Fair Value Measurements

3 Months Ended

Mar. 31, 2020

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 March 31, 2020 (In millions)	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	1,974.1	$	—	$	1,974.1	$	—
Marketable debt securities:
Corporate debt securities	1,353.5		—		1,353.5		—
Government securities	710.4		—		710.4		—
Mortgage and other asset backed securities	174.7		—		174.7		—
Marketable equity securities	276.1		276.1		—		—
Derivative contracts	107.3		—		107.3		—
Plan assets for deferred compensation	24.5		—		24.5		—
Total	$	4,620.6	$	276.1	$	4,344.5	$	—
Liabilities:
Derivative contracts	$	3.7	$	—	$	3.7	$	—
Contingent consideration obligations	341.5		—		—		341.5
Total	$	345.2	$	—	$	3.7	$	341.5



As of December 31, 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	$	2,541.1	$	—	$	2,541.1	$	—
Marketable debt securities:
Corporate debt securities	1,695.1		—		1,695.1		—
Government securities	1,013.9		—		1,013.9		—
Mortgage and other asset backed securities	261.3		—		261.3		—
Marketable equity securities	337.5		7.9		329.6		—
Derivative contracts	43.8		—		43.8		—
Plan assets for deferred compensation	27.7		—		27.7		—
Total	$	5,920.4	$	7.9	$	5,912.5	$	—
Liabilities:
Derivative contracts	$	8.3	$	—	$	8.3	$	—
Contingent consideration obligations	346.1		—		—		346.1
Total	$	354.4	$	—	$	8.3	$	346.1

There have been no material impairments of our assets measured and carried at fair value during the three months ended March 31, 2020. In addition, there were no changes in valuation techniques during the three months ended March 31, 2020. The fair value of Level 2 instruments classified as cash equivalents and marketable debt securities were determined through third-party pricing services. Our investments in equity securities include shares of Ionis Pharmaceuticals, Inc. (Ionis) common stock acquired in June 2018. Our shares in Ionis common stock were initially subject to certain holding period restrictions that expired during the first quarter of 2020. The fair value of this investment was a Level 1 measurement as of March 31, 2020. 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 2019 Form 10-K.

The following table summarizes the significant unobservable inputs in the fair value measurement of our contingent consideration obligations as of March 31, 2020:



	As of March 31, 2020
Liabilities	Fair Value (in millions)	Valuation Technique	Unobservable Input	Range	Weighted Average
Contingent consideration obligation	$341.5	Discounted cash flow	Discount rate	2.40% to 2.53%	2.44%
Contingent consideration obligation	$341.5	Discounted cash flow	Timing of achievement of development milestones	2020 to 2027	—

The weighted average discount rate was calculated based on the relative fair value of our contingent consideration obligations. In addition, we apply various probabilities of technological and regulatory success, ranging from the low-teens to certain probability, to the valuation models to estimate the fair values of our contingent consideration obligations.

Debt Instruments

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



	As of March 31, 2020				As of December 31, 2019
(In millions)	Fair Value		Carrying Value		Fair Value		Carrying Value
2.900% Senior Notes due September 15, 2020	$	1,498.1	$	1,501.8	$	1,509.6	$	1,495.8
3.625% Senior Notes due September 15, 2022	1,022.0		996.9		1,038.9		996.6
4.050% Senior Notes due September 15, 2025	1,838.1		1,739.9		1,897.2		1,739.5
5.200% Senior Notes due September 15, 2045	2,323.1		1,723.1		2,107.9		1,722.9
Total	$	6,681.3	$	5,961.7	$	6,553.6	$	5,954.8

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 2019 Form 10-K.

Contingent Consideration Obligations

In connection with our acquisitions of Convergence and BIN, 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 March 31,
(In millions)	2020			2019
Fair value, beginning of period	$	346.1		$	409.8
Changes in fair value	(4.6		)	11.5
Payments	—			—
Fair value, end of period	$	341.5		$	421.3

As of March 31, 2020 and December 31, 2019, $194.2 million and $197.7 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 months ended March 31, 2020, changes in the fair value of our contingent consideration obligations were primarily due to changes in the interest rates used to revalue our contingent consideration liabilities and changes in the expected timing of the achievement of certain remaining developmental milestones, partially offset by the passage of time.

For the three months ended March 31, 2019, changes in the fair value of our contingent consideration obligations were primarily due to changes in the expected timing of the achievement of certain remaining development milestones, changes in interest rates used to revalue our contingent consideration liabilities and the passage of time.

- 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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