Fair Value Measurements

9 Months Ended

Sep. 30, 2015

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 such fair value:



As of September 30, 2015 (In millions)	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	3,804.2	$	—	$	3,804.2	$	—
Marketable debt securities:
Corporate debt securities	1,039.9		—		1,039.9		—
Government securities	2,411.1		—		2,411.1		—
Mortgage and other asset backed securities	249.9		—		249.9		—
Marketable equity securities	25.7		25.7		—		—
Derivative contracts	61.4		—		61.4		—
Plan assets for deferred compensation	38.6		—		38.6		—
Total	$	7,630.8	$	25.7	$	7,605.1	$	—
Liabilities:
Derivative contracts	$	31.3	$	—	$	31.3	$	—
Contingent consideration obligations	481.4		—		—		481.4
Total	$	512.7	$	—	$	31.3	$	481.4



As of December 31, 2014 (In millions)	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	716.3	$	—	$	716.3	$	—
Marketable debt securities:
Corporate debt securities	1,063.0		—		1,063.0		—
Government securities	849.8		—		849.8		—
Mortgage and other asset backed securities	198.3		—		198.3		—
Marketable equity securities	6.9		6.9		—		—
Derivative contracts	72.7		—		72.7		—
Plan assets for deferred compensation	36.9		—		36.9		—
Total	$	2,943.9	$	6.9	$	2,937.0	$	—
Liabilities:
Derivative contracts	$	5.4	$	—	$	5.4	$	—
Contingent consideration obligations	215.5		—		—		215.5
Total	$	220.9	$	—	$	5.4	$	215.5

There have been no material impairments of our assets measured and carried at fair value during the three and nine months ended September 30, 2015. 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, 2015. The fair value of Level 2 instruments classified as cash equivalents and marketable debt securities was determined through 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 in our 2014 Form 10-K. For additional information related to our decision to no longer reflect our investments in venture capital funds within the fair value hierarchy, refer to Note 1, Summary of Significant Accounting Policies: New Accounting Pronouncements, to these condensed consolidated financial statements.

Debt Instruments

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



	As of September 30, 2015				As of December 31, 2014
(In millions)	Fair Value		Carrying Value		Fair Value		Carrying Value
Notes payable to Fumedica	$	9.5	$	9.1	$	12.6	$	11.7
6.875% Senior Notes due March 1, 2018	614.0		566.9		634.6		571.7
2.900% Senior Notes due September 15, 2020	1,514.1		1,492.3		—		—
3.625% Senior Notes due September 15, 2022	1,008.4		991.9		—		—
4.050% Senior Notes due September 15, 2025	1,767.1		1,733.1		—		—
5.200% Senior Notes due September 15, 2045	1,766.9		1,721.0		—		—
Total	$	6,680.0	$	6,514.3	$	647.2	$	583.4

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 values of each of our series of Senior Notes were determined through market, observable, and corroborated sources. In accordance with ASU No. 2015-03, during the three months ended September 30, 2015, we reclassified $1.8 million of our debt issuance costs related to our 6.875% Senior Notes issued in 2008 from an asset to a reduction to the carrying amount of the 6.875% Senior Notes. For additional information related to our notes payable to Fumedica and our 6.875% Senior Notes, please read Note 12, Indebtedness to our consolidated financial statements included in our 2014 Form 10-K. For additional information related to our Senior Notes issued on September 15, 2015, please read Note 10, Indebtedness, to these condensed consolidated financial statements.

Contingent Consideration Obligations

The following table provides a roll forward of the fair values of our contingent consideration obligations which includes Level 3 measurements:



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(In millions)	2015			2014			2015			2014
Fair value, beginning of period	$	495.7		$	279.1		$	215.5		$	280.9
Additions	—			—			274.5			—
Changes in fair value	0.2			(49.4		)	5.9			(46.2		)
Payments	(14.5		)	(16.5		)	(14.5		)	(21.5		)
Fair value, end of period	$	481.4		$	213.2		$	481.4		$	213.2

As of September 30, 2015 and December 31, 2014, approximately $301.9 million and $200.0 million, respectively, of our contingent consideration obligations valued using Level 3 measurements were reflected as components of other long-term liabilities in our condensed consolidated balance sheets with the remaining balances reflected as a component of accrued expenses and other.

In connection with our acquisition of Convergence, we recorded a liability of $274.5 million, representing the fair value of the contingent consideration. This valuation was based on probability weighted net cash outflow projections of $450.0 million, discounted using a rate of 2%, which is the estimated cost of debt financing for market participants. This liability reflects the revised estimate from the date of acquisition for our initial clinical development plans, resulting probabilities of success and the timing of certain milestone payments. For a more detailed description of this transaction, please read Note 2, Acquisitions to these condensed consolidated financial statements. As of September 30, 2015, approximately $176.4 million, related to our contingent consideration obligations arising from our acquisition of Convergence, is reflected as a component of accrued expenses and other in our condensed consolidated balance sheets.

Acquired IPR&D

In connection with our acquisition of Convergence, we also allocated $424.6 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. This estimate was also adjusted from our preliminary estimate as of the date of acquisition to reflect revised estimates to our initial clinical development plans, resulting probabilities of success and the timing of certain milestone payments. These assets will be tested for impairment annually until commercialization, after which time the IPR&D will be 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.

- 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.

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