INTANGIBLES AND GOODWILL

3 Months Ended

Mar. 31, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Intangibles

Intangible assets on the Company's condensed consolidated balance sheet are the result of the Viventia Acquisition in September 2016. The following table sets forth the composition of intangible assets as of March 31, 2022 and December 31, 2021 (in thousands):


	March 31, 2022		December 31, 2021
IPR&D intangible assets:

Vicineum European Union rights	$	14,700	$	14,700
Total Intangibles	$	14,700	$	14,700

The fair value of the acquired intangible assets for the EU rights of Vicineum is determined using a risk-adjusted discounted cash flow approach, which includes probability adjustments for projected revenues and operating expenses based on the success rates assigned to each stage of development for each geographical region; as well as discount rates applied to the projected cash flows. In August 2021, the Company received a CRL from the FDA regarding its BLA for Vicineum for the treatment of BCG-unresponsive NMIBC, the Company’s lead product candidate. In the CRL, the FDA determined that it could not approve the BLA for Vicineum in its present form and provided recommendations specific to additional clinical/statistical data and analyses in addition to CMC issues pertaining to a recent pre-approval inspection and product quality. Also in August 2021, the Company withdrew its MAA to the EMA for Vysyneum for the treatment of BCG-unresponsive NMIBC in order to pause its plans to pursue regulatory approval of Vysyneum in the EU until there is more clarity from the FDA on next steps for Vicineum in the United States. Given the inherent uncertainty in the development plans for Vicineum as a result of the CRL and the Company’s withdrawal of its MAA, an impairment analysis was conducted in the third quarter of 2021, which concluded that the carrying value of the Company’s intangible asset of Vicineum United States rights was fully impaired as of September 30, 2021. The $31.7 million of impairment charges as of September 30, 2021 were due to delays in the expected start of commercialization and lower probabilities of success, combined with higher operating expenses expected to be incurred prior to commercialization, resulting in lower expected future cash flows estimated in the US market. At that time, management assessed that the carrying value of the Vicineum EU rights was not at significant risk of impairment in the future within the

current range of commercialization timelines and POS assumptions. This was primarily due to the fact that the EU asset is burdened with significantly less expense than the US asset, as the Company’s strategic operating plan is to sublicense Vicineum to business development partners in all regions outside the US, including the EU, with it earning a potential combination of upfront, milestone, and royalty payments, and the business development partner bearing the majority of regulatory and commercialization costs.

In March 2022, the Company participated in a Type C meeting with the FDA. During the Type C meeting, the FDA agreed to a majority of the Company's proposed protocol and statistical analysis plan design elements for an additional Phase 3 clinical trial for potential resubmission of a BLA for Vicineum for the treatment of NMIBC. The Company also learned during the meeting that the FDA is trending away from accepting single arm trials across therapeutic areas, including NMIBC, and has a strong preference for randomized controlled trials. The Company plans to further engage the FDA in the coming months to align on the remaining outstanding items related to the additional Phase 3 clinical trial. Based on the outcome of the Type C meeting as well as updates to the competitive landscape, the Company reassessed the underlying assumptions used to develop its revenue projections, which were then used as significant inputs to determine the fair value of the indefinite-lived intangible asset. Management updated the revenue forecast models based on further launch delays in both US and OUS regions as well as slightly lower market share. The Company anticipates further delays in the start of commercialization due to the likelihood of the requirement to conduct a randomized controlled trial which will require more patients to be enrolled, lengthen the duration of the study, and increase study costs. The company is also projecting lower estimated market share as a result of recent clinical and regulatory progress made by competitors. Accordingly, the Company identified this as a potential impairment indicator and performed an interim quantitative impairment assessment during the first quarter of 2022. The Company concluded that the carrying value of the Company's intangible asset of Vicineum EU rights was not impaired as of March 31, 2022.

Goodwill

Goodwill on the Company's condensed consolidated balance sheet is the result of the Viventia Acquisition in September 2016. Goodwill had a carrying value of $13.1 million as of March 31, 2022 and December 31, 2021. Based on the outcome of the Type C meeting as well as updates to the competitive landscape, the Company reassessed the underlying assumptions used to develop its revenue projections, which were then used as significant inputs to determine the fair value of equity. Management updated its revenue forecast models based on further launch delays in both US and OUS regions as well as slightly lower market share. Accordingly, the Company identified these changes to the revenue forecast, as well as the decline in the Company’s stock price and market capitalization during the first quarter of 2022, as potential impairment indicators and performed a quantitative impairment analysis during the first quarter of 2022, in advance of the Company's typical annual assessment date of October 1. The Company concluded that the carrying value of its goodwill of $13.1 million was not impaired as of March 31, 2022, with the fair value of equity of the reporting unit exceeding the estimated carrying value of the reporting unit by approximately 29%.

The Company believes it has sufficient future cash flows from additional geographic regions outside the US to support the value of its goodwill. The Company projects future cash flows based on various timeline assumptions and applies a probability to each outcome based on management’s best estimate. In addition, probabilities of success in achieving certain clinical and regulatory success in the Company's current development profile (ranging from 45% to 55% globally) and underlying discount rates also have a material effect on the estimated fair value of its reporting unit as of the impairment assessment date. The Company will continue to evaluate its timelines for commercialization and probability of success of development of Vicineum for the treatment of NMIBC. Further reductions to probabilities of success, decrease in market share, additional development and commercial launch delays, increases in underlying discount rates, or any decision to undertake any strategic alternative as a result of the review process that the Company has initiated, have the potential to result in future goodwill impairment.