14. LF EQUITY INCOME FUND PORTFOLIO INVESTMENT

9 Months Ended

Sep. 30, 2020

Investments, Debt and Equity Securities [Abstract]

14. LF EQUITY INCOME FUND PORTFOLIO INVESTMENT

14. LF EQUITY INCOME FUND PORTFOLIO INVESTMENT

On April 3, 2020, the Company entered into an Option Agreement with Seller, which included general terms through which the Company was provided the option to purchase life sciences equity securities in a portfolio of public and private companies (“Portfolio Companies”) for an aggregate purchase price of £223.9 million, approximately $277.5 million at the exchange rate on April 3, 2020.

On June 4, 2020, the Company executed the Transaction Agreement between Link Fund Solutions Limited, Seller, and the Company. Pursuant to the Transaction Agreement, the Company will purchase from Seller and Seller will transfer to the Company the specified equity securities of all Portfolio Companies at set prices at various future dates. The transfer dates will vary among the Portfolio Companies as the Transaction Agreement gives the Company the exclusive right to determine when to call for transfer of each security, and because each Portfolio Company (or its existing equity holders) may be required to approve the transfer due to rights of first refusals and other company-specific terms and conditions. Thus, the execution of the Transaction Agreement resulted in forward contracts for the Company to purchase equity securities in each public and private company at a specified price on a future date.

In accordance with the Transaction Agreement, the Company transferred the total purchase price of £223.9 million into an escrow account. As each of the equity securities in the Portfolio are transferred to the Company, the associated funds will be released from the escrow account to Seller based on the consideration amount assigned to the equity securities in the Transaction Agreement.

For accounting purposes, the total purchase price of the portfolio was allocated to the individual equity securities based on their individual fair values as of April 3, 2020, in order to establish an appropriate cost basis for each of the acquired securities. The fair values of the public company securities were based on their quoted market price. The fair values of the private company securities were estimated based on recent financing transactions and secondary market transactions and factoring in a discount for the illiquidity of these securities.

During the three months ended September 30, 2020, Seller returned a total of £4.5 million of the Company’s prepaid investment upon the failure to obtain the approval of the existing equity holders, pursuant to their rights of first refusals, of one of the Portfolio Companies in connection with the transfer of its securities. In addition, due to an ownership restriction applicable to one of the Portfolio Companies, the Company sold a small portion of an equity securities derivative for £33,000 before the remaining shares of such Portfolio Company could be transferred to us. The Company recognized a net gain of $2.8 million related to the returned prepaid investments and sale of the derivative.

Changes in the fair value of Acacia’s investment in the Portfolio Companies are recorded as unrealized gains or losses in the condensed consolidated statements of operations. For the three and nine months ended September 30, 2020 and 2019, the accompanying condensed consolidated statements of operations reflected the following:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2020			2019		2020			2019
	(In thousands)
Change in fair value of trading securities - LF Fund public securities	$	3,403		$	–	$	2,334		$	–
Change in fair value of equity securities derivative		10,651			–		17,542			–
Change in fair value of equity securities - LF Fund private securities		80,896			–		80,896			–
Change in fair value of equity securities forward contract		(74,662	)		–		–			–
Gain (loss) on sale of trading securities - LF Fund public securities		1,908			–		(4,202	)		–
Gain on sale of prepaid investment and derivative		2,845			–		2,845			–
Net realized and unrealized gain on investment in LF Fund securities	$	25,041		$	–	$	99,415		$	–