Note 7 regarding impairment...Concordia International Corp.
Notes to Condensed Interim Consolidated Financial Statements
(Stated in thousands of U.S. Dollars, except per share amounts and where otherwise stated)
[17]
7. Intangible Assets
Acquired
Product Rights
and
manufacturing
processes
Intellectual
Property
Distribution
Contracts
Supplier
Contracts
In-
Progress
R&D
All Other
Intangibles Total
As at January 1,
2016 3,478,386 29,465 32,538 124,691 295,514 1,148 3,961,742
Additions 36,415 — — — 2,972 164 39,551
Measurement
period adjustments 130,102 — (970) 5,251 (150,686) — (16,303)
Amortization (81,215) (820) (3,136) (13,191) — (594) (98,956)
Impact of foreign
exchange (194,066) — (2,788) (11,413) (14,592) (45) (222,904)
Impairment (567,076) — — — — — (567,076)
As at June 30,
2016 2,802,546 28,645 25,644 105,338 133,208 673 3,096,054
During the second quarter of 2016 and as part of the quarter end financial close process, management
determined that certain triggering events had occurred with respect to two North America segment products,
Nilandron® and Plaquenil®, requiring management to perform a test for impairment. The triggering events
included the July 2016 launch of a generic competitive product for Nilandron® and notification during the
second quarter of 2016 from our AG Partner regarding market competitive pressure associated with sales
volumes and pricing with respect to Plaquenil®.
In accordance with IAS 36 - Impairments, management performed an impairment test whereby the
recoverable amount was determined by the greater of a value in use model and a fair value less cost to sell
model. The recoverable amount was then compared to the carry value of the intangible asset to determine the
extent of the impairment to record in the period. Given the Company plans to continue to market and sell
these products, a discounted cash flow model to determine the value in use was performed.
During the period, the Company recorded $306,189 impairment with respect to Nilandron® and $260,887
impairment with respect to Plaquenil® which have been recorded in the statement of income (loss) in the
three and six month periods ended June 30, 2016. The carrying value of Nilandron® and Plaquenil® recorded
as acquired product rights intangible assets were written down to $60,654 and $271,263, respectively. There
have been no reversals of impairment losses or any previous impairments recorded with respect to acquired
product right intangible assets.
Key assumptions of the value in use models are as follows:
• Discount Rate: 10.4% to 11.4%
• Estimated product cash flows, including price and volume assumptions
Sensitivity analysis
An increase/decrease in the discount rate by 1% would have the impact to increase/decrease the total
impairment to Nilandron® by $5,135 and $6,195, respectively and Plaquenil® by $27,101 and $33,181,
respectively.
A 1% increase/decrease to the revenue growth assumptions would have the impact to decrease/increase the
total impairment to Nilandron® by $5,435 and $4,510, respectively and Plaquenil® by $31,373 and $25,819,
respectively.