Fair Value Measurements
|6 Months Ended|
Jun. 30, 2021
|Fair Value Measurements|
|Fair Value Measurements||
6. Fair Value Measurements
Certain of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate their fair value due to their liquid or short-term nature, such as accounts payable, accrued expenses and other current liabilities.
Fair Value of Caelum
As of June 30, 2021 and 2020, the Company valued its investment in Caelum in accordance with ASC Topic 820, Fair Value Measurements and Disclosures, and estimated the fair value to be $48.5 million based on a per share value of $6.717. As of June 30, 2021, the following inputs were utilized to derive the value: risk free rate of return of 0.87%, volatility of 70% and a discount for lack of marketability ranging from 13.7% to 30%. Further, the Company considered the impact of the acquisition of Alexion by AstraZeneca plc, which was consummated on July 21, 2021, which shortened the timeframe in which the option could be exercised in accordance with the second Amended and Restated Development, Option and Stock Purchase Agreement signed on March 1, 2021.
Journey Warrant Liabilities
Placement Agent Warrants
The fair value of Journey’s Contingently Issuable Warrants in connection with Journey’s convertible preferred offering (see Note 10), was measured using a Monte Carlo simulation valuation methodology. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring Journey’s warrant liability that are categorized within Level 3 of the fair value hierarchy as of June 30, 2021 was as follows:
At June 30, 2021, the value of the placement agent warrants was deemed to be $0.5 million.
Contingent Payment Warrant
In connection with the DFD Agreement, see Note 7 below, Journey valued the contingent payment associated with an Initial Public Offering (“IPO”) of Journey’s common stock or a listing of Journey’s common stock on a National Exchange in connection with which Journey’s market capitalization on a fully diluted basis is $150 million at the close of business on the date of such IPO or up-listing. In the event the conditions for such contingent payment are met, Journey agreed under the DFD Agreement to: (a) issue to Dr. Reddy’s Laboratories, Ltd (“DRL”) a number of shares of Journey’s common stock equal to $5.0 million as calculated using a fifteen (15) day volume weighted average price of Journey’s closing price, measured fifteen (15) days following the IPO/up-listing, without any additional consideration (financial or otherwise) from DRL; or (b) make a cash payment to DRL equal to $5.0 million.
In the event the IPO consideration as discussed above is not satisfied, and Journey or its affiliate executes a definitive agreement for an acquisition event during the period beginning on the Effective Date and ending twenty-four (24) months after the regulatory approval of DFD-29, Journey shall pay to DRL: (a) 20% of the value of DFD-29 attributable to the acquisition event, if such acquisition event occurs between closing and NDA approval; or (b) 12% of the value of DFD-29 attributable to the acquisition event, if such acquisition event occurs within 24 months after NDA approval.
Journey valued this contingent payment utilizing a Probability Weighted Expected Return Method (PWERM) model. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring Journey’s derivative liability that are categorized within Level 3 of the fair value hierarchy as of June 30, 2021 was as follows:
At June 30, 2021 the value of the contingent payment warrant is $3.7 million, and was recorded on the condensed consolidated balance sheet. No liability was recorded at December 31, 2020.
The following tables classify into the fair value hierarchy of Fortress’ financial instruments, measured at fair value as of June 30, 2021 and December 31, 2020:
The table below provides a roll-forward of the changes in fair value of Level 3 financial instruments as of June 30, 2021:
During the six month period ended June 30, 2021, no transfers occurred between Level 1, Level 2, and Level 3 instruments.
The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef