Financial Instruments and Concentration of Credit Risk

9 Months Ended

Sep. 30, 2011

Financial Instruments and Concentration of Credit Risk [Abstract]

FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

11. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

We have various financial instruments that must be measured under the fair value standard including cash and cash equivalents, the mortgage receivable and, from time to time, forward currency contracts. The mortgage owed to us is recorded as a receivable and is carried at amortized cost. Based on market information, the book value of our mortgage receivable approximates fair value. Our financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy.

The following table provides information about our assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2011 and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value:

	Carrying Value		Fair Value Measurements at September 30, 2011
(In thousands of U.S. dollars)	September 30, 2011		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	203,955	$	203,955	$	—	$	—
Contingent consideration(1)		108,874		—		—		108,874
Total	$	312,829	$	203,955	$	—	$	108,874

(1) To estimate the fair value of contingent consideration at September 30, 2011, we used a discounted cash flow model based on estimated timing and amount of future cash flows, discounted using a cost of capital of 10% determined by management after considering available market and industry information. Future cash flows were estimated by utilizing external market research to estimate market size, to which we applied market share, pricing, and foreign exchange assumptions based on historical sales data, expected future competition and current exchange rates. If the discount rate were to increase by 1%, the contingent consideration would decrease by $1.5 million, from $108.9 million to $107.4 million. If estimated future revenues were to decrease by 10%, the contingent consideration would decrease by $1.7 million, from $108.9 million to $107.2 million.

The following table represents a reconciliation of our asset (contingent consideration) measured and recorded at fair value on a recurring basis, using significant unobservable inputs (Level 3):

(In thousands of U.S. dollars)	Level 3
Balance at January 1, 2010	$	151,078
Transfers to Level 3		—
Settlements		(36,982	)
Fair value change in contingent consideration		16,493
Balance at December 31, 2010	$	130,589
Transfers to Level 3		—
Settlements		(11,172	)
Fair value change in contingent consideration		2,282
Balance at March 31, 2011	$	121,699
Transfers to Level 3		—
Settlements		(7,386	)
Fair value change in contingent consideration		2,753
Balance at June 30, 2011	$	117,066
Transfers to Level 3		—
Settlements		(10,020	)
Fair value change in contingent consideration		1,828
Balance at September 30, 2011	$	108,874

We purchase goods and services primarily in U.S. dollars and Canadian dollars, and earn most of our revenues in U.S. dollars. As at each of September 30, 2011 and 2010, we had no outstanding forward foreign currency contracts.

Other financial instruments that potentially subject us to concentration of credit risk include our cash, cash equivalents, accounts receivable, contingent consideration, and mortgage receivable. To limit our credit exposure in regards to cash and cash equivalents, we deposit our cash with high quality financial institutions and the primary goals of our treasury policy are capital preservation and liquidity. Our treasury policy limits investments to certain money market securities issued by governments, financial institutions and corporations with investment-grade credit ratings, and places restrictions on maturities and concentration by issuer.

Our accounts receivable, as at September 30, 2011 and December 31, 2010, comprised amounts primarily owing from Novartis, ASD Specialty Healthcare, Inc. d/b/a Besse Medical (our principal U.S. wholesale distributor of Visudyne) and Priority Healthcare Distribution, Inc. d/b/a CuraScript SD Specialty Distribution.