3 INVESTMENTS

We have invested $7.5 million in a privately held specialty pharmaceutical company. The company is developing and commercializing state of the art drug delivery systems designed to improve patient compliance and outcomes, and our ownership interest on a fully diluted basis is approximately 21%. The investment is accounted for under the fair value method. We elected the fair value option over the equity method of accounting since our investment objectives are similar to those of venture capitalists, which typically do not have controlling financial interests. We recognized an unrealized gain of $1.6 million ($1.0 million after taxes) in 2011 attributed to the appreciation of our interest upon changes in the market dynamics and pricing associated with an upcoming product introduction and the addition of projects to the product pipeline. In 2010, we recognized an unrealized loss of $2.2 million ($1.4 million after taxes) for the estimated changes in the fair value of our investment after the investee, which had its new drug application to the Food & Drug Administration ("FDA") accepted for review during the fourth quarter, reassessed its projected timeframe for obtaining final marketing approval from the FDA. We recognized an unrealized gain of $5.1 million ($3.2 million after taxes) in 2009 for the estimated appreciation of our ownership interest upon the investee entering into an exclusive licensing agreement that included an upfront payment, additional potential milestone payments and tiered royalties on sales of any products commercialized under the license. Unrealized gains (losses) associated with this investment are included in "Other income (expense), net" in the consolidated statements of income and separately stated in the segment operating profit table in Note 4.

At December 31, 2011 and 2010, the estimated fair value of our investment (included in "Other assets and deferred charges" in the consolidated balance sheets) was $17.6 million and $16.0 million, respectively. Subsequent to our most recent investment (December 15, 2008), and until the next round of financing, we believe fair value estimates drop to Level 3 inputs since there is no secondary market for our ownership interest. In addition, the specialty pharmaceutical company currently has no product sales. Accordingly, until the next round of financing or any other significant financial transaction, value estimates will primarily be based on assumptions relating to meeting product development and commercialization milestones, cash flow projections (projections of development and commercialization milestone payments, sales, costs, expenses, capital expenditures and working capital investment) and discounting of these factors for the high degree of risk. As a result, any future changes in the estimated fair value of our ownership interest will likely be attributed to a new round of financing, a merger or initial public offering or adjustments to the timing or magnitude of cash flows associated with development and commercialization milestones. If the company does not meet its development and commercialization milestones and there are indications that the amount or timing of its projected cash flows or related risks are unfavorable versus our most recent valuation, or a new round of financing or other significant financial transaction indicates a lower enterprise value, then our estimate of the fair value of our ownership interest in the company is likely to decline. Adjustments to the estimated fair value of our investment will be made in the period upon which such changes can be quantified.

Had we not elected to account for our investment under the fair value method, we would have been required to use the equity method of accounting. The condensed balance sheets for the specialty pharmaceutical company at December 31, 2011 and 2010 and related condensed statements of income for the last three years ended December 31, 2011, that were reported to us by the investee, are provided below:


		December 31,									December 31,
(In Thousands)		2011		2010							2011			2010
Assets:								Liabilities & Equity:
								Current portion of deferred revenues $			-		$	8,839
								Other current liabilities			1,185			1,488
Cash & cash equivalents	$	9,625		$	18,819			Non-current liabilities			738			599
Other current assets		4,894			5,304			Equity:
Other tangible assets		691			796			Redeemable preferred stock			20,017			19,041
Identifiable intangibles assets		1,868			1,650			Other			(4,862	)		(3,398	)
Total assets	$	17,078		$	26,569			Total liabilities & equity		$	17,078		$	26,569

		2011			2010			2009
Revenues & Expenses:
Revenues	$	8,839		$	29,099		$	2,062
Expenses and other, net		(10,474	)	(10,426		)		(6,732	)
Income tax (expense) benefit		927			(6,584	)		2,309
Net income (loss)	$	(708	)	$	12,089		$	(2,361	)

On April 2, 2007, we invested $10.0 million in Harbinger Capital Partners Special Situations Fund, L.P. ("Harbinger"), a private investment fund that is subject to limitations on withdrawal. There is no secondary market for interests in the fund. Our investment in Harbinger, which represents less than 2% of its total partnership capital, is accounted for under the cost method. We recorded an unrealized loss of $0.6 million ($0.4 million after taxes) on our investment in Harbinger in 2011 as a result of a reduction in the estimated fair value of our investment that is not expected to be temporary. The December 31, 2011 and 2010 carrying value in the consolidated balance sheets (included in "Other assets and deferred charges") was $5.2 million and $6.4 million, respectively. The carrying value at December 31, 2011 reflected Tredegar's cost basis in its investment in the Harbinger Fund, net of total withdrawal proceeds received and unrealized losses. The timing and amount of future installments of withdrawal proceeds, which commenced in August 2010, was not known as of December 31, 2011. There were no realized gains or losses associated with our investment in Harbinger in 2011 and 2010. Gains on our investment in Harbinger will be recognized when the amounts expected to be collected from our withdrawal from the investment are known, which will likely be when cash in excess of our remaining carrying value is received. Losses will be recognized if management believes it is probable that future withdrawal proceeds will not exceed the remaining carrying value.