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 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 between Level 1, Level 2 and Level 3 of the fair value hierarchy during the nine months ended September 30, 2019 or 2018.

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 September 30, 2019:



	Fair Value Measurements at
	September 30, 2019
	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Unobservable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	3,317,462	$	3,317,462	$	—	$	—
Mutual funds	77,945,753		—		77,945,753		—
Investment in affiliated entities	7,996,757		7,996,757		—		—
Total assets	$	89,259,972	$	11,314,219	$	77,945,753	$	—
Liabilities:
Derivative liability (Note 9)	$	4,503,918	$	—	$	—	4,503,918
Total liabilities	$	4,503,918	$	—	$	—	$	4,503,918

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 December 31, 2018:



	Fair Value Measurements at
	December 31, 2018
	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Unobservable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	9,646,507	$	9,646,507	$	—	$	—
Mutual funds	57,314,871		—		57,314,871		—
US corporate debt securities	223,981		—		223,981		—
Investment in affiliated entities	9,405,913		9,405,913		—		—
Total assets	$	76,591,272	$	19,052,420	$	57,538,852	$	—

Level 1 assets at September 30, 2019 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 based on the closing price of the shares on the Korea New Exchange (KONEX) Market on the applicable balance sheet date. 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.

Level 2 assets at September 30, 2019 consisted of 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, 2019.

Level 3 liabilities held as of September 30, 2019 consisted of the embedded conversion option contained in the Bonds that met the criteria to be bifurcated and accounted for separately from the Bonds (the "Derivative Liability"). The Derivative Liability was recorded at fair value of $7.1 million upon the issuance of the Bonds and is subsequently remeasured to fair value at each reporting period. The Derivative Liability was initially valued and remeasured using a "with-and-without" method. The "with-and-without" methodology involves valuing the whole instrument on an as-is basis and then valuing the instrument without the embedded conversion option. The difference between the entire instrument with the embedded conversion option compared to the instrument without the embedded conversion option is the fair value of the derivative, recorded as the Derivative Liability.

The fair value of the Bonds with the conversion option is estimated using a Monte Carlo simulation approach. The key inputs to valuing the Bonds with the conversion option as of September 30, 2019 include the Company’s stock price on the valuation date; the expected annual volatility of the Company’s common stock, and the discount yield, which was derived by making the fair value of the Bonds equal to the face value on the issuance date. Fair value measurements are highly sensitive to changes in these inputs and significant changes in these inputs could result in a significantly higher or lower fair value.

The following table presents the changes in fair value of the Company's derivative liability for the nine months ended September 30, 2019:



Balance at December 31, 2018	$	—
Initial fair value upon issuance of the Bonds	7,055,371
Change in fair value	(2,551,453		)
Balance at September 30, 2019	$	4,503,918