Marketable Securities and Fair Value Measurements

The guidance regarding fair value measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets that are accessible at the measurement date; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The Company did not have any transfer of assets and liabilities between Level 1, Level 2 and Level 3 of the fair value hierarchy during the nine months ended September 30, 2018 or 2017.

The following table presents the Company’s assets that are measured at fair value on a recurring basis, and are determined using the following inputs as of September 30, 2018:



	Fair Value Measurements at
	September 30, 2018
	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Unobservable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	1,780,138	$	1,780,138	$	—	$	—
Mutual funds	64,874,989		—		64,874,989		—
US corporate debt securities	1,221,578		—		1,221,578		—
Investment in affiliated entities	12,699,654		12,699,654		—		—
Total Assets	$	80,576,359	$	14,479,792	$	66,096,567	$	—

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis, and are determined using the following inputs as of December 31, 2017:



	Fair Value Measurements at
	December 31, 2017
	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Unobservable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	9,843,482	$	9,843,482	$	—	$	—
Mutual funds	68,565,889		—		68,565,889		—
US corporate debt securities	35,072,955		—		35,072,955		—
Investment in affiliated entities	11,394,480		11,394,480		—		—
Total Assets	$	124,876,806	$	21,237,962	$	103,638,844	$	—
Liabilities:
Common stock warrants	$	360,795	$	—	$	—	$	360,795
Total Liabilities	$	360,795	$	—	$	—	$	360,795

Level 1 assets at September 30, 2018 consisted of money market funds held by the Company that are valued at quoted market prices, as well as the Company’s investments in affiliates, GeneOne and PLS. The Company accounts for its investment in 1,644,155 common shares of GeneOne based on the closing price of the shares on the Korean Stock Exchange on the applicable balance sheet date. The Company accounts for its investment in 395,758 common shares of PLS as an equity investment with a fair value based on the closing price of the shares on the Korea New Exchange (KONEX) Market on the applicable balance sheet date. The Company elected the fair value option in conjunction with the investment in GeneOne at the inception of the investment; therefore, changes in the fair value of the investment are reflected as other income (expense) in the condensed consolidated statements of operations. The Company did not elect the fair value option for the investment in PLS at the inception of the investment, but rather recorded the investment under the equity method until its ownership interest dropped below 20% in June 2015 and, accordingly, began recording the investment under the cost method using the carryover basis from the equity method of zero. Once shares of PLS began trading on the KONEX, the Company classified the investment as available-for-sale and began recording the investment at fair value. After the adoption of ASU No. 2016-01 on January 1, 2018, unrealized gains and losses on the Company's equity securities are reported in the condensed consolidated statement of operations as a gain (loss) on investment in affiliated entities, as discussed in Note 4.

Level 2 assets at September 30, 2018 consisted of U.S. corporate debt securities and mutual funds held by the Company that are initially valued at the transaction price and subsequently valued, at the end of each reporting period, typically utilizing market observable data. The Company obtains the fair value of its Level 2 assets from a professional pricing service, which may use quoted market prices for identical or comparable instruments, or inputs other than quoted prices that are observable either directly or indirectly. The professional pricing service gathers quoted market prices and observable inputs from a variety of industry data providers. The valuation techniques used to measure the fair value of the Company's Level 2 financial instruments were derived from non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing models such as discounted cash flow techniques. The Company validates the quoted market prices provided by the primary pricing service by comparing the service's assessment of the fair values of the Company's investment portfolio balance against the fair values of the Company's investment portfolio balance obtained from an independent source.

There were no Level 3 assets held as of September 30, 2018.

There were no Level 3 liabilities held as of September 30, 2018. Level 3 liabilities at September 30, 2017 consisted of common stock warrant liabilities associated with warrants to purchase the Company's common stock issued in March 2013. During the three months ended September 30, 2018, all of the remaining 284,091 warrants were exercised for net proceeds to the Company of $902,000. During the three and nine months ended September 30, 2017, none of these warrants were exercised.

Prior to exercise, the Company would reassess the fair value of the common stock warrants at each reporting date utilizing a Black-Scholes pricing model. Inputs used in the pricing model include estimates of stock price volatility, expected warrant life and risk-free interest rate. The Company recorded a decrease in fair value of $229,000 and $361,000 for the three and nine months ended September 30, 2018, respectively, and a decrease in fair value of $423,000 and $227,000 for the three and nine months ended September 30, 2017, respectively. The change in fair value of common stock warrants is reflected in the Company's condensed consolidated statements of operations.