EQUITY SECURITIES PORTFOLIO INVESTMENT

3 Months Ended

Mar. 31, 2022

Investments, Debt and Equity Securities [Abstract]

On 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.

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.

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. Included in our consolidated balance sheets as of March 31, 2022 and December 31, 2021, the total fair value of the remaining Life Sciences Portfolio investment was $163.7 million and $343.1 million, respectively.

As part of the Company’s acquisition of equity securities in the Life Sciences Portfolio, the Company acquired an equity interest in Arix Bioscience PLC (“Arix”), a public company listed on the London Stock Exchange. During the first quarter of 2022, the Company increased its investment in Arix amounting to approximately 21.0% as of March 31, 2022. In addition, two members of the Company's board of directors have seats on the board of Arix, which is currently made up of five board members. Accordingly, the Company has the ability to exercise significant influence over operating and financial policies of Arix, and has elected to account for the Arix investment under the fair value method. To date, the Company has not received any dividends from Arix. As of March 31, 2022, this investment does not meet the significance thresholds for additional summarized income statement disclosures, as defined by the SEC. As of March 31, 2022, the aggregate carrying amount of our Arix investment was $41.7 million, and is included in equity securities at fair value, in the consolidated balance sheet.

The following unrealized and realized gains or losses from our investment in the Life Sciences Portfolio are recorded in the change in fair value of equity securities and gain or loss on sale of equity securities, respectively, in the consolidated statements of operations:


	Three Months Ended March 31,
	2022		2021
	(In thousands)
Change in fair value of equity securities of public companies	$	(171,640)	$	5,374
Change in fair value of equity securities without readily determinable fair value	—		31,802

Gain (loss) on sale of equity securities of public companies	59,488		—


Net realized and unrealized (loss) gain	$	(112,152)	$	37,176

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 three months ended March 31, 2022 and 2021, our consolidated earnings on equity investment was zero and $2.7 million, respectively, included in the consolidated statements of operations. No distributions were received during the three months ended March 31, 2022 and 2021.

In April 2022, Viamet, received a certain drug approval from the United States Food and Drug Administration ("FDA") and is planning its commercial launch during the second quarter of 2022. In connection with the FDA approval, MalinJ1 is due a milestone payment in the amount of $40.0 million. The Company's portion of that milestone payment will be approximately $25.6 million to be received in the form of a deferred payment, due and payable in October 2022, with interest accrued at 8.5% per year.

On October 13, 2021, Adaptix Limited issued $4.0 million in limited unsecured notes due in 2026 to Radcliffe 2 Ltd., a subsidiary of Merton Healthcare Holdco II LLC. The interest rate on the notes is 8.0% per year. During the three months ended March 31, 2022, we recorded $78,000 in interest income related to the notes. As of March 31, 2022 and December 31, 2021, the receivable including interest was $4.0 million, and is included in other non-current assets in the consolidated balance sheets.