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Identified Intangible Assets and Goodwill
12 Months Ended
Dec. 31, 2011
Identified Intangible Assets and Goodwill [Abstract]  
Identified Intangible Assets and Goodwill
4.             Identified Intangible Assets and Goodwill
 
In August 2011, we announced that in separate actions the FDA had placed a clinical hold on our Phase 3 clinical trials for ARIKACE in CF patients with Pseudomonas lung infections and for patients with NTM lung infections. Since the clinical programs were being conducted under separate INDs, we received separate notifications for CF and NTM. A clinical hold is a notification issued by the FDA to the sponsor to delay the commencement of  a proposed clinical trial or suspend an ongoing clinical trial. The FDA informed us that this decision was based on an initial review of the results of a long-term rat inhalation carcinogenicity study with ARIKACE. In this study, rats received daily doses of ARIKACE by inhalation for up to two years. The FDA requested additional information on ARIKACE and data from the rat study. As a result of the clinical hold, we suspended initiation of the ARIKACE Phase 3 clinical trial programs, including the recruitment and enrollment of patients.
 
We provided the requested information to the FDA in August and were informed by the FDA that, based on its review of the information provided to date, including the rat inhalation carcinogenicity study results, the FDA had insufficient information to assess the risks for ARIKACE in CF patients. In October 2011, the FDA notified us that the FDA was continuing the clinical hold previously placed on our Phase 3 clinical trial for ARIKACE in CF patients with Pseudomonas lung infections and in patients with NTM lung infections. Regarding the clinical hold for CF patients with Pseudomonas lung infections, the FDA requested additional information from us, including that we conduct a nine-month dog inhalation toxicity study of ARIKACE to determine if the findings of the rat inhalation carcinogenicity study are also observed in a non-rodent model and to propose a CF patient population/disease state in which the risk-benefit profile of ARIKACE may be more favorable. We were informed during further dialogue with the FDA that if we chose to proceed, the required nine-month dog inhalation toxicity study of ARIKACE could be conducted in parallel with the CF Phase 3 clinical trials in human subjects.  Regarding the clinical hold for patients with NTM lung infections, the FDA requested we conduct a Phase 2 clinical trial in adult (age 18 and older) NTM patients to provide proof-of-concept efficacy and safety data for ARIKACE in NTM patients.

Our management determined the clinical hold was an indicator of possible impairment of in-process research and development and goodwill assets due to the associated additional costs, and, therefore, interim impairment testing was performed as of September 30, 2011. Using the income approach the impairment analysis compared the fair value of the in-process research and development intangible assets with their respective carrying amounts.  This approach calculates fair value by estimating future cash flows attributable to the assets and then discounting these cash flows to a present value using a risk-adjusted discount rate. A market based valuation approach was not considered given a lack of revenues and profits for the Company. This approach requires significant management judgment with respect to unobservable inputs such as future volume, revenue and expense growth rates, changes in working capital use, appropriate discount rates and other assumptions and estimates. The estimates and assumptions used are consistent with the Company's business plans. Additionally, the carrying value of the business exceeded its fair value, and accordingly we performed the second step of the goodwill impairment test by comparing the carrying value of goodwill to its implied fair value.   The impairment review resulted in impairment losses for both assets. Non-cash charges of  $19.7 million and $6.3 million were recognized for the decline in the fair value of in-process research and development and goodwill assets, respectively, as of September 30, 2011.  The non-cash charge of $26.0 million was recorded as an impairment loss and classified as an operating expense in the Consolidated Statements of Operations. 
 
In January 2012, the FDA lifted the clinical hold on ARIKACE in patients with NTM lung infections.  We intend to conduct, as requested by the FDA, a Phase 2 clinical trial in adult NTM patients to provide proof-of-concept efficacy and safety data for ARIKACE in NTM patients. We expect to begin enrolling patients in the Phase 2 clinical trial in mid-2012.  We have also begun the work required to allow the Company to initiate the nine-month dog inhalation toxicity study in the second quarter of 2012.
 
In February 2012, the company announced that it would be initiating the ARIKACE NTM trial as a Phase 2 trial, as well as the previously planned Phase 3 trial for ARIKACE in the CF indication in Europe. Also in February 2012, we filed our complete response to the FDA clinical hold on the U.S. study of ARIKACE in CF patients with Pseudomonas infection.  We will continue discussions with the FDA to pursue removal of the clinical hold on ARIKACE in U.S. for the treatment of CF patients with Pseudomonas lung infections.

 As a result of these events, the Company believes that the no additional impairment of in-process research and development intangible assets exists as of December 31, 2011.