Investment in Equity Securities, at fair value and long-term investments

9 Months Ended

Sep. 30, 2020

Investment in Equity Securities, at fair value and long-term investments

Investment in Equity Securities, at fair value and long-term investments

4.            Investment in equity securities, at fair value and long-term investments

Investment in equity securities, at fair value

The Company has an equity investment in the common stock of a publicly traded company. The fair value of this security was measured using its quoted market price, a Level 1 input, and was approximately $1.8 million as of September 30, 2020 and $0.6 million as of December 31, 2019 (see Note 16).

The following table summarizes the Company’s investment as of September 30, 2020:

				Gross
(In thousands)				unrealized		Aggregate fair
Description	Classification	Cost		gains		value
Common stock	Investment	$	—	$	1,796	$	1,796

Unrealized gains or (losses) on the Company’s equity investment for the three months ended September 30, 2020 and 2019 were $862,000 and $(160,000), respectively. Unrealized gains or (losses) on the Company’s equity investment for the nine months ended September 30, 2020 and 2019 were $1,171,000 and $(355,000), respectively. Unrealized gains or (losses) on the Company’s equity investment are recognized as change in fair value of investment in equity securities in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

Long-term investments

Long-term investments consisted of the following:

(In thousands)	September 30, 2020		December 31, 2019
Available-for-sale debt securities:
Black Belt Tx Limited - convertible loan	$	83	$	—
Equity securities without readily determinable fair value:
Black Belt Tx Limited - equity interest		2,250		2,250
Juventas Cell Therapy Limited - equity interest		25,035		11,355
Juventas Cell Therapy Limited - put option		201		433
Total	$	27,569	$	14,038

Black Belt Tx Limited

In April 2019, in conjunction with its license agreement entered into with Black Belt (see Note 2), the Company made a 2 million euros ($2,249,600) equity investment in the ordinary shares of a newly established, privately held UK Company, Black Belt Tx Ltd ("Black Belt Tx"), representing a 14.1% equity interest with the right to appoint a non-voting board observer.

In July 2020, the Company entered into a three-year convertible loan agreement with Black Belt Tx (the "Black Belt Tx Loan") in the amount of 211,800 euros (approximately $250,000) with a non-compounding annual interest rate of 6% payable at maturity. The principal balance is also due at maturity. The proceeds will support and advance Black Belt Tx's programs and general operations. The loan principal will be disbursed in three equal installments of 70,600 euros (approximately $83,000). The first tranche was disbursed upon execution of the loan agreement in August 2020. The second and third tranche will be disbursed only under certain operational circumstances and with Black Belt Tx’s Board of Directors' approval. In the event that Black Belt Tx, on or prior to the maturity date, completes an equity financing round of at least 5,000,000 euros (approximately $5.9 million), then the outstanding principal amount shall be automatically converted into such shares at 80% of the price per share issued divided by a compensating factor based on the number of years that the Black Belt Tx Loan has been outstanding. The investment in convertible loan is accounted for as investment in debt securities as available-for-sale instrument.

As the Company does not have significant influence over operating and financial policies of Black Belt Tx, and the debt and equity interests do not have readily determinable fair value, the investment in Black Belt Tx is stated at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment. The Company did not record any adjustments or impairments during the three and nine months ended September 30, 2020 related to this investment.

Juventas Cell Therapy Limited

In June 2019, in conjunction with its license agreement entered into with Juventas (see Note 2), the Company, through CASI Biopharmaceuticals, made an RMB 80 million ($11,788,000) investment in Juventas, a privately held, China-based company, in Juventas’ Series A plus equity, which represented a 16.327% equity interest on a fully diluted basis, and the right to appoint a non-voting board observer. The Company was entitled with substantive liquidation preference over the founding shareholder of Juventas. In addition, the Juventas’ founding shareholder provided a put option to the Company pursuant to which the Company can put the equity investment to the founding shareholder at a fixed return of 8% per annum upon occurrence of certain events. The investment in the equity interests of the Juventas and the investment in put option to the founding shareholder were accounted for as investments in equity securities using the measurement alternative at its cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, as the fair value of the equity securities of Juventas is not readily determinable. The consideration of RMB 80 million ($11,788,000) was allocated into investment in equity interests and investment in put option based on their relative fair value on the transaction date.

In September 2020, in conjunction with the Supplementary Agreement entered into with Juventas (see Note 2),  Juventas issued additional Series A plus equity  to the Company with substantive liquidation preference over Juventas’ founding shareholder, resulting in the Company’s equity ownership increasing to 19.652% (post-Juventas Series B financing) on a fully diluted basis. CASI Biopharmaceuticals is also entitled to appoint a director to Juventas’ board of directors.  Juventas’ founding shareholder also provided a put option to the Company pursuant to which the Company can put the additional equity investment to the founding shareholder at RMB 70 million plus a fixed return of 8% per annum upon occurrence of certain events. The transaction closed on September 29, 2020. The fair value of the Company’s additional equity interest in Juventas and the new put option was RMB 83.7 million ($12.3 million) and RMB 0.4 million ($64,000) on September 29, 2020, respectively.

Since the equity interest with substantive liquidation preference is not in-substance common stock, the investment in the additional equity interests of Juventas was accounted for as an investment in equity securities at transaction date fair value with a corresponding credit to Other Liabilities. The profit-sharing liability represents the Company’s obligation to pay an increased share of future profits pursuant to the Supplementary Agreement (see Note 2) which was conveyed by the Company in exchange for the additional equity interests in Juventas. The Company views this as a payment from a vendor that should reduce cost of revenues over the period of royalty payments. The long-term liability will be derecognized as payments are made on a systematic and rational basis representing the pattern in which the Company expects to settle the profit-sharing payment during the commercialization period of CNCT19.

The investments are measured using the measurement alternative at its cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, as the fair value of the equity securities of Juventas is not readily determinable. In addition, the changes in the fair value of the original investment in equity interests and put option in the amount of $1,116,000 resulting from the observable price in this transaction was recognized during the three and nine months ended September 30, 2020.

In June 2020, the Company entered into a one-year loan agreement with Juventas in the amount of RMB 30,000,000 (approximately $4,243,000) with an annual interest rate of 20%. In August 2020, the Company entered into another one-year loan with Juventas in the amount of RMB 40 million (approximately USD $5,790,000) for one year with an annual interest rate of 20%. In September 2020, the Company received early repayments for both principals and accrued interest from Juventas. For the three and nine months ended September 30, 2020, the Company recognized interest income of $351,000 and $375,000, respectively.