Fortress Biotech, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

Fair Value Measurements

3 Months Ended

Mar. 31, 2021

5. 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 March 31, 2021, 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 $23.5 million based on a per share value of $3.25. As of March 31, 2021, the following inputs were utilized to derive the value: risk free rate of return of 0.07%, volatility of 70% and a discount for lack of marketability of 41.3%.

As of December 31, 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 $17.6 million based on a per share value of $2.43. As of December 31, 2020, the following inputs were utilized to derive the value: risk free rate of return of 0.36%, volatility of 70% and a discount for lack of marketability of 21.0% to 31.0% based on various scenarios. Further, the Company considered the impact of the acquisition of Alexion by AZ, which if consummated, will shorted the timeframe in which the option will be exercised in accordance with the second A&R DOSPA (see Note 3.)

Journey Warrant Liability

The fair value of Journey’s Contingently Issuable Warrants in connection with Journey’s 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 March 2021 was as follows:


	March 31, 2021
Risk-free interest rate	0.92	%
Expected dividend yield	—
Expected term in years	1.5
Expected volatility	50	%
Probability of issuance of the warrant	100	%

The following tables classify into the fair value hierarchy of Fortress’ financial instruments, measured at fair value as of March 31, 2021 and December 31, 2020:


	Fair Value Measurement as of March 31, 2021
($ in thousands)	Level 1		Level 2		Level 3		Total
Assets
Fair value of investment in Caelum	$	—	$	—	$	23,479	$	23,479
Total	$	—	$	—	$	23,479	$	23,479


	Fair Value Measurement as of March 31, 2021
($ in thousands)	Level 1		Level 2		Level 3		Total
Liabilities
Warrant liabilities	$	—	$	—	$	362	$	362
Total	$	—	$	—	$	362	$	362


	Fair Value Measurement as of December 31, 2020
($ in thousands)	Level 1		Level 2		Level 3		Total
Assets
Fair value of investment in Caelum	$	—	$	—	$	17,566	$	17,566
Total	$	—	$	—	$	17,566	$	17,566

The table below provides a roll-forward of the changes in fair value of Level 3 financial instruments as of March 31, 2021:



	Investment in
($ in thousands)	Caelum
Balance at December 31, 2020	$	17,566
Change in fair value of investments		5,913
Balance at March 31, 2021	$	23,479


	Warrants
($ in thousands)	liabilities
Balance at December 31, 2020	$	—
Additions - partner company		362
Balance at March 31, 2021	$	362

As of March 31, 2021, no transfers occurred between Level 1, Level 2, and Level 3 instruments.

- Definition

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.

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