NOTE 3 – LICENSED TECHNOLOGY

On November 4, 2018, we entered into a license agreement with REGENXBIO Inc. (“REGENXBIO”) to obtain rights to an exclusive worldwide license (subject to certain non-exclusive rights previously granted for MPS IIIA), with rights to sublicense, to REGENXBIO’s NAV AAV9 vector for gene therapies for treating MPS IIIA, MPS IIIB, CLN1 Disease and CLN3 Disease. Consideration for the rights granted under the original agreement included fees totaling $180 million and a running royalty on net sales, including: (i) an initial fee of $20 million, $10 million of which was due to REGENXBIO shortly after the effective date of the agreement, and $10 million of which was due on the first anniversary of the effective date of the agreement in November 2019, (ii) annual fees totaling up to $100 million, payable in $20 million annual installments beginning on the second anniversary of the effective date (the first of which remains payable if the agreement is terminated before the second anniversary in November 2020), (iii) sales milestone payments totaling $60 million, and (iv) royalties payable in the low double digits to low teens on net sales of products covered under the agreement. The license was being amortized over the life of the patent of eight years. On November 1, 2019, we entered into an amendment of the original license agreement. The amended agreement replaced the $10 million payment due on November 4, 2019 with a $3 million payment due on November 4, 2019 and an additional $8 million payment (which included $1 million of interest) due no later than April 1, 2020. The payment was scheduled to be paid by April 1, 2020 and the guaranteed amount of $20 million was due to be paid on November 4, 2020 and are recorded as payable to licensor on the consolidated balance sheet.

Prior to the April 1, 2020 deadline, we engaged REGENXBIO in discussions in an attempt to renegotiate the financial terms of the agreement, but we were unable to reach a mutual understanding that we believed would have been favorable for the Company or our programs, and we did not make the $8 million payment due by April 1, 2020. On April 17, 2020, REGENXBIO sent us a written demand for the $8 million fee, payable within a 15-day cure period after receipt of the demand letter. The license terminated on May 2, 2020, when the 15-day period expired. There were no penalties for early termination of the license. On May 25, 2020, we filed an arbitration claim with the American Arbitration Association alleging that REGENXBIO materially breached the license agreement prior to termination and seeking, among other things, a declaration that as a result of REGENXBIO’s material breach, we are not responsible for payments totaling $28 million (which would otherwise have been due in 2020) plus accrued interest of $0.8 million as of June 30, 2020. REGENXBIO disputes our arbitration claim and has filed a counterclaim seeking payment of the $28 million plus interest, which REGENXBIO argues remains due. Additional information is included in Note 7.

As of March 31, 2020, we considered the status of our discussions with REGENXBIO as a potential indicator of impairment in accordance with ASC 360-10-35-21. Since our impairment testing indicated that the carrying value of the license agreement exceeded its fair value, we recorded a $32.9 million non-cash impairment charge in the three months ended March 31, 2020.

On May 15, 2015, we acquired Abeona Therapeutics LLC, which had an exclusive license through Nationwide Children’s Hospital to the AB-101 and AB-102 patent portfolios for developing treatments for patients with Sanfilippo Syndrome Type A and Type B. The license is amortized over the life of the license of 20 years.

Licensed technology consists of the following:

SCHEDULE OF LICENSED TECHNOLOGY 

The aggregate estimated amortization expense for intangible assets remaining as of June 30, 2020 is as follows:

SCHEDULE OF AMORTIZATION EXPENSE FOR INTANGIBLE ASSETS 

Amortization of licensed technology was $44,000 and $1,338,000 for the three and six months ended June 30, 2020, respectively, and $1,293,000 and $2,638,000 for the three and six months ended June 30, 2019, respectively.