Financial Instruments and Fair Value Measurement

6 Months Ended

Jun. 30, 2012

Financial Instruments and Fair Value Measurement

Financial Instruments and Fair Value Measurement

6.    Financial Instruments and Fair Value Measurement

The table below presents information about assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2012 and the valuation techniques we utilized to determine such fair value.  Fair values determined based on Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities.  Our Level 1 assets consist of marketable equity securities.  Fair values determined based on Level 2 inputs utilize observable quoted prices for similar assets and liabilities in active markets and observable quoted prices for identical or similar assets in markets that are not very active.  Our Level 2 assets consist primarily of U.S. Treasury securities, U.S. government-sponsored agency securities, U.S. government-sponsored agency mortgage-backed securities, non-U.S. government, agency and Supranational securities, global corporate debt securities, foreign currency forward contracts and interest rate lock agreements.  Fair values determined based on Level 3 inputs utilize unobservable inputs and include valuations of assets or liabilities for which there is little, if any, market activity.  We do not have any Level 3 assets.  Our Level 1 liability relates to our publicly traded contingent value rights, or CVRs.  The Level 3 liability consists of contingent consideration related to undeveloped product rights resulting from the acquisition of Gloucester Pharmaceuticals, Inc., or Gloucester, and contingent consideration related to the undeveloped product rights and the technology platform acquired from the Avila acquisition.  The estimated maximum potential payments related to the contingent consideration from the acquisitions of Gloucester and Avila is $120.0 million and $595.0 million, respectively.

				Quoted Price in			Significant		Significant
				Active Markets for			Other Observable		Unobservable
	Balance at			Identical Assets			Inputs		Inputs
	June 30, 2012			(Level 1)			(Level 2)		(Level 3)
Assets:
Available-for-sale securities	$	699,065		$	432		$	698,633	$	-
Forward currency contracts	81,765			-			81,765		-
Treasury rate lock agreements	1,816			-			1,816		-
Total assets	$	782,646		$	432		$	782,214	$	-
Liabilities:
Contingent value rights	$	(77,893	)	$	(77,893	)	$	-	$	-
Other acquisition related contingent consideration	(254,555		)	-			-		(254,555		)
Total liabilities	$	(332,448	)	$	(77,893	)	$	-	$	(254,555	)

				Quoted Price in			Significant		Significant
				Active Markets for			Other Observable		Unobservable
	Balance at			Identical Assets			Inputs		Inputs
	December 31, 2011			(Level 1)			(Level 2)		(Level 3)
Assets:
Available-for-sale securities	$	788,690		$	560		$	788,130	$	-
Forward currency contracts	48,561			-			48,561		-
Total assets	$	837,251		$	560		$	836,691	$	-
Liabilities:
Contingent value rights	$	(60,583	)	$	(60,583	)	$	-	$	-
Other acquisition related contingent consideration	(76,890		)	-			-		(76,890		)
Total liabilities	$	(137,473	)	$	(60,583	)	$	-	$	(76,890	)

There were no security transfers between Levels 1 and 2 in the six-month period ended June 30, 2012.  Level 3 liabilities issued during the six-month period ended June 30, 2012 consist of contingent consideration related to the acquisition of Avila.  The following tables represent a roll-forward of the fair value of Level 3 instruments (significant unobservable inputs):

	Six-Month Periods Ended June 30,
	2012		2011
Assets:
Balance at beginning of period	$	-	$	23,372
Amounts acquired or issued	-		-
Net realized and unrealized gains	-		1,187
Settlements	-		(22,477		)
Transfers in and/or out of Level 3	-		-
Balance at end of period	$	-	$	2,082

Settlements of $22.5 million during the six-month period ended June 30, 2011 consisted of Level 3 instruments that were considered non-core assets acquired in the acquisition of Abraxis BioScience Inc., or Abraxis, and were included in the sale of the non-core assets in April 2011.

	Six-Month Periods Ended June 30,
	2012		2011
Liabilities:
Balance at beginning of period	$	(76,890)	$	(252,895)
Amounts acquired or issued	(169,337)		-
Net change in fair value	(8,328)		(12,161)
Settlements	-		-
Transfers in and/or out of Level 3	-		180,000
Balance at end of period	$	(254,555)	$	(85,056)

Transfers out of Level 3 during the six-month period ended June 30, 2011 consisted of $180.0 million related to a milestone that was part of the contingent consideration in the Gloucester acquisition. At June 30, 2011 the milestone was achieved and was valued based on the contractually defined amount of the milestone, which was paid in July.