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, 2017		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	1,229.4	$	—	$	1,229.4	$	—
Marketable debt securities:
Corporate debt securities	2,609.8		—		2,609.8		—
Government securities	1,919.3		—		1,919.3		—
Mortgage and other asset backed securities	643.4		—		643.4		—
Marketable equity securities	11.8		11.8		—		—
Derivative contracts	2.7		—		2.7		—
Plan assets for deferred compensation	28.5		—		28.5		—
Total	$	6,444.9	$	11.8	$	6,433.1	$	—
Liabilities:
Derivative contracts	$	111.3	$	—	$	111.3	$	—
Contingent consideration obligations	523.6		—		—		523.6
Total	$	634.9	$	—	$	111.3	$	523.6



(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

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, please read 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)	2017		2016
Notes payable to Fumedica	$	3.2	$	6.1
6.875% Senior Notes due March 1, 2018	—		583.7
2.900% Senior Notes due September 15, 2020	1,517.7		1,521.5
3.625% Senior Notes due September 15, 2022	1,032.9		1,026.6
4.050% Senior Notes due September 15, 2025	1,851.9		1,796.0
5.200% Senior Notes due September 15, 2045	2,077.6		1,874.5
Total	$	6,483.3	$	6,808.4

In November 2017 we redeemed our 6.875% Senior Notes due March 1, 2018 with an aggregate principal amount of $550.0 million. For information on this redemption please read Note 12, Indebtedness, to these consolidated financial statements.

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 each series of our Senior Notes was determined through market, observable and corroborated sources. For additional information on our debt instruments, please read Note 12, Indebtedness, to these consolidated financial statements.

Contingent Consideration Obligations

In connection with our acquisitions of Convergence, Stromedix and BIN in 2015, 2012 and 2010, respectively, we agreed to make additional payments based upon the achievement of certain milestone events. 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)	2017			2016
Fair value, beginning of year	$	467.6		$	506.0
Changes in fair value	62.7			14.8
Payments and other	(6.7		)	(53.2		)
Fair value, end of year	$	523.6		$	467.6

As of December 31, 2017 and 2016, approximately $279.0 million and $246.8 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. Changes in the fair value of our contingent consideration obligations are primarily due to changes in the expected timing and probabilities of success related to the achievement of certain developmental milestones and changes in the discount rate. Payments and other for 2016 includes $7.9 million of a Convergence milestone converted to a short-term obligation under the acquisition agreement.

There were no changes in valuation techniques or transfers between fair value measurement levels during the years ended December 31, 2017 and 2016. 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 on the valuation techniques and inputs utilized in the 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 additional information on this transaction, please read Note 2, Acquisitions, to these consolidated financial statements.

As of December 31, 2017 and 2016, the fair value of this contingent consideration obligation was $259.0 million and $258.9 million, respectively. Our most recent valuation was determined based upon net cash flow projections of $400.0 million, probability weighted and discounted using a rate of 2.4%, which is a measure of the credit risk associated with settling the liability.

For 2017 compared to 2016, 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 $147.9 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.

Stromedix Inc.

In connection with our acquisition of Stromedix in March 2012 we recorded a contingent consideration obligation of $122.2 million. As of December 31, 2017 and 2016, the fair value of this contingent consideration obligation was $162.4 million and $133.2 million, respectively. Our most recent valuation was determined based upon net cash outflow projections of $344.0 million, probability weighted and discounted using a rate of 2.4%, which is a measure of the credit risk associated with settling the liability.

For 2017 compared to 2016, the net increase in the fair value of this obligation was primarily due to an increase in the probability of success related to the achievement of certain remaining developmental milestones, partially offset by changes in the discount rate. Approximately $76.7 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 BIN in December 2010 we recorded a contingent consideration obligation of $81.2 million. As of December 31, 2017 and 2016, the fair value of this contingent consideration obligation was $102.2 million and $75.5 million, respectively. Our most recent valuation was determined based upon net cash outflow projections of $355.0 million, probability weighted and discounted using a rate of 2.8%, which is a measure of the credit risk associated with settling the liability.

For 2017 compared to 2016, the net increase in the fair value of this obligation was primarily due to an increase in the probability of success related to the achievement of certain remaining developmental milestones, partially offset by a $6.7 million developmental milestone payment. Approximately $20.0 million is reflected as a component of accrued expenses and other in our consolidated balance sheets as we achieved the developmental milestone of dosing our first patient in our Phase 2 SPARK study of BIIB054 in Parkinson's disease in January 2018.

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. These assets will be tested for impairment annually until commercialization, after which time the IPR&D will be amortized over its estimated useful life using the economic consumption method. For additional information on this transaction, please read Note 2, Acquisitions, to these consolidated financial statements.