Somerset

Acquisition, Goodwill

, In-Process Research and Development and Other Intangible Assets

Somerset

Acquisition

February 2019,

we acquired the AZEDRA manufacturing assets for

$8.0

million cash consideration and entered into a sublease agreement for the radiopharmaceutical manufacturing facility located in Somerset, New Jersey. The Somerset site serves as the manufacturing facility for AZEDRA and will also provide manufacturing support for the Company’s development stage radiopharmaceuticals, including

1095.

The production of AZEDRA uses a proprietary Ultratrace

process which concentrates the MIBG targeted radiolytic activity by eliminating non-therapeutic “cold” MIBG molecules, giving AZEDRA a uniquely high specific activity.

Purchase Price Allocation

: We accounted for this acquisition as a business combination by allocating the consideration we paid to the fair values of the assets acquired at the effective date of the acquisition, as summarized below. The difference between the fair value of the acquisition consideration and the estimated fair value of the identifiable assets represents potential future economic benefits arising from the acquisition, and has been recorded as goodwill.

The following table summarizes the allocation of the consideration paid to the estimated fair values of the assets acquired as of the acquisition date (in thousands):

	Amount
Cash consideration	$	8,000

Tangible assets acquired:
Machinery and equipment		682
Leasehold improvements		1,300
Total tangible assets acquired		1,982
Intangible assets - Somerset		1,245
Total tangible and intangible assets acquired		3,227

Goodwill	$	4,773

The replacement cost method, a variation of the cost approach, was applied to assess the value of the assets acquired by Progenics. The principle behind this method is that the value represents the current cost of a similar new asset having the nearest equivalent utility as the asset being valued. It generally represents the maximum amount that a prudent investor will pay for a comparable asset. The cost approach provides a systematic framework for estimating the value of tangible or intangible assets based on the economic principle of substitution, and that

prudent investor will purchase an existing asset for more than it will cost to create a comparable asset. Under this approach, value is estimated by developing the cost to either replace or reproduce (replicate) the asset of similar utility.

The acquired Somerset intangible assets represent manufacturing know-how, which is comprised of documented technical data and information, formulae, standards, specifications, processes, methods, code books, as well as all information, knowledge, trade practices and secrets utilized by the Somerset facility in manufacturing of the AZEDRA. We estimate the remaining useful life of the Somerset intangible to be approximately

six

years.

Goodwill, In-Process Research and Development and Other Intangible Assets

Intangible assets and goodwill were initially measured at the acquisition date at estimated fair values and capitalized for the acquisitions of Somerset and our wholly-owned subsidiaries, EXINI and MIP.

The following table summarizes the activity related to goodwill and intangible assets (in thousands):

						Other
						Intangible
	Goodwill		IPR&D			Assets
Balance at January 1, 2018	$	13,074	$	28,700		$	1,669
Reclassification of AZEDRA IPR&D		-		(4,900	)		4,900
Impairment of 1404 IPR&D		-		(23,200	)		-
Amortization expense		-		-			(503	)
Balance at December 31, 2018		13,074		600			6,066
Increase related to Somerset acquisition		4,773		-			1,245
Amortization expense		-		-			(1,088	)
Balance at December 31, 2019	$	17,847	$	600		$	6,223

The following table reflects the components of the finite-lived intangible assets as of

December 31, 2019 (

in thousands):

	Gross Amount		Accumulated Amortization		Net Carrying Value
Intangible assets - AZEDRA product rights	$	4,900	$	992	$	3,908
Intangible assets - Somerset		1,245		176		1,069
Intangible assets - EXINI technology		2,120		874		1,246
Total	$	8,265	$	2,042	$	6,223

The weighted-average remaining life of the finite-lived intangible assets was approximately

six

years at

December 31, 2019.

Amortization expense was calculated on a straight-line basis over the estimated useful life of the asset and was

$1.1

million,

$0.5

million and

$0.2

million per year for the years ended

December 31, 2019,

2018

and

2017,

respectively. Assuming

changes in the gross carrying amount of finite lived intangible assets, the future annual amortization expense related to finite lived intangible assets is expected to be

1.1

million in each of the next

five

years (

2020

through

2024

) and

$0.7

million in

2025.