Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The tables below present information about our assets and liabilities that are regularly measured and carried at fair value and indicate the level within the fair value hierarchy of the valuation techniques we utilized to determine each fair value:

(In millions)	As of September 30, 2012		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	309.0	$	—	$	309.0	$	—
Marketable debt securities:
Corporate debt securities	914.7		—		914.7		—
Government securities	1,539.9		—		1,539.9		—
Mortgage and other asset backed securities	441.0		—		441.0		—
Marketable equity securities	1.2		1.2		—		—
Venture capital investments	25.2		—		—		25.2
Derivative contracts	6.9		—		6.9		—
Plan assets for deferred compensation	13.9		—		13.9		—
Total	$	3,251.8	$	1.2	$	3,225.4	$	25.2
Liabilities:
Derivative contracts	$	5.2	$	—	$	5.2	$	—
Contingent consideration obligations	290.3		—		—		290.3
Total	$	295.5	$	—	$	5.2	$	290.3

(In millions)	As of December 31, 2011		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	399.8	$	—	$	399.8	$	—
Marketable debt securities:
Corporate debt securities	602.6		—		602.6		—
Government securities	1,716.5		—		1,716.5		—
Mortgage and other asset backed securities	273.8		—		273.8		—
Marketable equity securities	0.1		0.1		—		—
Venture capital investments	23.5		—		—		23.5
Derivative contracts	39.5		—		39.5		—
Plan assets for deferred compensation	11.6		—		11.6		—
Total	$	3,067.4	$	0.1	$	3,043.8	$	23.5
Liabilities:
Derivative contracts	$	0.5	$	—	$	0.5	$	—
Contingent consideration obligations	151.0		—		—		151.0
Total	$	151.5	$	—	$	0.5	$	151.0

The fair value of Level 2 instruments classified as cash equivalents and marketable debt securities were determined through financial models of third party pricing services. For a description of our validation procedures related to prices provided by third party pricing services, refer to Note 1, Summary of Significant Accounting Policies: Fair Value Measurements, to our consolidated financial statements included within our 2011 Form 10-K.

Marketable Equity Securities and Venture Capital Investments

Our marketable equity securities represent investments in publicly traded equity securities. Our venture capital investments include investments in certain venture capital funds, accounted for at fair value, which primarily invest in small privately-owned, venture-backed biotechnology companies. These venture capital investments represented approximately 0.3% of total assets as of September 30, 2012 and December 31, 2011, respectively.

The following table provides a roll forward of the fair value of our venture capital investments, which are all Level 3 assets:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(In millions)	2012			2011			2012			2011
Fair value, beginning of period	$	25.4		$	20.6		$	23.5		$	20.8
Unrealized gains included in earnings	1.4			1.8			4.9			2.5
Unrealized losses included in earnings	(1.6		)	(0.2		)	(3.6		)	(1.5		)
Purchases	—			0.9			0.4			1.3
Fair value, end of period	$	25.2		$	23.1		$	25.2		$	23.1

Debt Instruments

The fair and carrying values of our debt instruments, which are all Level 2 liabilities, are summarized as follows:

	As of September 30, 2012				As of December 31, 2011
(In millions)	Fair Value		Carrying Value		Fair Value		Carrying Value
Notes payable to Fumedica	$	18.9	$	17.2	$	22.4	$	19.7
6.0% Senior Notes due March 1, 2013	459.6		450.0		474.1		449.9
6.875% Senior Notes due March 1, 2018	666.4		587.9		663.9		592.3
Total	$	1,144.9	$	1,055.1	$	1,160.4	$	1,061.9

We utilized Level 2 inputs to determine the fair value of our notes payable to Fumedica and our Senior Notes. The fair value of our notes payable to Fumedica was estimated using market observable inputs, including current interest and foreign currency exchange rates. The fair value of our Senior Notes was determined through market, observable, and corroborated sources.

Contingent Consideration Obligations

The following table provides a roll forward of the fair values of our contingent consideration obligations, which are all Level 3 liabilities:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(In millions)	2012		2011		2012			2011
Fair value, beginning of period	$	280.9	$	84.6	$	151.0		$	81.2
Additions	—		38.8		122.2			38.8
Changes in fair value	9.4		2.5		23.6			5.9
Payments	—		—		(6.5		)	—
Fair value, end of period	$	290.3	$	125.9	$	290.3		$	125.9

As of September 30, 2012 and December 31, 2011, approximately $269.0 million and $140.3 million, respectively, of the fair value of our total contingent consideration obligations were reflected as components of other long-term liabilities within our condensed consolidated balance sheets with the remaining balances reflected as a component of accrued expenses and other.

In connection with our acquisition of Stromedix in March 2012, we recorded a liability of $122.2 million representing the fair value of the contingent consideration. This valuation was based on probability weighted net cash outflow projections of $487.5 million, discounted using a rate of 4.4%, which is a measure of the credit risk associated with settling the liability.

The consideration for our acquisitions often includes future payments that are contingent upon the occurrence of a particular event. For acquisitions completed after January 1, 2009, we record a contingent consideration obligation for such contingent payments at fair value on the acquisition date. We estimate the fair value of contingent consideration obligations through valuation models that incorporate probability adjusted assumptions related to the achievement of the milestones and thus likelihood of making related payments. We revalue these contingent consideration obligations each reporting period. Changes in the fair value of our contingent consideration obligations are recognized within our condensed consolidated statements of income. Changes in the fair value of the contingent consideration obligations can result from changes to one or multiple inputs, including adjustments to the discount rates and periods utilized, changes in the amount or timing of expected expenditures associated with product development, changes in the amount or timing of cash flows and reserves associated with products upon commercialization, changes in the assumed achievement or timing of any development milestones, changes in the probability of certain clinical events and changes in the assumed probability associated with regulatory approval.

Discount rates in our valuation models represent a measure of the credit risk associated with settling the liability. The value of our contingent obligations as of September 30, 2012 was based upon discount rates ranging from 2.5% to 3.7%. The period over which we discount our contingent obligations is based on the current development stage of the product candidates, our specific development plan for that product candidate adjusted for the probability of completing the development step, and when the contingent payments would be triggered. In determining the probability of success, we utilize data regarding similar milestone events from several sources, including industry studies and our own experience. These fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in the market. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense we record in any given period.

Acquired IPR&D

In connection with our acquisition of Stromedix, we allocated $219.2 million of the total purchase price to acquired IPR&D, which was capitalized as an intangible asset. The amount allocated to acquired IPR&D was based on significant inputs not observable in the market and thus represented a Level 3 fair value measurement. These assets are tested for impairment annually until commercialization, after which time the IPR&D is amortized over its estimated useful life. For a more detailed description of this transaction, please read Note 2, Acquisitions to these condensed consolidated financial statements.

There has been no impairment of our assets measured at fair value during the three and nine months ended September 30, 2012. In addition, there were no changes in valuation techniques or inputs utilized or transfers between fair value measurement levels during the three and nine months ended September 30, 2012. For additional information related to the valuation techniques and inputs utilized in valuation of our financial assets and liabilities, please read Note 1, Summary of Significant Accounting Policies to our consolidated financial statements included within our 2011 Form 10-K.