Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Measurements

Fair Value Measurements

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 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 an entity to develop its own assumptions. The majority of our securities have been classified as Level 2. To estimate the fair value of securities classified as Level 2, we utilize the services of a fixed income pricing provider that uses an industry standard valuation model, which is based on a market approach.  The significant inputs for the valuation model include reported trades, broker/dealer quotes, benchmark securities and bids.  We validate the fair value of securities from our pricing provider by understanding the pricing model they used and comparing their assessment of the fair value of our Level 2 investments to the fair value provided by the custodians of our Level 2 investments.  Our pricing provider and custodians use similar techniques to derive fair value for Level 2 securities. During the three and nine months ended September 30, 2012 and 2011 there were no transfers between our Level 1 and Level 2 investments. We use the end of reporting period method for determining transfers between levels. At September 30, 2012 and December 31, 2011, we had no securities that we classified as Level 3.

We measure the following major security types at fair value on a recurring basis. We break down the inputs used to measure fair value for these assets at September 30, 2012 and December 31, 2011 as follows (in thousands):

	At September 30, 2012		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents (1)	$	82,863	$	73,064	$	9,799	$	—
Corporate debt securities (2)	190,648		—		190,648		—
Debt securities issued by U.S. government agencies (2)	31,151		—		31,151		—
Debt securities issued by the U.S. Treasury (2)	13,486		13,486		—		—
Debt securities issued by states of the United States and political subdivisions of the states (2)	23,725		—		23,725		—
Equity securities (3)	3,190		3,190		—		—
Total	$	345,063	$	89,740	$	255,323	$	—

	At December 31, 2011		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents (1)	$	58,892	$	55,893	$	2,999	$	—
Corporate debt securities (2)	166,922		—		166,922		—
Debt securities issued by U.S. government agencies (2)	80,440		—		80,440		—
Debt securities issued by the U.S. Treasury (2)	2,356		2,356		—		—
Debt securities issued by states of the United States and political subdivisions of the states (2)	28,469		—		28,469		—
Equity securities (3)	1,282		1,282		—		—
Total	$	338,361	$	59,531	$	278,830	$	—

(1)Included in cash and cash equivalents on our condensed consolidated balance sheet.

(2)Included in short-term investments on our condensed consolidated balance sheet.

(3)Included in other current assets on our condensed consolidated balance sheet.

Other Fair Value Disclosures

Our 2¾ percent convertible notes had a fair value of $230.4 million at September 30, 2012.  We determine the fair value of our 2¾ percent convertible notes based on quoted market prices for these notes, which is a Level 2 measurement.