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INTANGIBLE ASSETS
 12 Months Ended
Dec. 31, 2021
Goodwill and Intangible Assets Disclosure [Abstract]  
INTANGIBLE ASSETS

5. INTANGIBLE ASSETS

 

In June 2014, the Company completed the acquisition of substantially all of the assets of EGEN, Inc., an Alabama corporation (“EGEN”), which changed its company name to EGWU, Inc. after the closing of the acquisition (the “EGEN Acquisition”). We acquired all of EGEN’s right, title and interest in and to substantially all of the assets of EGEN, including cash and cash equivalents, patents, trademarks and other intellectual property rights, clinical data, certain contracts, licenses and permits, equipment, furniture, office equipment, furnishings, supplies and other tangible personal property. In addition, CLSN Laboratories assumed certain specified liabilities of EGEN, including the liabilities arising out of the acquired contracts and other assets relating to periods after the closing date.

 

Acquired In-process Research and Development.

 

Acquired in-process research and development (“IPR&D”) consists of EGEN’s drug technology platforms: TheraPlas and TheraSilence. The fair value of the IPR&D drug technology platforms was estimated to be $24.2 million as of the acquisition date. As of the closing of the acquisition, the IPR&D was considered indefinite lived intangible assets and will not be amortized. IPR&D is reviewed for impairment at least annually as of our third quarter ended September 30, and whenever events or changes in circumstances indicate that the carrying value of the assets might not be recoverable. The Company’s IPR&D consisted of three core elements, its RNA delivery system, its glioblastoma multiforme cancer (“GBM”) product candidate and its ovarian cancer indication.

 

The Company’s ovarian cancer indication, with original value of $13.3 million, has not been impaired since its acquisition. At September 30, 2021 and 2020, the Company evaluated its IPR&D of the ovarian cancer indication and concluded that it is not more likely than not that the asset is impaired. Due to the continuing slowdown in investment by public capital markets in the biotech industry and its impact on market capitalization rates in this sector, the Company conducted a valuation analysis of its IPR&D for the ovarian cancer indication as of December 31, 2021. As part of the valuation analysis, the fair value of the intangible assets was estimated by discounting forecasted risk adjusted cash flows at a rate that approximated the cost of capital of a market participant. Management’s forecast of future cash flows was based on the income approach. Significant estimates, all of which are considered Level 3 inputs, were used in the fair value methodology, including the Company’s forecast regarding its future operations and likeliness of obtaining approval to sell its products, as well as other market conditions. Changes in these estimates could change the forecasted cash flows attributed to the IPR&D which could have a significant impact on the fair value of these assets. Based on this valuation analysis, the Company has concluded that it is not more likely than not that the asset is impaired as of December 31, 2021. As such, no impairment charges for IPR&D related to the ovarian cancer indication were recorded during 2021 or 2020.

 

The Company’s GBM candidate, with original value of $9.4 million had cumulative impairments through 2018 of $7 million, with remaining carrying value of $2.4 million at December 31, 2019. On September 30, 2020, the Company evaluated its IPR&D for the (GBM) product candidate and concluded that it is more likely than not that the asset is further impaired. After this assessment on September 30, 2020, the Company wrote off the remaining $2.4 million of this asset, thereby recognizing a non-cash charge of $2.4 million in the third quarter of 2020.

 

Covenants Not to Compete

 

Pursuant to the EGEN Purchase Agreement, EGEN provided certain covenants (“Covenant Not To Compete”) to the Company whereby EGEN agreed, during the period ending on the seventh anniversary of the closing date of the acquisition on June 20, 2014, not to enter into any business, directly or indirectly, which competes with the business of the Company nor would it contact, solicit or approach any of the employees of the Company for purposes of offering employment. The Covenant Not to Compete which was valued at approximately $1.6 million at the date of the EGEN Acquisition has a definitive life and is amortized on a straight-line basis over its life of 7 years. The Company recognized amortization expense of $113,660 and $227,316 in 2021 and 2020, respectively. The carrying value of the Covenant Not to Compete was $113,660, net of $1,477,554 accumulated amortization, as of December 31, 2020 and is fully amortized by the end of 2021.

 

Goodwill

 

The purchase price exceeded the estimated fair value of the net assets acquired by approximately $2.0 million which was recorded as Goodwill. Goodwill represents the difference between the total purchase price for the net assets purchased from EGEN and the aggregate fair values of tangible and intangible assets acquired, less liabilities assumed. Goodwill is reviewed for impairment at least annually as of the Company’s third quarter ended September 30 or sooner if the Company believes indicators of impairment exist. As of September 30, 2021 and 2020, the Company’s fair value exceeded its carrying value and as such no impairment was recognized for Goodwill through the third quarter of 2021. Due to the continuing slowdown in investment in 2021 by public capital markets in the biotech industry and its impact on market capitalization rates in this sector, Goodwill was reviewed for impairment as of December 31, 2021. Based on this assessment, Company concluded that Goodwill was impaired. As of December 31, 2021, the Company wrote off the $2.0 million carrying value of this asset, thereby recognizing a non-cash charge of $2.0 million in the fourth quarter of 2021.

 

 

Following is a summary of the net fair value of the assets acquired in the EGEN Acquisition for the two years ended December 31, 2021:

 

   IPR&D   Goodwill   Covenant Not to Compete 
             
Balance at January 1, 2020, net  $15,736,491   $1,976,101   $340,976 
Amortization   -    -    (227,316)
Impairment charge   (2,370,257)   -    - 
Balance at December 31, 2020, net  $13,366,234   $1,976,101   $113,660 
Amortization   -    -    (113,660)
Impairment charge   -    (1,976,101)   - 
Balance at December 31, 2021, net  $13,366,234   $-   $-