Equity Method Investment

12 Months Ended

Dec. 31, 2020

Equity Method Investment

Equity Method Investment

5. Equity Method Investment

In August 2020, the Company established Angel Pharmaceuticals Co. Ltd. (“Angel”), a wholly-owned corporate venture in the People’s Republic of China (“China”) designed to develop, manufacture, and commercialize CPI-006, CPI-444, and CPI-818 compounds for distribution within the countries of China, Taiwan, Macao, and Hong Kong (collectively, the “Territories”) based on intellectual property licenses to be contributed to Angel by the Company.

In October 2020, Angel raised financing from third-party investors, the licenses were entered into and the Company’s ownership interest was reduced to 53.2%. Under the license agreements, the Company is required to provide manufacturing supply services for future supply of drug products for use in clinical trials, research and development, operational support, and participate in the joint steering committee which oversees the development and commercialization of the compounds. Angel is not required to make any payments to the Company regarding the licensed compounds or the additional services outlined in the agreement. After a 7 year Exclusive Grant Back Period, Angel license grants to the company for sole or jointly owned IP will be non-exclusive, fully paid and sublicensable. During the Exclusive Grant Back Period, Angel license grants to the company for sole and joint IP are exclusive, fully paid and sublicensable.

As a result of the financing, the Company reassessed its interest in Angel and determined that while Angel is a VIE, the Company is not considered the primary beneficiary of such VIE since Corvus does not have the power, through voting or similar rights and the license agreements, to direct the activities of Angel that most significantly impact Angel’s economic performance. Further, the Company determined that as it has a significant influence over Angel, and, therefore, it shall account for its investment in Angel using the equity method starting in October 2020, the date it lost control over Angel. At the date of loss of control, the Company derecognized all of Angel’s assets and liabilities from its balance sheet, recognized the retained equity interest at its fair value of $37.5 million, and recognized a gain of $37.5 million, which is included in gain on deconsolidation of Angel Pharmaceuticals on the consolidated statement of operations for the year ended December 31, 2020.

As of December 31, 2020, the Company’s ownership interest in Angel was approximately 49.7%, excluding 7% of Angel’s equity reserved for issuance under the Angel ESOP. The Company recognized its share of losses in Angel for the total amount of $0.2 million as loss from equity method investment on the consolidated statement of operations for the year ended December 31, 2020.

The Company’s maximum exposure to losses from its investment in Angel is to the extent of the carrying value of its investment since the Company is not obligated to provide additional financial support. At December 31, 2020 the Company reviewed its investment in Angel for impairment by determining whether events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. In making this judgment, the Company considered available quantitative and qualitative evidence in evaluating potential impairment of these investments. The Company determined that the carrying value of the investment did not exceed its fair value and, therefore, there are no indicators that its investment in Angel is impaired.

Summary Financial Information

Summary financial information for Angel Pharmaceuticals is as follows:

	As of
Balance Sheet Data (unaudited)	December 31, 2020
	(In thousands)
Current assets	$	38,883
Current liabilities		97
Stockholders' equity		38,786

	Year Ended
Statement of Operations Data (unaudited)	December 31, 2020
	(In thousands)
Net loss	$	(274)
Share of loss from investments accounted for using the equity method (1)		(234)

(1) The Company’s share of loss is based on pro-rated net loss beginning October 2020 upon the deconsolidation of Angel Pharmaceuticals.