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:



As of December 31, 2018 (In millions)	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	705.5	$	—	$	705.5	$	—
Marketable debt securities:
Corporate debt securities	2,459.2		—		2,459.2		—
Government securities	969.6		—		969.6		—
Mortgage and other asset backed securities	260.5		—		260.5		—
Marketable equity securities	615.4		51.7		563.7		—
Derivative contracts	66.9		—		66.9		—
Plan assets for deferred compensation	25.4		—		25.4		—
Total	$	5,102.5	$	51.7	$	5,050.8	$	—
Liabilities:
Derivative contracts	$	24.6	$	—	$	24.6	$	—
Contingent consideration obligations	409.8		—		—		409.8
Total	$	434.4	$	—	$	24.6	$	409.8



As of December 31, 2017 (In millions)	Total		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

There have been no changes in valuation techniques or transfers between fair value measurement levels during the years ended December 31, 2018 and 2017. The fair value of Level 2 instruments classified as cash equivalents, marketable debt securities and our marketable equity security investment in Ionis Pharmaceuticals, Inc. (Ionis) were determined through third-party pricing services or an option pricing valuation model. For additional information on our new agreement with Ionis, please read Note 19, Collaborative and Other Relationships, to these consolidated financial statements. For a description of our validation procedures related to prices provided by third-party pricing services and our option pricing valuation model, 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)	2018		2017
Notes payable to Fumedica AG	$	—	$	3.2
2.900% Senior Notes due September 15, 2020	1,489.5		1,517.7
3.625% Senior Notes due September 15, 2022	1,000.4		1,032.9
4.050% Senior Notes due September 15, 2025	1,745.1		1,851.9
5.200% Senior Notes due September 15, 2045	1,802.6		2,077.6
Total	$	6,037.6	$	6,483.3

In connection with our 2006 distribution agreement with Fumedica AG, we issued notes totaling 61.4 million Swiss Francs that were payable to Fumedica AG in varying amounts from June 2008 through June 2018. In June 2018 we redeemed our remaining note payable to Fumedica AG.

The fair value of our notes payable to Fumedica AG, as of December 31, 2017, was estimated using market observable inputs, including current interest and foreign currency exchange rates. The fair value for 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)	2018			2017
Fair value, beginning of year	$	523.6		$	467.6
Changes in fair value	(12.3		)	62.7
Payments and other	(101.5		)	(6.7		)
Fair value, end of year	$	409.8		$	523.6

As of December 31, 2018 and 2017, approximately $265.0 million and $279.0 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.

For the year ended December 31, 2018, changes in the fair value of our contingent consideration obligations were primarily due to delays in the expected timing of achievement of milestones related to our vixotrigine program for the treatment of TGN and an increase in discount rates used to revalue our contingent consideration liabilities, partially offset by the passage of time. For the year ended December 31, 2018, payments and other reflects a $81.5 million milestone payment made to the former shareholders of Stromedix, as discussed below. For additional information on our IPR&D intangible asset related to our vixotrigine program for the treatment of TGN, please read Note 7, Intangible Assets and Goodwill, to these consolidated financial statements.

For the year ended December 31, 2017, 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 development milestones and changes in the discount rate.

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 Pharmaceuticals Ltd.

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.

As of December 31, 2018 and 2017, the fair value of this contingent consideration obligation was $246.6 million and $259.0 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 3.6%, which is a measure of the credit risk associated with settling the liability.

For 2018 compared to 2017, the net decrease in our contingent consideration obligation was primarily due to delays in the expected timing of achievement of milestones related to our vixotrigine program for the treatment of TGN and an increase in discount rates used to revalue our contingent consideration liabilities, partially offset by the passage of time. Accrued expenses and other in our consolidated balance sheets include $144.8 million 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, 2018 and 2017, the fair value of this contingent consideration obligation was $83.0 million and $162.4 million, respectively. Our most recent valuation was determined based upon net cash outflow projections of $306.5 million, probability weighted and discounted using a rate of 3.6%, which is a measure of the credit risk associated with settling the liability.

For 2018 compared to 2017, the net decrease in our contingent consideration obligation was primarily due to a $81.5 million milestone paid to the former shareholders of Stromedix as we dosed our first patient in the Phase 2b study of BG00011 (STX-100) in idiopathic pulmonary fibrosis in September 2018, changes in the expected timing related to the achievement of certain remaining developmental milestones and an increase in discount rates, partially offset by the passage of time. No amounts are reflected as a current liability in our consolidated balance sheets as we do not expect to make a payment in the next 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, 2018 and 2017, the fair value of this contingent consideration obligation was $80.2 million and $102.2 million, respectively. Our most recent valuation was determined based upon net cash outflow projections of $335.0 million, probability weighted and discounted using a rate of 3.8%, which is a measure of the credit risk associated with settling the liability.

For 2018 compared to 2017, the net decrease in our contingent consideration obligation was primarily due to a $20.0 million development milestone paid in the first quarter of 2018 as we dosed our first patient in our Phase 2 SPARK study of BIIB054 (α-synuclein mAb) in Parkinson's disease in January 2018 and an increase in discount rates, partially offset by the passage of time. No amounts are reflected as a current liability in our consolidated balance sheets as we do not expect to make a payment in the next 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. These assets will be tested for impairment annually until commercialization, after which time the acquired IPR&D will be amortized over its estimated useful life using the economic consumption method. During the third quarter of 2018 we recognized impairment charges related to certain IPR&D assets associated with our vixotrigine program totaling $189.3 million. For additional information on our IPR&D intangible assets related to our vixotrigine program, including a discussion of our most significant assumptions, please read Note 7, Intangible Assets and Goodwill, to these consolidated financial statements.