Annual report pursuant to Section 13 and 15(d)

Acquisitions, Investments, and Licenses

v2.4.0.8
Acquisitions, Investments, and Licenses
12 Months Ended
Dec. 31, 2013
Business Combinations [Abstract]  
Acquisitions, Investments and Licenses
Acquisitions, Investments and Licenses
Acquisitions for the year ended December 31, 2013
PROLOR acquisition
In August 2013, we acquired PROLOR pursuant to an Agreement and Plan of Merger dated as of April 23, 2013 (the “PROLOR Merger Agreement”) in an all-stock transaction. PROLOR is an Israeli-based biopharmaceutical company focused on developing and commercializing longer-acting proprietary versions of already approved therapeutic proteins.
Under the terms of the PROLOR Merger Agreement, holders of PROLOR common stock received 0.9951 shares of our Common Stock for each share of PROLOR common stock. At closing we delivered 63,670,805 shares of our Common Stock valued at $540.6 million based on the closing price per share of our Common Stock as reported by the NYSE on the closing date of the acquisition, or $8.49 per share. In addition, each outstanding option and warrant to purchase shares of PROLOR Common Stock that was outstanding and unexercised immediately prior to the closing date, whether vested or not vested, was converted into 7,889,265 options and warrants to purchase OPKO Common Stock at a fair value of $46.1 million.
Until completion of the acquisition of PROLOR, Dr. Phillip Frost, our Chairman and Chief Executive Officer, was PROLOR’s Chairman of the Board and a greater than 5% stockholder of PROLOR. Dr. Jane H. Hsiao, our Vice Chairman and Chief Technology Officer and Mr. Steven Rubin, our Executive Vice President, Administration, were both directors of PROLOR and less than 5% stockholders of PROLOR.
Cytochroma acquisition
In March 2013, we acquired Cytochroma, a corporation located in Markham, Canada, whose lead products, both in phase 3 development, are RayaldyTM (CTAP101), a vitamin D prohormone to treat secondary hyperparathyroidism in patients with stage 3 or 4 CKD and vitamin D insufficiency, and AlpharenTM (Fermagate Tablets), a non-absorbed phosphate binder to treat hyperphosphatemia in dialysis patients (the “Cytochroma Acquisition”).
In connection with the Cytochroma Acquisition, we delivered 20,517,030 of shares of our Common Stock valued at $146.9 million based on the closing price per share of our Common Stock as reported by the NYSE on the actual closing date of the acquisition, or $7.16 per share. The number of shares issued was based on the volume-weighted average price per share of our Common Stock as reported on the NYSE for the 10 trading days immediately preceding the date of the purchase agreement for the Cytochroma Acquisition, or $4.87 per share. The Cytochroma Agreement contains customary representations, warranties, conditions to closing, indemnification rights and obligations of the parties.
In addition, the Cytochroma Acquisition requires payments of up to an additional $190.0 million in cash or additional shares of our Common Stock, at our election, upon the achievement of certain milestones relating to development and annual revenue. As a result, we recorded $47.7 million as contingent consideration. We evaluate the contingent consideration on an ongoing basis and the changes in the fair value are recognized in earnings until the milestones are achieved. Refer to Note 18.
The following table summarizes the preliminary purchase price allocation and the estimated fair value of the net assets acquired and liabilities assumed in the acquisitions of Cytochroma and PROLOR at the dates of acquisition, which are subject to change until contingencies that existed on the acquisition date are resolved:
(In thousands)
Cytochroma
 
PROLOR
Current assets (1)
$
1,224

 
$
21,500

Intangible assets:
 
 
 
In-process research and development
191,530

 
590,200

Patents
210

 

Total intangible assets
191,740

 
590,200

Goodwill
2,411

 
139,784

Property, plant and equipment
306

 
1,057

Other assets

 
371

Accounts payable and accrued expenses
(1,069
)
 
(9,866
)
Deferred tax liability

 
(156,403
)
Total purchase price
$
194,612

 
$
586,643

(1)Current assets include cash of $0.4 million and $20.5 million related to the Cytochroma and PROLOR acquisitions, respectively.
Goodwill from the acquisition of PROLOR principally relates to the deferred tax liability generated as a result of this being a stock transaction and the assembled workforce. Goodwill from the acquisition of Cytochroma principally relates to the assembled workforce. Goodwill is not tax deductible for income tax purposes.
OPKO Brazil asset acquisition
In February 2013, we acquired the assets of OPKO Brazil, a Brazilian pharmaceutical company, pursuant to a purchase agreement entered into in December 2012. Pursuant to the purchase agreement, we paid $0.3 million in cash and delivered 64,684 shares of our Common Stock at closing valued at $0.4 million based on the closing price per share of our Common Stock as reported by the NYSE on the actual closing date of the acquisition, or $6.73 per share. The number of shares issued was based on the average closing price per share of Common Stock as reported on the NYSE for the 10 trading days immediately preceding the execution of the purchase agreement, or $4.64 per share.
We accounted for this acquisition as an asset acquisition rather than a business combination. As a result we recorded the assets at fair value, with most of the value being allocated to the most significant asset, its pharmaceutical business licenses.
Acquisitions for the year ended December 31, 2012
OPKO Lab acquisition
In October 2012, we entered into a definitive merger agreement to acquire OPKO Lab, a Nashville-based CLIA laboratory. In December 2012, we paid $9.4 million in cash and delivered 7,072,748 shares of our Common Stock at closing valued of $32.9 million based on the closing sales price per share of our Common Stock as reported by the NYSE on the actual closing date of the acquisition, or $4.65 per share. The number of shares issued was based on the average closing price per share of our Common Stock as reported on the NYSE for the 15 trading days immediately preceding the execution of the purchase agreement, or $4.33 per share. Pursuant to the merger agreement, 1,732,102 shares of Common Stock issued in the transaction are being held in a separate escrow account to secure indemnification obligations of the former owner.
Farmadiet acquisition
In August 2012, we entered into a stock purchase agreement pursuant to which we acquired all of the outstanding stock of Farmadiet, a Spanish company engaged in the development, manufacture, marketing, and sale of pharmaceutical, nutraceutical, and veterinary products in Europe (the “Farmadiet Transaction”).
In connection with the Farmadiet Transaction, we agreed to pay an aggregate purchase price of €13.5 million (approximately $16.0 million), of which (i) 50% ($8.4 million) was paid in cash at closing, and (ii) 50% (the “Deferred Payments”) will be paid, at our option, in cash or shares of our Common Stock as follows: (x) 25% to be paid on the first anniversary of the closing date; and (y) 25% to be paid 18 months after the closing date. On the date of acquisition, we recorded the €6.8 million Deferred Payments at $7.8 million, net of a discount of $0.6 million. The discount will be amortized as interest expense through the respective payment dates. The Deferred Payments are required to be paid in Euro and as such, the final U.S. dollar amount to be paid will be based on the exchange rate at the time the Deferred Payments are made. In the event we elect to pay the Deferred Payments in shares of our Common Stock, the number of shares issuable shall be calculated using the average closing price per share of our Common Stock as reported on the NYSE for the 10 trading days immediately preceding the applicable payment date. On August 2, 2013, we issued 585,703 shares of our Common Stock, in accordance with the first Deferred Payment. The number of shares issued was based on the average closing price per share of our Common Stock as reported on the NYSE for the 10 trading days up to and including August 1, 2013, or $7.61 per share. On February 14, 2014, we delivered approximately €3.4 million in cash in accordance with the second Deferred Payment. We had the right to hold back up to €2.8 million (approximately $3.9 million as of December 31, 2013) from the Deferred Payment to satisfy indemnity claims.
In connection with the Farmadiet Transaction, we also entered into two ancillary transactions (the “Ancillary Transactions”). In exchange for a 40% interest held by one of the sellers in one of Farmadiet’s subsidiaries, we agreed to issue up to an aggregate of 250,000 shares of our Common Stock, of which (a) 125,000 shares were issued on the closing date, and (b) 125,000 will be issued upon achieving certain milestones. In addition, we acquired an interest held by an affiliate of Farmadiet in a product in development in exchange for which we agreed to pay up to an aggregate of €1.0 million ($1.3 million) payable at our option in cash or shares of our Common Stock, of which 25% ($0.3 million) was paid at closing through delivery of 70,421 shares of our Common Stock, and (b) 75% ($1.0 million) will be paid in cash or shares of our Common Stock upon achieving certain milestones. As a result, we recorded $1.2 million as contingent consideration for the future consideration. We evaluate the contingent consideration on an ongoing basis and the changes in fair value are recognized in earnings until the milestones are achieved. Refer to Note 18. In November 2013, we issued 28,993 shares of our Common Stock, as certain of the milestones agreed upon were achieved. The final U.S. dollar amount to be paid will be based on the exchange rate at the time the milestones are achieved. The number of shares of our Common Stock issued is determined based on the average closing sales price for our Common Stock on the NYSE for the 10 trading days preceding the required payment date.
ALS acquisition
In April 2012, we completed the acquisition of ALS Distribuidora Limitada (“ALS”), a privately-held Chilean pharmaceutical company, pursuant to a stock purchase agreement entered into in January 2012. In connection with the transaction, we agreed to pay up to a total of $4.0 million in cash to the sellers. Pursuant to the purchase agreement, we paid (i) $2.4 million in cash at the closing, less certain liabilities, and (ii) $0.8 million in cash at the closing into a separate escrow account to satisfy possible indemnity claims. During the year ended December 31, 2013, we paid the remaining $0.8 million that we had agreed to pay upon the legal registration in the name of ALS of certain trademarks and product registrations previously held by the former owner of ALS, Arama Laboratorios y Compañía Limitada.
The following table summarizes the estimated fair value of the net assets acquired and liabilities assumed in the acquisitions of OPKO Lab, Farmadiet and ALS at the dates of acquisition, which are subject to change while contingencies that existed on the acquisition dates are resolved: 
(In thousands)
OPKO Lab
 
Farmadiet
 
ALS
Current assets(1)(2)
$
6,020

 
$
8,367

 
$
767

Intangible assets:
 
 
 
 
 
Customer relationships
3,860

 
436

 

Technology
1,370

 
3,017

 

In-process research and development

 
1,459

 

Product registrations

 
2,930

 
2,300

Licenses
70

 

 

Covenants not to compete
6,900

 
187

 

Tradename
1,830

 
349

 
680

Total intangible assets
14,030

 
8,378

 
2,980

Goodwill
29,629

 
8,062

 
458

Property, plant and equipment
2,117

 
7,205

 
24

Other assets
37

 
611

 

Accounts payable and accrued expenses(2)
(3,214
)
 
(3,438
)
 
(229
)
Deferred tax liability
(6,356
)
 
(3,169
)
 

Debt assumed

 
(7,829
)
 

Total purchase price
$
42,263

 
$
18,187

 
$
4,000

(1)
Current assets include cash of $1.1 million, $0.2 million and $33 thousand related to the OPKO Lab, Farmadiet and ALS acquisitions, respectively.
(2)
Current assets, accounts payable and accrued expenses include $1.9 million, respectively for a contingency loss and offsetting indemnification asset. Refer to Note 14.
Acquisitions for the year ended December 31, 2011
FineTech acquisition
In December 2011, we purchased all of the issued and outstanding shares of FineTech, a privately-held Israeli company focused on the development and production of APIs. At closing, we delivered to the seller $27.7 million, of which $10.0 million was paid in cash and $17.7 million was paid in shares of our Common Stock. The shares delivered at closing were valued at $17.7 million based on the closing sales price per share of our Common Stock as reported by the NYSE on the actual closing date of the acquisition, or $4.90 per share. The number of shares issued was based on the average closing sales price per share of our Common Stock as reported on the NYSE for the 10 trading days immediately preceding the execution of the purchase agreement, or $4.84 per share. Upon finalization of the closing financial statements of FineTech, we accrued an additional $0.5 million purchase price adjustment related to a working capital surplus, as defined in the purchase agreement, which was paid to the seller in February 2012. In addition, the purchase agreement provides for the payment of additional cash consideration subject to the achievement of certain sales milestones. We evaluate the contingent consideration on an ongoing basis and the changes in fair value are recognized in earnings until the contingencies are resolved. Refer to Note 18.
OPKO Diagnostics acquisition
In October 2011, we acquired OPKO Diagnostics pursuant to an agreement and plan of merger. We paid $10.0 million in cash, subject to certain set-offs and deductions, and $22.5 million in shares of our Common Stock, based on the closing sales price per share of our Common Stock as reported by the NYSE on the closing date of the merger, or $5.04 per share. The number of shares issued was based on the average closing sales price per share of our Common Stock as reported by the NYSE for the 10 trading days immediately preceding the date of the merger, or $4.45 per share. Pursuant to the merger agreement, $5.0 million of the stock consideration was held in a separate escrow account until October 2012 to secure the indemnification obligations of the sellers under the OPKO Diagnostics merger agreement. In December 2011, we made a $0.2 million claim against the escrow for certain undisclosed liabilities. In addition, the merger agreement provides for the payment of up to an additional $19.1 million in shares of our Common Stock upon and subject to the achievement of certain milestones. We evaluate the contingent consideration on an ongoing basis and the changes in fair value are recognized in earnings until the milestones are achieved. Refer to Note 18.
CURNA acquisition
In January 2011, we acquired all of the outstanding stock of CURNA in exchange for $10.0 million in cash, plus $0.6 million in liabilities, of which, $0.5 million was paid at closing. In addition to the cash consideration, we have agreed to pay to the CURNA sellers a portion of any consideration we receive in connection with certain license, partnership or collaboration agreements we may enter into with third parties in the future relating to the CURNA technology, including, license fees, upfront payments, royalties and milestone payments. As a result, we recorded $0.6 million, as contingent consideration for the future consideration. We evaluate the contingent consideration on an ongoing basis and the changes in fair value are recognized in earnings until the milestones are achieved. Refer to Note 18. CURNA was a privately-held company based in Jupiter, Florida, engaged in the discovery of new drugs for the treatment of a wide variety of illnesses, including cancer, heart disease, metabolic disorders and a range of genetic anomalies.
Pro forma disclosure for acquisitions
The following table presents the pro forma results of the acquisitions of Cytochroma and PROLOR for the years ended December 31, 2013 and 2012 as if those acquisitions had been completed as of the beginning of each period, respectively.
 
For the years ended December 31,
(In thousands, except per share amounts)
2013
 
2012
Revenues
$
96,530

 
$
53,595

Loss from continuing operations
$

 
$
(63,479
)
Net loss
$
(147,546
)
 
$
(55,663
)
Net loss attributable to common shareholders
$
(145,027
)
 
$
(57,411
)
Basic and diluted loss from continuing operations per share
$
(0.37
)
 
$
(0.15
)
Basic and diluted loss from discontinuing operations per share
$

 
$

Basic and diluted loss per share
$
(0.37
)
 
$
(0.15
)

The unaudited pro forma financial information is presented for information purposes only. The unaudited pro forma financial information may not necessarily reflect our future results of operations or what the results of operations would have been had we owned and operated each company as of the beginning of the period presented.
We incurred a pre-tax loss related to the activities of Cytochroma and PROLOR of $22.6 million and $13.2 million, respectively, from the date of our acquisitions through December 31, 2013.
Investments
The total assets, liabilities, and net losses of our equity method investees as of and for the year ended December 31, 2013 were $100.0 million, $39.2 million, and $75.1 million, respectively. The following table reflects our maximum exposure, accounting method, ownership interest and underlying equity in net assets of each of our unconsolidated investments as of December 31, 2013:
(Dollars in thousands, except per share prices)
Investee name
 
Year
invested
 
Accounting method
 
Ownership at
December 31,
2013
 
Investment
 
Underlying equity in net assets
 
Closing share price
at December 31, 2013
for investments
available for sale
Cocrystal
 
2009
 
Equity method
 
16
%
 
2,500

 
205

 
 
 
Neovasc
 
2011
 
Equity method
 
6
%
 
3,798

 
325

 
 
 
Fabrus
 
2010
 
VIE, equity method
 
12
%
 
750

 
(160
)
 
 
 
BZNE common stock
 
2012
 
VIE, equity method
 
16
%
 
2,976

 
(1,686
)
 
 
 
RXi
 
2013
 
Equity method
 
19
%
 
15,000

 
2,444

 
 
 
Pharmsynthez
 
2013
 
Equity method
 
11
%
 
5,036

 
5,156

 
 
 
Zebra
 
2013
 
VIE, equity method
 
19
%
 
2,000

 
1,220

 
 
 
TESARO
 
2010
 
Investment available for sale
 
1
%
 
56

 
 
 
 
$
28.24

Neovasc options
 
2011
 
Investment available for sale
 
N/A

 
925

 
 
 
CA
$
4.10

ChromaDex
 
2012
 
Investment available for sale
 
1
%
 
1,320

 
 
 
 
$
1.52

ARNO
 
2013
 
Investment available for sale
 
5
%
 
2,000

 
 
 
 
$
3.20

Plus unrealized/realized gains on investments, options and warrants, net
 
12,766

 
 
 
 
 
Less accumulated losses in investees
 
(18,474
)
 
 
 
 
 
Total carrying value of equity method investees and investments, available for sale
 
$
30,653

 
 
 
 
 

ARNO
In October 2013, we made an investment in ARNO Therapeutics, Inc. (“ARNO”), a clinical stage company focused on the development of oncology drugs. We invested $2.0 million and received 833,333 ARNO common shares, one year warrants to purchase 833,333 ARNO common shares for $2.40 a share and five year warrants to purchase an additional 833,333 ARNO common shares for $4.00 a share. Our investment was part of a private placement by ARNO. Other investors participating in the private financing included certain related parties. Refer to Note 12. We have determined that our ownership, along with that of our related parties, does not provide us with significant influence over the operations of ARNO and as a result, we account for ARNO as an investment, available for sale, and we record changes in the fair value of ARNO as an unrealized gain or loss in Other comprehensive loss each reporting period. We recorded the warrants on the date of the grant at their estimated fair value of $3.6 million using the Black-Scholes-Merton Model. We record changes in fair value of ARNO warrants in Other income (expense), net in our Consolidated Statement of Operations.
Pharmsynthez transactions
In April 2013, we entered into a series of concurrent transactions with Pharmsynthez, a Russian pharmaceutical company traded on the Moscow Stock Exchange. In connection with the transactions:
We delivered approximately $9.6 million to Pharmsynthez.
Pharmsynthez issued to us approximately 13.6 million of its common shares.
We granted rights to certain technologies in the Russian Federation, Ukraine, Belarus, Azerbaijan and Kazakhstan (the “Territories”) to Pharmsynthez.  Pharmsynthez agreed, at its option, to issue approximately 12.0 million common shares to us or to pay us Russian Rubles (“RUR”) 265.0 million ($8.1 million) (the “Pharmsynthez Note Receivable”). We received the shares on January 28, 2014.
We had a right to purchase additional shares in Pharmsynthez at a fixed price if Pharmsynthez were to pay us in cash rather than delivering to us the 12.0 million Pharmsynthez common shares (the “Purchase Option”). 
We will receive from Pharmsynthez a royalty on net sales of products incorporating the technologies in the Territories, as well as a percentage of any sublicense income from third parties for the technologies in the Territories.
Pharmsynthez agreed to pay us $9.5 million under the various collaboration and funding agreements for the development of the technologies (the “Collaboration Payments”).
We recorded the initial shares received in Pharmsynthez as an equity method investment.  We recorded the Pharmsynthez Note Receivable, and the Purchase Option, as financial instruments and elected the fair value option for subsequent measurement. Changes in the fair value of the receivable from Pharmsynthez for its common stock or RUR, with the embedded derivative, and the Purchase Option are recorded in Fair value changes of derivative instruments, net in our Consolidated Statements of Operations for the year ended December 31, 2013.
We have accounted for the license and development activities as a multi-element arrangement, and allocated the total arrangement consideration based on the relative selling prices of the elements. We will record the allocated consideration for development activities as an offset to Research and development expenses over the three-year term of the Collaboration Payments.  We will record revenue in connection with the grant of rights to the technologies proportionately as the payments are received. 
During the year ended December 31, 2013, no payments were received for the Pharmsynthez Notes Receivable. During the year ended December 31, 2013, we received $8.2 million, related to the Collaboration Payments of which we recorded $3.8 million in Revenue from transfer of intellectual property and $1.1 million as an offset to Research and development expenses in our Consolidated Statements of Operations for the year ended December 31, 2013. In January 2014, Pharmsynthez delivered to us approximately twelve million shares of its common stock in satisfaction of the Pharmsynthez Notes Receivable.
RXi transactions
In March 2013, we completed the sale to RXi of substantially all of our assets in the field of RNA interference (the “RNAi Assets”) (collectively, the “Asset Purchase Agreement”). As consideration for the RNAi Assets, at the closing of the Asset Purchase Agreement, RXi issued to us 50 million shares of its common stock (the “APA Shares”). In accounting for the sale of the RNAi Assets, we determined that we did not have any continuing involvement in the development of the RNAi Assets or any other future performance obligations and, as a result, during the year ended December 31, 2013, we recognized the APA Shares as $12.5 million of revenue from transfer of intellectual property in our Consolidated Statement of Operations.
Pursuant to the Asset Purchase Agreement, RXi will be required to pay us up to $50.0 million in milestone payments upon the successful development and commercialization of each drug developed by RXi, certain of its affiliates or any of its or their licensees or sublicensees utilizing patents included within the RNAi Assets (each, a “Qualified Drug”). In addition, RXi will also be required to pay us royalties equal to: (a) a mid single-digit percentage of “Net Sales” (as defined in the Asset Purchase Agreement) with respect to each Qualified Drug sold for an ophthalmologic use during the applicable “Royalty Period” (as defined in the Asset Purchase Agreement); and (b) a low single-digit percentage of net sales with respect to each Qualified Drug sold for a non-ophthalmologic use during the applicable royalty period.
In addition to the Asset Purchase Agreement, we purchased 17,241,380 shares of RXi, for $2.5 million, as part of a $16.4 million financing for RXi, which included other related parties. We have determined that our ownership, along with that of our related parties, provides us the ability to exercise significant influence over RXi operations and as such we have accounted for our investment in RXi under the equity method.
Chromadex
In February 2012, we made a $1.0 million investment in ChromaDex Corporation (“ChromaDex”), a publicly-traded company and leading provider of proprietary ingredients and products for the dietary supplement, nutraceutical, food and beverage, functional food, pharmaceutical and cosmetic markets, in exchange for 1,333,333 shares of ChromaDex common stock, at $0.75 per share. In connection with our investment, we also entered into a license, supply and distribution agreement with ChromaDex pursuant to which we obtained exclusive distribution rights to certain of its products in Latin America. Our investment was part of a $3.7 million private placement by ChromaDex. Other investors participating in the private financing included certain related parties. Refer to Note 12. In connection with a consulting agreement with ChromaDex, we received 500,000 shares of ChromaDex to provide certain consulting services.
We have determined that our ownership, along with that of our related parties, does not provide us with significant influence over the operations of ChromaDex and as a result, we account for ChromaDex as an investment, available for sale, and we record changes in the fair value of ChromaDex as an unrealized gain or loss in Other comprehensive loss each reporting period. Refer to Note 18.
Neovasc
In August 2011, we made an investment in Neovasc, a medical technology company based in Vancouver, Canada, a Canadian publicly-traded company. Neovasc is developing devices to treat cardiovascular diseases and is also a leading supplier of tissue components for the manufacturers of replacement heart valves. We invested $2.0 million and received two million Neovasc common shares, and two-year warrants to purchase an additional one million shares for $1.25 a share. We recorded the warrants on the date of the grant at their estimated fair value of $0.7 million using the Black-Scholes-Merton Model. Prior to the warrants being readily convertible into cash, we recorded an unrealized gain of $0.2 million in Other comprehensive loss. During the year ended December 31, 2013, we exercised the warrants and paid $1.2 million.We record changes in fair value for the Neovasc warrants in Fair value changes of derivatives instruments, net in our Consolidated Statements of Operations. We also entered into an agreement with Neovasc to provide strategic advisory services to Neovasc as it continues to develop and commercialize its novel cardiac devices. In connection with the consulting agreement, Neovasc granted us 913,750 common stock options. The options were granted at (Canadian) $1.00 per share and vest annually over three years. We valued the options using the Black-Scholes-Merton Model at $0.8 million on the date of grant and will recognize the revenue over four years as Other revenue. In August 2012, Neovasc granted us an additional 86,250 common stock options. The options were granted at (Canadian) $1.30 per share and vested immediately. We valued the options using the Black-Scholes-Merton Model at $0.1 million on the date of grant and will recognize the revenue over three years as Revenue from services. We record changes in the fair value of Neovasc options as an unrealized gain or loss in Other comprehensive loss each reporting period. Refer to Note 18.
TESARO
In December 2010, we entered into a license agreement with TESARO, Inc. (“TESARO”) granting TESARO exclusive rights to the development, manufacture, commercialization and distribution of rolapitant and a related compound (the “TESARO License”). Under the terms of the TESARO License, we are eligible for payments of up to $121.0 million, including an up-front payment of $6.0 million, which has been received, and additional payments based upon achievement of specified regulatory and commercialization milestones. In addition, TESARO will pay us double digit tiered royalties on sales of licensed products. We will share future profits from the commercialization of licensed products in Japan with TESARO and we will have an option to market the products in Latin America. In connection with the TESARO License, we also acquired an equity position in TESARO. We recorded the equity position at $0.7 million, the estimated fair value based on a discounted cash flow model.
Neither we nor our related parties have the ability to significantly influence TESARO and as such, we accounted for our investment in TESARO under the cost method until June 2012 on which date, TESARO had an initial public offering. As a result of the initial public offering, we determined TESARO had a readily determinable fair value and we changed the accounting for our investment in TESARO from a cost method investment to an investment, available for sale. We record changes in the fair value as an unrealized gain or loss in Other comprehensive loss and determine the cost using the specific identification method. Refer to Note 18.
Cocrystal
In September 2009, we entered into an agreement pursuant to which we invested $2.5 million in cash in Cocrystal Discovery, Inc. (“Cocrystal”), a privately-held biopharmaceutical company in exchange for 1,701,723 shares of Cocrystal’s Convertible Series A Preferred Stock. Cocrystal is focused on the discovery and development of novel antiviral drugs using a combination of protein structure-based approaches. Refer to Note 12. In October 2011, Cocrystal received an investment of $7.5 million from Teva Pharmaceutical Industries Ltd. (“Teva”). Dr. Phillip Frost, our Chief Executive Officer and Chairman of our Board of Directors, is Chairman of the Board of Directors of Teva. In connection with that investment, we determined Cocrystal no longer meets the definition of a variable interest entity as it had sufficient capital to carry out its principal activities without additional financial support. As a result of our and our related parties’ ownership interest, we and our related parties have the ability to significantly influence Cocrystal, and we account for our investment under the equity method. On January 3, 2014, Cocrystal completed a merger with Biozone Pharmaceuticals, Inc. (“BZNE”), another entity in which we have an equity investment. In connection with the Merger Agreement, BZNE issued to Cocrystal’s security holders 1,000,000 shares of BZNE Series B Convertible Preferred Stock (“Series B”). The Series B shares: (i) automatically convert into shares of BZNE’s common stock at a rate of 205.0831 shares for each share of Series B at such time that BZNE has sufficient authorized capital, (ii) are entitled to vote on all matters submitted to shareholders of BZNE and vote on an as converted basis and (iii) have a nominal liquidation preference.
Sorrento
In June 2009, we entered into a stock purchase agreement with Sorrento Therapeutics, Inc. (“Sorrento”), a publicly-held company with a technology for generating fully human monoclonal antibodies, pursuant to which we invested $2.3 million in Sorrento. Refer to Note 12. In December 2013, we completed the sale of our stake in Sorrento and recorded a gain on the sale of $17.2 million and other income of $2.7 million related to an early termination fee under a license agreement with Sorrento.
Investments in variable interest entities
We have determined that we hold variable interests in Fabrus, Inc. (“Fabrus”), BZNE, SciVac Ltd (“SciVac”), previously known as SciGen (I.L.) Ltd, and Zebra Biologics, Inc. (“Zebra”). We made this determination as a result of our assessment that they do not have sufficient resources to carry out their principal activities without additional financial support.
In October 2013, we acquired 840,000 shares of Zebra Series A-2 Preferred Stock for $2.0 million. In connection with the transactions, Dr. Frost also gifted to OPKO 900,000 shares of Zebra restricted common stock which he had received as a founding member of Zebra. Zebra is a privately held biotechnology company focused on the discovery and development of biosuperior antibody therapeutics and complex drugs. After the closing on October 29, 2013, OPKO owns 23.5% of the Series A-2 Preferred stock issued and outstanding of Zebra. Dr. Richard Lerner, M.D., a member of our Board of Directors, is a founder of Zebra and, along with Dr. Frost, serves as a member of Zebra’s Board of Directors.
In order to determine the primary beneficiary of Zebra, we evaluated our investment and our related parties’ investment, as well as our investment combined with the related party group’s investment to identify if we had the power to direct the activities that most significantly impact the economic performance of Zebra. We determined that we do not have the power to direct the activities that most significantly impact Zebra’s economic performance. Based on the capital structure, governing documents and overall business operations of Zebra, we determined that, while a VIE, we do not have the power to direct the activities that most significantly impact Zebra’s economic performance. We did determine, however, that we can significantly influence the success of Zebra through our board representation and voting power. Accordingly, as we have the ability to exercise significant influence over Zebra’s operations, we account for our investment in Zebra under the equity method.
In February 2012, we purchased from Biozone Pharmaceuticals, Inc., a publicly-traded company that specializes in drug development, manufacturing, and marketing (“BZNE”), $1.7 million of 10% secured convertible promissory notes (the “BZNE Notes”), convertible into BZNE common stock at a price equal to $0.20 per common share, which BZNE Notes are due and payable on February 24, 2014 and ten year warrants (the “BZNE Warrants”) to purchase 8.5 million shares of BZNE common stock at an exercise price of $0.40 per share. In December 2013, we converted the BZNE Notes into approximately 10 million shares of BZNE common stock. In July 2012, we exercised the BZNE Warrants utilizing the net exercise feature and received approximately 7.7 million shares of BZNE common stock. The BZNE Notes were secured pursuant to a security agreement by a first priority lien in the assets of BZNE, including the stock of its subsidiaries. We also entered into a license agreement pursuant to which we acquired a world-wide license for the development and commercialization of products utilizing BZNE’s proprietary drug delivery technology, including a technology called QuSomes, exclusively for OPKO in the field of ophthalmology and non-exclusive for all other therapeutic fields, subject in each case to certain excluded products.

On January 2, 2014, BZNE sold substantially all of its operating assets, including its QuSomes technology, to MusclePharm Corporation (OTCQB: MSLP), an international, award-winning sports nutrition company (“Musclepharm”)
in exchange for 1.2 million shares of Musclepharm’s common stock.  Of the 1.2 million shares issued under the Agreement, (i) 0.6 million of the shares were issued to BZNE upon closing and (ii) 0.6 million of the shares (the “Escrowed Shares”) were placed in escrow for nine months from the date of closing (the “Escrow Period”).  During the Escrow Period, Musclepharm will have the option to purchase the Escrowed Shares at $10.00 per share in cash. The Escrowed Shares will also back-stop potential indemnification claims that Musclepharm may have under the Agreement. Effective January 3, 2014, BZNE completed a merger with Cocrystal, another entity in which we have an equity investment. In connection with the merger, BZNE issued to Cocrystal’s security holders 1,000,000 shares of BZNE Series B Convertible Preferred Stock (“Series B”). The Series B shares: (i) automatically convert into shares of BZNE’s common stock at a rate of 205.08308640 shares for each share of Series B at such time that BZNE has sufficient authorized capital, (ii) are entitled to vote on all matters submitted to shareholders of BZNE and vote on an as converted basis and (iii) have a nominal liquidation preference. Refer to Note 12.
Upon the conversion of the BZNE Notes and BZNE Warrants to BZNE common stock, we account for the BZNE common stock as an equity method investment. Until the conversion of the BZNE Notes and BZNE warrants into shares of BZNE common stock, we recorded (i) changes in fair value for the BZNE Notes as an unrealized gain or loss in Other comprehensive loss for each reporting period, and (ii) changes in fair value for the beneficial conversion feature of the BZNE Notes in Other income (expense), net in our Consolidated Statements of Operations. Refer to Note 18.
In order to determine the primary beneficiary of BZNE, we evaluated our investment and our related parties’ investments, as well as our investment combined with the related party group’s investments to identify if we had the power to direct the activities that most significantly impact the economic performance of BZNE. We determined that power to direct the activities that most significantly impact BZNE’s economic performance is conveyed through the board of directors of BZNE and no entity is able to appoint the BZNE governing body that oversees its executive management team. Based on the capital structure, governing documents and overall business operations of BZNE, we determined that, while a VIE, no single entity has the power to direct the activities that most significantly impact BZNE’s economic performance. However, we determined that we and our related parties can significantly influence the success of BZNE through our voting power. As such, we account for investment in BZNE under the equity method.
In November 2010, we made a $0.7 million investment in Fabrus, Inc. (“Fabrus”), a privately-held early stage biotechnology company with next generation therapeutic antibody drug discovery and development capabilities. Fabrus is using its proprietary antibody screening and engineering approach to discover promising lead compounds against several important oncology targets. Our investment was part of a $2.1 million financing for Fabrus and included other related parties. Refer to Note 12.
In order to determine the primary beneficiary of Fabrus, we evaluated our investment and our related parties’ investment, as well as our investment combined with the related party group’s investment to identify if we had the power to direct the activities that most significantly impact the economic performance of Fabrus. We determined that power to direct the activities that most significantly impact Fabrus’s economic performance is conveyed through the board of directors of Fabrus as no entity is able to appoint the Fabrus governing body that oversees its executive management team. Based on the capital structure, governing documents and overall business operations of Fabrus, we determined that, while a VIE, no single entity has the power to direct the activities that most significantly impact Fabrus’s economic performance. We did determine, however, that our related parties can significantly influence the success of Fabrus through our board representation and voting power. Accordingly, as we and our related parties have the ability to exercise significant influence over Fabrus’ operations, we account for our investment in Fabrus under the equity method.
Consolidated variable interest entities
In June 2012, we entered into a share and debt purchase agreement whereby in exchange for $0.7 million we acquired shares representing a 45% stock ownership in SciVac from FDS Pharma LLP (“FDS”). SciVac is a privately-held Israeli company that produces a third-generation hepatitis B-vaccine. In November 2012 and during the year ended December 31, 2013, we loaned to SciVac a combined $1.8 million for working capital purposes. We have determined that we hold variable interests in SciVac based on our assessment that SciVac does not have sufficient resources to carry out its principal activities without financial support. In order to determine the fair market value of our investment in SciVac, we have utilized a business enterprise valuation approach.
In order to determine the primary beneficiary of SciVac, we evaluated our investment to identify if we had the power to direct the activities that most significantly impact the economic performance of SciVac. We have determined that the power to direct the activities that most significantly impact the economic performance of SciVac is conveyed through SciVac’s board of directors. SciVac’s board of directors appoint and oversee SciVac’s management team who carry out the activities that most significantly impact the economic performance of SciVac. As part of the share and debt purchase agreement, SciVac’s board of directors is constituted by 5 members, of which 3 members will be appointed by us, representing 60% of SciVac’s board. Based on this analysis, we determined that we have the power to direct the activities of SciVac and as such we are the primary beneficiary. As a result of this conclusion, we have consolidated the results of operations and financial position of SciVac and recorded a reduction of equity for the portion of SciVac we do not own.
The following table represents the consolidated assets and non-recourse liabilities related to SciVac as of December 31, 2013 and 2012. These assets are owned by, and these liabilities are obligations of, SciVac, not us.
 
December 31,
(In thousands)
2013
 
2012
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
2

 
$
174

Accounts receivable, net
283

 
387

Inventories, net
1,696

 
1,092

Prepaid expenses and other current assets
218

 
199

Total current assets
2,199

 
1,852

Property, plant and equipment, net
1,374

 
1,539

Intangible assets, net
1,111

 
1,154

Goodwill
1,821

 
796

Other assets
261

 
231

Total assets
$
6,766

 
$
5,572

Liabilities
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,136

 
$
1,108

Accrued expenses
6,498

 
2,859

Notes payable
1,537

 

Total current liabilities
9,171

 
3,967

Other long-term liabilities
1,240

 
1,529

Total liabilities
$
10,411

 
$
5,496