INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

Note 3. INTANGIBLE ASSETS

The Company’s intangible assets are related to the acquisition of assets from Durham Pharmaceuticals Ltd. in 2007.  Following the acquisition in 2007, the Company has modestly advanced the development programs for DurhalieveTM for the treatment of corticosteroid-responsive dermatoses and for other earlier stage AzoneTS reformulation drug candidates.  Among other activities, the Company has monitored stability on new drug formulations, assembled a complete response on the Durhalieve New Drug Application (“NDA”), met with the United States Food and Drug Administration (“FDA”) on development status, worked on a response for the methotrexate-AzoneTS (“MAZ”) ‘end of Phase 2’ meeting with the FDA, engaged consultants to review and recommend new product candidates and formulations, and conducted partnering activities around the technology.  In addition, the Company has made applicable regulatory filings necessary to maintain the active status of the AzoneTS Drug Master File, the Durhalieve and MAZ Investigational New Drug applications and the MAZ Orphan Drug application with the FDA.

As of September 30, 2014 and December 31, 2013, intangible assets related to this acquisition are summarized as follows:

				2014				2013
	Estimated			Accumulated
	Life	Cost		Amortization		Net		Net
Contract related intangible asset:
Cato Research discounted contract	3 years	$	355,000	$	355,000	$	—	$	—
Technology related intangible assets:
Patents for the AzoneTS-based product candidates and formulation	4 years		1,305,000		—		1,305,000		1,305,000
Drug Master Files containing formulation, clinical and safety documentation used by the FDA	4 years		1,500,000		—		1,500,000		1,500,000
In-process pharmaceutical products for 2 indications	4 years		6,820,000		—		6,820,000		6,820,000
Total technology related intangible assets			9,625,000		—		9,625,000		9,625,000
Total, net		$	9,980,000	$	355,000	$	9,625,000	$	9,625,000

Intangible assets related to technology are expected to be amortized on a straight-line basis over the period ending in September 2019, when the underlying patents expire, and will commence upon revenue generation which the Company estimates could occur with proper funding as early as the third quarter of 2016.  The Cato Research contract included above was amortized over a three-year period, which ended in 2010.

Estimated amortization expense for each of the next five calendar years is as follows:

	Estimated Amortization Expense
2014	$	—
2015	$	—
2016	$	1,480,800
2017	$	2,961,600
2018	$	2,961,600

The Company annually reviews the carrying value of intangible assets and considers events or circumstances that would indicate that the carrying amount of the intangible assets may not be recoverable.  If such events or circumstances exist, the Company performs an impairment test.  If the carrying value of the intangibles exceeds undiscounted cash flows, the Company writes down the carrying value of the intangible assets to their fair value in the period identified.  It is the Company’s policy to evaluate intangible assets for impairment at least annually in connection with its year-end financial statement preparation.  Given current circumstances, the Company believes that the carrying value of the intangible assets as of September 30, 2014 remains recoverable despite the current curtailment of operations.