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Fair Value Measurements

9 Months Ended

Sep. 30, 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 September 30, 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	$	1,570.3	$	—	$	1,570.3	$	—
Marketable debt securities:
Corporate debt securities	1,443.8		—		1,443.8		—
Government securities	767.4		—		767.4		—
Mortgage and other asset backed securities	153.6		—		153.6		—
Marketable equity securities	868.5		276.5		592.0		—
Derivative contracts	26.0		—		26.0		—
Plan assets for deferred compensation	26.4		—		26.4		—
Total	$	4,856.0	$	276.5	$	4,579.5	$	—
Liabilities:
Derivative contracts	$	99.6	$	—	$	99.6	$	—
Contingent consideration obligations	322.6		—		—		322.6
Total	$	422.2	$	—	$	99.6	$	322.6


	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 and nine months ended September 30, 2020. In addition, there were no changes in valuation techniques during the three and nine months ended September 30, 2020. The fair value of Level 2 instruments classified as cash equivalents and marketable debt securities was determined through third-party pricing services. The fair value of Level 2 instruments classified as marketable equity securities represents our investments in Sangamo Therapeutics, Inc. (Sangamo) common stock and Denali Therapeutics Inc. (Denali) common stock and are valued using an option pricing valuation model as the investments are each subject to certain holding period restrictions. For additional information on our investments in Sangamo and Denali common stock, please read Note 8, Financial Instruments, to these condensed consolidated financial statements.

Our investments in marketable equity securities also include shares of Ionis Pharmaceuticals, Inc. (Ionis) common stock acquired in June 2018. Our shares of 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 September 30, 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 September 30, 2020:

As of September 30, 2020

(In millions)

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

Liabilities:

Contingent consideration obligation

322.6

Discounted cash flow

Discount rate

0.57% to 0.89%

0.63%

Expected timing of achievement of development milestones

2021 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 high single digits 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 September 30, 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⁾	$	—	$	—	$	1,509.6	$	1,495.8
3.625% Senior Notes due September 15, 2022	1,058.4		997.5		1,038.9		996.6
4.050% Senior Notes due September 15, 2025	1,988.5		1,740.7		1,897.2		1,739.5
2.250% Senior Notes due May 1, 2030	1,532.8		1,491.0		—		—
5.200% Senior Notes due September 15, 2045	2,286.3		1,723.3		2,107.9		1,722.9
3.150% Senior Notes due May 1, 2050	1,470.0		1,472.5		—		—
Total	$	8,336.0	$	7,425.0	$	6,553.6	$	5,954.8

⁽¹⁾Our 2.900% Senior Notes due September 15, 2020, were redeemed in full in May 2020 using the net proceeds from the issuance on April 30, 2020, of our senior unsecured notes for an aggregate principal amount of $3.0 billion. For additional information, please read Note 11, Indebtedness, to these condensed consolidated financial statements.

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 Senior Notes issued on September 15, 2015, please read Note 12, Indebtedness, to our consolidated financial statements included in our 2019 Form 10-K. For additional information related to our Senior Notes issued on April 30, 2020, please read Note 11, Indebtedness, to these condensed consolidated financial statements.

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 September 30,						For the Nine Months Ended September 30,
(In millions)	2020		2019		2020		2019
Fair value, beginning of period	$	351.6	$	401.3	$	346.1	$	409.8
Changes in fair value	(29.0)		(57.8)		(23.5)		(66.3)
Payments	—		—		—		—
Fair value, end of period	$	322.6	$	343.5	$	322.6	$	343.5

As of September 30, 2020 and December 31, 2019, approximately $173.2 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 and nine months ended September 30, 2020, changes in the fair value of our contingent consideration obligations were primarily due to changes in the probability and the expected timing of the achievement of certain remaining developmental milestones as well as changes in the interest rates used to revalue our contingent consideration liabilities and the passage of time.

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 idiopathic pulmonary fibrosis 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.

- 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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