Exhibit 99.3
LA JOLLA PHARMACEUTICAL COMPANY
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On July 28, 2020, La Jolla Pharmaceutical Company (“La Jolla”) completed its acquisition of Tetraphase Pharmaceuticals, Inc. (“Tetraphase”), a biopharmaceutical company focused on commercializing its novel tetracycline, XERAVATM (eravacycline), to treat serious and life-threatening infections, for $43 million in upfront cash plus potential future cash payments of up to $16 million pursuant to contingent value rights (“CVRs”). The holders of the CVRs are entitled to receive potential future cash payments of up to $16 million in the aggregate upon the achievement of certain net sales of XERAVA in the U.S. as follows: (i) $2.5 million if 2021 XERAVA U.S. net sales are at least $20 million; (ii) $4.5 million if XERAVA U.S. net sales are at least $35 million during any calendar year ending on or prior to December 31, 2024; and (iii) $9 million if XERAVA U.S. net sales are at least $55 million during any calendar year ending on or prior to December 31, 2024. Following the acquisition, Tetraphase became a wholly owned subsidiary of La Jolla.
The following unaudited pro forma condensed combined financial statements are based on the historical consolidated financial statements of La Jolla and Tetraphase, as adjusted to give effect to La Jolla’s acquisition of Tetraphase. The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2020 and the twelve months ended December 31, 2019 give effect to the acquisition as if it had occurred on January 1, 2019. The unaudited pro forma condensed combined balance sheet as of June 30, 2020 gives effect to the acquisition as if it had occurred on June 30, 2020.
The unaudited adjustments to the unaudited pro forma condensed combined financial statements, including the purchase price allocation, are preliminary and described in the accompanying notes, and should be read together with the unaudited pro forma condensed combined financial statements.
The unaudited pro forma condensed combined financial statements should be read together with La Jolla’s historical consolidated financial statements, which are included in La Jolla’s latest annual report on Form 10-K and quarterly report on Form 10-Q filed with the U.S. Securities and Exchange Commission, and Tetraphase’s historical consolidated financial statements, which are included in Exhibit 99.1 and Exhibit 99.2 to this Current Report on Form 8-K/A.
The unaudited pro forma condensed combined financial statements are not indicative of the financial position or results of operations that would have been realized had La Jolla and Tetraphase been a combined company during the specified periods, and do not reflect the realization of any expected cost savings or other synergies from the acquisition of Tetraphase. In addition, the unaudited pro forma condensed combined financial statements are not necessarily indicative of the financial position or results of operations of La Jolla for any future periods, and the actual financial position and results of operations of La Jolla for any future periods may differ materially from the pro forma amounts reflected herein.
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LA JOLLA PHARMACEUTICAL COMPANY
Unaudited Pro Forma Condensed Combined Balance Sheet
As of June 30, 2020
(in thousands)
Historical | Pro Forma Adjustments | Notes | La Jolla Pro Forma Combined | |||||||||||||||
La Jolla | Tetraphase | |||||||||||||||||
ASSETS | ||||||||||||||||||
Current assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 68,353 | $ | 15,389 | $ | (42,990 | ) | (A) | $ | 40,752 | ||||||||
Short-term investments | 3,062 | — | — | 3,062 | ||||||||||||||
Accounts receivable, net | 1,843 | 877 | — | 2,720 | ||||||||||||||
Inventory, net | 3,120 | 1,503 | 3,264 | (B) | 7,887 | |||||||||||||
Prepaid expenses and other current assets | 2,792 | 2,880 | — | 5,672 | ||||||||||||||
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Total current assets | 79,170 | 20,649 | (39,726 | ) | 60,093 | |||||||||||||
Property and equipment, net | 12,827 | 60 | — | 12,887 | ||||||||||||||
Right-of-use lease assets | 14,792 | 2,376 | — | 17,168 | ||||||||||||||
Restricted cash | 606 | 699 | — | 1,305 | ||||||||||||||
Intangible assets, net | — | 4,062 | 11,578 | (C) | 15,640 | |||||||||||||
Goodwill | — | — | 14,196 | (D) | 14,196 | |||||||||||||
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Total assets | $ | 107,395 | $ | 27,846 | $ | (13,952 | ) | $ | 121,289 | |||||||||
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LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||
Current liabilities: | ||||||||||||||||||
Accounts payable | 2,481 | 1,389 | — | 3,870 | ||||||||||||||
Accrued expenses | 6,172 | 2,549 | — | 8,721 | ||||||||||||||
Accrued transaction costs | 600 | 1,332 | 3,479 | (E) | 5,411 | |||||||||||||
Accrued payroll and related expenses | 5,741 | 1,266 | — | 7,007 | ||||||||||||||
Lease liabilities, current portion | 2,890 | 958 | — | 3,848 | ||||||||||||||
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Total current liabilities | 17,884 | 7,494 | 3,479 | 28,857 | ||||||||||||||
Lease liabilities, less current portion | 25,000 | 1,504 | — | 26,504 | ||||||||||||||
Deferred royalty obligation, net | 124,406 | — | — | 124,406 | ||||||||||||||
Other noncurrent liabilities | 15,317 | 2,286 | 2,610 | (F) | 20,213 | |||||||||||||
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Total liabilities | 182,607 | 11,284 | 6,089 | 199,980 | ||||||||||||||
Shareholders’ deficit: | ||||||||||||||||||
Common Stock | 3 | 7 | (7 | ) | (G) | 3 | ||||||||||||
Series C-12 Convertible Preferred Stock | 3,906 | — | — | 3,906 | ||||||||||||||
Additional paid-in capital | 982,393 | 644,234 | (644,234 | ) | (G) | 982,393 | ||||||||||||
Accumulated deficit | (1,061,514 | ) | (627,679 | ) | 624,200 | (E)(G) | (1,064,993 | ) | ||||||||||
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Total shareholders’ equity (deficit) | (75,212 | ) | 16,562 | (20,041 | ) | (78,691 | ) | |||||||||||
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Total liabilities and shareholders’ equity (deficit) | $ | 107,395 | $ | 27,846 | $ | (13,952 | ) | $ | 121,289 | |||||||||
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LA JOLLA PHARMACEUTICAL COMPANY
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Six Months Ended June 30, 2020
(in thousands, except per share amounts)
Historical | Pro Forma Adjustments | Notes | La Jolla Pro Forma Combined | |||||||||||||||
La Jolla | Tetraphase | |||||||||||||||||
Revenue | ||||||||||||||||||
Net product sales | $ | 13,396 | $ | 3,228 | $ | — | $ | 16,624 | ||||||||||
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Total revenue | 13,396 | 3,228 | — | 16,624 | ||||||||||||||
Operating expenses | ||||||||||||||||||
Cost of product sales | 1,524 | 1,834 | (197 | ) | (C) | 3,161 | ||||||||||||
Research and development | 17,964 | 3,352 | — | 21,316 | ||||||||||||||
Selling, general and administrative | 16,829 | 21,727 | 782 | (C) | 32,010 | |||||||||||||
(7,328 | ) | (H) | ||||||||||||||||
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Total operating expenses | 36,317 | 26,913 | (6,743 | ) | 56,487 | |||||||||||||
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Loss from operations | (22,921 | ) | (23,685 | ) | 6,743 | (39,863 | ) | |||||||||||
Other income (expense) | ||||||||||||||||||
Other income—related party | 4,085 | — | — | 4,085 | ||||||||||||||
Interest income | 222 | 72 | — | 294 | ||||||||||||||
Interest expense | (4,876 | ) | — | — | (4,876 | ) | ||||||||||||
Other (expense) income, net | (693 | ) | 61 | — | (632 | ) | ||||||||||||
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Total other income (expense), net | (1,262 | ) | 133 | — | (1,129 | ) | ||||||||||||
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Net loss | $ | (24,183 | ) | $ | (23,552 | ) | $ | 6,743 | $ | (40,992 | ) | |||||||
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Net loss per share, basic and diluted | $ | (0.89 | ) | $ | (1.50 | ) | ||||||||||||
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Weighted-average common shares outstanding, basic and diluted | 27,282 | 27,282 | ||||||||||||||||
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LA JOLLA PHARMACEUTICAL COMPANY
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2019
(in thousands, except per share amounts)
Historical | Pro Forma Adjustments | Notes | La Jolla Pro Forma Combined | |||||||||||||||
La Jolla | Tetraphase | |||||||||||||||||
Revenue | ||||||||||||||||||
Net product sales | $ | 23,054 | $ | 3,575 | $ | — | $ | 26,629 | ||||||||||
License and collaboration revenue | — | 2,000 | — | 2,000 | ||||||||||||||
Government revenue | — | 1,801 | — | 1,801 | ||||||||||||||
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Total revenue | 23,054 | 7,376 | — | 30,430 | ||||||||||||||
Operating expenses | ||||||||||||||||||
Cost of product sales | 2,392 | 3,080 | (393 | ) | (C) | 5,079 | ||||||||||||
Research and development | 85,329 | 22,785 | — | 108,114 | ||||||||||||||
Selling, general and administrative | 45,134 | 49,043 | 1,564 | (C) | 95,741 | |||||||||||||
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Total operating expenses | 132,855 | 74,908 | 1,171 | 208,934 | ||||||||||||||
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Loss from operations | (109,801 | ) | (67,532 | ) | (1,171 | ) | (178,504 | ) | ||||||||||
Other income (expense) | ||||||||||||||||||
Interest expense | (10,774 | ) | (2,580 | ) | — | (13,354 | ) | |||||||||||
Interest income | 2,128 | 1,262 | — | 3,390 | ||||||||||||||
Other income—related party | 1,939 | — | — | 1,939 | ||||||||||||||
Loss on extinguishment of debt | — | (1,568 | ) | — | (1,568 | ) | ||||||||||||
Other income | — | 333 | — | 333 | ||||||||||||||
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Total other income (expense), net | (6,707 | ) | (2,553 | ) | — | (9,260 | ) | |||||||||||
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Net loss | $ | (116,508 | ) | $ | (70,085 | ) | $ | (1,171 | ) | $ | (187,764 | ) | ||||||
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Net loss per share, basic and diluted | $ | (4.30 | ) | $ | (6.88 | ) | ||||||||||||
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Weighted-average common shares outstanding, basic and diluted | 27,112 | 27,282 | ||||||||||||||||
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Note 1. | Basis of Presentation |
The historical consolidated financial statements have been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are: (1) directly attributable to the acquisition; (2) factually supportable; and (3) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on results following the acquisition. The unaudited pro forma adjustments represent management’s current best estimates and may differ from those that will be used in future filings.
La Jolla has conformed the accounting policies of Tetraphase to its own accounting policies, and certain reclassifications have been made to Tetraphase’s historical consolidated financial statements to conform to La Jolla’s presentation.
Note 2. | Preliminary Purchase Price Allocation |
The acquisition of Tetraphase was accounted for as a business combination pursuant to the Financial Accounting Standards Board’s Accounting Standards Codification Topic 805, Business Combinations. As the acquirer for accounting purposes, La Jolla has preliminarily estimated the fair value of consideration transferred (the “Purchase Price”), assets acquired and liabilities assumed, with the excess of the Purchase Price over the fair value of assets acquired and liabilities assumed recorded as goodwill. The Purchase Price is comprised of the upfront cash of $43 million and the preliminary estimated fair value of potential future cash payments pursuant to the CVRs.
The unaudited pro forma adjustments to record the fair value of Tetraphase’s assets acquired and liabilities assumed are preliminary estimates as if the acquisition date was June 30, 2020. The final allocation of the Purchase Price will be determined as of the acquisition date of July 28, 2020, and is dependent on multiple factors, including the final valuation of the CVRs, assets acquired and liabilities assumed. The preliminary purchase price allocation as if the acquisition date was June 30, 2020 is presented as follows (in thousands):
Cash | $ | 42,990 | ||
CVRs | 2,610 | |||
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Total Purchase Price | $ | 45,600 | ||
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Cash and cash equivalents | $ | 15,389 | ||
Accounts receivable | 877 | |||
Inventory | 4,767 | |||
Prepaid expenses and other current assets | 2,880 | |||
Property and equipment | 60 | |||
Right-of-use lease assets | 2,376 | |||
Restricted cash | 699 | |||
Identifiable intangible assets | 15,640 | |||
Goodwill | 14,196 | |||
Accounts payable | (1,389 | ) | ||
Accrued expenses | (3,881 | ) | ||
Accrued payroll and related expenses | (1,266 | ) | ||
Lease liabilities, current portion | (958 | ) | ||
Lease liabilities, less current portion | (1,504 | ) | ||
Other noncurrent liabilities | (2,286 | ) | ||
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Total Purchase Price | $ | 45,600 | ||
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Management believes that the fair values recognized for the assets acquired and liabilities assumed are based on reasonable estimates and assumptions. The final valuation of the CVRs, assets acquired and liabilities assumed may be materially different than the estimated values assumed in the unaudited pro forma condensed combined financial statements.
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Note 3. | Pro Forma Adjustments |
The following adjustments have been reflected in the unaudited pro forma condensed combined financial statements:
(A) | Represents La Jolla’s payment of $43 million in upfront cash for the acquisition of Tetraphase. |
(B) | Represents the adjustment to “step up” Tetraphase’s finished goods and work-in-process inventory to a preliminary estimated fair value of approximately $4.8 million, an increase of $3.3 million from the carrying value. After the acquisition, the step-up in inventory fair value of $3.3 million will increase cost of product sales over approximately 4 months as the inventory is sold. This increase in cost of product sales is not reflected in the unaudited pro forma condensed combined statements of operations because it does not have a continuing impact. |
(C) | Represents adjustments to: (1) remove the historical intangible assets and corresponding amortization expense; and (2) record the preliminary estimated fair value of acquired identifiable intangible assets and corresponding amortization. The following table summarizes the preliminary estimated fair values of Tetraphase’s identifiable intangible assets and their preliminary estimated useful lives, as well as the corresponding pro forma adjustments to amortization expense (in thousands): |
Preliminary Estimated Fair Value | Preliminary Estimated Useful Life in Years | Year Ended December 31, 2019 Amortization Expense | Six Months Ended June 30, 2020 Amortization Expense | |||||||||||||
Technology | $ | 14,000 | 10.0 | $ | 1,400 | $ | 700 | |||||||||
Trade name | 1,520 | 10.0 | 152 | 76 | ||||||||||||
Customer relationships | 120 | 10.0 | 12 | 6 | ||||||||||||
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Total | $ | 15,640 | $ | 1,564 | $ | 782 | ||||||||||
Tetraphase historical amortization expense recorded as cost of product sales | (393 | ) | (197 | ) | ||||||||||||
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Pro forma adjustments to amortization expense | $ | 1,171 | $ | 585 | ||||||||||||
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(D) | Represents the preliminary estimated goodwill associated with the acquisition as shown in Note 2. |
(E) | Represents $3.5 million of non-recurring costs directly related to the acquisition of Tetraphase (“Transaction Costs”) that are not yet reflected in the historical financial statements of either La Jolla or Tetraphase as of June 30, 2020. |
(F) | Represents the preliminary estimated fair value of the future cash payments pursuant to CVRs. |
(G) | Represents the elimination of the historical equity of Tetraphase. |
(H) | Represents the removal of $7.3 million of Transaction Costs incurred by either La Jolla or Tetraphase during the six months ended June 30, 2020. |
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