Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.19.2
Fair Value Measurements
6 Months Ended
Jun. 30, 2019
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

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 $11.2 million based on a per share value of $1.549. The following inputs were utilized to derive the value: risk free rate of return of 2.24%, volatility of 70% and a discount for lack of marketability of 27.9%.

In connection with the Development Option and Share Purchase Agreement ("DOSPA") between Caelum and Alexion Therapeutics, Inc., Caelum’s convertible notes automatically converted into common shares of Caelum and the warrant liability payable to the placement agent in connection with the placement of the convertible notes was also issued.

Caelum Warrant Liability

The Caelum warrant liability and convertible notes did not exist as of June 30, 2019. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring Caelum’s warrant liability that are categorized within Level 3 of the fair value hierarchy as of December 31, 2018 is as follows:

 

 

 

 

 

    

December 31, 2018

 

Risk-free interest rate

 

2.905% – 2.909

%

Expected dividend yield

 

 —

%

Expected term in years

 

3.84 – 3.96

 

Expected volatility

 

70

%

 

 

 

 

 

 

 

Fair Value of

 

 

Derivative

 

 

Warrant

($ in thousands)

    

Liability

Beginning balance at January 1, 2019

 

$

991

Issuance of warrant due to conversion of note

 

 

(991)

Ending balance at June 30, 2019

 

$

 —

 

Caelum Convertible Notes

A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring Caelum’s convertible notes that are categorized within Level 3 of the fair value hierarchy as of December 31, 2018 is as follows:

 

 

 

 

 

 

December

 

 

    

31, 2018

 

Risk-free interest rate

 

2.302

%

Expected dividend yield

 

 —

%

Expected term in years

 

0.32

 

Expected volatility

 

67

%

 

 

 

 

 

 

    

Caelum

 

 

Convertible

 

 

Notes, at fair

($ in thousands)

 

value

Beginning balance at January 1, 2019

 

$

9,914

Conversion of the convertible notes

 

 

(9,914)

Ending balance at June 30, 2019

 

$

 —

 

The following tables classify into the fair value hierarchy of Fortress’ financial instruments, measured at fair value as of June 30, 2019 and December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurement as of  June 30, 2019

($ in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets

 

 

  

 

 

  

 

 

  

 

 

  

Fair value of investment in Caelum

 

$

 —

 

$

 —

 

$

11,193

 

$

11,193

Total

 

$

 —

 

$

 —

 

$

11,193

 

$

11,193

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurement as of  December 31, 2018

($ in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

Liabilities

 

 

  

 

 

  

 

 

  

 

 

  

Caelum warrant liability

 

$

 —

 

$

 —

 

$

991

 

$

991

Caelum convertible notes, at fair value

 

 

 —

 

 

 —

 

 

9,914

 

 

9,914

Total

 

$

 —

 

$

 —

 

$

10,905

 

$

10,905

 

The table below provides a roll-forward of the changes in fair value of Level 3 financial instruments as of June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Caelum

 

 

 

 

 

 

 

 

Investment in

 

Convertible 

 

 

 

 

 

 

($ in thousands)

    

Caelum

    

Note

    

Warrant liabilities

    

Total

Balance at December 31, 2018

 

$

 —

 

$

9,914

 

$

991

 

$

10,905

Conversion of convertible notes

 

 

 —

 

 

(9,914)

 

 

 —

 

 

(9,914)

Issuance of warrant

 

 

 —

 

 

 —

 

 

(991)

 

 

(991)

Fair value of investment

 

 

11,193

 

 

 —

 

 

 —

 

 

11,193

Balance at June 30, 2019

 

$

11,193

 

$

 —

 

$

 —

 

$

11,193

 

As of June 30, 2019, no transfers occurred between Level 1, Level 2 and Level 3 instruments.