Fair Value Measurements

6 Months Ended

Jun. 30, 2020

4. Fair Value Measurements

We use a three-tier fair value hierarchy to prioritize the inputs used in our fair value measurements. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets, which includes our money market funds and treasury securities classified as available-for-sale securities and our investment in equity securities in publicly-held biotechnology companies; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, which includes our fixed income securities and commercial paper classified as available-for-sale securities; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring us to develop our own assumptions. We classify most of our securities as Level 2. We obtain the fair value of our Level 2 investments from our custodian bank or from a professional pricing service. We validate the fair value of our Level 2 investments by understanding the pricing model used by the custodian banks or professional pricing service provider and comparing that fair value to the fair value based on observable market prices.

The following tables present the major security types we held at June 30, 2020 and December 31, 2019 that we regularly measure and carry at fair value. At June 30, 2020 and December 31, 2019, a portion of our ProQR investment was subject to trading restrictions that extend to the fourth quarter of 2020; as a result, we included a lack of marketability discount in valuing this investment, which is a Level 3 input. The amount we owned in ProQR did not change from December 31, 2019 to June 30, 2020. The tables below segregate each security type by the level within the fair value hierarchy of the valuation techniques we utilized to determine the respective securities’ fair value (in thousands):

	At June 30, 2020		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents (1)	$	363,019	$	363,019	$	—	$	—
Corporate debt securities (2)		1,150,959		—		1,150,959		—
Debt securities issued by U.S. government agencies (3)		259,505		—		259,505		—
Debt securities issued by the U.S. Treasury (4)		385,651		385,651		—		—
Debt securities issued by states of the U.S. and political subdivisions of the states (5)		119,744		—		119,744		—
Other municipal debt securities (3)		909		—		909		—
Investment in ProQR Therapeutics N.V. (6)		2,390		684		—		1,706
Total	$	2,282,177	$	749,354	$	1,531,117	$	1,706

	At December 31, 2019		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents (1)	$	418,406	$	418,406	$	—	$	—
Corporate debt securities (7)		1,102,568		—		1,102,568		—
Debt securities issued by U.S. government agencies (8)		329,404		—		329,404		—
Debt securities issued by the U.S. Treasury (3)		363,694		363,694		—		—
Debt securities issued by states of the U.S. and political subdivisions of the states (3)		40,407		—		40,407		—
Investment in ProQR Therapeutics N.V. (6)		4,506		—		—		4,506
Total	$	2,258,985	$	782,100	$	1,472,379	$	4,506

The following footnotes reference lines on our condensed consolidated balance sheet:

(1)	Included in cash and cash equivalents.

(2)	$32.4 million was included in cash and cash equivalents, with the difference included in short-term investments.

(3)	Included in short-term investments.

(4)	$59.7 million was included in cash and cash equivalents, with the difference included in short-term investments.

(5)	$6.2 million was included in cash and cash equivalents, with the difference included in short-term investments.

(6)	Included in other current assets.

(7)	$19.0 million was included in cash and cash equivalents, with the difference included in short-term investments.

(8)	$0.8 million was included in cash and cash equivalents, with the difference included in short-term investments.

Convertible Notes

Our 1% Notes and 0.125% Notes had a fair value of $340.5 million and $536.5 million at June 30, 2020, respectively. We determine the fair value of our notes based on quoted market prices for these notes, which are Level 2 measurements because the notes do not trade regularly.

- 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.

+ References + Details