SEC Company Response from BIOVERIS CORP (CIK 0001264899) — Apr 15, 2005
BIOVERIS CORP (CIK 0001264899)
Date: April 15, 2005 · CIK: 0001264899 · Accession: 0001164711-05-000004
AI Filing Summary & Sentiment
Referenced dates: March 22, 2005
Letter
Re:
April 15, 2005
VIA EDGAR
Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, NW
Washington, DC 20549-0404
Attn: Mr. Brian Cascio
BioVeris Corporation
Ladies and Gentlemen:
BioVeris Corporation (“BioVeris”) has authorized us to provide the following responses to the comments raised in your letter dated March 22, 2005 to George V. Migausky. For your convenience, the comments are included in this letter in bold face type and are followed by the applicable response.
Form 10-K for the fiscal year ended March 31, 2004
Item 8 — Consolidated Financial Statements
Consolidated Balance Sheets — Page 60
1.
We note that you recorded a loss in the second quarter of fiscal year 2005 as a result of your planned disposal of your interest in MSD. We also note that MSD has a history of operating losses and has required significant funding from you and your predecessor. The net book value of the MSD assets as presented in your consolidated financial statements as of March 31, 2004 is $46.5 million, of which $3.2 million is inventory and $7.3 million is property, plant and equipment. Supplementally tell us what consideration was given to any possible impairment that may have existed with respect to the MSD assets.
BioVeris advises the Staff that the MSD balance sheet data is disclosed in the Supplemental Consolidated Balance Sheet Data included in Item 6 – Selected Financial Data. As noted by the Staff, Meso Scale Diagnostics, LLC.’s (“MSD”) financial statements at March 31, 2004 included inventory of $3.2 million, net equipment and leasehold improvements of $7.3 million and net assets of $46.5 million. The majority of the remaining net assets is cash and cash equivalents. BioVeris supplementally advises the Staff that the long-lived assets were assessed for possible impairment using the “Assets for Use” model of FAS 144 - Accounting for the Impairment or Disposal of Long-Lived Assets. Under FAS 144, an impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group).
Securities and Exchange Commission
April 15, 2005
Page 2
While inventory is not a long lived asset, MSD’s assets and liabilities do not have identifiable cash flows that are independent of the cash flows of specific other assets and liabilities and of other asset groups. Accordingly, the asset group includes all assets and liabilities of MSD and the recoverability test was performed at the entity level.
BioVeris engaged a third party valuation firm to perform a valuation of MSD as of March 31, 2004. That valuation utilized discounted cash flows and provided an estimated fair value for MSD. On an undiscounted basis, the estimated sum of MSD’s future cash flows exceeded its long-lived assets by a significant amount. As noted above, an impairment loss would be recorded only if the carrying amount of a long-lived asset (asset group) exceeds the sum of its undiscounted cash flows.
Consolidated Statements of Cash Flows — Page 61
2.
We see the line “Cash contributed by Parent, net.” Please supplementally tell us why this amount is presented as net, and also what this amount is net of. Please see paragraphs 11-13 of SFAS 95. Revise future filings as appropriate as a result of our comment.
BioVeris supplementally advises the Staff that the “Cash contributed by Parent, net” was in connection with the merger and related transactions between Roche Holding Ltd (“Roche”) and IGEN International, Inc. (“IGEN” or “Parent”). The amount of $247,626,000 reflected on the Statement of Cash Flows represents the aggregation of two related items: a cash contribution from IGEN of approximately $165 million and IGEN’s funding of the net losses incurred by Bioveris during fiscal 2004 prior to the date of merger and the other related transactions of approximately $83 million. This presentation and classification is consistent with what was previously disclosed in our Form S-4 presenting the net losses incurred by Bioveris and funded by IGEN as cash provided by financing activities in the consolidated statement of cash flows We believe such presentation is appropriate considering that our financial statements prior to the merger were prepared as a “carve-out” entity of IGEN, which had provided all of our capital funding through the date of merger. We also respectfully advise the Staff that the contributions are presented “net” to reflect IGEN’s funding of our “net” losses through the date of merger. We believe that this is an accepted practice in the presentation and disclosure of carve-out financial statements.
Consolidated Statements of Stockholders’ Equity — Page 62
3.
We see here where you present capital contributed by parent of $164,664. We also see on the statement of cash flows where net cash contributed by Parent was $247,626. Supplementally tell us why there is such a large discrepancy between these amounts.
BioVeris supplementally advises the Staff that as described in Comment 2, the majority of the difference in the amounts noted by the Staff is that the $247,626,000 reflected on the Statement of Cash Flows represents the aggregation of two related items, including a cash contribution from IGEN of approximately $165 million and IGEN’s funding of the net losses incurred by Bioveris during fiscal 2004 prior to the date of merger and the other related transactions of approximately $83 million.
4.
We note per your disclosures on Page 63 that you paid Roche $50 million for the license rights. Further, you indicate you recorded an asset of $19.5 million at the merger date. We note from your response letters to SEC comments on your S-4 where it appears you believed $50 million was the value of the licenses being acquired, and that you would
Securities and Exchange Commission
April 15, 2005
Page 3
amortize that asset over its useful life. Supplementally tell us what events occurred subsequent to the S-4 that caused you to believe there was impairment to this asset. Further, it appears that you have accounted for the impairment of this asset value through the capital accounts. Supplementally tell us why you believe this is the appropriate accounting rather than recording a charge through the income statement.
BioVeris supplementally advises the Staff that the merger and related transactions between Roche and IGEN consisted of multiple agreements, including a license grant to BioVeris of non-exclusive licenses under patents that cover PCR inventions in return for a license fee of $50 million plus royalties, as specified in the PCR agreements. Other agreements included in the merger and related transactions also required certain monetary consideration, including a Restructuring and License Agreement and a Tax Allocation Agreement. The merger and related transactions were completed in February 2004.
When the agreements with Roche were negotiated and at the time of the filing of the S-4, BioVeris believed that the stated value of the PCR licenses, as negotiated with Roche, represented the best estimate of their fair value. However, as the merger and related transactions had multiple elements with different cash flows, BioVeris engaged a third party valuation firm to value the PCR license agreements as of March 31, 2004. This valuation provided an independent fair value of the PCR licenses without consideration of the merger and related transactions taken as a whole. Based on that valuation, BioVeris recorded $19.5 million as the fair value of the PCR licenses.
The $30.5 million difference between the stated PCR license fee of $50 million and the $19.5 million fair value of the PCR licenses was recorded by BioVeris at March 31, 2004 as an adjustment to the proceeds received by BioVeris in connection with the merger and related transactions. In assessing whether to record this adjustment through the capital accounts or the operating statement, BioVeris considered the nature of the adjustment. its direct association with the merger and related transactions and that the license payment above fair value effectively reduced other cash contributed through the merger and related transactions. BioVeris also concluded that $19.5 million was the fair value at March 31, 2004 and at the date of the merger and related transactions (February 13, 2004), as no events occurred in that six week period that would have impacted the valuation. BioVeris also determined that the adjustment was not an impairment of the value of the PCR license, as would be assessed under FAS 144. BioVeris believes that this is the appropriate accounting as the $30.5 million charge represents an adjustment to the overall consideration associated with the merger and related transactions.
Note 1 — Organization and Summary of Significant Accounting Policies — Page 63
Consolidation Accounting
5.
We note that the audited financial statements of MSD included in Exhibit 99.9 are as of and for the year ended December 31, 2003. However, it appears from various footnotes that you are using updated balance sheet amounts as of March 31, 2004 for MSD. Please supplementally tell us whether the March 31, 2004 balance sheet information is audited or unaudited information.
BioVeris supplementally advises the Staff that the March 31, 2004 stand-alone balance sheet information for MSD is unaudited. However, the MSD March 31, 2004 balance sheet information was subject to certain audit procedures based upon BioVeris’ consolidated audit scope and materiality levels.
Securities and Exchange Commission
April 15, 2005
Page 4
Note 5 — Income Taxes — Page 77
6.
Please supplementally tell us what you mean by your reference in the first paragraph to “the pro-forma.” Please revise future fillings as appropriate to clarify what pro forma information you are referring to.
BioVeris supplementally advises the Staff that “pro forma” refers to the historical financial statements of BioVeris as a stand-alone entity filing a separate tax return. Prior to the merger and related transactions described in “Note 1 - Organization and Summary of Significant Accounting Policies” in the Annual Report on Form 10-K for the fiscal year ended March 31, 2004, BioVeris’ operating results were included in the consolidated federal and state tax returns of IGEN. The historical financial statements included in the Form 10-K calculate income taxes as if BioVeris was a stand-alone entity filing a separate tax return.
Future filings will include disclosure in substantially the form below:
“For purposes of the Company’s consolidated financial statements, income taxes have been calculated as if the Company was a stand-alone entity filing a separate return.”
Note 7 — Related Parties — Page 78
7.
We see on Pages 97 and 98 of this filing where you discuss agreements reached between IGEN and Wellstat Therapeutics and Proteinix, which are controlled by your CEO. Supplementally tell us how you have accounted for such payments in your consolidated financial statements for the year ended March 31, 2004. Further, we do not see where these payments are included in your related party footnote disclosures. Tell us why you determined that these payments would not require disclosure within your related party footnote. Please revise future filings as appropriate based on our comments.
BioVeris supplementally advises the Staff that the Wellstat Therapeutics Corporation and Proteinix Corporation transactions which are discussed in the Form 10-K under “Item 13 - Certain Relationships and Related Transactions” were entered into by IGEN prior to the merger and related transactions between Roche and IGEN which included the distribution of BioVeris common stock. The rights and obligations relating to such agreements were not transferred to BioVeris in the merger and related transactions. BioVeris’ consolidated statements of operations and the related disclosure include all revenues and costs that are directly attributable to the BioVeris business.
In the interest of full disclosure, BioVeris elected to voluntarily describe the transactions in Item 13.
Item 9A. Controls and Procedures — Page 84
8.
We note your statement that your chief executive officer and your chief financial officer “have concluded that [your] disclosure controls and procedures are effective in timely making known to them material information relating to our company required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934.” The language included after the word “effective” in your disclosure appears to be superfluous, since the meaning of “disclosure controls and procedures” is established by Rule 13a-15(e) of the Exchange Act. Please revise in future filings to limit your conclusion to state simply whether the disclosure controls and procedures were effective. However, if you elect to retain qualifying language in your disclosure, revise so that the language is fully consistent
Securities and Exchange Commission
April 15, 2005
Page 5
with the definition of disclosure controls and procedures contained in Rule 13a-15(e). Please note this comment also applies to your Form 10-Q as of June 30, 2004.
Future filings will include disclosure in substantially the form below:
“Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective.”
9.
Under Item 308(c) of Regulation S-K, you are required to disclose any change in your internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15 or 15d-15 that occurred during your last fiscal quarter that has materially affected, or is reasonably likely to materially affect, your internal control over financial reporting. Your current disclosure only refers to disclosure controls and procedures. As such, you should revise future filings to provide the required disclosure under Item 308(c) of Regulation S-K. Please note this comment also applies to your Form 10-Q as of June 30, 2004.
Future filings will include disclosure in substantially the form below:
“During the fiscal quarter ended ___________, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.”
Form 10-Q as of December 31, 2004
10.
Supplementally and in future filings provide more details of how the loss on joint venture impairments reflected in the statements of operations on page 4 was determined. The footnotes should disclose when the impairments were recorded and the specific circumstances that resulted in the impairments. In addition, provide details of how the amount on page 5 “deconsolidation of joint venture” was determined.
BioVeris supplementally advises the Staff that an impairment charge for the MSD joint venture was recorded as of August 12, 2004 to reflect a loss in the value of the investment which was other than a temporary decline. Pursuant to the Joint Venture Agreement and the August 12, 2004 settlement between BioVeris and MSD, BioVeris was committed to sell its entire interest in MSD for a purchase price equal to the fair market value of BioVeris’ interests less a discount factor of 7.5%. Fair market value was determined in accor
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filename1.htm
April 15, 2005
VIA EDGAR
Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, NW
Washington, DC 20549-0404
Attn: Mr. Brian Cascio
Re:
BioVeris Corporation
Ladies and Gentlemen:
BioVeris Corporation (“BioVeris”) has authorized us to provide the following responses to the comments raised in your letter dated March 22, 2005 to George V. Migausky. For your convenience, the comments are included in this letter in bold face type and are followed by the applicable response.
Form 10-K for the fiscal year ended March 31, 2004
Item 8 — Consolidated Financial Statements
Consolidated Balance Sheets — Page 60
1.
We note that you recorded a loss in the second quarter of fiscal year 2005 as a result of your planned disposal of your interest in MSD. We also note that MSD has a history of operating losses and has required significant funding from you and your predecessor. The net book value of the MSD assets as presented in your consolidated financial statements as of March 31, 2004 is $46.5 million, of which $3.2 million is inventory and $7.3 million is property, plant and equipment. Supplementally tell us what consideration was given to any possible impairment that may have existed with respect to the MSD assets.
BioVeris advises the Staff that the MSD balance sheet data is disclosed in the Supplemental Consolidated Balance Sheet Data included in Item 6 – Selected Financial Data. As noted by the Staff, Meso Scale Diagnostics, LLC.’s (“MSD”) financial statements at March 31, 2004 included inventory of $3.2 million, net equipment and leasehold improvements of $7.3 million and net assets of $46.5 million. The majority of the remaining net assets is cash and cash equivalents. BioVeris supplementally advises the Staff that the long-lived assets were assessed for possible impairment using the “Assets for Use” model of FAS 144 - Accounting for the Impairment or Disposal of Long-Lived Assets. Under FAS 144, an impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair
value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group).
Securities and Exchange Commission
April 15, 2005
Page 2
While inventory is not a long lived asset, MSD’s assets and liabilities do not have identifiable cash flows that are independent of the cash flows of specific other assets and liabilities and of other asset groups. Accordingly, the asset group includes all assets and liabilities of MSD and the recoverability test was performed at the entity level.
BioVeris engaged a third party valuation firm to perform a valuation of MSD as of March 31, 2004. That valuation utilized discounted cash flows and provided an estimated fair value for MSD. On an undiscounted basis, the estimated sum of MSD’s future cash flows exceeded its long-lived assets by a significant amount. As noted above, an impairment loss would be recorded only if the carrying amount of a long-lived asset (asset group) exceeds the sum of its undiscounted cash flows.
Consolidated Statements of Cash Flows — Page 61
2.
We see the line “Cash contributed by Parent, net.” Please supplementally tell us why this amount is presented as net, and also what this amount is net of. Please see paragraphs 11-13 of SFAS 95. Revise future filings as appropriate as a result of our comment.
BioVeris supplementally advises the Staff that the “Cash contributed by Parent, net” was in connection with the merger and related transactions between Roche Holding Ltd (“Roche”) and IGEN International, Inc. (“IGEN” or “Parent”). The amount of $247,626,000 reflected on the Statement of Cash Flows represents the aggregation of two related items: a cash contribution from IGEN of approximately $165 million and IGEN’s funding of the net losses incurred by Bioveris during fiscal 2004 prior to the date of merger and the other related transactions of approximately $83 million. This presentation and classification is consistent with what was previously disclosed in our Form S-4 presenting the net losses incurred by Bioveris and funded by IGEN as cash provided by financing activities in the consolidated statement of cash flows We believe such presentation is appropriate
considering that our financial statements prior to the merger were prepared as a “carve-out” entity of IGEN, which had provided all of our capital funding through the date of merger. We also respectfully advise the Staff that the contributions are presented “net” to reflect IGEN’s funding of our “net” losses through the date of merger. We believe that this is an accepted practice in the presentation and disclosure of carve-out financial statements.
Consolidated Statements of Stockholders’ Equity — Page 62
3.
We see here where you present capital contributed by parent of $164,664. We also see on the statement of cash flows where net cash contributed by Parent was $247,626. Supplementally tell us why there is such a large discrepancy between these amounts.
BioVeris supplementally advises the Staff that as described in Comment 2, the majority of the difference in the amounts noted by the Staff is that the $247,626,000 reflected on the Statement of Cash Flows represents the aggregation of two related items, including a cash contribution from IGEN of approximately $165 million and IGEN’s funding of the net losses incurred by Bioveris during fiscal 2004 prior to the date of merger and the other related transactions of approximately $83 million.
4.
We note per your disclosures on Page 63 that you paid Roche $50 million for the license rights. Further, you indicate you recorded an asset of $19.5 million at the merger date. We note from your response letters to SEC comments on your S-4 where it appears you believed $50 million was the value of the licenses being acquired, and that you would
Securities and Exchange Commission
April 15, 2005
Page 3
amortize that asset over its useful life. Supplementally tell us what events occurred subsequent to the S-4 that caused you to believe there was impairment to this asset. Further, it appears that you have accounted for the impairment of this asset value through the capital accounts. Supplementally tell us why you believe this is the appropriate accounting rather than recording a charge through the income statement.
BioVeris supplementally advises the Staff that the merger and related transactions between Roche and IGEN consisted of multiple agreements, including a license grant to BioVeris of non-exclusive licenses under patents that cover PCR inventions in return for a license fee of $50 million plus royalties, as specified in the PCR agreements. Other agreements included in the merger and related transactions also required certain monetary consideration, including a Restructuring and License Agreement and a Tax Allocation Agreement. The merger and related transactions were completed in February 2004.
When the agreements with Roche were negotiated and at the time of the filing of the S-4, BioVeris believed that the stated value of the PCR licenses, as negotiated with Roche, represented the best estimate of their fair value. However, as the merger and related transactions had multiple elements with different cash flows, BioVeris engaged a third party valuation firm to value the PCR license agreements as of March 31, 2004. This valuation provided an independent fair value of the PCR licenses without consideration of the merger and related transactions taken as a whole. Based on that valuation, BioVeris recorded $19.5 million as the fair value of the PCR licenses.
The $30.5 million difference between the stated PCR license fee of $50 million and the $19.5 million fair value of the PCR licenses was recorded by BioVeris at March 31, 2004 as an adjustment to the proceeds received by BioVeris in connection with the merger and related transactions. In assessing whether to record this adjustment through the capital accounts or the operating statement, BioVeris considered the nature of the adjustment. its direct association with the merger and related transactions and that the license payment above fair value effectively reduced other cash contributed through the merger and related transactions. BioVeris also concluded that $19.5 million was the fair value at March 31, 2004 and at the date of the merger and related transactions (February 13, 2004), as no events occurred in that six week period that would have impacted the valuation. BioVeris also determined that the
adjustment was not an impairment of the value of the PCR license, as would be assessed under FAS 144. BioVeris believes that this is the appropriate accounting as the $30.5 million charge represents an adjustment to the overall consideration associated with the merger and related transactions.
Note 1 — Organization and Summary of Significant Accounting Policies — Page 63
Consolidation Accounting
5.
We note that the audited financial statements of MSD included in Exhibit 99.9 are as of and for the year ended December 31, 2003. However, it appears from various footnotes that you are using updated balance sheet amounts as of March 31, 2004 for MSD. Please supplementally tell us whether the March 31, 2004 balance sheet information is audited or unaudited information.
BioVeris supplementally advises the Staff that the March 31, 2004 stand-alone balance sheet information for MSD is unaudited. However, the MSD March 31, 2004 balance sheet information was subject to certain audit procedures based upon BioVeris’ consolidated audit scope and materiality levels.
Securities and Exchange Commission
April 15, 2005
Page 4
Note 5 — Income Taxes — Page 77
6.
Please supplementally tell us what you mean by your reference in the first paragraph to “the pro-forma.” Please revise future fillings as appropriate to clarify what pro forma information you are referring to.
BioVeris supplementally advises the Staff that “pro forma” refers to the historical financial statements of BioVeris as a stand-alone entity filing a separate tax return. Prior to the merger and related transactions described in “Note 1 - Organization and Summary of Significant Accounting Policies” in the Annual Report on Form 10-K for the fiscal year ended March 31, 2004, BioVeris’ operating results were included in the consolidated federal and state tax returns of IGEN. The historical financial statements included in the Form 10-K calculate income taxes as if BioVeris was a stand-alone entity filing a separate tax return.
Future filings will include disclosure in substantially the form below:
“For purposes of the Company’s consolidated financial statements, income taxes have been calculated as if the Company was a stand-alone entity filing a separate return.”
Note 7 — Related Parties — Page 78
7.
We see on Pages 97 and 98 of this filing where you discuss agreements reached between IGEN and Wellstat Therapeutics and Proteinix, which are controlled by your CEO. Supplementally tell us how you have accounted for such payments in your consolidated financial statements for the year ended March 31, 2004. Further, we do not see where these payments are included in your related party footnote disclosures. Tell us why you determined that these payments would not require disclosure within your related party footnote. Please revise future filings as appropriate based on our comments.
BioVeris supplementally advises the Staff that the Wellstat Therapeutics Corporation and Proteinix Corporation transactions which are discussed in the Form 10-K under “Item 13 - Certain Relationships and Related Transactions” were entered into by IGEN prior to the merger and related transactions between Roche and IGEN which included the distribution of BioVeris common stock. The rights and obligations relating to such agreements were not transferred to BioVeris in the merger and related transactions. BioVeris’ consolidated statements of operations and the related disclosure include all revenues and costs that are directly attributable to the BioVeris business.
In the interest of full disclosure, BioVeris elected to voluntarily describe the transactions in Item 13.
Item 9A. Controls and Procedures — Page 84
8.
We note your statement that your chief executive officer and your chief financial officer “have concluded that [your] disclosure controls and procedures are effective in timely making known to them material information relating to our company required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934.” The language included after the word “effective” in your disclosure appears to be superfluous, since the meaning of “disclosure controls and procedures” is established by Rule 13a-15(e) of the Exchange Act. Please revise in future filings to limit your conclusion to state simply whether the disclosure controls and procedures were effective. However, if you elect to retain qualifying language in your
disclosure, revise so that the language is fully consistent
Securities and Exchange Commission
April 15, 2005
Page 5
with the definition of disclosure controls and procedures contained in Rule 13a-15(e). Please note this comment also applies to your Form 10-Q as of June 30, 2004.
Future filings will include disclosure in substantially the form below:
“Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective.”
9.
Under Item 308(c) of Regulation S-K, you are required to disclose any change in your internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15 or 15d-15 that occurred during your last fiscal quarter that has materially affected, or is reasonably likely to materially affect, your internal control over financial reporting. Your current disclosure only refers to disclosure controls and procedures. As such, you should revise future filings to provide the required disclosure under Item 308(c) of Regulation S-K. Please note this comment also applies to your Form 10-Q as of June 30, 2004.
Future filings will include disclosure in substantially the form below:
“During the fiscal quarter ended ___________, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.”
Form 10-Q as of December 31, 2004
10.
Supplementally and in future filings provide more details of how the loss on joint venture impairments reflected in the statements of operations on page 4 was determined. The footnotes should disclose when the impairments were recorded and the specific circumstances that resulted in the impairments. In addition, provide details of how the amount on page 5 “deconsolidation of joint venture” was determined.
BioVeris supplementally advises the Staff that an impairment charge for the MSD joint venture was recorded as of August 12, 2004 to reflect a loss in the value of the investment which was other than a temporary decline. Pursuant to the Joint Venture Agreement and the August 12, 2004 settlement between BioVeris and MSD, BioVeris was committed to sell its entire interest in MSD for a purchase price equal to the fair market value of BioVeris’ interests less a discount factor of 7.5%. Fair market value was determined in accor