Note 15 – Business combinations

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On March 6, 2023 the Company announced entry into a definitive agreement under which it will combine with TCR² Therapeutics Inc. (“TCR²”) in an all-stock transaction to create a preeminent cell therapy company focused on treating solid tumors. TCR² is a Boston, Massachusetts-based T-cell therapy company focused on treating solid tumours, with clinical franchises undergoing trials and a preclinical pipeline. The combination provides extensive benefits for clinical development and product delivery supported by complementary technology platforms.

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The transaction was approved by the Company’s shareholders and TCR² stockholders on May 30, 2023 and the merger became effective on June 1, 2023. The Company issued 357,429,306 shares to TCR² stockholders in return for 100% of TCR²’s stock. As a result, TCR² and all entities within the TCR² group, became wholly owned by the Company. Following the completion of the transaction, the former TCR² stockholders held approximately 25% of the Company, whereas the Company’s pre-existing shareholders held approximately 75%.

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The Company was identified as the acquirer, with TCR² as the acquiree, and June 1, 2023 was determined to be the acquisition date.

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The consideration transferred for TCR² includes the shares issued by the Company to former TCR² shareholders, plus the fair value of replacement awards of the Company granted to TCR² grantholders attributable to pre-combination vesting. The table below summarizes the consideration transferred and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date:

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The fair value of the 357,429,306 ordinary shares issued to TCR² stockholders of $60,763,000 was determined on the basis of the closing market price of $1.02 ($0.17 per ordinary share) of the Company’s ADSs as of May 31, 2023.

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The number and fair value of replacement awards of the Company granted to TCR² grantholders attributable to pre-combination and post-combination vesting is provisional as the Company is still evaluating the total number of replacement awards that were required to be granted on June 1, 2023, their respective exercise prices and the total fair value of replacement options granted.

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The assets acquired and liabilities assumed were measured based on management’s estimates of the fair value as of the acquisition date, excluding leases.

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The lease contracts acquired by the Company relate to the rental of office and manufacturing spaces in which TCR² was the lessee. The Company retained TCR²’s previous classification of acquired leases as operating leases as there were no lease modifications as a result of the combination, with the exception of leases with a remaining lease term of 12 months or less at the acquisition date, for which no assets or liabilities were recognized at the acquisition date. The lease liabilities were measured at the present value of the remaining lease payments as if the leases were a new lease as of June 1, 2023, discounted using the incremental borrowing rate. The right-of-use assets were measured at the same amount as the lease liabilities, with adjustments to reflect favorable or unfavorable terms compared to market terms. No intangible assets were identified in relation to lease contracts acquired.

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The table below summarises the calculation for the gain on bargain purchase, recognized in the Gain on bargain purchase line in the Consolidated Statement of Operations:

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The transaction resulted in a gain on bargain purchase as the purchase consideration included in the agreement on March 6, 2023 comprising Company ADSs was based on a fixed ratio of 1.5117 of the Company’s ADSs to be issued for each TCR² stock acquired. As the transaction was an all-stock transaction, the value of the consideration was highly sensitive to changes in the Company’s ADS price. The price of a Company ADS fell from a closing price of $1.32 on March 6, 2023 compared to a closing price of $1.02 on May 31, 2023.

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The amount of TCR²’s earnings that are included in the Company’s Consolidated Statement of Operations for the six months ended June 30, 2023 was a loss of $11,760,000 which excludes the gain on bargain purchase.

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The amount of revenue and earnings of the combined entity for the six months ended June 30, 2023 and 2022, had the acquisition date been January 1, 2022, are as follows:

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The supplemental pro forma earnings for the six months ended June 30, 2023 were adjusted to exclude the $22.2 million Gain on bargain purchase, the $7.2 million of acquisition-related costs recognized by the Company, as detailed below, and the $7.7 million of acquisition-related costs incurred by TCR². The pro forma earnings for the six months ended June 30, 2022 were adjusted to include these gains and losses. The supplemental pro forma earnings for both periods were adjusted to include the impact of replacement options issued, as if these had been issued as of January 1, 2022. Accordingly, the share-based compensation expense recognized by TCR² in the six months ended June 30, 2022, and the five months ended May 31, 2023, prior to the acquisition by the Company, of $6.0 million and $1.0 million, respectively, were excluded from the pro forma earnings.

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TCR² did not generate revenue in the period from January 1, 2022 to June 30, 2023, as it has no contracts with customers, so there was no impact on the revenue included in the Company’s Consolidated Statement of Operations or in the supplemental pro forma revenue and earnings presented above.

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The Company incurred the following acquisition-related costs that were recognized as an expense in the six months ended June 30, 2023:

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All acquisition-related costs that were recognized as an expense were recognized in General and administrative expenses in the Consolidated Statement of Operations. No issuance costs were incurred relating to the issuance of shares to TCR² stockholders.

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