10.	Goodwill, In-Process Research and Development and Intellectual Property

Goodwill

Goodwill of $93.8 million was recorded in connection with the Merger, as described in Note 1, and goodwill of $38.3 million was recorded in connection with the Senhance Acquisition, as described in Note 3. The carrying value of goodwill and the change in the balance for the years ended December 31, 2017 and 2016 is as follows:

	Goodwill
	(In thousands)
Balance at December 31, 2015	$	130,869
Foreign currency translation impact		(388	)
Impairment loss		(61,784	)
Balance at December 31, 2016		68,697
Foreign currency translation impact		2,671
Balance at December 31, 2017	$	71,368

Accumulated impairment of goodwill as of December 31, 2017 and 2016 was $61.8 million.

The Company performs an annual impairment test of goodwill at December 31, or more frequently if events or changes in circumstances indicates that the carrying value of the Company’s one reporting unit may not be recoverable. During the second quarter of 2016, the FDA notified the Company that the SurgiBot System did not meet the criteria for substantial equivalency, negatively impacting the Company’s market capitalization, and warranting an interim two-step quantitative impairment test. Prior to adopting ASU 2017-04 as of the beginning of fiscal year 2017, goodwill was tested for impairment using a two-step approach. In the first step, the fair value of the reporting unit was determined and compared to the reporting unit's carrying value, including goodwill. If the fair value of the reporting unit was less than its carrying value, the second step of the goodwill impairment test was performed to measure the amount of impairment, if any. In the second step, the fair value of the reporting unit was allocated to the assets and liabilities of the reporting unit as if it had been acquired in a business combination and the purchase price was equivalent to the fair value of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities was referred to as the implied fair value of goodwill. The implied fair value of the reporting unit's goodwill was then compared to the actual carrying value of goodwill. If the implied fair value of goodwill was less than the carrying value of goodwill, an impairment loss was recognized for the difference. ASU 2017-04 removes Step 2 of the goodwill impairment test.

The Company determined the fair value of the reporting unit using a discounted cash flow analysis derived from the Company’s long-term plans. The fair value of the reporting unit was corroborated using market prices for TransEnterix, Inc. The inputs used to determine the fair values were classified as Level 3 in the fair value hierarchy. Based on the impairment test, the Company recorded goodwill impairment of $61.8 million during the second quarter of 2016. No impairment was recorded as of December 31, 2017 or 2015.

The Company performed a qualitative assessment during the annual impairment review for fiscal 2016 as of December 31, 2016 and concluded that it is not more likely than not that the fair value of the Company’s single reporting unit is less than its carrying amount. Therefore, the two-step goodwill impairment test for the reporting unit was not necessary at December 31, 2016. During the second quarter of 2017, the Company’s stock price experienced a significant decline. The Company performed a Step 1 goodwill impairment test as of the second quarter and determined that no charge to goodwill for impairment was required during the second quarter of 2017. As of December 31, 2017, the Company elected to bypass the qualitative assessment and calculated the fair value of the Company’s reporting unit, which exceeded the carrying amount. Accordingly, no charge for goodwill impairment was required as of December 31, 2017.

In-Process Research and Development

As described in Note 3, on September 21, 2015, the Company acquired all of the assets related to the Senhance System and recorded $17.1 million of IPR&D. The estimated fair value of the IPR&D was determined using a probability-weighted income approach, which discounts expected future cash flows to present value. The projected cash flows were based on certain key assumptions, including estimates of future revenue and expenses, taking into account the stage of development of the technology at the acquisition date and the time and resources needed to complete development. The Company used a discount rate of 45% and cash flows that have been probability adjusted to reflect the risks of product commercialization, which the Company believes are appropriate and representative of market participant assumptions.

On October 13, 2017, upon receipt of regulatory clearance to commercialize the products associated with the IPR&D assets in the United States, the assets were deemed definite-lived, transferred to developed technology and are amortized based on their estimated useful lives.

The carrying value of the Company’s IPR&D assets and the change in the balance for the years ended December 31, 2016 and 2017 is as follows:

	In-Process Research and Development
	(In thousands)
Balance at December 31, 2015		16,511
Foreign currency translation impact		(591	)
Balance at December 31, 2016		15,920
Foreign currency translation impact		1,993
Transfer to developed technology		(17,913	)
Balance at December 31, 2017	$	—

Intellectual Property

In 2009, the Company purchased certain patents from an affiliated company for $5.0 million in cash and concurrently terminated a license agreement related to the patents. The patent expiration dates begin in 2027. In addition, as described in Note 3, on September 21, 2015, the Company acquired all of the developed technology related to the Senhance System and recorded $48.5 million of intellectual property. The estimated fair value of the intellectual property was determined using a probability-weighted income approach, which discounts expected future cash flows to present value. The projected cash flows were based on certain key assumptions, including estimates of future revenue and expenses, taking into account the stage of development of the technology at the acquisition date and the time and resources needed to complete development. The Company used a discount rate of 45% and cash flows that have been probability adjusted to reflect the risks of product commercialization, which the Company believes are appropriate and representative of market participant assumptions.

In November 2016, the Company agreed to enter into a technology and patents purchase agreement with Sofar to acquire from Sofar certain technology and intellectual property rights related to the Senhance Acquisition, and formerly licensed by the Company. The technology and patents were acquired in 2017 at an acquisition price of $400,000.

As disclosed in Note 17, the Company executed a restructuring plan in May 2016 and wrote-off certain intellectual property consisting of patents related to the SurgiBot System. The write-off of intellectual property of $1.6 million is included as a component of restructuring and other charges in the accompanying consolidated statement of operations and comprehensive losses for the year ended December 31, 2016. There were no such write offs for the year ended December 31, 2015 or 2017.

The components of gross intellectual property, accumulated amortization, and net intellectual property as of December 31, 2017 and 2016 are as follows:

	December 31, 2017									December 31, 2016
	(In thousands)									(In thousands)
	Gross Carrying Amount		Accumulated Amortization			Foreign currency translation impact		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Foreign currency translation impact			Write-off			Net Carrying Amount
Patents	$	—	$	—		$	—	$	—	$	5,000	$	(3,438	)	$	—		$	(1,562	)	$	—
Developed technology		66,413		(19,724	)		5,529		52,218		48,500		(8,458	)		(2,952	)		—			37,090
Technology and patents purchased		400		(30	)		50		420		—		—			—			—			—
Total intellectual property	$	66,813	$	(19,754	)	$	5,579	$	52,638	$	53,500	$	(11,896	)	$	(2,952	)	$	(1,562	)	$	37,090

The weighted average remaining useful life of the developed technology and technology and patents purchased was 4.8 years and 9.3 years, respectively as of December 31, 2017.

The estimated future amortization expense of intangible assets as of December 31, 2017 is as follows:

	Years ending December 31,
	(In thousands)
2018	$	10,552
2019		10,552
2020		10,552
2021		10,552
2022		10,210
Thereafter		220
Total	$	52,638