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 such fair value:



(In millions)	As of December 31, 2016		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	2,039.6	$	—	$	2,039.6	$	—
Marketable debt securities:
Corporate debt securities	2,663.8		—		2,663.8		—
Government securities	2,172.5		—		2,172.5		—
Mortgage and other asset backed securities	561.7		—		561.7		—
Marketable equity securities	24.9		24.9		—		—
Derivative contracts	61.0		—		61.0		—
Plan assets for deferred compensation	34.5		—		34.5		—
Total	$	7,558.0	$	24.9	$	7,533.1	$	—
Liabilities:
Derivative contracts	$	13.6	$	—	$	13.6	$	—
Contingent consideration obligations	467.6		—		—		467.6
Total	$	481.2	$	—	$	13.6	$	467.6



(In millions)	As of December 31, 2015		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	909.5	$	—	$	909.5	$	—
Marketable debt securities:
Corporate debt securities	1,510.9		—		1,510.9		—
Government securities	2,875.9		—		2,875.9		—
Mortgage and other asset backed securities	494.1		—		494.1		—
Marketable equity securities	37.5		37.5		—		—
Derivative contracts	27.2		—		27.2		—
Plan assets for deferred compensation	40.1		—		40.1		—
Total	$	5,895.2	$	37.5	$	5,857.7	$	—
Liabilities:
Derivative contracts	$	14.7	$	—	$	14.7	$	—
Contingent consideration obligations	506.0		—		—		506.0
Total	$	520.7	$	—	$	14.7	$	506.0

The fair value of Level 2 instruments classified as cash equivalents and marketable debt securities were 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 these consolidated financial statements.

Debt Instruments

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



	As of December 31,
(In millions)	2016		2015
Notes payable to Fumedica	$	6.1	$	9.4
6.875% Senior Notes due March 1, 2018	583.7		602.6
2.900% Senior Notes due September 15, 2020	1,521.5		1,497.5
3.625% Senior Notes due September 15, 2022	1,026.6		1,014.2
4.050% Senior Notes due September 15, 2025	1,796.0		1,764.6
5.200% Senior Notes due September 15, 2045	1,874.5		1,757.6
Total	$	6,808.4	$	6,645.9

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. For additional information related to our debt instruments, please read Note 11, Indebtedness to these 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:



	As of December 31,
(In millions)	2016			2015
Fair value, beginning of year	$	506.0		$	215.5
Additions	—			274.5
Changes in fair value	14.8			30.5
Payments and other	(53.2		)	(14.5		)
Fair value, end of year	$	467.6		$	506.0

As of December 31, 2016 and 2015, approximately $246.8 million and $301.3 million, respectively, of the fair value of our total contingent consideration obligations was reflected as a component of other long-term liabilities in our consolidated balance sheets with the remaining balance reflected as a component of accrued expenses and other. Payments and other for 2016 includes $7.9 million of a Convergence milestone converted to a short-term obligation under the terms of the acquisition agreement.

There were no changes in valuation techniques or transfers between fair value measurement levels during the years ended December 31, 2016 and 2015. The fair values of the intangible assets and contingent consideration liabilities were based on a probability-adjusted discounted cash flow calculation using Level 3 fair value measurements and inputs including estimated revenues and probabilities of success. 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 these consolidated financial statements.

Convergence

In connection with our acquisition of Convergence in February 2015 we recorded a contingent consideration obligation of $274.5 million. This valuation was based on probability weighted net cash outflow projections of $450.0 million, discounted using a rate of 2.0%, which was the estimated cost of debt financing for market participants. This liability reflected 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 consolidated financial statements.

As of December 31, 2016 and 2015, the fair value of this contingent consideration obligation was $258.9 million and $297.5 million, respectively. Our most recent valuation was determined based upon probability weighted net cash flow projections of $400.0 million, discounted using a rate of 2.7%, which is a measure of the credit risk associated with settling the liability.

For 2016 compared to 2015, the net decrease in the fair value of this obligation was primarily due to achievement of a $50.0 million milestone related to a second indication, partially offset by changes in the discount rate and an increase in the probability of success related to the achievement of certain developmental milestones. Approximately $148.4 million is reflected as a component of accrued expenses and other in our consolidated balance sheets as we expect to make the payment within one year.

Stromedix Inc.

In connection with our acquisition of Stromedix Inc. (Stromedix) in March 2012 we recorded a contingent consideration obligation of $122.2 million. As of December 31, 2016 and 2015, the fair value of this contingent consideration obligation was $133.2 million and $131.5 million, respectively. Our most recent valuation was determined based upon probability weighted net cash outflow projections of $419.0 million, discounted using a rate of 2.2%, which is a measure of the credit risk associated with settling the liability.

For 2016 compared to 2015, the net increase in the fair value of this obligation was primarily due to changes in the discount rate, partially offset by changes in the expected timing related to the achievement of certain remaining developmental milestones. Approximately $56.9 million is reflected as a component of accrued expenses and other in our consolidated balance sheets as we expect to make the payment within one year.

Biogen Idec International Neuroscience GmbH

In connection with our acquisition of Biogen Idec International Neuroscience GmbH (BIN), formerly Panima Pharmaceuticals AG (Panima), in December 2010 we recorded a contingent consideration obligation of $81.2 million. As of December 31, 2016 and 2015, the fair value of this contingent consideration obligation was $75.5 million and $77.0 million, respectively. Our most recent valuation was determined based upon probability weighted net cash outflow projections of $361.7 million, discounted using a rate of 2.7%, which is a measure of the credit risk associated with settling the liability.

For 2016 compared to 2015, the net decrease in the fair value of this obligation was primarily due to payment of $3.3 million in developmental milestones, partially offset by changes in the discount rate. Approximately $15.5 million is reflected as a component of accrued expenses and other in our consolidated balance sheets as we expect to make the payment within one year.

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 consolidated financial statements.