IDRA Idera Pharmaceuticals Inc

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

​

FORM 10-Q

​

For the quarterly period ended March 31, 2023

OR

​

​

For transition period from                      to                     .

​

Commission File Number: 001-31918

​

​

(484) 348-1600

(Registrant’s telephone number, including area code)

​

​

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

​

​

​

Table of Contents

​

ACERAGEN, INC.

FORM 10-Q

​

TABLE OF CONTENTS

​

​

Unless otherwise stated or the context requires otherwise, references in this Quarterly Report on Form 10-Q to “Aceragen,” the “company,” the “Company,” “we,” “us,” or “our” refer to Aceragen, Inc. (formerly known as Idera Pharmaceuticals, Inc.) and its subsidiaries, taken together. The Aceragen logo and other trademarks or service marks of the Company appearing in this Quarterly Report on Form 10-Q are the property of Aceragen, Inc. All other brand names or trademarks are the property of their respective owners.

​

All share and per share amounts, including the exercise or conversion price of any of our securities, reflect, as applicable, the occurrence of a 1-for-17 reverse split of our common stock that occurred on January 17, 2023.

​

​

Table of Contents

​

NOTE REGARDING FORWARD-LOOKING STATEMENTS

​

This Quarterly Report on Form 10-Q (“Form 10-Q”) and the documents we incorporate by reference contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact, included or incorporated in this report regarding, among other things, our cash resources and projected cash runway, financial position, our strategy, strategic alternatives, future operations, clinical trials, the amount and predictability of future revenues, projected costs, fundraising and/or financing plans, prospects, the impacts of the Aceragen Acquisition (as defined below), the impacts of the Reverse Stock Split (as defined below) and the plans and objectives of management are forward-looking statements. The words “believes,” “anticipates,” “estimates,” “plans,” “expects,” “intends,” “may,” “could,” “should,” “potential,” “likely,” “projects,” “continue,” “will,” “schedule,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We cannot guarantee that we will actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may be beyond our control, and which may cause the actual results, performance, or achievements of the Company to be materially different from future results, performance, or achievements expressed or implied by such forward-looking statements.

​

There are a number of important factors that could cause our actual results to differ materially from those indicated or implied by forward-looking statements. These important factors include those set forth under Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 which was filed with the Securities and Exchange Commission (“SEC”) on April 13, 2023 (the “2022 Form 10-K), in this Quarterly Report on Form 10-Q, and in our other disclosures and filings with the SEC. These factors and the other cautionary statements made in this Quarterly Report on Form 10-Q should be read as being applicable to all related forward-looking statements whenever they appear in this Quarterly Report on Form 10-Q.

​

In addition, any forward-looking statements represent our estimates only as of the date that this Quarterly Report on Form 10-Q is filed with the SEC and should not be relied upon as representing our estimates as of any subsequent date. All forward-looking statements included in this Quarterly Report on Form 10-Q are made as of the date hereof and are expressly qualified in their entirety by this cautionary notice. We disclaim any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by law.

​

​

​

Table of Contents

Table of Contents

The accompanying notes are an integral part of these condensed consolidated financial statements.

​

​

2

Table of Contents

The accompanying notes are an integral part of these condensed consolidated financial statements.

​

3

Table of Contents

Table of Contents

Table of Contents

​

The accompanying notes are an integral part of these condensed consolidated financial statements.

​

Table of Contents

ACERAGEN, INC.

​

Table of Contents

NovaQuest

​

Pursuant to the Stock and Warrant Purchase Agreement, dated as of March 24, 2021, by and between Legacy Aceragen and NovaQuest Co-Investment Fund XV, L.P. (“NovaQuest”), as amended by that Amendment, dated October 25, 2021, and as such agreement may be amended from time to time (the “Purchase Agreement”), NovaQuest agreed to provide up to $35.0 million in product-based financing to support the development of ACG-801 for Farber disease. The financing was to be provided through (i) $15.0 million in proceeds from the sale of Legacy Aceragen capital stock and warrants to purchase shares of Legacy Aceragen capital stock, and (ii) up to $20.0 million in capital contributions for development funding relating to the treatment of Farber disease (“Capital Contributions”). The Capital Contributions were to be paid by NovaQuest in quarterly installments for Legacy Aceragen’s eligible expenses associated with the development of ACG-801 for Farber disease (“ACG-801 Product”). Prior to the Aceragen Acquisition, Legacy Aceragen received $20.0 million in Capital Contributions, representing the total eligible Capital Contributions provided for under the Purchase Agreement.

​

Subsequent to the Company’s cessation of development efforts around ACG-801, NovaQuest has alleged that the Company is in breach of the Purchase Agreement and is demanding the return of $35.0 million, plus 12% interest compounded annually and accruing from March 24, 2021 until paid. The Company is currently negotiating with NovaQuest with respect to the Purchase Agreement, however, there is no assurance that such negotiations will be successful.

​

Reverse Stock Split

​

On January 17, 2023, the Company effected a 1-for-17 reverse stock split of the Company's outstanding shares of common stock, as approved by the Company’s stockholders at the Special Meeting. All share and per share amounts of common stock, options, warrants, restricted stock, restricted stock units, and conversion ratio of convertible preferred stock and convertible preferred stock warrants in the accompanying condensed consolidated financial statements and notes thereto have been retroactively adjusted for all periods presented to reflect the reverse stock split.

​

Note 2. Summary of Significant Accounting Policies

​

Basis of Presentation

​

The accompanying unaudited condensed consolidated financial statements included herein have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations of the SEC. Accordingly, certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments, consisting of normal recurring adjustments, and disclosures considered necessary for a fair presentation of interim period results have been included. Interim results for the three months ended March 31, 2023 are not necessarily indicative of results that may be expected for the year ending December 31, 2023. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s 2022 Form 10-K filed with the SEC.

​

Financial Instruments

​

The fair value of the Company’s financial instruments is determined and disclosed in accordance with the three-tier fair value hierarchy specified in Note 4. The Company is required to disclose the estimated fair values of its financial instruments. As of March 31, 2023 and December 31, 2022, the Company’s financial instruments included cash and cash equivalents, accounts receivable, accounts payable, Acquisition Obligation (defined below), and Series X Preferred Stock and Series Z Preferred Stock Warrant liabilities. The carrying amount of cash and cash equivalents, accounts receivable, and accounts payable approximates fair value due to the short-term maturities of these instruments. The carrying values of the Acquisition Obligation (defined below), Series X Preferred Stock liability and Series Z Preferred Stock Warrants liability are recorded at their estimated fair values. As of March 31, 2023, the Company did not have any other derivatives, hedging instruments or other similar financial instruments.

​

​

Table of Contents

Concentration of Credit Risk

​

Financial instruments that subject the Company to significant concentrations of credit risk consist primarily of cash, which, at times, may exceed federally insured limits, and cash equivalents consisting of investments in money market funds managed by a variety of financial institutions. The Company's credit risk is managed by investing in only highly rated money market instruments. As a result, no significant additional credit risk is believed by management to be inherent in the Company’s assets and the Company has not experienced any losses in such accounts and believes it is not exposed to any significant risk on such accounts.

​

Business Combinations

​

The Company evaluates acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs, which would meet the requirements of a business. If determined to be a business combination, the Company accounts for the transaction under the acquisition method of accounting as indicated in ASU 2017-01, Business Combinations (ASC 805), which requires the acquiring entity in a business combination to recognize the fair value of all assets acquired, liabilities assumed, and any non-controlling interest in the acquiree and establishes the acquisition date as the fair value measurement point. Accordingly, the Company recognizes assets acquired and liabilities assumed in business combinations based on the fair value estimates as of the date of acquisition. In accordance with ASC 805, Business Combinations, the Company recognizes and measures goodwill as of the acquisition date, as the excess of the fair value of the consideration paid over the fair value of the identified net assets acquired.

​

Cash and Cash Equivalents

​

The Company considers all highly liquid investments with maturities of 90 days or less when purchased to be “cash equivalents.” Cash and cash equivalents at March 31, 2023 and December 31, 2022 consisted of cash and money market funds.

​

Accounts Receivable

​

The U.S. Government accounted for all of the Company’s accounts receivable as of March 31, 2023. Accordingly, the Company does not expect any credit losses with respect to its accounts receivable and no credit losses have been incurred to date. Included in accounts receivable at March 31, 2023 is $0.3 million of unbilled receivables which relates to revenue recognized for work that has been performed but the invoicing has not yet occurred as of the reporting date.

​

Indefinite-Lived Intangible Assets

​

Indefinite-lived intangible assets consist of In-Process Research and Development (“IPR&D”). The fair values of IPR&D project assets acquired in business combinations are capitalized. The Company generally utilizes the Multi-Period Excess Earning Method to determine the estimated fair value of the IPR&D assets acquired in a business combination. The projections used in this valuation approach are based on many factors, such as relevant market size, the estimated probability of regulatory success rates, anticipated patent protection, expected pricing, expected treated population, and estimated payments (e.g., royalty). The estimated future net cash flows are then discounted to the present value using an appropriate discount rate. These assets are treated as indefinite-lived intangible assets until completion or abandonment of the projects, at which time the assets are amortized over the remaining useful life or written off, as appropriate.

​

Intangible assets with indefinite lives, including IPR&D, are tested for impairment if impairment indicators arise and, at a minimum, annually. However, an entity is permitted to first assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that an indefinite-lived intangible asset’s fair value is less than its carrying amount. Otherwise, no further impairment testing is required. The indefinite-lived intangible asset impairment test consists of a one-step analysis that compares the fair value of the intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The Company considers many factors in evaluating whether the value of our

Table of Contents

intangible assets with indefinite lives may not be recoverable, including, but not limited to, expected growth rates, the cost of equity and debt capital, general economic conditions, our outlook and market performance of the Company’s industry and recent and forecasted financial performance.

​

The Company evaluates indefinite-lived intangible assets for impairment at least annually on October 1 and whenever facts and circumstances indicate that their carrying amounts may not be recoverable. During the three months ended March 31, 2023, management identified an indicator of impairment related to the decrease in the Company’s market capitalization. As a result, the Company performed an interim impairment test that resulted in the recognition of an impairment loss of $4.6 million related to IPR&D (see Note 3 and 4 for further discussion).

​

Goodwill

​

Goodwill represents the amount of consideration paid in excess of the fair value of net assets acquired as a result of the Company’s business acquisitions accounted for using the acquisition method of accounting. The intangible assets acquired represented the fair value of IPR&D which has been recorded on the accompanying condensed consolidated balance sheet as indefinite-lived intangible assets. A deferred tax liability was recorded for the difference between the fair value of the acquired IPR&D and its tax basis which was recognized as goodwill in applying the purchase method of accounting. Goodwill is not amortized and is subject to impairment testing at a reporting unit level on an annual basis or when a triggering event occurs that may indicate the carrying value of the goodwill is impaired. An entity is permitted to first assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount.

​

The Company evaluates goodwill for impairment at least annually on October 1 and whenever facts and circumstances indicate that the carrying amount of the reporting unit is greater than its fair value. During the three months ended March 31, 2023, management identified an indicator of impairment related to the decrease in the Company’s market capitalization. As a result, the Company performed an interim impairment test that resulted in the recognition of an impairment loss of $6.5 million related to goodwill (see Note 3 and 4 for further discussion).

​

Operating Lease Right-of-use Asset and Lease Liability

​

The Company accounts for leases under ASC 842, Leases. Operating leases are included in “Operating lease right-of-use assets” within the Company’s condensed consolidated balance sheets and represent the Company’s right to use an underlying asset for the lease term. The Company’s related obligation to make lease payments are included in “Operating lease liability” and “Operating lease liability, net of current portion” within the Company’s condensed consolidated balance sheets. Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The ROU assets are tested for impairment according to ASC 360, Property, Plant, and Equipment (“ASC 360”). Leases with an initial term of 12 months or less are not recorded on the balance sheet and are recognized as lease expense on a straight-line basis over the lease term.

​

As of March 31, 2023 and December 31, 2022, the Company’s operating lease ROU assets and corresponding short-term and long-term lease liabilities primarily relate to its existing Exton, PA facility operating lease, which expires on May 31, 2025. In connection with the Aceragen Acquisition, the Company acquired an operating lease for an office in Basel, Switzerland, which expired on March 31, 2023.

​

Impairment of Long-Lived Assets

​

In accordance with ASC 360-10-35, Impairment or Disposal of Long-Lived Assets, the Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable (i.e., impaired). Once an impairment is determined, the actual impairment recognized is the difference between the carrying amount and the fair value (less costs to sell for assets to be disposed of) as estimated using one of the following approaches: income, cost, and/or market. Fair value using the income approach is determined primarily using a discounted cash flow model that uses the estimated cash flows associated with the asset or asset group under review, discounted at a rate commensurate with the risk involved. Fair value utilizing the cost approach is determined based on the replacement cost of the asset reduced for,

Table of Contents

among other things, depreciation and obsolescence. Fair value, utilizing the market approach, benchmarks the fair value against the carrying amount.

​

Other Current Liability

​

In January 2023, the Company entered into a short-term financing arrangement with a third-party vendor to finance insurance premiums. The aggregate amount financed under this agreement was $0.9 million. As of March 31, 2023, the balance of $0.7 million, which is included in “Other current liability’ in the Company’s condensed consolidated balance sheets, is scheduled to be paid in monthly installments through August 2023. Total interest to be incurred under the financing arrangement is not material.

​

Warrant Liability

​

The Company accounts for stock warrants as either equity instruments, liabilities or derivative liabilities in accordance with ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and/or ASC 815, Derivatives and Hedging (“ASC 815”), depending on the specific terms of the warrant agreement. Freestanding warrants for shares that are potentially redeemable, whereby the Company may be required to transfer assets (e.g. cash or other assets) outside of its control, are classified as liabilities. Liability-classified warrants are recorded at their estimated fair values at each reporting period until they are exercised, terminated, reclassified or otherwise settled. Changes in the estimated fair value of liability-classified warrants are recorded in Warrant Revaluation Gain (Loss) in the Company’s condensed statements of operations. Equity classified warrants are recorded within additional paid-in capital at the time of issuance and not subject to remeasurement.

​

In connection with the Aceragen Acquisition, a portion of the consideration paid to Legacy Aceragen warrant holders was in the form of warrants to purchase shares of Series Z Preferred Stock (“Series Z Warrants”). Such warrants were classified as liabilities upon issuance and as of December 31, 2022 because the underlying Series Z Preferred Stock is contingently redeemable. During the three months ended March 31, 2023, all of the Company’s liability-classified Series Z Warrants were converted into warrants to purchase common stock and, accordingly, the Series Z Warrant liability was reclassified to stockholders’ equity.

​

Redeemable Preferred Stock

​

The Company applies ASC 480 when determining the classification and measurement of its preferred stock. Preferred shares subject to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, preferred shares are classified as stockholders’ equity.

​

Series X Preferred Stock Liability

​

In conjunction with the Aceragen Acquisition, the Company evaluated the newly issued Series X Preferred Stock and determined its revised terms represents a sale of future revenues and is classified as a liability under ASC 470, Debt and the Company has elected to account for the Series X Preferred Stock liability under the fair value option. The fair value of the Series X Preferred Stock liability represents the present value of estimated future payments, including royalty payments, as well as estimated payments that are contingent upon the achievement of specified milestones. The fair value of the Series X Preferred Stock liability is based on the cumulative probability of the various estimated payments. The fair value measurement is based on significant Level 3 unobservable inputs which are further described in Note 4. Any changes in the fair value of the liability in each reporting period are recognized in the condensed consolidated statements of operations until it is settled. See Note 6 to these condensed consolidated financial statements for further discussion of the Series X Preferred Stock Liability.

​

​

Table of Contents

Revenue Recognition

​

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”), which applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. In accordance with ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

​

Government Contract Revenue

​

Revenues from reimbursable contracts are recognized as costs are incurred, generally based on allowable direct costs incurred during the period, plus allocable overheads together with any recognizable earned fee. The Company uses this output method to measure progress as the customer has access to the development research under these projects and benefits incrementally as research and development activities occur.

​

See Note 10, “Government Contracts Revenue,” of the notes to these condensed consolidated financial statements for discussion of the Company’s cost reimbursement contracts.

​

Customer Concentration Risk

​

The U.S. Government accounted for all of the Company’s revenues for the three months ended March 31, 2023.

​

Goodwill and Intangible Assets Impairment

​

The Company incurred total impairment losses of $11.1 million during the three months ended March 31, 2023, consisting of impairment losses of its IPR&D and goodwill totaling $4.6 million and $6.5 million, respectively, as more fully described above.

​

Restructuring and Other Costs

​

In connection with the Aceragen Acquisition, the Company determined to restructure its operations and reduce its workforce which resulted in seven positions being eliminated by December 31, 2022, representing approximately 54% of the Company’s pre-Aceragen Acquisition employees. As a result of the above restructuring initiatives, the Company incurred total restructuring-related charges of $5.0 million to date, including $1.3 million during the three months ended March 31, 2023 related to severance payments to two former executives which were contingent on obtaining shareholder approval at the Special Meeting, which occurred in January 2023. Such amounts are payable in stock and are included in accrued expenses as of March 31, 2023.

​

As of March 31, 2023, of the $5.0 million total restructuring-related charges incurred, $3.4 million remain unpaid and are included in accrued expenses in the accompanying condensed consolidated balance sheet. See Note 5.

​

Acquisition-Related Costs

​

Acquisition-related costs include direct expenses incurred in connection with the Aceragen Acquisition, as well as integration-related professional fees, employee retention-related benefits, and other incremental costs directly associated to the Aceragen Acquisition. For the three months ended March 31, 2023 acquisition-related costs totaled $0.8 million.

​

Income Taxes

​

In accordance with ASC 270, Interim Reporting, and ASC 740, Income Taxes, the Company is required at the end of each interim period to determine the best estimate of its annual effective tax rate and then apply that rate in providing for income taxes on a current year-to-date (interim period) basis. For the three months ended March 31, 2023, the Company recorded a $0.3 million non-cash income tax benefit due to a reduction in deferred tax liabilities associated with the Company’s IPR&D assets acquired in connection with the Aceragen Acquisition following the recognition of an impairment loss on such IPR&D assets (see Note 4) and reevaluation of the realizability of the Company’s deferred tax assets. No such income tax benefit (or expense) was recorded during the three months ended March 31, 2022. The Company had no uncertain tax positions as of March 31, 2023 and December 31, 2022.

Table of Contents

Net Loss per Common Share Applicable to Common Stockholders

​

The Company uses the two-class method to compute net income per common share during periods the Company realizes net income and has securities outstanding (e.g., redeemable convertible preferred stock) that entitle the holder to participate in dividends and earnings of the Company. In addition, the Company analyzes the potential dilutive effect of outstanding redeemable convertible preferred stock under the "if-converted" method when calculating diluted earnings per share and reports the more dilutive of the approaches (two class or "if-converted"). The two-class method is not applicable during periods with a net loss, as the holders of the redeemable convertible preferred stock have no obligation to fund losses. The Company also analyzes the potential dilutive effect of outstanding stock options, unvested restricted stock and restricted stock units, and warrants under the treasury stock method (as applicable), during periods of income, or during periods in which income is recognized related to changes in fair value of its liability-classified securities.

​

New Accounting Pronouncements

​

From time to time, new accounting pronouncements are issued by the FASB and rules are issued by the SEC that the Company has or will adopt as of a specified date. Unless otherwise noted, management does not believe that any other recently issued accounting pronouncements issued by the FASB or guidance issued by the SEC had, or is expected to have, a material impact on the Company’s present or future consolidated financial statements.

​

Note 3. Business Acquisition

​

On the Effective Date, and in accordance with the terms of the Merger Agreement, the Company acquired 100% of the outstanding security interests of Legacy Aceragen in a “stock-for-stock” transaction whereby all Legacy Aceragen outstanding equity interests were exchanged for a combination of shares of Company common stock, shares of Series Z Preferred Stock, and shares of the newly designated Series X non-voting preferred stock, par value $0.01 per share (“Series X Preferred Stock”). Under the terms of the Merger Agreement, Legacy Aceragen stockholders received (i) 451,608 shares of the Company’s common stock (inclusive of unvested restricted common stock – see Note 12), (ii) 80,656 shares of Series Z Preferred Stock (inclusive of unvested restricted preferred stock – see Note 12) and (iii) five shares of Series X Preferred Stock. In addition, all outstanding options and warrants to purchase Legacy Aceragen common stock were assumed by the Company and converted into stock options and warrants to purchase shares of the Company’s common stock and Series Z Preferred Stock on terms substantially identical to those in effect prior to the Aceragen Acquisition, except for adjustments to the underlying number of shares and the exercise price based on the Merger Agreement exchange ratio. The Aceragen Acquisition was unanimously approved by the Board and the board of directors of Legacy Aceragen. The closing of the transaction was not subject to the approval of the Company’s stockholders.

​

Pursuant to the Merger Agreement, at the Special Meeting the Company’s stockholders approved, among other matters: (i) the conversion of Series Z Preferred Stock into shares of common stock in accordance with Nasdaq Listing Rule 5635(a) (the “Conversion Proposal”) and (ii) a proposal to amend the Company’s Restated Certificate of Incorporation to effect a reverse stock split of all of the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split Proposal” and, together with the Conversion Proposal, the “Merger Agreement Meeting Proposals”).

​

The transaction was accounted for under the acquisition method of accounting. Under the acquisition method, the total purchase price of the acquisition is allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on the fair values as of the date of the acquisition. Consideration paid is comprised of the estimated fair value of various securities issued including the Series Z Preferred Stock, Series X Preferred Stock, stock options, restricted stock and warrants issued to Legacy Aceragen shareholders. The fair value of the consideration totaled approximately $65.6 million, summarized as follows:

​

Table of Contents

​

The Company recorded the assets acquired and liabilities assumed as of the date of the Aceragen Acquisition based on the information available at that date. The following table presents the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed as of the Aceragen Acquisition date:

​

​

The fair value of IPR&D was capitalized as of the Aceragen Acquisition date and accounted for as indefinite-lived intangible assets until completion or disposition of the assets or abandonment of the associated research and development efforts. Upon successful completion of the development efforts, the useful lives of the IPR&D assets will be determined based on the anticipated period of regulatory exclusivity and will be amortized within operating expenses. Until that time, the IPR&D assets will be subject to impairment testing and will not be amortized. The goodwill recorded related to the acquisition is the excess of the fair value of the consideration transferred by the acquirer over the fair value of the net identifiable assets acquired and liabilities assumed at the date of the Aceragen Acquisition. The goodwill recorded is not deductible for tax purposes.

​

The following summarizes the Company’s indefinite-lived tangible assets acquired in connection with the Aceragen Acquisition and their carrying value as of March 31, 2023 (see Note 4 for further discussion):

​

​

Intangible asset fair values for the three IPR&D programs were determined using the Multi-Period Excess Earnings Method (“MPEEM”) which is a form of the income approach. Under the MPEEM, the fair value of an intangible asset is equal to the present value of the asset's incremental after-tax cash flows (excess earnings) remaining after deducting the market rates of return on the estimated value of contributory assets (contributory charge) over its remaining useful life. To calculate fair value of acquired IPR&D programs under the MPEEM, the Company uses probability-weighted cash flows discounted at a rate considered appropriate given the significant inherent risks associated with drug development by development-stage companies. Cash flows were calculated based on estimated projections of revenues and expenses related to each program and then reduced by a contributory charge on requisite assets employed. Contributory assets included debt-free working capital, net fixed assets and assembled workforce. Rates of return on the contributory assets were based on rates used for comparable market participants. Cash flows were assumed to extend through the market exclusivity period estimated to be provided by orphan drug designation. The resultant cash flows were then discounted to present value using a weighted-average cost of equity capital for companies with profiles substantially similar to that of each acquired IPR&D program, which the Company believes represents the rate that market participants would use to value the assets. The Company compensated for the phase of development of each program by probability-adjusting its estimation of the

Table of Contents

expected future cash flows. The projected cash flows were based on significant assumptions, such as the time and resources needed to complete the development and approval of each IPR&D program, estimates of revenue and operating profit related to the program considering its stage of development, the life of the potential commercialized product and associated risks, including the inherent difficulties and uncertainties in drug development, such as obtaining marketing approval from the FDA and other regulatory agencies, and risks related to the viability of and potential alternative treatments in any future target markets. See Note 4.

​

Note 4. Fair Value Measurements

​

Assets and Liabilities Measured at Fair Value on a Recurring Basis

​

The Company applies the guidance in ASC 820, Fair Value Measurement, to account for financial assets and liabilities measured on a recurring basis. Fair value is measured at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability.

​

The Company uses a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and an entity's own assumptions (unobservable inputs). The guidance requires that fair value measurements be classified and disclosed in one of the following three categories:

​

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each reporting period. There were no transfers between Level 1, 2 and 3 during the three months ended March 31, 2023.

​

The table below presents the assets and liabilities measured and recorded in the condensed consolidated financial statements at fair value on a recurring basis at March 31, 2023 and December 31, 2022 categorized by the level of inputs used in the valuation of each asset and liability.

​