7. We invested $7.5 million in a privately held specialty pharmaceutical company in 2007 and 2008. 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 20%. 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.

At September 30, 2012 and December 31, 2011, the estimated fair value of our investment (also the carrying value; included in "Other assets and deferred charges" in the consolidated balance sheet) was $26.6 million and $17.6 million, respectively. The fair value estimates are based upon significant unobservable (Level 3) inputs since there is no secondary market for our ownership interest. Accordingly, until the next round of financing or other significant financial transaction, value estimates will primarily be based on assumptions relating to meeting product development and commercialization milestones, corresponding cash flow projections (projections of sales, costs, expenses, capital expenditures and working capital investment) and discounting of these factors for the high degree of risk. Adjustments to the estimated fair value of our investment will be made in the period during which changes can be quantified.

We recognized an unrealized gain on the investment accounted for under the fair value method (included in "Other income (expense), net" in the consolidated statements of income) of $2.7 million and $9.0 million in the third quarter and first nine months of 2012, respectively (none in the first nine months 2011). The unrealized gain in the third quarter of 2012 was primarily related to adjustments in the fair value for the passage of time as anticipated cash flows associated with achieving product development and commercialization milestones are discounted at 55% for their high degree of risk. The unrealized gain in the second quarter of 2012 was primarily attributed to the appreciation of our ownership interest to reflect insights from a new marketing study for its first product, which resulted in a favorable adjustment to the timing and amount of anticipated cash flows from an upcoming product introduction and achieving related milestones. The unrealized gain in the first quarter of 2012 was primarily attributed to the appreciation of our ownership interest after the weighted average cost of capital used to discount cash flows in our valuation of the specialty pharmaceutical company was reduced to reflect the completion of certain process testing and a reassessment of the risk associated with the timing for obtaining final marketing approval from the U.S. Food and Drug Administration for its first product.

The fair market valuation of our interest in the specialty pharmaceutical company is sensitive to changes in the weighted average cost of capital used to discount cash flow projections for the high degree of risk associated with meeting development and commercialization milestones as anticipated. The weighted average cost of capital used in the fair market valuation of our interest in the specialty pharmaceutical company was 55% at September 30, 2012 and 60% at December 31, 2011. At September 30, 2012, the effect of a 500 basis point decrease in the weighted average cost of capital assumption would have further increased the fair value of our interest in the specialty pharmaceutical company by approximately $5.1 million, and a 500 basis point increase in the weighted average cost of capital assumption would have decreased the fair value of our interest by approximately $5.9 million.

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 September 30, 2012 and December 31, 2011 and condensed statements of income for the three and nine months ended September 30, 2012 and 2011, that were reported to us by the investee, are provided below:


(In Thousands)	September 30, 2012		December 31, 2011			September 30, 2012			December 31, 2011
Assets:					Liabilities & Equity:
					Other current liabilities	$	1,960		$	1,185
Cash & cash equivalents	$	20,483	$	9,625	Non-current liabilities		15,945			738
Other current assets		3,824		4,894	Equity:
Other tangible assets		2,041		691	Redeemable preferred stock		20,749			20,017
Identifiable intangibles assets		1,988		1,868	Other		(10,318	)		(4,862	)
Total assets	$	28,336	$	17,078	Total liabilities & equity	$	28,336		$	17,078


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Revenues & Expenses:
Revenues	$	-		$	2,255		$	-		$	8,839
Expenses and other, net		(3,089	)		(2,569	)		(8,026	)		(8,235	)
Income tax(expense) benefit		1,209			112			3,100			(181	)
Net income (loss)	$	(1,880	)	$	(202	)	$	(4,926	)	$	423

Our investment in Harbinger had a carrying value (included in "Other assets and deferred charges") of $3.6 million at September 30, 2012, compared with $5.2 million at December 31, 2011. We recorded an unrealized loss of $1.1 million ($0.7 million after taxes) on our investment in Harbinger in the first quarter of 2012 (included in "Other income (expense), net" in the consolidated statements of income) as a result of a reduction in the estimated fair value of our investment that is not expected to be temporary.

The carrying value at September 30, 2012 reflected Tredegar's cost basis in its investment in the Harbinger Fund, net of total withdrawal proceeds received ($0.5 million in the first nine months of 2012) and unrealized losses. The timing and amount of future installments of withdrawal proceeds, which commenced in August 2010, were not known as of September 30, 2012. 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 when management believes it is probable that future withdrawal proceeds will not exceed the remaining carrying value.