F-16
Licenses
We obtain licenses from third parties and capitalize the costs related to exclusive licenses.We amortize capitalized licenses
over their estimated useful life or termof the agreement, which for current licenses is between approximately five years and15 years.
The cost of our licenses atDecember 31, 2013 and2012was $36.2million. Accumulated amortization related to licenseswas $31.6
million and $29.6million atDecember 31, 2013 and 2012, respectively. Basedon existing licenses, estimated amortization expense
related to licenses is as follows:
YearsEndingDecember 31,
Amortization
(inmillions)
2014 ........................................................................................................................................... $
1.9
2015 ........................................................................................................................................... $
1.9
2016 ........................................................................................................................................... $
0.8
Fair value of financial instruments
We have estimated the fair value of our financial instruments. The amounts reported for cash, accounts receivable, accounts
payable and accrued expenses approximate the fair value because of their shortmaturities.We report our investment securities at their
estimated fair value basedon quotedmarket prices for identical or similar instruments.
Long-lived assets
We evaluate long-lived assets, which include property, plant and equipment, patent costs, and exclusive licenses acquired
from thirdparties, for impairment on at least a quarterlybasis andwhenever events or changes in circumstances indicate thatwemay
not be able to recover the carrying amount of such assets. We recorded a charge of $6.4million, $825,000 and$1.9million for the
years endedDecember 31, 2013, 2012 and2011, respectively, relatedprimarily to thewrite-downof intangible assets.
Equitymethod of accounting
We accounted for our ownership interest inRegulus using the equitymethodof accountinguntil Regulus’ IPO in
October 2012. We began accounting for our investment inRegulus at fair value in the fourthquarter of 2012whenour ownership in
Regulus droppedbelow20percent andwe no longer had significant influence over Regulus’ operating and financial policies. See
Note 3,
Investments,
for additional information regardingour fair value accounting for our investment inRegulus. Under the equity
methodof accounting, we includedour share of Regulus’ operating results on a separate line inour consolidated statement of
operations called “Equity in net loss ofRegulus Therapeutics Inc.”
Use of estimates
The preparationof consolidated financial statements in conformitywith accountingprinciples generally accepted in the
UnitedStates requiresmanagement tomake estimates and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those estimates.
Reclassifications
We have reclassified certainprior period amounts to conform to the current periodpresentation. Certain amounts previously
reported as research anddevelopment revenue have been reclassified to licensing and royalty revenue to conform to the current period
presentation.
Consolidation of variable interest entities
We identify entities as variable interest entities either: (1) that donot have sufficient equity investment at risk topermit the
entity to finance its activitieswithout additional subordinated financial support, or (2) inwhich the equity investors lack an essential
characteristic of a controlling financial interest. We performongoing qualitative assessments of our variable interest entities to
determinewhetherwe have a controlling financial interest in the variable interest entity and therefore are the primary beneficiary. As
ofDecember 31, 2013 and2012, we had collaborative arrangementswith five and six entities, respectively, that we considered tobe
variable interest entities. We are not the primary beneficiary for anyof these entities aswe donot have the power to direct the
activities thatmost significantly impact the economic performance of our variable interest entities, the obligation to absorb losses, or
the right to receive benefits fromour variable interest entities that couldpotentiallybe significant to the variable interest entities. As of
December 31, 2013, the total carryingvalue of our investments in variable interest entitieswas $53.4million, andwas primarily
related to our investment inRegulus. Ourmaximum exposure to loss related to these variable interest entities is limited to the carrying
value of our investments.
