Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Intangible Assets

v3.3.1.900
Intangible Assets
12 Months Ended
Dec. 31, 2015
Goodwill And Intangible Assets Disclosure [Abstract]  
Intangible Assets

Note E – Intangible Assets

As a result of the acquisition of Clarient in December 2015, see Note D, we recorded $84.0 million in intangible assets comprised of $81.0 million in customer relationships amortized over a fifteen year period and $3.0 million in trade name which we are amortizing over a two year period.  Previously, we acquired Path Logic in July 2014 and recorded $1.93 million in customer relationships as an intangible asset.  We are amortizing these customer relationships over a thirteen year period.  

On January 6, 2012, we entered into a Master License Agreement (the “License Agreement”) with Health Discovery Corporation, a Georgia corporation (“HDC”). We were granted an exclusive worldwide license to certain of HDC’s “Licensed Patents” and “Licensed Know-How” (as defined in the License Agreement) to, among other things, use, develop, make, have made, sell, offer to sell, modify, and commercially exploit “Licensed Uses” (as defined in the License Agreement) and “Licensed Products” (as defined in the License Agreement), in the fields of laboratory testing, molecular diagnostics, clinical pathology, anatomic pathology and digital image analysis (excluding non-pathology-related radiologic and photographic image analysis) relating to the development, marketing production or sale of any “Laboratory Developed Tests” or LDTs (as defined in the License Agreement) or other products used for diagnosing, ruling out, predicting a response to treatment, and/or monitoring treatment of any or all hematopoietic and solid tumor cancers excluding cancers affecting the retina and breast cancer (collectively with certain other qualifications as defined in the License Agreement, the “Field” or “Field of Use”); provided, that the exclusion for breast cancer shall be in effect only so long as that certain license agreement between HDC and the licensee of the technology for breast cancer applications is in full force and effect and such licensee is not in material breach of any its obligations under that agreement.

The License Agreement allows us, among other things, to develop and sell, without limitation, any gene, gene-product or protein-based LDTs using HDC’s technology in the Field and provides for sublicensing rights and the assignment of the License Agreement, in whole or in part, in our sole discretion. The License Agreement further provides us with access to certain HDC personnel and consulting resources in the fields of mathematics and in genetic and molecular test development. The Licensed Know-How also includes, among other things, certain tests, algorithms and computer software which have already been developed by HDC.

The License Agreement is subject to two one-year extensions per product if needed, including LDTs for prostate, colon and pancreatic cancer and software to automate the interpretation of cytogenetics and flow cytometry (collectively, the “Initial Licensed Products”).

If we have not generated $5.0 million of net revenue from products, services and sublicensing arrangements pursuant to the License Agreement by January 5, 2017, HDC may, at its option, revoke the exclusivity with respect to any one or more of the Initial Licensed Products, subject to certain conditions.

In addition, the License Agreement provides for milestone payments to HDC, in cash or stock, based on sublicensing revenue and revenue generated from products developed as a result of the License Agreement. Milestone payments are in increments of $500,000 for every $2,000,000 in GAAP revenue recognized by us up to a total of $5,000,000 in potential milestone payments. After $20,000,000 in cumulative GAAP revenue has been recognized by us, HDC will receive a royalty of (i) 6.5% (subject to adjustment under certain circumstances) of Net Revenue (as defined in the License Agreement) generated from all Licensed Uses except for the cytogenetics and flow cytometry interpretation system and (ii) a royalty of 50% of Net Revenue (after the recoupment of certain development and commercialization costs) that we derive from any sublicensing arrangements for the cytogenetics and flow cytometry interpretation system. We have not made any milestone payments to HDC as of December 31, 2015.

Intangible assets as of December 31, 2015 and 2014 consisted of the following (in thousands):  

 

 

 

 

 

December 31, 2015

 

 

 

Amortization

Period

 

Cost

 

 

Accumulated

Amortization

 

 

Net

 

Trade Name

 

24 months

 

$

3,000

 

 

$

8

 

 

$

2,992

 

Customer Relationships

 

156-180 months

 

 

82,930

 

 

 

247

 

 

 

82,683

 

Support Vector Machine (SVM) technology

 

108 months

 

 

500

 

 

 

213

 

 

 

287

 

Laboratory developed test (LDT) technology

 

164 months

 

 

1,482

 

 

 

416

 

 

 

1,066

 

Flow Cytometry and Cytogenetics technology

 

202 months

 

 

1,000

 

 

 

228

 

 

 

772

 

Total

 

 

 

$

88,912

 

 

$

1,112

 

 

$

87,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

 

Amortization

Period

 

Cost

 

 

Accumulated

Amortization

 

 

Net

 

Customer Relationships

 

156 months

 

$

1,930

 

 

$

71

 

 

$

1,859

 

Support Vector Machine (SVM) technology

 

108 months

 

 

500

 

 

 

167

 

 

 

333

 

Laboratory developed test (LDT) technology

 

164 months

 

 

1,482

 

 

 

297

 

 

 

1,185

 

Flow Cytometry and Cytogenetics technology

 

202 months

 

 

1,000

 

 

 

165

 

 

 

835

 

Total

 

 

 

$

4,912

 

 

$

700

 

 

$

4,212

 

The Company recorded amortization expense of intangible assets in the consolidated statements of operations as follows (in thousands):

 

 

 

For the Years Ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

Amortization of intangible assets

 

$

412

 

 

$

295

 

 

$

223

 

 

The Company recorded amortization expense from customer relationships as a general and administrative expense. We will continue to record the amortization of the Support Vector Machine (SVM) technology, the Laboratory developed tests (LDT) technology and the Flow Cytometry and Cytogenetics technology intangibles as a research and development expense until the time that we have products, services or cost savings directly attributable to these intangible assets that would require that it be recorded in cost of goods sold.

The estimated amortization expense related to amortizable intangible assets for each of the five succeeding fiscal years and thereafter as of December 31, 2015 is as follows (in thousands):

 

Years Ending December 31,

 

As of December 31,

 

2016

 

$

7,272

 

2017

 

 

7,264

 

2018

 

 

5,771

 

2019

 

 

5,771

 

2020

 

 

5,771

 

Thereafter

 

 

55,951

 

Total

 

$

87,800