Goodwill and Intangible Assets, Net

9 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

We test goodwill at the reporting unit level for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value. Events that could indicate impairment and trigger an interim impairment assessment include, but are not limited to, an adverse change in current economic and market conditions, including a significant prolonged decline in market capitalization, a significant adverse change in legal factors, unexpected adverse business conditions, and an adverse action or assessment by a regulator, such as an adverse FDA decision related to Makena in light of the discussions and votes at the recent Advisory Committee meeting. Our annual impairment test date is October 31. We have determined that we operate in a single operating segment and have a single reporting unit.

During 2019, as a result of a number of business factors, including our market capitalization being below our carrying value, we performed qualitative interim impairment assessments of our goodwill balance as of each of the quarters ended March 31, 2019, June 30, 2019 and September 30, 2019. We determined that it was not more likely than not that the fair value of our reporting unit was less than its carrying value and therefore, did not perform a further quantitative interim impairment test for any period. Our qualitative assessments were based on management’s estimates and assumptions, a number of which are dependent on external factors. To the extent actual results differ materially from these estimates and we experience negative developments in the areas discussed above in subsequent periods, an interim impairment assessment could be triggered, which could result in an impairment of goodwill.

Intangible Assets

Our developed technology intangible assets are related to certain of our commercial products. We assess intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. Events that could result in an impairment, or trigger an interim impairment assessment, include an adverse action or assessment by a regulator (such as an adverse FDA decision related to Makena, as discussed above), an adverse change in current economic and market conditions, or significant adverse changes in the long-range forecasts for a commercial product. When events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable, we calculate the excess of an intangible asset's carrying value over its undiscounted future cash flows. If the carrying value is not recoverable, an impairment loss is recognized based on the amount by which the carrying value exceeds the fair value. The inputs used in the fair value analysis fall within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs to determine fair value.

As of September 30, 2019 and December 31, 2018, our intangible assets consisted of the following (in thousands):



	September 30, 2019								December 31, 2018
			Accumulated		Cumulative						Accumulated		Cumulative
	Cost		Amortization		Impairments		Net		Cost		Amortization		Impairments		Net
Finite-lived intangible assets:
Makena base technology	$	797,100	$	400,496	$	396,604	$	—	$	797,100	$	400,495	$	319,246	$	77,359
Makena auto-injector developed technology	79,100		13,716		—		65,384		79,100		6,952		—		72,148
Intrarosa developed technology	77,655		15,193		—		62,462		77,655		10,129		—		67,526
Vyleesi developed technology	60,000		269		—		59,731		—		—		—		—
Total intangible assets	$	1,013,855	$	429,674	$	396,604	$	187,577	$	953,855	$	417,576	$	319,246	$	217,033

During the second quarter of 2019, Vyleesi received FDA approval, which triggered a $60.0 million milestone payment, which was capitalized as developed technology.

Late in the second quarter of 2019, we were notified that an additional manufacturing site for the Makena intramuscular (“IM”) products, which relates to the Makena base technology intangible asset, received FDA approval. However, the approval was received later than expected and the extended period of the stock-out caused our authorized generic partner to lose additional customers and market share, resulting in no shipments of IM to our authorized generic partner during that quarter. As a result of this loss of market share, we deemed it probable as of the end of the second quarter of 2019 that we would terminate the Distribution and Supply Agreement with our authorized generic partner. We do not expect to generate any future revenues from shipments of the IM products. Accordingly, we eliminated the Makena IM products from our long-term revenue forecast during the second quarter of 2019. These business factors were considered indicators of potential impairment for the Makena base technology intangible asset during the second quarter of 2019. We determined that the fair value of the Makena base technology intangible asset was zero at June 30, 2019, and as a result, we recorded an impairment charge for the full remaining value of the asset of $77.4 million, which was recorded within a separate operating expense line item on our condensed consolidated statements of operations. The Distribution and Supply Agreement with our authorized generic partner was terminated in August 2019.

As of September 30, 2019, the weighted average remaining amortization period for our finite-lived intangible assets was approximately 8.6 years. Total amortization expense for the nine months ended September 30, 2019 and 2018 was $12.1 million and $144.7 million, respectively. Amortization expense is recorded in cost of product sales on our condensed consolidated statements of operations. We expect amortization expense related to our finite-lived intangible assets to be as follows (in thousands):



	Estimated
	Amortization
Period	Expense
Remainder of Year Ending December 31, 2019	$	5,557
Year Ending December 31, 2020	22,229
Year Ending December 31, 2021	22,229
Year Ending December 31, 2022	22,229
Year Ending December 31, 2023	22,229
Thereafter	93,104
Total	$	187,577