GOODWILL AND INTANGIBLE ASSETS, NET

12 Months Ended

Dec. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

Our $422.5 million goodwill balance represents goodwill of the continuing business following the goodwill allocation performed in 2018 in connection with the CBR transaction discussed in Note C, “Discontinued Operations.” As of December 31, 2019, we had no accumulated impairment losses related to goodwill.

2019 Impairment Testing Results

On October 31, 2019 (the “2019 measurement date”), we conducted our 2019 annual goodwill impairment test using a market approach to estimate the fair value of our reporting unit as of the 2019 measurement date. We considered our market capitalization, as adjusted for a control premium, to be one indicator of the fair value of our reporting unit. On October 31, 2019, our stock price closed at $9.71 per share, resulting in a market capitalization of approximately $329 million, which was below the carrying amount of our reporting unit as of the 2019 measurement date, resulting in an implied control premium of 6%. During the fourth quarter of 2019, we obtained a control premium analysis that benchmarked average control premiums paid in prior merger and acquisition transactions among biotechnology and pharmaceutical companies. The analysis indicated that control premiums vary depending on facts and circumstances for each transaction. The range of control premiums observed was between 37% and 84%, with a median of 65%. Management believes that using this market approach of assessing reasonable control premiums provided a sufficient basis to assess whether the fair value of our reporting unit, including a range of reasonable control premiums, was above its carrying amount. Incorporating control premiums in this range to our October 31, 2019 market capitalization of $329 million resulted in a fair value which was at least 29% greater (at the low end of the range) than the carrying amount of our net assets as of October 31, 2019. As a result of this review, we determined that there was no impairment of our goodwill at October 31, 2019.

Between October 31, 2019 and December 31, 2019, in accordance with ASC 350, we evaluated business factors, including the business decision to divest Intrarosa and Vyleesi, to determine whether there were indicators that the fair value of our reporting unit was less than its carrying value. We determine that it was not more likely than not that the fair value of the reporting unit was less than its carrying value and accordingly, determined that there was no impairment of goodwill at December 31, 2019.

Based on our assessment, we determined that there was no goodwill impairment at October 31, 2019 or December 31, 2019. However, the future occurrence of events including, 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 could indicate potential impairment and trigger an interim impairment assessment of goodwill. As a result of the significance of goodwill, our results of operations and financial position in a future period could be negatively impacted should an impairment test be triggered that results in an impairment of goodwill.

2018 Impairment Testing Results

During the second quarter of 2018, in conjunction with the goodwill allocation required by the CBR transaction and in accordance with ASC 350, we performed a goodwill impairment test to assess whether there were indicators that its fair value was less than its carrying value. As a result of this evaluation, we determined that there was no impairment of goodwill at June 30, 2018.

On October 31, 2018 (the “2018 measurement date”), we conducted our 2018 annual goodwill impairment test using a market approach to estimate the fair value of our reporting unit as of the 2018 measurement date. We considered our market capitalization, as adjusted for a control premium, to be one indicator of the fair value of our reporting unit. On October 31, 2018, our stock price closed at $21.50 per share, resulting in a market capitalization of approximately $742 million, which was below the carrying amount of our reporting unit as of the 2018 measurement date, resulting in an implied control premium of 2%. In the days following our October 31, 2018 annual testing date, our stock price declined, largely in response to our November 1, 2018 earnings release and Company update. This decline resulted in a market capitalization of approximately $633 million on November 5, 2018, resulting in an implied control premium of 20%. During the third quarter of 2018, we obtained an updated control premium analysis that benchmarked average control premiums paid in prior merger and acquisition transactions among biotechnology and pharmaceutical companies. The analysis indicated that control premiums vary depending on facts and circumstances for each transaction. The range of control premiums observed was between 39% and 96%, with a median of 71%. Management believes that using this market approach of assessing reasonable control premiums provided a sufficient basis to assess whether the fair value of our reporting unit, including a range of reasonable control premiums, was above its carrying amount. Incorporating control premiums in this range to our October 31, 2018 market capitalization of $742 million resulted in a fair value which was at least 36% greater (at the low end of the range) than the carrying amount of our net assets as of October 31, 2018. As a result of this review, we determined that there was no impairment of our goodwill at October 31, 2018.

Between October 31, 2018 and December 31, 2018, our stock price continued to fluctuate, with a median closing stock price of $17.84 per share for the period from November 1, 2018 through December 31, 2018. The median closing stock price of $17.84 per share resulted in a market capitalization of approximately $617 million, which as compared to the $747 million carrying amount of our reporting unit at December 31, 2018 resulted in an implied control premium of 21%. Incorporating the range of control premiums obtained from the control premium study used in our annual goodwill impairment test at October 31, 2018 to the calculated market capitalization of $617 million resulted in a fair value which was at least 15% greater (at the low end of the range) than the carrying amount of our net assets as of December 31, 2018. Using the closing stock price of $15.19 per share on December 31, 2018 results in an implied control premium of 41%. This implied control premium is within the range of control premiums observed. As a result of this review, we determined that there was no impairment of our goodwill between our annual goodwill impairment test date and December 31, 2018. In addition, we determined that there were no other indicators of impairment through December 31, 2018 requiring further assessment.

Intangible Assets



	December 31, 2019								December 31, 2018
	Original Cost		Life to Date Accumulated Amortization		Life to Date Impairments		Net Book Value		Original Cost		Life to Date Accumulated Amortization		Life to Date Impairments		Net Book Value
Amortizable 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		15,782		55,426		7,892		79,100		6,952		—		72,148
Intrarosa developed technology	77,655		16,798		56,881		3,976		77,655		10,129		—		67,526
Vyleesi developed technology	60,000		9,264		38,984		11,752		—		—		—		—
Total intangible assets	$	1,013,855	$	442,340	$	547,895	$	23,620	$	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 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 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 consolidated statements of operations. The Distribution and Supply Agreement with our authorized generic partner was terminated in August 2019 and we have not sold any Makena IM in the second half of 2019.

During the fourth quarter of 2019, we identified indicators of impairment for the Makena auto-injector developed technology, Intrarosa developed technology and Vyleesi developed technology intangible assets (each part of its own asset group) related to (i) the October 29, 2019 unfavorable FDA Advisory Committee recommendation for Makena as described in Note A, “Description of Business”, and (ii) the December 2019 decision to divest Intrarosa and Vyleesi based on the strategic review that we conducted. We determined that the Intrarosa and Vyleesi asset groups did not meet the criteria to be classified as held for sale as of December 31, 2019 and as a result, assessed these assets for potential impairment under the held and used guidance. For each asset group, we estimated the sum of the undiscounted projected cash flows and found that the sum of the projected, probability-weighted undiscounted cash flows were less than the carrying value of each corresponding asset group. Therefore, we reassessed the fair value of each asset group using an income approach, a Level 3 measurement technique, which included probability weighting a range of potential outcomes as impacted by multiple significant and inter-related business factors. For all three asset groups, these significant assumptions included an estimated probability of a negative FDA action with respect to Makena and the expected timing of any such FDA action. In addition, for the Intrarosa and Vyleesi asset groups, management’s assessment also included assumptions regarding the probability of completing a sale of these assets and the expected timing of a sale, should one occur. We derived these estimates based on management’s judgment as informed by externally available information. We believe the assumptions we used to determine the estimated fair value of the asset groups are reasonable. Based on our consideration of these probability-weighted assumptions evaluated in the aggregate, we recorded impairment charges of $55.4 million, $56.9 million and $39.0 million to reduce the carrying values of the Makena auto-injector developed technology, Intrarosa developed technology and Vyleesi developed technology intangible assets to their respective estimated fair values. Total impairment charges of $155.0 million were recorded within a separate operating expense line item in our consolidated statements of operations during the fourth quarter of 2019, of which $151.3 million were allocated to the intangible assets in each asset group. In addition, we reassessed and prospectively adjusted the estimated remaining useful lives of the Makena auto-injector developed technology, Intrarosa developed technology and Vyleesi developed technology intangible assets and other long-lived assets within each asset group. As such, we accelerated amortization of these intangible assets resulting in an additional $7.1 million of expense recorded in 2019. As described in more detail above, our assessment was based on our estimates and assumptions, a number of which are based on external factors and the exercise of management judgment. Actual results may differ significantly from our estimates.

As of December 31, 2019, the weighted average estimated remaining amortization period for our finite-lived intangible assets was approximately one year. Total amortization expense for 2019, 2018 and 2017, was $24.8 million, $158.4 million and $130.4 million, respectively. Amortization expense is recorded in cost of product sales in our consolidated statements of operations. We expect amortization expense related to our finite-lived intangible assets to be $23.6 million during the year ended December 31, 2020.