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

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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.

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Journey Warrant Liabilities

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Placement Agent Warrants

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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:

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At June 30, 2021, the value of the placement agent warrants was deemed to be $0.5 million.

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Contingent Payment Warrant

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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.

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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:

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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.

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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:

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The table below provides a roll-forward of the changes in fair value of Level 3 financial instruments as of June 30, 2021:

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During the six month period ended June 30, 2021, no transfers occurred between Level 1, Level 2, and Level 3 instruments.