EQUITY SECURITIES PORTFOLIO INVESTMENT

12 Months Ended

Dec. 31, 2021

Investments, Debt and Equity Securities [Abstract]

EQUITY SECURITIES PORTFOLIO INVESTMENTOn April 3, 2020, the Company entered into an Option Agreement with LF Equity Income Fund (“Seller”), which included general terms through which the Company was provided the option to purchase life sciences equity securities in a portfolio

of public and private companies (“Life Sciences Portfolio”) for an aggregate purchase price of £223.9 million, approximately $277.5 million at the exchange rate on April 3, 2020.

On June 4, 2020, the Company executed the Transaction Agreement between Link Fund Solutions Limited, Seller, and the Company. Pursuant to the Transaction Agreement, the Company agreed to purchase from Seller and Seller agreed to transfer to the Company the specified equity securities of all companies in the Life Sciences Portfolio at set prices at various future dates. The transfer dates would vary among the Life Sciences Portfolio companies as the Transaction Agreement gives the Company the exclusive right to determine when to call for transfer of each security, and because each Life Sciences Portfolio company (or its existing equity holders) may be required to approve the transfer due to rights of first refusals and other company-specific terms and conditions. Thus, the execution of the Transaction Agreement resulted in forward contracts for the Company to purchase equity securities in each public and private company at a specified price on a future date.

In accordance with the Transaction Agreement, the Company transferred the total purchase price of £223.9 million into an escrow account. Upon the transfer of equity securities in the Life Sciences Portfolio to the Company, the associated funds were released from the escrow account to Seller based on the consideration amount assigned to the equity securities for such Life Sciences Portfolio company in the Transaction Agreement. As of December 31, 2020, all of the equity securities in the Life Sciences Portfolio were transferred to the Company pursuant to the Transaction Agreement. The Company has sold a portion of the equity securities of such Life Sciences Portfolio while retaining an interest in a number of operating businesses, including a controlling interest in one of the companies.

For accounting purposes, the total purchase price of the Life Sciences Portfolio was allocated to the individual equity securities based on their individual fair values as of April 3, 2020, in order to establish an appropriate cost basis for each of the acquired securities. The fair values of the public company securities were based on their quoted market price. The fair values of the private company securities were estimated based on recent financing transactions and secondary market transactions and factoring in a discount for the illiquidity of these securities. As of December 31, 2021 and 2020, the total fair value of the remaining Life Sciences Portfolio investment was $343.1 million and $267.8 million, respectively.

During the year ended December 31, 2020, Seller returned a total of £4.5 million of the Company’s prepaid investment upon the failure to obtain the approval of the existing equity holders, pursuant to their rights of first refusals, of one of the companies in connection with the transfer of its securities. In addition, due to an ownership restriction applicable to one of the companies, the Company sold a small portion of an equity securities derivative for £33,000 before the remaining shares of such company could be transferred to us. The Company recognized a net gain of $2.8 million related to the returned prepaid investments and sale of the derivative.

Changes in the fair value of Acacia’s investment in the Life Sciences Portfolio are recorded as unrealized gains or losses in the consolidated statements of operations. The consolidated statements of operations reflected the following net realized and unrealized gains from our Life Sciences Portfolio:


	Years Ended December 31,
	2021		2020
	(In thousands)
Change in fair value of equity securities of public companies	$	188,875	$	72,104
Change in fair value of equity securities without readily determinable fair value	—		103,751
Conversion of equity securities without readily determinable fair value to equity securities of public companies	(102,067)		—
Gain (loss) on sale of equity securities of public companies	115,172		(3,930)

Gain on sale of prepaid investment and derivative	—		2,845
Net realized and unrealized gain	$	201,980	$	174,770

On October 13, 2021, Adaptix Limited issued $4.0 million in limited unsecured notes due in 2026 to Ratcliffe 2 Ltd., a subsidiary of Merton Healthcare Holdco II LLC. The interest rate on the notes is 8 percent per year. During the year ended December 31, 2021, we recorded $69,000 in interest income related to the notes. The receivable was $4.0 million and is included in other non-current assets on the consolidated balance sheet as of December 31, 2021.

As part of the Company’s acquisition of equity securities in the Life Sciences Portfolio, the Company acquired a majority interest in the equity securities of MalinJ1 (63.9%), which were transferred to the Company on December 3, 2020. The

acquisition of the MalinJ1 securities was accounted for as an asset acquisition as there was a change of control of MalinJ1 and substantially all of the fair value of the assets acquired was concentrated in a single identifiable asset, an investment in Viamet Pharmaceuticals Holdings, LLC (“Viamet”). As such, the cost basis of the MalinJ1 securities was used to allocate to the Viamet investment, the single identifiable asset, and no goodwill was recognized. The Company through its consolidation of MalinJ1 accounts for the Viamet investment under the equity method as MalinJ1 owns 41.0% of outstanding shares of Viamet. During the year ended December 31, 2021, our consolidated earnings on equity investment was $3.5 million, included in the consolidated statement of operations, and distributions received amounted to approximately $2.4 million to Acacia and approximately $1.2 million to noncontrolling interests.