Investment in equity securities, at fair value and long-term investments

6 Months Ended

Jun. 30, 2021

Investment in equity securities, at fair value and long-term investments

Investment in equity securities, at fair value and long-term investments

4.            Investment in equity securities, at fair value and long-term investments

Investment in equity securities, at fair value

MaxCyte Inc.

The Company has an equity investment in the common stock of MaxCyte, a publicly traded company. The Company’s investment in this equity security is carried at its fair value, with changes in fair value reported in the statement of operations each reporting period.

The fair value of this security was measured using its quoted market price, a Level 1 input, and was $4.7 million as of June 30, 2021 and $2.7 million as of December 31, 2020 (see Note 16).

BioInvent International AB

In October 2020, in conjunction with its license agreement entered into with BioInvent (see Note 2), a publicly traded company, CASI made a $6.3 million investment (equivalent to SEK 53.8 million) to acquire 1.2 million new shares (after 25:1 reverse stock split) of BioInvent, and 14,700,000 warrants, each warrant with a right to subscribe for 0.04 shares (after 25:1 reverse stock split)  in BioInvent within a period of five years.

The investments in the ordinary shares and warrants of BioInvent are carried at fair value, with changes in fair value reported in the statement of operations each reporting period. The fair value of the ordinary shares was measured using its quoted market price, a Level 1 input, and was $7.9 million as of June 30, 2021 and $6.6 million as of December 31, 2020 (see Note 16).

The fair value of the warrants was measured using observable market-based inputs other than quoted prices in active markets for identical assets or liabilities, level 2 inputs.  The Company uses the Black-Scholes-Merton valuation model to estimate the fair value of warrants. The fair value of the warrants was $996,000 as of June 30, 2021 and $840,000 as of December 31, 2020 (see Note 16), with assumptions including an expected life of 4.41 years, an assumed volatility of 43.63%, and a risk-free interest rate of -0.15 %.

The following table summarizes the Company’s investment in equity securities at Fair Value as of June 30, 2021:

				Gross
(In thousands)				unrealized		Aggregate fair
Description	Classification	Cost		gains		value
MaxCyte - equity interest	Investment	$	—	$	4,709	$	4,709
BioInvent - equity interest	Investment	$	5,661	$	2,218	$	7,879
Total						$	12,588

Unrealized gains on the Company’s equity investment for the three months ended June 30, 2021 and 2020 were $1,867,000 and $324,000. Unrealized gains on the Company’s equity investment for the six months ended June 30, 2021 and 2020 were $3,435,000 and $309,000. Unrealized gains or (losses) on the Company’s equity investment are recognized as change in fair value of investment in equity securities in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

Long-term investments

Long-term investments consisted of the following:

	June 30,		December 31,
(In thousands)	2021		2020
Available-for-sale debt securities:
Black Belt Tx Limited - convertible loan	$	169	$	83
Securities measured at fair value:
BioInvent International AB - warrants		996		840
Cleave Therapeutics, Inc. - convertible loan		5,547		—
Equity securities without readily determinable fair value:
Black Belt Tx Limited - equity interest		1,385		2,250
Juventas Cell Therapy Ltd - equity interest		26,370		26,059
Juventas Cell Therapy Ltd - put option		212		210
Total	$	34,679	$	29,442

Alesta Therapeutics B.V. (previously Black Belt Tx Limited)

In April 2019, in conjunction with its license agreement the Company entered into with Black Belt (see Note 2), the Company made a 2 million euros ($2,249,600) equity investment in the ordinary shares of a newly established, privately held UK Company, Black Belt Tx Limited (“Black Belt Tx”), representing a 14.1% equity interest with the right to appoint a non-voting board observer.

Because the Company does not have significant influence over operating and financial policies of Black Belt Tx, and the equity interests do not yet have readily determinable fair value, the investment in Black Belt Tx is stated at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment.

In July 2021, Alesta Therapeutics B.V. (“Alesta Tx”) was incorporated as the parent company holding all shares of Black Belt Tx with same ownership structure as Black Belt Tx. CASI obtained 14.1% equity interest in Alesta Tx in exchange for its 14.1% equity interest in Black Belt Tx. In July 2021, a new investor contributed 750,000 euros to Alesta Tx in exchange for 770,270 common stocks newly issued, representing 8.3% of the fully diluted capital. Upon the completion of the capital contribution, the company’s equity ownership in Alesta Tx was diluted from 14.1% to 12.9% with the fair value of $1,385,000, indicating an impairment of equity investment in Black Belt Tx. The Company recorded impairment of $865,000 representing the difference between the fair value of the investment and its carrying amount during the three and six months ended June 30, 2021.

In July 2020, the Company entered into a three-year convertible loan agreement with Black Belt Tx (the “Black Belt Tx Loan”) in the amount of 211,800 euros ($250,000) with a non-compounding annual interest rate of 6% payable, together with the principal balance, at maturity.

The loan principal will be disbursed in three equal installments of 70,600 euros. The first tranche of 70,600 euros ($83,000) was disbursed upon execution of the loan agreement in August 2020. The second tranche of 70,600 euros ($86,000) was disbursed in February 2021, upon Black Belt Tx’s achievement of certain operational targets as stipulated in the loan agreement and approved by the Black Belt Tx’s Board of Directors. The third tranche will be disbursed if Black Belt Tx reaches certain additional operational targets as stipulated in the loan agreement and approved by Black Belt Tx's Board of Directors.

In the event that Black Belt Tx, on or prior to the maturity date, completes an equity financing round of at least €5,000,000 ($5.9 million), then the outstanding principal amount shall be automatically converted into such shares at 80% of the price per share issued divided by a compensating factor based on the number of years that the Black Belt Tx Loan has been outstanding. The investment in convertible loan is accounted for as investment in debt securities as available-for-sale instrument.

In July 2021, Black Belt Tx repaid the convertible loan of 146,566 euros to the Company, including 1st tranche of 70,600 euros, 2nd tranche of 70,600 euros and interest of 5,366 euros. Concurrently, the Company entered into a three-year convertible loan agreement with Alesta Tx (the “Alesta Tx Loan”) in the amount of 217,166 euros with a non-compounding annual interest rate of 6% payable, together with the principal balance, at maturity.

Juventas Cell Therapy Ltd

In June 2019, in conjunction with its license agreement entered into with Juventas (see Note 2), the Company, through CASI Biopharmaceuticals, made an RMB 80 million ($11,788,000) investment in Juventas, a privately held, China-based company, in Juventas’ Series A plus equity, which represented a 16.327% equity interest on a fully diluted basis, and the right to appoint a non-voting board observer. The Company is entitled to substantive liquidation preference over the founding shareholders of Juventas. In addition, the Juventas’ founding shareholder provided a put option to the Company pursuant to which the Company can put the equity investment to the founding shareholder at a fixed return of 8% per annum upon occurrence of certain events. The investment in the equity interests of the Juventas and the investment in put option to the founding shareholder were accounted for as investments in equity securities using the measurement alternative at its cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, as the fair value of the equity securities of Juventas is not readily determinable. The consideration of RMB 80 million ($11,788,000) was allocated into investment in equity interests and investment in put option based on their relative fair value on the transaction date.

In September 2020, in conjunction with the Supplementary Agreement entered into with Juventas (see Note 2), the Company obtained additional Series A plus equity interest in Juventas with substantive liquidation preference over Juventas' founding shareholder, resulting in the Company's equity ownership increasing to 16.45% (post-Juventas Series B financing) on a fully diluted basis. CASI Biopharmaceuticals is also entitled to appoint a director to Juventas’ board of directors.  Juventas’ founding shareholder also provided a put option to the Company pursuant to which the Company can put the additional equity investment to the founding shareholder at RMB 70 million plus a fixed return of 8% per annum upon occurrence of certain events. The transaction closed on September 29, 2020. The fair value of the Company’s additional equity interest in Juventas and the new put option was estimated using significant estimates and assumptions, including multiples of selected comparable companies in applying the market approach model.

Since the equity interest with substantive liquidation preference is not in-substance common stock, the investment in the additional equity interests of Juventas was accounted for as an investment in equity securities at transaction date fair value with a corresponding credit to Other Liabilities. The profit-sharing liability represents the Company’s obligation to pay an increased share of future profits pursuant to the Supplementary Agreement (see Note 2) which was conveyed by the Company in exchange for the additional equity interests in Juventas. The Company views this as a payment from a vendor that should reduce cost of revenues over the period of royalty payments. The long-term liability will be derecognized as payments are made on a systematic and rational basis representing the pattern in which the Company expects to settle the profit-sharing payment during the commercialization period of CNCT19.

The investments are measured using the measurement alternative at its cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, as the fair value of the equity securities of Juventas is not readily determinable.  The Company did not record any adjustments or impairments during the three and six months ended June 30, 2021 related to this investment.

In June 2020, the Company entered into a one-year loan agreement with Juventas in the amount of RMB 30,000,000 ($4,243,000) with an annual interest rate of 20%. In August 2020, the Company entered into another one-year loan with Juventas in the amount of RMB 40 million ($5,790,000) for one year with an annual interest rate of 20%. In September 2020, the Company received early repayments for both principals and accrued interest from Juventas.

Cleave Therapeutics, Inc.

In March 2021, Cleave and the Company entered into a license agreement. Cleave and the Company will develop CB-5339 in both hematological malignancies and solid tumors, with CASI responsible for development and commercialization in China and associated markets. Cleave received a $5.5 million upfront payment and is eligible to receive up to $74 million in development and commercial milestone payments plus tiered royalties in the high-single to mid-double-digit range on net sales of CB-5339. In addition to the upfront cash payment, CASI made a $5.5 million investment in Cleave through a three-year convertible note with a non-compounding annual interest rate of 3% payable at maturity. The principal balance is also due at maturity.  The proceeds will support and advance Cleave’s programs and general operations.

In the event that Cleave, on or prior to the maturity date, completes an equity financing round of preferred stock of at least $10.0 million, then the outstanding principal amount and accrued interest shall be automatically converted into such shares at 80% of the price per share issued.  The investment in the convertible loan is designated an investment measured at fair value through profit or loss.