10. Intangible Assets

The following is a summary of the Company’s intangible assets as of December 31, 2015:


		December 31, 2015
(in thousands)	Estimated Useful Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
HETLIOZ^®	January 2033	$	33,000	$	3,460	$	29,540
Fanapt^®	November 2016		27,941		18,729		9,212

		$	60,941	$	22,189	$	38,752

The following is a summary of the Company’s intangible assets as of December 31, 2014:


		December 31, 2014
(in thousands)	Estimated Useful life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
HETLIOZ^®	January 2033	$	8,000	$	539	$	7,461
Fanapt^®	November 2016		27,941		8,678		19,263

		$	35,941	$	9,217	$	26,724

In January 2014, the Company announced that the FDA had approved the NDA for HETLIOZ^®. As a result of this approval, the Company met a milestone under its license agreement with Bristol-Myers Squibb (BMS) that required the Company to make a license payment of $8.0 million to BMS. The $8.0 million is being amortized on a straight-line basis over the remaining life of the U.S. patent for HETLIOZ^®, which prior to June 2014, the Company expected to last until December 2022. In June 2014, the Company received a notice of allowance from the U.S. Patent and Trademark Office for a patent covering the method of use of HETLIOZ^®. The patent expires in January 2033, thereby potentially extending the exclusivity protection in the U.S. beyond the composition of matter patent. As a result of the patent allowance, the Company extended the estimated useful life of the U.S. patent for HETLIOZ^® from December 2022 to January 2033.

The Company is obligated to make a future milestone payment to BMS of $25.0 million in the event that cumulative worldwide sales of HETLIOZ^® reach $250.0 million. The likelihood of achieving the milestone and the related milestone obligation was determined to be probable during the year ended December 31, 2015. As a result, the future obligation of $25.0 million was recorded as a non-current liability as of December 31, 2015 along with an addition of $25.0 million to capitalized intangible assets relating to HETLIOZ^®. The $25.0 million was determined to be additional consideration for the acquisition of the HETLIOZ^® intangible asset, which was created upon FDA approval on January 31, 2014. The actual payment of the $25.0 million will occur once the $250.0 million in cumulative worldwide sales of HETLIOZ^® is realized. The $25.0 million is being amortized on a straight-line basis over the remaining life of the U.S. patent for HETLIOZ^®, which is expected to be January 2033. Amortization of intangible assets relating to HETLIOZ^® amounted to $2.9 million for the year ended December 31, 2015 and includes a catch-up adjustment of $1.2 million to retroactively record cumulative amortization from January 31, 2014 to December 31, 2014 for the milestone obligation of $25.0 million. In future periods the Company expects annual amortization of capitalized intangible asset costs relating to HETLIOZ^® will amount to $1.7 million until the expiration of the patent in 2033.

In 2009, the Company announced that the FDA had approved the NDA for Fanapt^®. As a result of this approval, the Company met a milestone under its original sublicense agreement with Novartis that required the Company to make a license payment of $12.0 million to Novartis. The $12.0 million is being amortized on a straight-line basis over the remaining life of the U.S. composition of matter patent for Fanapt^® to November 2016.

Pursuant to the Settlement Agreement, Novartis transferred all U.S. and Canadian rights in the Fanapt^® franchise to the Company. As a result, the Company recognized an intangible asset of $15.9 million on December 31, 2014 related to the reacquired rights to Fanapt^®, which is being amortized on a straight-line basis through November 2016. The useful life estimation for the Fanapt^® intangible asset is based on the market participant methodology prescribed by ASC 805, and therefore does not reflect the impact of additional Fanapt^® patents solely owned by the Company with varying expiration dates, the latest of which is December 2031. Amortization of intangible assets relating to Fanapt^® amounted to $10.1 million for the year ended December 31, 2015. See Note 3, Settlement Agreement with Novartis, for additional information.

The intangible assets are being amortized over their estimated useful economic life using the straight line method. Total amortization expense was $13.0 million, $2.3 million and $1.5 million for the years ended December 31, 2015, 2014 and 2013, respectively.

The following is a summary of the future intangible asset amortization schedule as of December 31, 2015:


*(in thousands)*	Total		2016		2017		2018		2019		2020		Thereafter
HETLIOZ^®	$	29,540	$	1,721	$	1,721	$	1,721	$	1,721	$	1,721	$	20,935
Fanapt^®		9,212		9,212		—		—		—		—		—

	$	38,752	$	10,933	$	1,721	$	1,721	$	1,721	$	1,721	$	20,935