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Intangible Assets and Goodwill | 12 Months Ended
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Dec. 31, 2019
Intangible Assets and Goodwill |
Intangible Assets and Goodwill |
Note 7. | Intangible Assets and Goodwill
Avedro intangible assets As part of the Avedro Merger on November 21, 2019, the Company acquired identifiable intangible assets for (1) developed technology related to Photrexa, a bio-activated pharmaceutical therapy for the corneal cross-linking treatment of keratoconus, which will be amortized to cost of sales over a weighted-average estimated useful life of approximately 11 years, and (2) customer relationships, which will be amortized to selling, general and administrative expense over an estimated useful life of 5 years. The Company also acquired IPR&D related to other applications of Avedro’s corneal remodeling platform, which will not be amortized until technological feasibility is met, but will be assessed for impairment annually. ​ The fair value of developed technology and IPR&D assets were determined using an excess earnings methodology. Significant assumptions used in the valuation include: (i) the period in which material net cash inflows are expected to commence, which was estimated to be 2021 for developed technology and 2023 for IPR&D assets, and (ii) the risk-adjusted discount rate of 11.5% for developed technology and 13% for IPR&D assets. ​ For the year ended December 31, 2019 amortization expense related to the above finite-lived intangible assets was approximately $2.3 million and $0.3 million, recorded in cost of sales and selling, general and administrative expenses, respectively, in the consolidated statement of operations. There was not amortization expense related to these intangible assets for the years ended December 31, 2018 and December 31, 2017. ​ Goodwill The addition of $66.1 million in goodwill as of December 31, 2019 relates to the Avedro Merger. For additional details, please refer to Note 6, Business Combinations. The first annual assessment of goodwill by reporting unit is scheduled to be performed in the fourth quarter of the year ending December 31, 2020 and on an annual basis thereafter, or more frequently if events or circumstances indicate the carrying value may no longer be recoverable and that an impairment loss may have occurred. GMP Vision Solutions intangible asset In January 2007, the Company entered into an agreement (the Original GMP Agreement) with GMP Vision Solutions, Inc. (GMP) to acquire certain IPR&D in exchange for periodic royalty payments equal to a single-digit percentage of revenues received for royalty-bearing products and periodic royalty payments at a higher royalty rate applied to all amounts received in connection with the grant of licenses or sub-licenses of the related intellectual property. In November 2013, the Company entered into an amended agreement with GMP in which remaining royalties payable to GMP (the Buyout Agreement) were canceled in exchange for the issuance of $17.5 million in promissory notes payable to GMP and a party related to GMP. Additionally, the Buyout Agreement included a provision that, in the event of a Company sale, as defined in the amendment, the Company would be required to pay GMP a percentage of the sale consideration above a certain threshold, with such payment not to exceed $2.0 million. ​ The Company concluded that the $17.5 million transaction represented the purchase of an intangible asset. The Company estimated a useful life of five years over which the intangible asset was being amortized to cost of sales in the accompanying statements of operations, which amortization period was determined after consideration of the projected outgoing royalty payment stream had the Buyout Agreement not occurred, and the remaining life of the patents obtained in the Original GMP Agreement. After determining that the pattern of future cash flows associated with this intangible asset could not be reliably estimated with a high level of precision, the Company concluded that the intangible asset would be amortized on a straight-line basis over the estimated useful life. For the year ended December 31, 2018, the amortization expense was $3.0 million and the intangible asset has been fully amortized. The amortization expense was $3.5 million during the year ended December 31, 2017. Other intangible assets The Company entered into agreements with international distributors pursuant to which their distribution rights with the Company were terminated effective as of December 31, 2015. As part of the agreements the distributors agreed to provide certain services to, and not compete with, the Company for one-to-two years in exchange for payments calculated based on single-digit percentages of the Company’s future revenues in those years in the respective countries that had comprised the distributors’ territories. Management recorded the estimated fair value of the non-compete provisions as intangible assets. For the years ended December 31, 2018 and December 31, 2017, the Company recorded amortization expense related to the non-compete provisions of approximately $0.2 million and $0.3 million, respectively. As of December 31, 2018, the non-compete intangible assets were fully amortized. The following table presents the composition of our intangible assets and goodwill (in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Estimated | ​ | As of December 31, 2019 | ​ | As of December 31, 2018
​ | ​ | Useful | ​ | Gross | ​ | ​ | ​ | ​ | ​ | Gross | ​ | ​ | ​ | ​
​ | ​ | Life | ​ | Carrying | ​ | Accumulated | ​ | Net | ​ | Carrying | ​ | Accumulated | ​ | Net
​ |  | (in years) |  | Amount |  | Amortization |  | Amount |  | Amount |  | Amortization |  | Amount
Developed technology | ​ | 11.4 | ​ | $ | 252,200 | ​ |  | (2,301) | ​ |  | 249,899 | ​ |  | — | ​ |  | — | ​ |  | —
Customer relationships | ​ | 5.0 | ​ | ​ | 14,100 | ​ | ​ | (294) | ​ | ​ | 13,806 | ​ | ​ | — | ​ | ​ | — | ​ | ​ | —
GMP royalty buyout | ​ | 5.0 | ​ | ​ | 17,500 | ​ | ​ | (17,500) | ​ | ​ | — | ​ | ​ | 17,500 | ​ | ​ | (17,500) | ​ | ​ | —
Non-compete agreements | ​ | 1-2 | ​ | ​ | 321 | ​ | ​ | (321) | ​ | ​ | — | ​ | ​ | 321 | ​ | ​ | (321) | ​ | ​ | —
Intangible assets subject to amortization | ​ | ​ | ​ | ​ | 284,121 | ​ | ​ | (20,416) | ​ | ​ | 263,705 | ​ | ​ | 17,821 | ​ | ​ | (17,821) | ​ | ​ | —
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
In-process research and development | ​ | Indefinite | ​ | $ | 118,900 | ​ | ​ | — | ​ | ​ | 118,900 | ​ | ​ | — | ​ | ​ | — | ​ | ​ | —
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Goodwill | ​ | Indefinite | ​ | $ | 66,134 | ​ | ​ | — | ​ | ​ | 66,134 | ​ | ​ | — | ​ | ​ | — | ​ | ​ | —
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total | ​ | ​ | ​ | $ | 469,155 | ​ | $ | (20,416) | ​ | $ | 448,739 | ​ | $ | 17,821 | ​ | $ | (17,821) | ​ | $ | —
​ As of December 31, 2019, expected amortization expense for unamortized finite-lived intangible assets for the next five years and thereafter is as follows (in thousands):
​ | ​ | ​ | ​
​ |  | Amortization Expense
2020 | ​ | $ | 24,912
2021 | ​ | ​ | 24,912
2022 | ​ | ​ | 24,912
2023 | ​ | ​ | 24,912
2024 | ​ | ​ | 24,619
Thereafter | ​ | ​ | 139,438
Total amortization | ​ | $ | 263,705
​ Actual amortization expense to be reported in future periods could differ from these estimates as a result of asset impairments, acquisitions, or other facts and circumstances.

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