NOTE 5. INTANGIBLE ASSETS

Intangible assets consist of in-process research and development (“IPR&D”) not subject to amortization, and patents and license agreements subject to amortization, which were capitalized as a part of an asset acquisition.

IPR&D represents projects that have not yet received regulatory approval and are required to be classified as indefinite assets until the successful completion or the abandonment of the associated R&D efforts. These assets include IPR&D capitalized as part of a business combination from the acquisition of the Roche RNAi business in 2011. In November 2016, the Company announced the discontinuation of its clinical trial efforts for ARC-520, ARC-AAT and ARC-521. Given this development, the Company has impaired the IPR&D asset previously recorded during the year ended September 30, 2016.

Intangible assets subject to amortization include patents and a license agreement capitalized as part of the Novartis RNAi asset acquisition in March 2015 and license agreements capitalized from the acquisition of the Roche RNAi business in 2011. The license agreement associated with the Novartis RNAi asset acquisition is being amortized over the estimated life remaining at the time of acquisition, which was 21 years, and the accumulated amortization of the asset is approximately $234,975. The license agreements associated with the acquisition of the Roche RNAi business were amortized over the estimated life remaining at the time of acquisition, which was 4 years, and the accumulated amortization of the assets is approximately $230,000. These assets have been fully amortized as of September 30, 2016. The patents associated with the Novartis RNAi asset acquisition are being amortized over the estimated life remaining at the time of acquisition, which was 14 years, and the accumulated amortization of the assets is approximately $2,457,371. Amortization expense for the years ended September 30, 2016, 2015 and 2014 was $1,714,313, $1,046,571 and $54,653, respectively. Amortization expense is expected to be approximately $1,700,429 for fiscal year 2017, $1,700,429 in 2018, $1,700,429 in 2019, $1,700,429 in 2020, $1,700,429 in 2021, $1,700,429 in 2022, and $11,962,294 thereafter.

The following table provides details on the Company’s intangible asset balances:

	Intangible assets not subject to amortization			Intangible assets subject to amortization			Total Intangible assets
Balance at September 30, 2015	$	944,935		$	23,879,181		$	24,824,116
Impairment		(944,935	)		-			(944,935	)
Amortization		-			(1,714,313	)		(1,714,313	)
Balance at September 30, 2016	$	-		$	22,164,868		$	22,164,868