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Financial Instruments and Fair Value Measurement
 3 Months Ended
Mar. 31, 2016
Fair Value Disclosures [Abstract]  
Financial Instruments and Fair Value Measurement
Financial Instruments and Fair Value Measurement

The tables below present information about assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015 and the valuation techniques we utilized to determine such fair value.
•
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Our Level 1 assets consist of marketable equity securities. Our Level 1 liability relates to our publicly traded Contingent Value Rights (CVRs). See Note 18 of Notes to Consolidated Financial Statements included in our 2015 Annual Report on Form 10-K for a description of the CVRs.
•
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 MBS, non-U.S. government, agency and supranational securities, global corporate debt securities, asset backed securities, foreign currency forward contracts, purchased foreign currency options and interest rate swap contracts. Our Level 2 liabilities relate to written foreign currency options, foreign currency forward contracts and interest rate swap contracts.
•
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 3 liabilities consist of contingent consideration related to undeveloped product rights and technology platforms resulting from the acquisitions of Gloucester Pharmaceuticals, Inc. (Gloucester), Nogra Pharma Limited (Nogra), Avila Therapeutics, Inc. (Avila) and Quanticel.

Our contingent consideration obligations are recorded at their estimated fair values and we revalue these obligations each reporting period until the related contingencies are resolved. The fair value measurements are estimated using probability-weighted discounted cash flow approaches that are based on significant unobservable inputs related to product candidates acquired in business combinations and are reviewed quarterly. These inputs include, as applicable, estimated probabilities and timing of achieving specified development and regulatory milestones, estimated annual sales and the discount rate used to calculate the present value of estimated future payments. Significant changes which increase or decrease the probabilities of achieving the related development and regulatory events, shorten or lengthen the time required to achieve such events, or increase or decrease estimated annual sales would result in corresponding increases or decreases in the fair values of these obligations. Changes in the fair value of contingent consideration obligations are recognized in Acquisition related charges and restructuring, net in the Consolidated Statements of Income. The fair value of our contingent consideration as of March 31, 2016 and December 31, 2015 was calculated using the following significant unobservable inputs:
Inputs
Ranges (weighted average) utilized as of:
March 31, 2016
December 31, 2015
Discount rate
0.8% to 12.0% (8.8%)
0.8% to 12.0% (8.8%)
Probability of payment
3% to 95% (54%)
0% to 95% (53%)
Projected year of payment for development and regulatory milestones
2016 to 2029 (2019)
2016 to 2029 (2019)
Projected year of payment for sales-based milestones and other amounts calculated as a percentage of annual sales
2019 to 2033 (2024)
2019 to 2033 (2024)


The maximum remaining potential payments related to the contingent consideration from the acquisitions of Gloucester, Avila and Quanticel are estimated to be $120.0 million, $475.0 million and $385.0 million respectively, and $1.865 billion plus other amounts calculated as a percentage of annual sales pursuant to the license agreement with Nogra.
 
Balance at
March 31, 2016
 
Quoted Price in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Available-for-sale securities
$
1,261.8

 
$
925.0

 
$
336.8

 
$
—

Forward currency contracts
333.9

 
—

 
333.9

 
—

Purchased currency options
39.9

 
—

 
39.9

 
—

Interest rate swaps
122.4

 
—

 
122.4

 
—

Total assets
$
1,758.0

 
$
925.0

 
$
833.0

 
$
—

Liabilities:
 

 
 

 
 

 
 

Contingent value rights
$
(56.7
)
 
$
(56.7
)
 
$
—

 
$
—

Written currency options
(34.2
)
 
—

 
(34.2
)
 
—

Other acquisition related contingent consideration
(1,549.7
)
 
—

 
—

 
(1,549.7
)
Total liabilities
$
(1,640.6
)
 
$
(56.7
)
 
$
(34.2
)
 
$
(1,549.7
)
 
 
 
 
 
 
 
 
 
Balance at
December 31, 2015
 
Quoted Price in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 

 
 

 
 

 
 

Available-for-sale securities
$
1,671.6

 
$
1,235.9

 
$
435.7

 
$
—

Forward currency contracts
606.0

 
—

 
606.0

 
—

Purchased currency options
46.7

 
—

 
46.7

 
—

Interest rate swaps
52.5

 
—

 
52.5

 
—

Total assets
$
2,376.8

 
$
1,235.9

 
$
1,140.9

 
$
—

Liabilities:
 

 
 

 
 

 
 

Contingent value rights
$
(51.9
)
 
$
(51.9
)
 
$
—

 
$
—

Written currency options
(19.1
)
 
—

 
(19.1
)
 
—

Other acquisition related contingent consideration
(1,521.5
)
 
—

 
—

 
(1,521.5
)
Total liabilities
$
(1,592.5
)
 
$
(51.9
)
 
$
(19.1
)
 
$
(1,521.5
)


There were no security transfers between Levels 1 and 2 during the three-month periods ended March 31, 2016 and 2015. The following table represents a roll-forward of the fair value of Level 3 instruments: 
 
Three-Month Periods Ended March 31,
 
2016
 
2015
Liabilities:
 

 
 

Balance at beginning of period
$
(1,521.5
)
 
$
(1,279.0
)
Amounts acquired or issued
—

 
—

Net change in fair value
(28.2
)
 
(26.8
)
Settlements
—

 
—

Transfers in and/or out of Level 3
—

 
—

Balance at end of period
$
(1,549.7
)
 
$
(1,305.8
)

 
The $28.2 million net increase in the fair value of Level 3 liabilities in 2016 was related to accretion of the fair value of our contingent consideration due to the passage of time. Changes to the fair value of contingent consideration are recorded on the Consolidated Statements of Income as Acquisition related charges and restructuring, net.