorded is expected to be deductible for income tax purposes.

The purchase price allocation is subject to adjustment as purchase accounting is preliminary as of September 30, 2017. The final purchase price allocation will be determined upon completion of a final valuation analysis, and the fair value allocation of assets acquired and liabilities assumed could differ materially from the preliminary valuation analysis. The final allocation may include, but not be limited to, changes in the fair value of property, plant and equipment; changes in allocations to intangible assets and goodwill; changes in deferred tax assets and liabilities; and changes in the values of other assets and liabilities.

Revenue, Net Income and Pro Forma Presentation

The Company recorded revenue from Spectrum of $7,550,000 from August 1, 2017 through September 30, 2017. The Company has included the operating results of Spectrum in its consolidated statements of operations since the August 1, 2017 acquisition date. The following table presents unaudited supplemental pro forma information as if the Spectrum Acquisition had occurred as of January 1, 2016 (in thousands, except per share data):

Prior to the Spectrum Acquisition, Spectrum did not generate monthly or quarterly financial statements that were prepared in accordance with U.S. GAAP. Therefore, the effort to create Spectrum interim financial information for 2016 would be administratively impracticable. As a result, the unaudited supplemental pro forma information for the nine-month period ended September 30, 2016 has been omitted.

The unaudited pro forma information for the nine-month period ended September 30, 2017 was calculated after applying the Company’s accounting policies and the impact of acquisition date fair value adjustments. The unaudited pro forma net income for the nine-month period ended September 30, 2017 was adjusted to exclude acquisition-related transaction costs, retention costs solely related to the acquisition, the impact of the fair value step-up to inventory and the release of the valuation allowance on the Company’s deferred tax assets, as these expenses would have been incurred in the prior year assuming the Spectrum Acquisition closed on January 1, 2016.

These pro forma condensed consolidated financial results include certain adjustments to reflect the pro forma results of operations as if the acquisition had occurred as of January 1, 2016. The pro forma information does not reflect the effect of costs or synergies that would have been expected to result from the integration of the acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combinations occurred at the beginning of the period presented, or of future results of the consolidated entities.

TangenX Technology Corporation

On December 14, 2016, the Company acquired TangenX, pursuant to the terms of the Share Purchase Agreement, dated as of December 14, 2016, by and among the Company, John Connors and Novasep Process SAS (such acquisition, the “TangenX Acquisition”). Through the TangenX Acquisition, the Company acquired all outstanding shares and the business of TangenX, including TangenX’s innovativesingle-use Sius line of tangential flow filtration (“TFF”) cassettes and hardware used in downstream biopharmaceutical manufacturing processes.

TangenX™ TFF products are used in the filtration of biological drugs, thereby expanding Repligen’s filtration portfolio and complementing the OPUS^®pre-packed column product line in downstream purification. Effective June 30, 2017, TangenX was legally merged with and into the Company.

The TangenX Acquisition was accounted for as a purchase of a business under ASC 805, “Business Combinations.” The total purchase price of the TangenX Acquisition was $37.1 million in cash.

Consideration Transferred

The Company accounted for the TangenX Acquisition as a purchase of a business under U.S. GAAP. Under the acquisition method of accounting, the assets of TangenX were recorded as of the acquisition date, at their respective fair values, and consolidated with those of the Company. The fair value of the net assets acquired was approximately $37.1 million.

The preparation of the valuation required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable. However, actual results may differ from these estimates.

The total consideration transferred follows (in thousands):

Acquisition-related costs are not included as a component of consideration transferred, but are expensed in the periods in which the costs are incurred. The Company incurred $0 and $376,000 in transaction costs for the three- and nine-month periods ended September 30, 2017, respectively, and $935,000 in transaction costs for the year ended December 31, 2016 related to the TangenX Acquisition. The transaction costs are included in selling, general and administrative expenses in the consolidated statements of operations.

Fair Value of Net Assets Acquired

The allocation of purchase price was based on the fair value of assets acquired and liabilities assumed as of December 14, 2016. The components and allocation of the purchase price consists of the following amounts (in thousands):

Of the consideration paid, $6.2 million represents the fair value of customer relationships that will be amortized over the determined useful life of 13 years and $6.0 million represents the fair value of developed technology that will be amortized over a determined useful life of 20 years. $21,000 represents the fair value ofnon-competition agreements that will be amortized over a determined life of 2 years. $11,000 represents the fair value of trademarks and trade names that will be amortized over a determined useful life of 5 years. The aforementioned intangible assets will be amortized on a straight-line basis.

The goodwill of $29.5 million represents future economic benefits expected to arise from synergies from combining operations and the extension of existing customer relationships. None of the goodwill recorded is expected to be deductible for income tax purposes.

Atoll GmbH

On April 1, 2016, the Company’s subsidiary, Repligen Sweden, acquired Atoll GmbH (“Atoll”) fromUV-Cap GmbH & Co. KG (the “Seller”(“UV Cap”) pursuant to a Share Purchase Agreement (the “Atoll Share Purchase Agreement”), dated as of March 31, 2016 (such acquisition, the “Atoll Acquisition”), by and among Repligen Sweden, the Seller,UV Cap, and the Company, in its capacity as guarantor of the obligations of Repligen Sweden under the Atoll Share Purchase Agreement. The Atoll Acquisition was subject to certain closing conditions that did not occur until April 1, 2016. Payment for the Atoll Acquisition was denominated in Euros but is reflected here in U.S. dollars for presentation purposes.

In connection with the Atoll Acquisition, the Company issued and contributed 538,700 shares of the Company’s common stock, par value of $0.01 per share valued at $14.1 million (the “Stock“Atoll Stock Consideration”) to Repligen Sweden through a transfer by the Company on behalf of Repligen Sweden to fulfill Repligen Sweden’s obligation to deliver the Atoll Stock Consideration under the Atoll Share Purchase Agreement. The issuance of the Atoll Stock Consideration was not registered under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act. The Atoll Stock Consideration was based on the fair value of the Company’s common stock on April 1, 2016.

This acquisition strengthened Repligen’s bioprocessing business by adding a complementary extension to an existing product line while expanding its direct sales presence worldwide. On September 20, 2016, Atoll changed its name to Repligen GmbH.

The Atoll Acquisition was accounted for as a purchase of a business under ASC 805, “Business Combinations.” The total purchase price of the Atoll Acquisition was $25.3 million, consisting of an upfront cash payment of $10.2 million, less $74,000 as a result of the final determination of working capital, issuance of the Atoll Stock Consideration, and a future potential milestone payment of $1.1 million iffor achievement of specific revenue growth targets are met for 2016. The $1.1 million potential contingent consideration had an initial probability weighted fair value at the time of the closing of the Atoll Acquisition of approximately $952,000.

Consideration Transferred

The Company accounted for the Atoll Acquisition as the purchase of a business under U.S. GAAP. Under the acquisition method of accounting, the assets of Atoll were recorded as of the acquisition date, at their respective fair values, and consolidated with those of Repligen.the Company. The fair value of the net assets acquired was approximately $25.3 million.

The preparation of the valuation required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable. However, actual results may differ from these estimates.

The total consideration transferred follows (in thousands):

The fair value of contingent consideration was determined based upon a probability weighted analysis of expected future milestone and settlement payments to be made to the Seller.UV Cap. Pursuant to the terms of the Atoll Share Purchase Agreement, the Company would make a contingent consideration payment of $1.1 million if specific revenue growth targets were met for 2016. Because the specified revenue growth targets were met for 2016, the Company made the contingent consideration payment in March 2017. No further measurement of this liability is required as of March 31,September 30, 2017.

Acquisition related costs are not included as a component of consideration transferred, but are expensed in the periods in which the costs are incurred. The Company incurred $1,262,000$1,307,000 in transaction costs in 2016 related to the Atoll Acquisition. The transaction costs are included in selling, general and administrative expenses in the consolidated statements of operations.

Fair Value of Net Assets Acquired

The allocation of purchase price was based on the fair value of assets acquired and liabilities assumed as of April 1, 2016. The components and allocation of the purchase price consists of the following amounts (in thousands):

Of the consideration paid, $5.3 million represents the fair value of customer relationships that will be amortized over the determined useful life of 13 years and $2.2 million represents the fair value of developed technology that will be amortized over a determined useful life of 14 years. $57,000 represents the fair value ofnon-competition agreements and $11,000 represents the fair value of trademarks and trade names that will be amortized over a determined useful life of 2 years. The aforementioned intangible assets will be amortized on a straight-line basis.

The goodwill of $17.1 million represents future economic benefits expected to arise from synergies from combining operations, utilizing the Company’s existing sales infrastructure to increase market presence and the extension of existing customer relationships.

TangenX Technology Corporation

On December 14, 2016, the Company acquired TangenX Technology Corporation (“TangenX”), pursuant to the terms None of the Share Purchase Agreement, dated as of December 14, 2016 (the “TangenX Share Purchase Agreement”), by and among the Company, John Connors and Novasep Process SAS (such acquisition, the “TangenX Acquisition”). Through the TangenX Acquisition, the Company acquired all outstanding shares and the business of TangenX, including TangenX’s innovativesingle-use Sius line of tangential flow filtration (“TFF”) cassettes and hardware used in downstream biopharmaceutical manufacturing processes.

TangenX™ TFF products are used in the filtration of biological drugs, thereby expanding Repligen’s filtration portfolio and complementing the OPUS^® pre-packed column product line in downstream purification.

The TangenX Acquisition was accounted for as a purchase of a business under ASC 805, “Business Combinations.” The total purchase price of the TangenX Acquisition was $37.1 million in cash.

Consideration Transferred

The Company accounted for the TangenX Acquisition as a purchase of a business under U.S. GAAP. Under the acquisition method of accounting, the assets of TangenX weregoodwill recorded as of the acquisition date, at their respective fair values, and consolidated with those of Repligen. The fair value of the net assets acquired was approximately $37.1 million.

The preparation of the valuation required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, futureis expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable. However, actual results may differ from these estimates.

The total consideration transferred follows (in thousands):

Acquisition related costs are not included as a component of consideration transferred, but are expensed in the periods in which the costs are incurred. The Company incurred $1,337,000 in transaction costs related to the TangenX Acquisition. The transaction costs are included in selling, general and administrative expenses in the consolidated statements of operations.

Fair Value of Net Assets Acquired

The allocation of purchase price was based on the fair value of assets acquired and liabilities assumed as of December 14, 2016. The components and allocation of the purchase price consists of the following amounts (in thousands):

Of the consideration paid, $6.2 million represents the fair value of customer relationships that will be amortized over the determined useful life of 13 years and $6.0 million represents the fair value of developed technology that will be amortized over a determined useful life of 20 years. $21,000 represents the fair value ofnon-competition agreements that will be amortized over a determined life of 5 years. $11,000 represents the fair value of trademarks and trade names that will be amortized over a determined useful life of 2 years. The aforementioned intangible assets will be amortized on a straight-line basis.

The goodwill of $29.4 million represents future economic benefits expected to arise from synergies from combining operations and the extension of existing customer relationships.

Revenue, Net Income and Pro Forma Presentation

The Company recorded revenue from TangenX of $119,000 from December 15, 2016 through December 31, 2016 and $1,973,000deductible for the three months ended March 31, 2017. The Company has included the operating results of TangenX in its consolidated statements of operations since the December 15, 2016 acquisition date. The following table presents unaudited supplemental pro forma information as if the TangenX Acquisition had occurred as of January 1, 2016 (in thousands, except per share data):

The unaudited pro forma information for the three months ended March 31, 2017 and 2016 was calculated after applying the Company’s accounting policies and the impact of acquisition date fair value adjustments. Unaudited pro forma net income for three months ended March 31, 2017 was adjusted to exclude acquisition-related transaction costs and inventorystep-up charges. The unaudited pro forma net income for the three months ended March 31, 2016 was adjusted to include acquisition-related transaction costs, inventorystep-up charges, amortization of intangible assets and income tax benefits resulting from the acquisition.

These pro forma condensed consolidated financial results have been prepared for comparative purposes only and include certain adjustments to reflect the pro forma results of operations as if the acquisition had occurred as of the beginning of the periods presented, such as fair value adjustments to inventory and increased amortization for the fair value of acquired intangible assets. The pro forma information does not reflect the effect of costs or synergies that would have been expected to result from the integration of the acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred at the beginning of each period presented, or of future results of the consolidated entities.purposes.

3. Revenue Recognition

Product Sales

The Company’s revenue recognition policy is to recognize revenues from product sales and services in accordance with ASC 605,Revenue Recognition. These standards require that revenues are recognized when persuasive evidence of an arrangement exists, product delivery, including customer acceptance when required, has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. Determination of whether these criteria have been met are based on management’s judgments primarily regarding the fixed nature of the fee charged for the product delivered and the collectability of those fees. The Company has a few longstanding customers who comprise the majority of revenue and have excellent payment histories and therefore the Company does not require collateral. The Company has had no significant write-offs of uncollectible invoices in the periods presented. When more than one element such as equipment, consumables, and services are contained in a single arrangement, the Company allocates revenue between the elements based on each element’s relative selling price, provided that each element meets the criteria for treatment as a separate unit of accounting. An item is considered a separate unit of accounting if it has value to the customer on a stand-alone basis. The selling price of the undelivered elements is determined by the price charged when the element is sold separately, or in cases when the item is not sold separately, by third-party evidence of selling price or management’s best estimate of selling price.

The Company’s product revenues are from the sale of bioprocessing products, equipment devices, and related consumables used with these equipment devices to customers in the life science and biopharmaceutical industries. On product sales to end customers, revenue is recognized, net of discounts, when both the title and risk of loss have transferred to the customer, as determined by the shipping terms provided there are no uncertainties regarding acceptance, and all obligations have been completed. Generally, our product arrangements for equipment sales are multiple element arrangements, and may include services, such as installation and training, and multiple products, such as consumables and spare parts. In accordance with ASC605-25, based on terms and conditions of the product arrangements, the Company believes that these services and undelivered products can be accounted for separately from the delivered product element, as the delivered products have value to our customers on a standalone basis. Accordingly, revenue for services not yet performed at the time of product shipment are deferred and recognized as such services are performed. The relative selling price of any undelivered products is also deferred at the time of shipment and recognized as revenue when these products are delivered. For product sales to distributors, the Company recognizes revenue for both equipment and consumables upon delivery to the distributor unless direct shipment to the end user is requested. In this case, revenue is recognized upon delivery to the end user’s location. In general, distributors are responsible for shipment to the end customer along with installation, training and acceptance of the equipment by the end customer. Sales to distributors are not contingent upon resale of the product.

At the time of sale, the Company also evaluates the need to accrue for warranty and sales returns. The supply agreements the Company has with its customers and the related purchase orders identify the terms and conditions of each sale and the price of the goods ordered. Due to the nature of the sales arrangements, inventory produced for sale is tested for quality specifications prior to shipment. Since the product is manufactured to order and in compliance with required specifications prior to shipment, the likelihood of sales return, warranty or other issues is largely diminished. Furthermore, there is no customer right of return in our sales agreements. Sales returns and warranty issues are infrequent and have not had a material impact on the Company’s financial statements historically.

Shipping and handling fees are recorded as a component of product revenue, with the associated costs recorded as a component of cost of product revenue.

Therapeutics Licensing Agreements

Activities under licensing agreements are evaluated in accordance with ASC605-25 to determine if they represent a multiple element revenue arrangement. The Company identifies the deliverables included within the agreement and evaluates which deliverables represent separate units of accounting. The Company accounts for those components as separate units of accounting if the following two criteria are met:

Factors considered in this determination include, among other things, whether any other vendors sell the items separately and if the licensee could use the delivered item for its intended purpose without the receipt of the remaining deliverables. If multiple deliverables included in an arrangement are separable into different units of accounting, the Company allocates the arrangement consideration to those units of accounting. The amount of allocable arrangement consideration is limited to amounts that are fixed or determinable. Arrangement consideration is allocated at the inception of the arrangement to the identified units of accounting based on their relative selling price. Revenue is recognized for each unit of accounting when the appropriate revenue recognition criteria are met.

Future milestone payments, if any, under a license agreement will be recognized under the provisions of ASC605-28, which the Company adopted on January 1, 2011. The Company has elected to recognize a payment that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. A milestone is substantive if:

The commercial milestone payments and royalty payments received under license agreements, if any, will be recognized as revenue when they are earned.

Sale of Intellectual Property to BioMarin

In January 2014, the Company entered into an asset purchase agreement (the “BioMarin Asset Purchase Agreement”) with BioMarin Pharmaceutical Inc. (“BioMarin”) to sell Repligen’s histone deacetylase inhibitor (HDACi) portfolio. Pursuant to the terms of the BioMarin Asset Purchase Agreement, the Company is entitled to receive up to $160 million in potential future milestone payments, comprised of:

In addition, Repligen is eligible to receive royalties on sales of therapeutic products originating from the HDACi portfolio. The royalty rates are tiered and begin in themid-single-digits for the first HDACi portfolio product and for the firstnon-HDACi portfolio product with lesser amounts for any backup products developed under the BioMarin Asset Purchase Agreement. The Company’s receipt of these royalties is subject to customary offsets and deductions. There are no refund provisions in this agreement. Any milestones earned upon specified clinical development or commercial sales events or future royalty payments, under the BioMarin Asset Purchase Agreement will be recognized as revenue when they are earned.

Activities under this agreement were evaluated in accordance with ASC605-25 to determine if they represented a multiple element revenue arrangement. The Company identified the following deliverables in the BioMarin Asset Purchase Agreement:

Two criteria must be met in order for a deliverable to be considered a separate unit of accounting. The first criterion requires that the delivered item or items have value to the customer on a stand-alone basis. The second criterion, which relates to evaluating a general right of return, is not applicable because such a provision does not exist in the BioMarin Asset Purchase Agreement. The deliverables outlined above were deemed to have stand-alone value and to meet the criteria to be accounted for as separate units of accounting. Factors considered in this determination included, among other things, BioMarin’s right under the agreement to assign the Transferred Assets, whether any other vendors sell the items separately and if BioMarin could use the delivered item for its intended purpose without the receipt of the remaining deliverables. If multiple deliverables included in an arrangement are separable into different units of accounting, the multiple-element arrangements guidance addresses how to allocate the arrangement consideration to those units of accounting. The amount of allocable arrangement consideration is limited to amounts that are fixed or determinable. Arrangement consideration is allocated at the inception of the arrangement to the identified units of accounting based on their relative selling price.

The Company evaluated the potential milestones in accordance with ASC605-28, which allows an entity to make an accounting policy election to recognize a payment that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. This evaluation included an assessment of the risks that must be overcome to achieve the respective milestone as well as whether the achievement of the milestone was due in part to our initial clinical work, the level of effort and investment required to achieve the respective milestone and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement. There is considerable judgment involved in determining whether a milestone satisfies all of the criteria required to conclude that a milestone is substantive. Milestones that are not considered substantive are recognized as earned if there are no remaining performance obligations or over the remaining period of performance, assuming all other revenue recognition criteria are met.

The Company believes that the $60 million of specified clinical and regulatory milestone payments are substantive. Therefore, any such milestones achieved will be recognized as revenue when earned.

Any milestones achieved upon specified commercial sales events or future royalty payments are considered contingent revenue under the BioMarin Asset Purchase Agreement, and will be recognized as revenue when they are earned as there are no undelivered elements remaining and no continuing performance obligations under the arrangement.

4. Accumulated Other Comprehensive Income

The following table summarizes the changes in accumulated other comprehensive income by component (in thousands):

5. Earnings Per Share

The Company reports earnings per share in accordance with ASC Topic 260, “Earnings Per Share,” which establishes standards for computing and presenting earnings per share. Basic earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares and dilutive common share equivalents then outstanding. Potential common share equivalents consist of restricted stock awards and the incremental common shares issuable upon the exercise of stock options. Under the treasury stock method, unexercised“in-the-money”

stock options and warrants are assumed to be exercised at the beginning of the period or at issuance, if later. The assumed proceeds

are then used to purchase common shares at the average market price during the period. Share-based payment awards that entitle their holders to receivenon-forfeitable dividends before vesting are considered participating securities and are considered in the calculation of basic and diluted earnings per share. There were no such participating securities outstanding during the three-monththree- and nine-month periods ended March 31,September 30, 2017 and 2016.

Basic and diluted weighted average shares outstanding were as follows:

At March 31,September 30, 2017, there were outstanding options to purchase 805,903749,669 shares of the Company’s common stock at a weighted average exercise price of $19.68$20.84 per share and 515,468 restricted stock units to acquire 404,781 shares of the Company’s common stock.units. For the three monthsthree- and nine-month periods ended March 31,September 30, 2017, 458,685162,544 and 326,572 options to purchase shares of the Company’s common stock, respectively, were excluded from the calculation of diluted earnings per share because the exercise prices of the stock options were greater than or equal to the average price of the common shares, and were therefore anti-dilutive. As provided by the terms of the indenture underlying the senior convertible notes,Company’s 2.125% Convertible Senior Notes due 2021 (the “Notes”), the Company has a choice to settle the conversion obligation for the Convertible Notes in cash, shares or any combination of the two. The Company currently intends to settle the parface value of the Convertible Notes in cash and any excess conversion premium in shares. During the third quarter of 2017, the closing price of the Company’s common stock exceeded 130% of the conversion price of the Notes for more than 20 trading days of the last 30 consecutive trading days of the quarter. As a result, the Notes are convertible at the option of the holders of the Notes during the fourth quarter of 2017; however, no holders have elected to convert any of their Notes as of the date of this filing. The Company applies the provisions of ASC 260,Earnings Per Share, Subsection10-45-44, to determine the diluted weighted average shares outstanding as it relates to the conversion spread on its convertible notes.the Notes. Accordingly, the parface value of the Convertible Notes willis not be included in the calculation of diluted income per share, but the dilutive effect of the conversion premium will beis considered in the calculation of diluted net income per share using the treasury stock method. The dilutive impact ofshare figures in the Company’s convertible notes is based ontable above represent the difference between the Company’s current period average stock price andestimated incremental shares that would be issued related to the conversion pricepremium, assuming conversion of all the convertible notes, provided there is a premium. Pursuant to this accounting standard, there is no dilution from the accreted principal of the Convertibleoutstanding Notes as of March 31,September 30, 2017.

At March 31,September 30, 2016, there were outstanding options to purchase 1,312,5081,198,673 shares of the Company’s common stock at a weighted average exercise price of $11.50$12.03 per share. For the three- month periodand nine-month periods ended March 31,September 30, 2016, 520,030253,754 and 348,608 options to purchase shares of the Company’s common stock, respectively, were excluded from the calculation of diluted earnings per share because the exercise prices of the stock options were greater than or equal to the average price of the common shares, and were therefore anti-dilutive. The Company applies the provisions of ASC 260,Earnings Per Share, Subsection10-45-44, to determine the diluted weighted average shares outstanding as it relates to the conversion spread on the Notes. Accordingly, the face value of the Notes is not included in the calculation of diluted income per share. There is no dilutive effect of the conversion premium on the Notes for the three- and nine-month periods ended September 30, 2016, as the weighted average price of the Company’s common stock was less than the conversion price of the Notes

6. Cash, Cash Equivalents and Marketable Securities

At March 31,September 30, 2017, andthe Company did not have any marketable securities.

As of December 31, 2016, the Company’s investments included money market funds and short-term marketable securities. These marketable securities arewere classified asavailable-for-sale. Marketable securities are investments with original maturities of greater than 90 days. Long-term marketable securities are securities with maturities of greater than one year. The average remaining contractual maturity of marketable securities at March 31, 2017 was approximately 2.3 months.

Management reviewed the Company’s investments as of March 31, 2017 and December 31, 2016 and concluded that there are no securities with other than temporary impairments in the investment portfolio. The Company does not intend to sell any investments in an unrealized loss position, and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases.

Investments in marketable securities consisted of the following at March 31, 2017 (in thousands):

There were no long-term marketable securities as of March 31, 2017.

At March 31, 2017, the Company’s investments included seven securities in unrealized loss positions with a total unrealized loss of approximately $2,000 and a total fair market value of approximately $3,946,000. All investments with gross unrealized losses have been in unrealized loss positions for less than 12 months. The unrealized losses were caused primarily by current economic and market conditions. There was no change in the credit risk of the securities. There were no realized gains or losses on the investments for the three months ended March 31, 2017 and 2016.

Investments in marketable securities consisted of the following at December 31, 2016 (in thousands):

There were no long-term marketable securities as of December 31, 2016.

The contractual maturities of all money market funds and marketable securities are less than one yearManagement reviewed the Company’s investments as of MarchDecember 31, 2017.2016 and concluded that there are no securities with other than temporary impairments in the investment portfolio. The Company did not intend to sell any investments in an unrealized loss position, and it was not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases.

7. Inventories

Inventories relate to the Company’s bioprocessing business. The Company values inventory at cost or, if lower, market value, using thefirst-in,first-out method. The Company reviews its inventories at least quarterly and records a provision for excess and obsolete inventory based on its estimates of expected sales volume, production capacity and expiration dates of raw materials,work-in-process and finished products. Expected sales volumes are determined based on supply forecasts provided by key customers for the next 3 to 12 months. The Company writes down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value, and inventory in excess of expected requirements to cost of product revenue. Manufacturing of bioprocessing finished goods is done to order and tested for quality specifications prior to shipment. Reserves for excess and obsolete inventory were approximately $385,000$406,000 at March 31,September 30, 2017 and $435,000 at December 31, 2016.

A change in the estimated timing or amount of demand for the Company’s products could result in additional provisions for excess inventory quantities on hand. Any significant unanticipated changes in demand or unexpected quality failures could have a significant impact on the value of inventory and reported operating results. During all periods presented in the accompanying financial statements, there have been no material adjustments related to a revised estimate of inventory valuations.

Work-in-process and finished products inventories consist of material, labor, outside processing costs and manufacturing overhead. Inventories consist of the following (in thousands):

8. Property, Plant and Equipment

Property, plant and equipment consist of the following (in thousands):

Depreciation expense totaled approximately $928,000$2,988,000 and $751,000$2,360,000 for the three monthsnine-month periods ended March 31,September 30, 2017 and 2016, respectively.

9. Intangible Assets

Intangible assets are amortized over their useful lives using the straight-line method, as applicable, and the amortization expense is recorded within selling, general and administrative expense in the Company’s statements of comprehensive income (loss).

During the third quarter of 2016, the Company launched its XCell^TM ATFsingle-use product line. The Company performed an assessment of thein-process research and development assets and their estimated useful lives to determine if any circumstances exist that would result in an impairment. The Company has determined that the fair value of these intangible assets exceeds their carrying values and are therefore not impaired; accordingly, the Company reclassifiedin-process research and development intangible assets to developed technology and began to amortize these intangible assets in the third quarter of 2016.income.

The Company reviews its indefinite-lived intangible assets not subject to amortization to determine if adverse conditions exist or a change in circumstances exists that would indicate an impairment. Intangible assets and their related useful lives are reviewed at least annually to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable. More frequent impairment assessments are conducted if certain conditions exist, including a change in the competitive landscape, any internal decisions to pursue new or different technology strategies, a loss of a significant customer, or a significant change in the marketplace, including changes in the prices paid for our products or changes in the size of the market for our products. An impairment results if the carrying value of the asset exceeds the estimated fair value of the asset. If the estimate of an intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. The Company continues to believe that its intangible assets are recoverable at March 31,September 30, 2017.

Intangible assets consisted of the following at March 31,September 30, 2017 (in thousands):

Intangible assets consisted of the following at December 31, 2016 (in thousands):

Amortization expense for amortized intangible assets was approximately $715,000$3,476,000 and $399,000$1,484,000 for the three monthsnine-month periods ended March 31,September 30, 2017 and 2016, respectively. As of March 31,September 30, 2017, the Company expects to record amortization expense as follows (in thousands):

10. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

11. Long Term DebtConvertible Senior Notes

The carrying value of the Company’s convertible senior notes is as follows:

On May 24, 2016, the Company issued $115 million aggregate principal amount of its 2.125% Convertible Senior Notes due 2021 (the “Notes”). The net proceeds from the sale of the Notes, after deducting the underwriting discounts and commissions and other related offering expenses, were approximately $111.1 million. The Notes bear interest at the rate of 2.125% per annum, payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2016.

The Notes will mature on June 1, 2021, unless earlier repurchased, redeemed or converted in accordance with their terms. Prior to March 1, 2021, the Notes will be convertible at the option of holders of the Notes only upon satisfaction of certain conditions and during certain periods, and thereafter, the notes will be convertible at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Upon conversion, holders of the Notes will receive shares of the Company’s common stock, cash or a combination thereof, at the Company’s election. It is the Company’s current intent and policy to settle all conversions through combination settlement, which involves satisfying the principal amount outstanding with cash and any note conversion value over the principal amount in shares of the Company’s common stock.

During the third quarter of 2017, the closing price of the Company’s common stock exceeded 130% of the conversion price of the Notes for more than 20 trading days of the last 30 consecutive trading days of the quarter. As a result, the Notes are convertible at the option of the holders of the Notes during the fourth quarter of 2017. As a result, the Company reclassified the carrying value of the Notes to current liabilities from long term liabilities on the Company’s consolidated balance sheet as of September 30, 2017. In the event the closing price conditions are met in the fourth quarter of 2017 or a future fiscal quarter, the Notes will be convertible at a holder’s option during the immediately following fiscal quarter. As of September 30, 2017, theif-converted value of the Notes exceeded the aggregate principal amount by approximately $39.8 million. As of the date of this filing, none of the Notes have been converted by the holders of such Notes.

The conversion rate for the Notes will initially be 31.1813 shares of the Company’s common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $32.07 per common share, and is subject to adjustment under the terms of the Notes. Holders of the Notes may require the Company to repurchase their Notes upon the occurrence of a fundamental change prior to maturity for cash at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.

The Company will not have the right to redeem the Notes prior to June 5, 2019, but may redeem the Notes, at its option, in whole or in part, on any business day on or after June 5, 2019 and prior to the maturity date if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides written notice of redemption. The redemption price will be equal to 100% of the principal amount of the principal amount of Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

The Notes contain customary terms and events of default. If an event of default (other than certain events of bankruptcy, insolvency or reorganization involving the Company) occurs and is continuing, the holders of at least 25% in aggregate principal amount of the outstanding Notes may declare 100% of the principal of, and any accrued and unpaid interest on, all of the Notes to be due and payable. Upon the occurrence of certain events of bankruptcy, insolvency or reorganization involving the Company, 100% of the principal of and accrued and unpaid interest, if any, on all of the Notes will become due and payable automatically. Notwithstanding the foregoing, the Notes provide that, to the extent the Company elects and for up to 270 days, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants consist exclusively of the right to receive additional interest on the Notes. The Company is not aware of any events of default, current events or market conditions that would allow holders to call or convert the Notes as of March 31, 2017.September 30, 2017, except as noted below.

The cash conversion feature of the Notes required bifurcation from the Notes and was initially accounted for as an equity instrument classified to stockholders’ equity, as the conversion feature was determined to be clearly and closely related to the Company’s stock. Based on market data available for publicly traded, senior, unsecured corporate bonds issued by companies in the same industry and asset base and with similar maturity, the Company estimated the implied interest rate, assuming no conversion option. Assumptions used in the estimate represent what market participants would use in pricing the liability component, including market interest rates, credit standing, and yield curves, all of which are defined as Level 2 observable inputs. The estimated implied interest rate was applied to the Notes, which resulted in a fair value of the liability component of $96,289,000 upon issuance, calculated as the present value of implied future payments based on the $115 million aggregate principal amount. The equity component of the Notes was recognized as a debt discount, recorded in additionalpaid-in capital, and represents the difference between the aggregate principal of the Notes and the fair value of the Notes without conversion option on their issuance date. The debt discount is amortized to interest expense using the effective interest method over five years, or the life of the Notes. The Company assesses the equity classification of the cash conversion feature quarterly, and it is not remeasured as long as it continues to meet the conditions for equity classification.

Interest expense recognized on the Notes during the three-month period ended March 31,September 30, 2017 includes $611,000, $825,000$852,000 and $145,000$150,000 for the contractual coupon interest, the accretion of the debt discount and the amortization of the debt issuance costs, respectively. Interest expense recognized on the Notes during the nine-month period ended September 30, 2017 includes $1,833,000, $2,516,000 and $442,000 for the contractual coupon interest, the accretion of the debt discount and the amortization of the debt issuance costs, respectively. The effective interest rate on the Notes is 6.6%, which includes the interest on the Notes, amortization of the debt discount and debt issuance costs. As of March 31,September 30, 2017, the carrying value of the Notes was approximately $96.2$98.2 million and the fair value of the principal was approximately $144.3$154.8 million. The fair value of the Notes was determined based on the most recent trade activity of the Notes as of March 31,September 30, 2017.

12. Equity and Stock-Based Compensation

Public Offering of Common Stock

On July 3, 2017, the Company completed a public offering in which 2,807,017 shares of its common stock were sold to the public at a price of $42.75 per share. The underwriters were granted an option, which they exercised in full, to purchase an additional 421,052 shares of the Company’s common stock. The total proceeds from this offering, net of underwriting discounts, commissions and other offering expenses, totaled approximately $129.3 million.

Stock-Based Compensation

For the three monthsthree-month periods ended March 31,September 30, 2017 and 2016, the Company recorded stock-based compensation expense of approximately $1,531,000$1,817,000 and $922,000,$1,282,000, respectively, for share-based awards granted under the Second Amended and Restated 2001 Repligen Corporation Stock Plan (the “2001 Plan”) and the Repligen Corporation Amended and Restated 2012 Stock Option and Incentive Plan (the “2012 Plan,” and collectively with the 2001 Plan and the 1992 Repligen Corporation Stock Option Plan, the “Plans”). The Company recorded stock-based compensation expense of approximately $4,845,000 and $3,341,000 for the nine-month periods ended September 30, 2017 and 2016, respectively, for share-based awards granted under the Plans.

The following table presents stock-based compensation expense included in the Company’s consolidated statements of comprehensive income (loss)(in thousands):

The 2012 Plan allows for the granting of incentive and nonqualified options to purchase shares of common stock, restricted stock and other equity awards. Incentive options granted to employeesEmployee grants under the Plans generally vest over a three to five-year period, with20%-33% vesting on the first anniversary of the date of grant and the remainder vesting in equal yearly installments thereafter. Nonqualified options issued tonon-employee directors under the Plans generally vest over one year. Options granted under the Plans have a maximum term of ten years from the date of grant and generally, the exercise price of the stock options equals the fair market value of the Company’s common stock on the date of grant. At March 31,September 30, 2017, options to purchase 805,903749,669 shares and 404,781515,468 restricted stock units were outstanding under the Plans. At March 31,September 30, 2017, 1,531,0101,228,987 shares were available for future grant under the 2012 Plan.

The Company uses the Black-Scholes option pricing model to calculate the fair value of stock option awards on the grant date, and the Company uses the value of the common stock as of the grant date to value restricted stock units. The Company measures stock-based compensation cost at the grant date based on the estimated fair value of the award, andaward. The Company recognizes expense on awards with service based vesting as expense over the employee’s requisite service period on a straight-line basis. In the third quarter of 2017, the Company issued performance stock units to certain individuals related to the Spectrum Acquisition which are tied to the achievement of certain revenue and gross margin metrics and the passage of time. The Company has norecognizes expense on performance based awards over the vesting period of each tranche when it is probable that are performance-based or subject to market conditions.the performance metrics will be achieved. The Company recognizes stock-based compensation expense for options that are ultimately expected to vest, and accordingly, such compensation expense has been adjusted for estimated forfeitures.

Information regarding option activity for the three monthsnine-month period ended March 31,September 30, 2017 under the Plans is summarized below:

The aggregate intrinsic value in the table above represents the totalpre-tax intrinsic value (the difference between the closing price of the common stock on March 31,September 30, 2017 of $35.20$38.32 per share and the exercise price of eachin-the-money option) that would have been received by the option holders had all option holders exercised their options on March 31,September 30, 2017.

The weighted average grant date fair value of options granted during the three monthsnine-month periods ended March 31,September 30, 2017 and 2016 was $16.46$16.94 and $13.49,$13.55, respectively. The total fair value of stock options that vested during the three monthsnine-month periods ended March 31,September 30, 2017 and 2016 was approximately $1,195,000$2,074,000 and $645,000,$1,590,000, respectively.

Information regarding restricted stock unit and performance stock unit activity for the three monthsnine-month period ended March 31,September 30, 2017 under the Plans is summarized below:

The aggregate intrinsic value in the table above represents the totalpre-tax intrinsic value (equal to the closing price of the common stock on March 31,September 30, 2017 of $35.20$38.32 per share) that would have been received by the restricted stock unit holders had all holders exercisedrestricted stock units vested on March 31,September 30, 2017. The aggregate intrinsic value of restricted stock units exercisedvested during the three monthsnine-month periods ended March 31,September 30, 2017 and 2016 was approximately $2,064,000$3,480,000 and $1,009,000,$1,479,000, respectively.

The weighted average grant date fair value of restricted stock units granted during the three monthsnine-month periods ended March 31,September 30, 2017 and 2016 was $32.18$36.85 and $26.05,$26.28, respectively. The total grant date fair value of restricted stock units that vested during the three monthsnine-month periods ended March 31,September 30, 2017 and 2016 was approximately $1,616,000$2,565,000 and $742,000,$1,315,000, respectively.

As of March 31,September 30, 2017, there was $14,921,000$18,114,000 of total unrecognized compensation cost related to unvested share-based awards. This cost is expected to be recognized over a weighted average remaining requisite service period of 2.942.66 years.

13. Income Taxes

The Company’s effective tax rate for the three monthsthree- and nine-month periods ended March 31,September 30, 2017 was 24.6%330.9% and (183.8%), respectively, compared to 36.0%47.8% and 34.3%, respectively, for the corresponding periodperiods in the prior year.

In the second quarter of 2017, the Company completed a sale of intellectual property to Repligen Sweden AB that allowed for the Company to utilize certain of its U.S. deferred tax assets. Accordingly, the Company reduced its valuation allowance on its U.S. deferred tax assets by approximately $9,200,000 in the second quarter of 2017 and recorded a $5,625,000 tax benefit on the Company’s consolidated statement of operations as a result of the sale of the intellectual property.

In the third quarter of 2017, in conjunction with the Spectrum Acquisition, the Company determined that its U.S. deferred tax assets were more likely than not to be realized after considering deferred tax liabilities related to the acquired intangible assets. Accordingly, the Company reduced its valuation allowance on its U.S. deferred tax assets by approximately $6,611,000 in the third quarter of 2017.

For the current three month period,three- and nine-month periods ended September 30, 2017, the effective tax rate was lower thandiffered from the U.S. statutory tax rate of 34% primarily due to valuation allowance releases related to the sale of intellectual property, the Spectrum Acquisition and lower statutory tax rates inon foreign jurisdictions.profits. For the three monththree-month period ended March 31,September 30, 2016, the effective tax rate was higher than the U.S. statutory tax rate mainlyof 34% primarily due to theunbenefited domestic losses, partially offset by lower statutory tax treatment of contingent consideration expense.rates in foreign jurisdictions.

At December 31, 2016, the Company had net operating loss carryforwards of approximately $48,550,000 in the U.S., net operating loss carryforwards of approximately €2,287,000 (approximately $2,407,000) in Germany, federal business tax credit carryforwards of $1,745,000 and state business tax credit carryforwards of approximately $442,000 available to reduce future domestic income taxes, if any. The net operating loss and business tax credits carryforwards will continue to expire at various dates through December 2036. The net operating loss and business tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue ServiceService. While an IRC Section 382 study was completed in the second quarter of 2017, and no current limitations were identified, use of these net operating loss and business tax credit carryforwards may be limited in the event offuture based on certain changes in the ownership interest of significant stockholders.

As of December 31, 2016, the Company concluded that realization of deferred tax assets in the United States beyond December 31, 2016 is not more likely than not, and as such, the Company maintained a valuation allowance against its net U.S. deferred tax assets, after considerations for deferred tax liabilities which will not be utilized as a future source of income.

ASU2016-09 states that previously unrecognized excess tax benefits related to stock based compensation should be recognized on a modified retrospective basis. As such, the Company increased its U.S. federal and state net operating loss carryovers by approximately $5.3 million as of January 1, 2017 for previously unrecognized stock based compensation excess tax benefits outstanding as of the beginning of the period. SinceBecause the Company maintainsmaintained a full valuation allowance on its net U.S. deferred tax assets at that date, the Company recorded a corresponding increase to the valuation allowance as of January 1, 2017, and the impact of adopting ASU2016-09 on retained earnings is zero.

In the first quarter of 2017, Repligen Germany GmbH was subject to a tax examination for the years 2012 through 2015. The examination was general in nature, covering all aspects of the subsidiary’s operations prior to the Atoll Acquisition on April 1, 2016. There were no material findings as a result of this examination, and the examination was closed by the German tax authorities.

The Company’s tax returns are subject to examination by federal, state and international taxing authorities for the following periods:

14. Fair Value Measurement

In determining the fair value of its assets and liabilities, the Company uses various valuation approaches. The Company employs a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

Level 2		–				Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly
Level 3		–				Valuations based on inputs that are unobservable and significant to the overall fair value measurement

The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the overall fair value measurement.