Quarterly report pursuant to Section 13 or 15(d)

Intangible Assets

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Intangible Assets
 9 Months Ended
Sep. 30, 2013
Goodwill And Intangible Assets Disclosure [Abstract]  
Intangible Assets

4. Intangible Assets

The Company’s intangible assets consist of the following:

 

     September 30,
2013		     December 31,
2012		  
     (unaudited)        

License agreements

    $ 805,717      $ 772,230   

Patents

      70,776        63,429   

Less: accumulated amortization

      (296,676 )      (261,928 ) 
  

 

 

    

 

 

  

Intangible assets, net

    $ 579,817      $ 573,731   
  

 

 

    

 

 

  

License agreements are being amortized over periods ranging from 17-20 years. Patent costs are being amortized over three years. Pending patent costs are not amortizable. Amortization expense was approximately $15,000 and $36,000 for the three months and was approximately $44,000 and $100,000 for the nine months ended September 30, 2013 and 2012, respectively. As of September 30, 2013, future amortization of license agreements is expected to be approximately $14,000 for the remainder of fiscal 2013, $55,000 for 2014, $46,000 each year for 2015 through 2018.

License Agreements

The Company has entered into multiple license agreements (the “License Agreements”) with the University of Florida Research Foundation (“UFRF”) and University of Texas at Austin (“UTA”). Under the terms of the License Agreements, the Company acquired exclusive worldwide licenses for underlying technology used in repairing and regenerating nerves. The licensed technologies include the rights to issued patents and patents pending in the United States and international markets. The effective term of the License Agreements extends through the term of the related patents and the agreements may be terminated by the Company with 60 days prior written notice. Additionally, in the event of default, licensors may terminate an agreement if the Company fails to cure a breach after written notice. The License Agreements contain the key terms listed below:

 

  •   AxoGen pays royalty fees ranging from 1% to 3% under the License Agreements based on net sales of licensed products. One of the agreements also contains a minimum royalty of $12,500 per quarter, which may include a credit in future quarters in the same calendar year for the amount the minimum royalty exceeds the royalty fees. Also, when AxoGen pays royalties to more than one licensor for sales of the same product, a royalty stack cap applies, capping total royalties at 3.75%;

 

  •   If AxoGen sublicenses technologies covered by the License Agreements to third parties, AxoGen would pay a percentage of sublicense fees received from the third party to the licensor. Currently, AxoGen does not sublicense any technologies covered by License Agreements. The Company is not considered a sub-licensee under the License Agreements and does not owe any sublicensee fees for its own use of the technologies;

 

  •   AxoGen reimburses the licensors for certain legal expenses incurred for patent prosecution and defense of the technologies covered by the License Agreements; and

 

  •   Currently, under one of the License Agreements, AxoGen would owe a $15,000 milestone fee upon receiving a Phase II Small Business Innovation Research or Phase II Small Business Technology Transfer grant involving the licensed technology. The Company has not received either grant and does not owe such a milestone fee. Other milestone fees are due if AxoGen develops certain pharmaceutical or medical device products under the License Agreements. No such products are currently under development.

Royalty fees were approximately $64,000 and $43,000 for the three months and were $169,000 and $125,000 for the nine months ended September 30, 2013 and 2012, respectively, and are included in sales and marketing expense on the accompanying condensed consolidated statements of operations.

In July 2012, the Company terminated its license agreement with Emory University. Such license agreement did not relate to any technology or intellectual property used in any of the Company’s current products.