5.   Intangible Assets, Net

Intangible assets consist of the following (in thousands):

Intermezzo product rights and the TO-2070 asset were acquired through the Merger. Refer to Note 7, License and Collaboration Agreements, for further detail concerning Intermezzo and TO-2070.  Intangible assets are reviewed when events or circumstances indicate that the assets might be impaired. An impairment loss would be recognized when the estimated undiscounted cash flows to be generated by those assets are less than the carrying amounts of those assets.  If it is determined that the intangible asset is not recoverable, an impairment loss would be calculated based on the excess of the carrying value of the intangible asset over its fair value.

On March 27, 2015, a decision was made by the United States District Court for the District of New Jersey, or the New Jersey District Court, concerning Intermezzo patent infringement claims the Company made in response to the filing of an Abbreviated New Drug Application, or ANDA, with the FDA. The decision made by the New Jersey District Court invalidated several Intermezzo patent claims as obvious.  As a result of the New Jersey District Court’s ruling, the Company performed an interim impairment test of the Intermezzo product rights in connection with the preparation of its unaudited condensed consolidated financial statements for the first quarter of 2015. Based on the intangible asset impairment test performed, the Company recorded a non-cash impairment charge of $2.8 million for the first quarter of 2015. The Company appealed the New Jersey District Court’s ruling during the second quarter of 2015. On January 8, 2016 the United States Court of Appeals for the Federal Circuit, or the U.S. Court of Appeals, affirmed the decision of the New Jersey District Court, and no opinion accompanied the judgment. Refer to Note 14, Commitments and Contingencies, for further information concerning the litigation. The January 8, 2016 decision by the U.S. Court of Appeals triggered an evaluation of the carrying value of the Intermezzo product rights and related contingent obligations in light of an expected decline in Intermezzo sales during the second half of 2016. On April 5, 2016, the first generic launch of Intermezzo occurred.

As a result of the Company’s evaluation of options to sell, dispose of, or offer a royalty sharing arrangement for the Intermezzo product rights, the Company performed a recoverability test of the Intermezzo product rights as of September 30, 2016. It was determined that the summation of the undiscounted future cash flow of the Intermezzo product rights was greater than the carrying value. As such, the Company did not record an impairment charge during the three and nine months ended September 30, 2016.