Fair Value Measurements

9 Months Ended

Sep. 30, 2019

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, 2019 (In millions)	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	1,655.8	$	—	$	1,655.8	$	—
Marketable debt securities:
Corporate debt securities	2,702.2		—		2,702.2		—
Government securities	868.2		—		868.2		—
Mortgage and other asset backed securities	337.0		—		337.0		—
Marketable equity securities	336.7		18.5		318.2		—
Derivative contracts	161.7		—		161.7		—
Plan assets for deferred compensation	26.3		—		26.3		—
Total	$	6,087.9	$	18.5	$	6,069.4	$	—
Liabilities:
Derivative contracts	$	9.8	$	—	$	9.8	$	—
Contingent consideration obligations	343.5		—		—		343.5
Total	$	353.3	$	—	$	9.8	$	343.5



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

There have been no impairments of our assets measured and carried at fair value during the three and nine months ended September 30, 2019. 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, 2019. 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 June 2018 investment in Ionis common stock, please read Note 19, Collaborative and Other Relationships, to our consolidated financial statements included in our 2018 Form 10-K. 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 our consolidated financial statements included in our 2018 Form 10-K.

Debt Instruments

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



	As of September 30, 2019				As of December 31, 2018
(In millions)	Fair Value		Carrying Value		Fair Value		Carrying Value
2.900% Senior Notes due September 15, 2020	$	1,509.9	$	1,495.3	$	1,489.5	$	1,480.8
3.625% Senior Notes due September 15, 2022	1,037.8		996.3		1,000.4		995.5
4.050% Senior Notes due September 15, 2025	1,888.8		1,739.1		1,745.1		1,737.8
5.200% Senior Notes due September 15, 2045	2,054.2		1,722.8		1,802.6		1,722.4
Total	$	6,490.7	$	5,953.5	$	6,037.6	$	5,936.5

The fair values of each of our series of Senior Notes were determined through market, observable and corroborated sources. For additional information on our debt instruments, please read Note 12, Indebtedness, to our consolidated financial statements included in our 2018 Form 10-K.

Contingent Consideration Obligations

In connection with our acquisitions of Convergence Pharmaceuticals Ltd., Stromedix Inc. (Stromedix) and Biogen International Neuroscience GmbH 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:



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(In millions)	2019			2018			2019			2018
Fair value, beginning of period	$	401.3		$	499.9		$	409.8		$	523.6
Changes in fair value	(57.8		)	(87.9		)	(66.3		)	(91.6		)
Payments	—			—			—			(20.0		)
Fair value, end of period	$	343.5		$	412.0		$	343.5		$	412.0

As of September 30, 2019 and December 31, 2018, $196.0 million and $265.0 million, respectively, of the fair value of our total contingent consideration obligations was reflected as a component of other long-term liabilities in our condensed consolidated balance sheets with the remaining balance reflected as a component of accrued expenses and other.

For the three and nine months ended September 30, 2019, changes in the fair value of our contingent consideration obligations were primarily due to the discontinuation of the Phase 2b study of BG00011 for the potential treatment of IPF resulting in a reduction of our contingent consideration obligations of $61.2 million, partially offset by a decrease in interest rates used to revalue our contingent consideration liabilities and the passage of time.

For the three and nine months ended September 30, 2018, changes in the fair value of our contingent consideration obligations were primarily due to lower cumulative probabilities of success related to our vixotrigine program for the potential treatment of TGN, an increase in interest rates used to revalue our contingent consideration liabilities and the passage of time. In addition, we dosed our first patient in the Phase 2b study of BG00011 for the potential treatment of IPF in September 2018 and paid an $81.5 million milestone payment to the former shareholders of Stromedix during the fourth quarter of 2018.

- 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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