Fair Value Measurements

9 Months Ended

Sep. 30, 2020

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, and prior to September 30, 2020 liabilities were, 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 or liabilities between Level 1, Level 2 and Level 3 of the fair value hierarchy during the nine months ended September 30, 2020 or 2019. All liabilities in the fair value hierarchy were extinguished as of September 30, 2020 as described below.

The following table presents the Company’s assets that were measured at fair value on a recurring basis, determined using the following inputs as of September 30, 2020:


	Fair Value Measurements at
	September 30, 2020
	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Unobservable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:

Cash and cash equivalents
U.S. treasury securities	$	99,985,000	$	99,985,000	$	—	$	—

Short-term investments
Mutual funds	152,802,199		152,802,199		—		—
Corporate debt securities	1,172,160		1,172,160		—		—
Certificates of deposit	3,032,980		—		3,032,980		—
U.S. agency mortgage-backed securities	1,528,405		—		1,528,405		—
Total short-term investments	158,535,744		153,974,359		4,561,385		—

Investment in affiliated entity	4,154,049		4,154,049		—		—

Total assets measured at fair value	$	262,674,793	$	258,113,408	$	4,561,385	$	—

The following table presents the Company’s assets and liabilities that were measured at fair value on a recurring basis, determined using the following inputs as of December 31, 2019:


	Fair Value Measurements at
	December 31, 2019
	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Unobservable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents
Money market funds	$	2,349,729	$	2,349,729	$	—	$	—

Short-term investments
Mutual funds	67,338,017		67,338,017		—		—




Investment in affiliated entities	6,315,356		6,315,356		—		—

Total assets measured at fair value	$	76,003,102	$	76,003,102	$	—	$	—

Liabilities:
Derivative liability (Note 9)	$	8,819,023	$	—	$	—	$	8,819,023
Total liabilities measured at fair value	$	8,819,023	$	—	$	—	$	8,819,023

Level 1 assets at September 30, 2020 consisted of mutual funds, corporate debt securities and U.S. treasury securities held by the Company that are valued at quoted market prices, as well as the Company’s investment in its affiliated entity, PLS. The Company accounts for its investment in 597,808 common shares of PLS based on the closing price of the shares on the Korea New Exchange 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. In August 2020, the Company sold its investment in 1,644,155 common shares of its affiliated entity GeneOne. Previously, the Company accounted for its investment in GeneOne based on the closing price of the shares on the KOSDAQ Market of the Korea Exchange (KOSDAQ) on the applicable balance sheet date.

Level 2 assets at September 30, 2020 consisted of certificates of deposit and U.S. agency mortgage-backed securities 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 at September 30, 2020.

There were no Level 3 liabilities at September 30, 2020 due to the full conversion of the August 2019 Bonds into shares of the Company's common stock (see Note 9 below for more information). Level 3 liabilities held as of December 31, 2019 consisted of the embedded conversion option contained in the August 2019 Bonds that met the criteria to be bifurcated and accounted for separately from the August 2019 Bonds (the "derivative liability"). The derivative liability was recorded at fair value of $7.1 million upon the issuance of the August 2019 Bonds, and was subsequently remeasured to fair value at each reporting period until conversion. 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. There was no derivative liability associated with the issuance of the December 2019 Bonds.

The fair value of the August 2019 Bonds with the conversion option was estimated using a Monte Carlo simulation approach. The key inputs to valuing the August 2019 Bonds with the conversion option on the date of issuance and as of the August 3, 2020 conversion date, 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 August 2019 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, 2020:


Balance at December 31, 2019	$	8,819,023
Change in fair value	75,670,977
Derecognition of the derivative liability upon conversion	(84,490,000)
Balance at September 30, 2020	$	—

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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