Quarterly report pursuant to Section 13 or 15(d)

Intangible Assets

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Intangible Assets
 9 Months Ended
Sep. 30, 2018
Intangible Assets  
Intangible Assets

6.    Intangible Assets

 

The Company’s intangible assets consist of the following:

 

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

    

 

 

2018

 

2017

 

 

 

 

 

 

 

 

License agreements

 

$

1,033,591

 

$

1,007,566

 

Less: accumulated amortization

 

 

(535,762)

 

 

(485,585)

 

License agreements, net

 

$

497,829

 

$

521,981

 

 

 

 

 

 

 

 

 

Patents

 

 

753,567

 

 

459,903

 

Less: accumulated amortization

 

 

(53,265)

 

 

(44,892)

 

Patents, net

 

$

700,302

 

$

415,011

 

Intangible assets, net

 

$

1,198,131

 

$

936,992

 

 

License agreements are being amortized over periods ranging from 17-20 years. Certain patent costs of $22,000 were being amortized over three years. As of September 30, 2018, those patents were fully amortized, and the remaining patents of $745,000 are a combination of pending patent costs, $69,000 of which is being amortized over periods up to 20 years. Amortization expense was approximately $19,000 for each of the three months ended September 30, 2018 and 2017, respectively, and $59,000 and $60,000 for the nine months ended September 30, 2018 and 2017, respectively.  As of September 30, 2018, future amortization of license agreements and patents (i) for the remainder of fiscal year 2018 is $19,000, (ii) for the fiscal years 2019 through 2024 is expected to be $75,000 per year,  and (iii) after 2024 an aggregate $60,000.

 

License Agreements

 

The Company has entered into multiple license agreements (together, the “License Agreements”) with the University of Florida Research Foundation and the University of Texas at Austin. 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 sub-licensee 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 the University of Texas at Austin’s agreement, 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.  A milestone fee to the University of Florida Research Foundation of $2,000 is due if AxoGen receives FDA approval of its Avance® Nerve Graft, a milestone fee of $25,000 is due upon the first commercial use of certain licensed technology to provide services to manufacture products for third parties and a milestone fee of $10,000 is due upon the first use to manufacture products that utilize certain technology that is not currently incorporated into AxoGen products.

 

Royalty fees were approximately $444,000 and $319,000 during the three months ended September 30, 2018 and 2017, respectively, and approximately $1.2 million and $860,000 during the nine months ended September 30, 2018 and 2017, respectively, and are included in sales and marketing expense on the accompanying condensed consolidated statements of operations.