5. Property and equipment

Property and equipment consist of the following (dollar amounts in thousands):


	Estimated Useful Life (Years)		December 31,
	Estimated Useful Life (Years)		2015			2014
Land		—	$	5,273		$	5,273
Buildings		39-40		54,948			54,948
Building improvements		5-40		131,383			114,131
Machinery and equipment		3-15		95,182			80,919
Furniture, fixtures and office equipment		5-10		4,137			5,015
Computer equipment and software		3		9,707			10,465
Leasehold improvements		4		—			17
Construction in progress				8,044			39,580

				308,674			310,348
Less impairment				(140,412	)		—
Less accumulated depreciation and amortization				(119,513	)		(118,221	)

Total property and equipment, net			$	48,749		$	192,127

Leasehold improvements are amortized over four years which is the shorter of the term or the service lives of the improvements. Depreciation and amortization expense related to property and equipment for the years ended December 31, 2015, 2014, and 2013, was $11.0 million, $9.8 million, and $11.5 million, respectively.

In connection with the Company’s quarterly assessment of impairment indicators, the Company evaluated the continued lower than expected sales of AFREZZA as reported by Sanofi throughout the fourth quarter of 2015, revised forecasts for sales of AFREZZA provided by Sanofi in the fourth quarter of 2015 and level of commercial production in the fourth quarter of 2015, as well as the uncertainty associated with Sanofi’s announcement during the fourth quarter of their intent to reorganize their diabetes business. These factors indicated potentially significant changes in the timing and extent of cash flows, and the Company therefore determined that an impairment indicator existed in the fourth quarter of 2015.

On January 4, 2016, the Company received written notice from Sanofi of its election to terminate in its entirety the Sanofi License Agreement. Sanofi’s notice indicated that the termination was pursuant to Sanofi’s right to terminate the agreement upon Sanofi’s good faith determination that the commercialization of AFREZZA is no longer economically viable in the United States, in which case the effective date of termination would be April 4, 2016. In the alternative, Sanofi indicated that the termination was also pursuant to its right to terminate the License Agreement for any reason, in which case the Termination Date would be July 4, 2016. In the interest of an expedient transition, the Company is currently working with Sanofi to transfer and wind down the agreement activities by April 4, 2016, or as soon as practicable thereafter.

The Company identified two primary asset groups to be evaluated for impairment: the Danbury manufacturing facility, which currently performs all the manufacturing of AFREZZA, and the Valencia facility, which was previously the Company’s corporate headquarters. The Danbury manufacturing facility is the primary asset group that has been impacted by the impairment indicators noted above but the Company also evaluated the Valencia facility for potential impairment given the circumstances and identified an impairment charge of $1.8 million based on a valuation utilizing a combination of market, income and cost approaches. Within the Danbury manufacturing facility, the Company identified the machinery and equipment as the primary assets within the asset group as they are associated with the production of AFREZZA. As such, the Company performed the fixed asset impairment test and performed the first step to test for recoverability of the Danbury manufacturing facility by utilizing two undiscounted cash flow projections and applying a probability weighted average to those cash flow projections. The first undiscounted cash flow projection was developed under a scenario assuming Sanofi would continue to sell and market AFREZZA as the termination of the arrangement by Sanofi was not known as of the balance sheet date. The second undiscounted cash flow projection assumed Sanofi would terminate the Sanofi License Agreement and that the Company would manufacture, sell and market AFREZZA independently.

Based on the evaluation performed, the probabilities assigned to the two undiscounted cash flows were not significant to the evaluation due to the projected negative cash flows over the estimation period, and it was determined that the probability weighted undiscounted cash flows were not sufficient to recover the carrying value of the Danbury manufacturing facility. As such, the Company was required to determine the fair value of the Danbury manufacturing facility to recognize an impairment loss if the carrying amount exceeds its fair value. The Company determined the fair value of the Danbury manufacturing facility by applying the highest and best use valuation concept and utilizing the market approach valuation technique to value the machinery and equipment and a combination of the market approach and cost approach in valuing the land, buildings, and building improvements. As a result of this assessment, the Company recorded an impairment charge of $138.6 million for the Danbury manufacturing facility.