Ipsen/Clementia -- summary under Canadian Buyco

Overview

The cash consideration for the proposed acquisition of Clementia Pharmaceuticals (a Canadian-incorporated NASDAQ-listed clinical-stage biopharmaceutical company) by a Canadian Buyco subsidiary of Ipsen S.A. includes not only an up-front cash payment of US$25.00 per share (for an aggregate of US$1.04 billion) but also a deferred payment, on the achievement by the end of 2024 of FDA approval of a new drug application made by Clementia, in the form of a contingent value right ("CVR") of US$6.00 per Share. The Canadian tax disclosure states that the proceeds of disposition to a Clementia shareholder are the Canadian-dollar equivalent of the full U.S.$31 per Share, but that the Clementia shareholders should consult with their tax advisors as to the availability of an s. 42(1)(b) capital loss if the timely FDA approval is not achieved. The U.S. tax consequences to U.S. shareholders turn on whether the fair market value of the CVRs is “reasonably ascertainable.”

Clementia

Clementia is a Canadian-incorporated NASDAQ-listed clinical-stage biopharmaceutical company with 38M issued and outstanding shares.

Ipsen

Ipsen is a global biopharmaceutical company headquartered in Paris, France.

Overview of Consideration

The Arrangement Agreement provides for the implementation of a CBCA Arrangement pursuant to which, among other things, the Shareholders will receive, for each Share held, US$25.00 in cash upfront (the "Cash Consideration") for an initial aggregate consideration of approximately US$1.04 billion, plus deferred payments on the achievement of a future regulatory milestone in the form of a contingent value right ("CVR"), and together with the Cash Consideration, the "Consideration") of US$6.00 per Share upon U.S. Food and Drug Administration (FDA) acceptance, on or prior to December 31, 2024, of the new drug application (NDA) filing for Palovarotene for the treatment of multiple osteochondromas.

Steps in Arrangement

Under the Arrangement, each unvested option and deferred share unit will be deemed to have been vested as of 12:01 a.m. on the date of the Arrangement.

Subsequently, each outstanding option will be deemed to be transferred by the holder to the Corporation in exchange for, in respect of each option for which the Cash Consideration exceeds the exercise price, (i) an amount equal to the Cash Consideration less the applicable exercise price in respect of such option, and (ii) one CVR, less any applicable withholdings, and such option shall be immediately cancelled.

In addition, each outstanding deferred share unit will be deemed to be transferred by the holder to the Corporation in exchange for (i) the Cash Consideration, and (ii) one CVR, less any applicable withholdings.

Each of the Shares held by Dissenting Shareholders shall be deemed to have been transferred to the Purchaser.

Concurrently with the preceding step, each outstanding Share shall be transferred by the holder thereof to the Purchaser in exchange for the Consideration per Share.

CVR Attributes

Each CVR will entitle the registered holder of such CVR (the "CVR Holder") to receive a one-time payment of $6.00 in cash upon the FDA's acceptance, on or prior to December 31, 2024, of submission of an NDA for Palovarotene. Pursuant to the CVR Agreement, Ipsen will unconditionally and irrevocably guarantee in favour of the CVR Holders the due and punctual payment and performance by the Purchaser of each and every obligation of the Purchaser contained in the CVR Agreement. CVRs may not be transferred other than (i) upon the death of a holder, by will or intestacy; (ii) pursuant to a court order; (iii) by operation of law (including by consolidation or merger) or without consideration in connection with the dissolution, liquidation or termination of any corporation, limited liability company, partnership or other entity; (iv) in the case of CVRs held through book-entry or other similar nominee form, from a nominee to the beneficial owner.

Canadian tax consequences

Inclusion of full Milestone amount in proceeds

A Resident Shareholder who disposes of Shares to the Purchaser pursuant to the Arrangement should realize a capital gain (or capital loss) to the extent that the Consideration received by such Shareholder, including the Cash Consideration and the maximum amount of the cash payable under the CVRs received by such Shareholder, exceeds (or is less than) the aggregate of the Resident Shareholder's adjusted cost base in its Shares immediately before the disposition and any reasonable costs of disposition.

Potential s. 42(1)(b) capital loss if Milestone not achieved

The amount of the proceeds of disposition initially reported to Resident Shareholders will include both the Cash Consideration and the maximum amount of cash payable to Resident Shareholders under the CVRs they receive pursuant to the Arrangement. It will be the sole responsibility of Resident Shareholders to determine whether a capital loss may subsequently arise in respect of the CVRs they receive in the event that the Milestone is not achieved and the amount of cash payable in respect of the CVRs is ultimately reduced.

Capital gain or loss on disposition of CVR

A Resident Shareholder who disposes of CVRs acquired pursuant to the Arrangement should realize a capital gain (or capital loss) to the extent that the proceeds of disposition exceed (or are less than) the aggregate of the Resident Shareholder's adjusted cost base in its CVRs immediately before the disposition and any reasonable costs of disposition.

Non-qualified investment

The CVRs will not be qualified investments.

U.S. tax considerations

“Reasonably ascertainable” criterion

Pursuant to Regulations addressing contingent payment obligations analogous to the CVRs, if the fair market value of the CVRs is "reasonably ascertainable," a U.S. Holder should treat the transaction as a "closed transaction" and treat the fair market value of the CVRs as part of the consideration received in the Arrangement for purposes of determining gain or loss. On the other hand, if the fair market value of the CVRs cannot be reasonably ascertained, a U.S. Holder should treat the transaction as an open transaction for purposes of determining gain or loss. These Regulations state that only in "rare and extraordinary" cases would the value of contingent payment obligations not be reasonably ascertainable.

Treatment of open transactions

Subject to the PFIC rules discussed below, if the transaction is treated as an "open transaction" for U.S. federal income tax purposes, the fair market value of the CVRs would not be treated as additional consideration for the Shares at the time the CVRs are received in the Arrangement, and the U.S. Holder would have no tax basis in the CVRs. Instead, the U.S. Holder would take payments under the CVRs into account when made or deemed made in accordance with the U.S. Holder's regular method of accounting for U.S. federal income tax purposes. A portion of such payments would be treated as interest income under section 483 of the U.S. Internal Revenue Code (as discussed below) and the balance, in general, as additional consideration for the disposition of the Shares.

Treatment of closed transactions

Subject to the PFIC rules discussed below, if the receipt of the CVRs is treated as, or determined to be, part of a closed transaction for U.S. federal income tax purposes, then a U.S. Holder of Shares generally would recognize capital gain or loss, if any, in the same manner as if the transaction were an open transaction, except that a U.S. Holder would take into account the "reasonably ascertainable" fair market value of the CVR determined on the Effective Date, as an additional amount realized for purposes of calculating gain or loss with respect to the exchange of Shares pursuant to the Arrangement.