Fair Value Measurements

9 Months Ended

Sep. 30, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

8.   Fair Value Measurements

A majority of our financial assets and liabilities have been classified as Level 2. Our financial assets and liabilities (which include our cash equivalents, derivative contracts, marketable debt securities, and plan assets for deferred compensation) have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, typically utilizing third party pricing services or other market observable data. The pricing services utilize industry standard valuation models, including both income and market based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. We validate the prices provided by our third party pricing services by reviewing their pricing methods and matrices, obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active. After completing our validation procedures, we did not adjust or override any fair value measurements provided by our pricing services as of September 30, 2011 and December 31, 2010.

Our strategic investments in publicly traded equity securities are classified as Level 1 assets as their fair values are readily determinable and based on quoted market prices.

We also maintain venture capital investments classified as Level 3 whose fair value is initially measured at transaction prices and subsequently valued using the pricing of recent financing or by reviewing the underlying economic fundamentals and liquidation value of the companies. These investments are the only investments for which we used Level 3 inputs to determine the fair value and represented approximately 0.3% of our total assets as of September 30, 2011 and December 31, 2010, respectively. These investments include investments in certain biotechnology oriented venture capital funds which primarily invest in small privately-owned, venture-backed biotechnology companies. The fair value of our investments in these venture capital funds has been estimated using the net asset value of the fund. The investments cannot be redeemed within the funds. Distributions from each fund will be received as the underlying investments of the fund are liquidated. The funds and therefore a majority of the underlying assets of the funds will not be liquidated in the near future. The underlying assets in these funds are initially measured at transaction prices and subsequently valued using the pricing of recent financings or by reviewing the underlying economic fundamentals and liquidation value of the companies that the funds invest in. We apply judgments and estimates when we validate the prices provided by third parties. While we believe the valuation methodologies are appropriate, the use of valuation methodologies is highly judgmental and changes in methodologies can have a material impact on our results of operations. Gains and losses (realized and unrealized) included in earnings for the period are reported in other income (expense), net.

The consideration for certain of our acquisitions includes future payments that are contingent upon the occurrence of a particular factor or factors. For acquisitions completed after January 1, 2009, we record a contingent consideration obligation for such contingent consideration payments at its fair value on the acquisition date. We determine the fair value of the contingent consideration obligation based upon probability-weighted assumptions related to the achievement of certain milestone events and thus the likelihood of us making payments. These fair value measurements are based on significant inputs not observable in the market and therefore represent Level 3 measurements. We revalue the acquisition-related contingent consideration obligation on a recurring basis each reporting period. Changes in the fair value of our contingent consideration obligations are recognized as a fair value adjustment of contingent consideration within our consolidated statements of income.

Upon completion of our purchase of the noncontrolling interest in our joint venture investments in Biogen Dompé SRL and Biogen Dompé Switzerland GmbH in September 2011, we recorded a contingent consideration obligation of $38.8 million. There has been no significant change in the valuation of this liability from the acquisition date through September 30, 2011, of which $4.0 million was reflected as a component of accrued expenses and other, and $34.8 million was reflected as a component of other long-term liabilities within our condensed consolidated balance sheet. These valuations were determined based upon probability weighted net cash outflow projections of $42.5 million, discounted using a rate of 3.2%, which is the cost of debt financing for market participants.

In addition, we also recorded a contingent consideration obligation of $81.2 million in the fourth quarter of 2010 related to our acquisition of BIN. As of September 30, 2011, the fair value of this contingent consideration obligation was $87.1 million, of which $5.0 million was reflected as a component of accrued expenses and other, and $82.1 million was reflected as a component of other long-term liabilities within our consolidated balance sheet. These valuations were determined based upon probability weighted net cash outflow projections of $395.0 million, discounted using a rate of 5.3%, which is the cost of debt financing for market participants. The changes in the fair value of this obligation, of $2.5 million and $5.9 million for the three and nine months ended September 30, 2011, respectively, were primarily due to changes in the discount rate and in the expected timing related to the achievement of certain developmental milestones.

There were no transfers between fair value measurement levels during the nine months ended September 30, 2011.

The tables below present information about our financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2011 and December 31, 2010, and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value:

							Significant
	Balance as of		Quoted Prices in		Significant Other		Unobservable
	September 30,		Active Markets		Observable Inputs		Inputs
(In millions)	2011		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash equivalents	$	241.3	$	—	$	241.3	$	—
Marketable debt securities:
Corporate debt securities		542.6		—		542.6		—
Government securities		1,482.0		—		1,482.0		—
Mortgage and other asset backed securities		269.1		—		269.1		—
Strategic investments		1.2		1.2		—		—
Venture capital investments		23.1		—		—		23.1
Derivative contracts		18.9		—		18.9		—
Plan assets for deferred compensation		12.6		—		12.6		—
Total	$	2,590.8	$	1.2	$	2,566.5	$	23.1
Liabilities:
Derivative contracts	$	2.0	$	—	$	2.0	$	—
Contingent consideration		125.9		—		—		125.9
Total	$	127.9	$	—	$	2.0	$	125.9

							Significant
	Balance as of		Quoted Prices in		Significant Other		Unobservable
	December 31,		Active Markets		Observable Inputs		Inputs
(In millions)	2010		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash equivalents	$	651.8	$	—	$	651.8	$	—
Marketable debt securities:
Corporate debt securities		313.0		—		313.0		—
Government securities		785.3		—		785.3		—
Mortgage and other asset backed securities		92.9		—		92.9		—
Strategic investments		44.8		44.8		—		—
Venture capital investments		20.8		—		—		20.8
Derivative contracts		1.3		—		1.3		—
Plan assets for deferred compensation		13.0		—		13.0		—
Total	$	1,922.9	$	44.8	$	1,857.3	$	20.8
Liabilities:
Derivative contracts	$	12.2	$	—	$	12.2	$	—
Contingent consideration		81.2		—		—		81.2
Total	$	93.4	$	—	$	12.2	$	81.2

The following table provides a roll forward of the fair value of our venture capital investments, which are all Level 3 assets:

	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
(In millions)	2011			2010			2011			2010
Beginning balance	$	20.6		$	20.4		$	20.8		$	21.9
Unrealized gains included in earnings		1.8			0.5			2.5			0.5
Unrealized losses included in earnings		(0.2	)		—			(1.5	)		(1.6	)
Purchases		0.9			1.5			1.3			1.6
Issuances		—			—			—			—
Settlements		—			(0.6	)		—			(0.6	)
Ending balance	$	23.1		$	21.8		$	23.1		$	21.8

The fair and carrying values of our debt instruments, which have fair values based on all Level 2 inputs, are summarized as follows:

	As of September 30, 2011				As of December 31, 2010
	Fair		Carrying		Fair		Carrying
(In millions)	Value		Value		Value		Value
Credit line from Dompé	$	—	$	—	$	8.1	$	8.0
Note payable to Fumedica		23.4		20.5		24.2		22.0
6.0% Senior Notes due 2013		479.5		449.8		485.5		449.8
6.875% Senior Notes due 2018		670.5		593.7		618.0		597.9
Total	$	1,173.4	$	1,064.0	$	1,135.8	$	1,077.7

The fair values of Biogen Dompé SRL’s credit line from us and Dompé Farmaceutici SpA and our note payable to Fumedica were estimated using market observable inputs, including current interest and foreign currency exchange rates. The fair value of our Senior Notes was determined through market, observable, and corroborated sources.

Balances outstanding under Biogen Dompé SRL’s credit line were repaid in connection with our recent purchase of the noncontrolling interest in our joint venture investment in Biogen Dompé SRL. For additional information related to this transaction, please read Note 2, Acquisitions to these condensed consolidated financial statements.