EQUITY SECURITIES PORTFOLIO INVESTMENT

9 Months Ended

Sep. 30, 2021

Investments, Debt and Equity Securities [Abstract]

EQUITY SECURITIES PORTFOLIO INVESTMENT

3. EQUITY SECURITIES PORTFOLIO INVESTMENT

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.

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 September 30, 2021 and December 31, 2020, the fair value of the Life Sciences Portfolio equity securities, excluding the equity method investment discussed below, was $354.6 million and $248.1 million, respectively.

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. In late September 2021, the Company sold one security which resulted in a gain of $18.6 million. The proceeds of that sale were settled and received in early October 2021, and therefore the Company recorded a $21.5 million other receivable as included in the consolidated balance sheet as of September 30, 2021. Accordingly, this trade date receivable from the sale of equity securities has been reflected as a noncash investing activity in the consolidated statement of cash flows for the nine months ended September 30, 2021.

For the three and nine months ended September 30, 2021 and 2020, the consolidated statements of operations reflected the following from the Life Sciences Portfolio: 

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2021		2020			2021		2020
	(In thousands)
Change in fair value of equity securities	$	63,907	$	84,299		$	112,180	$	83,230
Change in fair value of equity securities derivative		–		10,651			–		17,542
Change in fair value of equity securities forward contract		–		(74,662	)		–		–
Gain (loss) on sale of equity securities		37,112		1,908			52,167		(4,202	)
Gain on sale of prepaid investment and derivative		–		2,845			–		2,845
Net realized and unrealized gain	$	101,019	$	25,041		$	164,347	$	99,415

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.