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Fair Value Measurements
 12 Months Ended
Dec. 31, 2020
Fair Value Disclosures [Abstract]  
Fair value measurements FAIR VALUE MEASUREMENTS
We determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value, as follows:
•Level 1 inputs include quoted prices in active markets for identical assets or liabilities;
•Level 2 inputs include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. For our marketable securities, we review trading activity and pricing as of the measurement date. When sufficient quoted pricing for identical securities is not available, we use market pricing and other observable market inputs for similar securities obtained from various third-party data providers. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data; and
•Level 3 inputs include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Our Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation.
Our financial instruments consist primarily of cash and cash equivalents, marketable debt securities, accounts receivable, foreign currency exchange contracts, equity securities, accounts payable and short-term and long-term debt. Cash and cash equivalents, marketable debt securities, certain equity securities, and foreign currency exchange contracts are reported at their respective fair values in our Consolidated Balance Sheets. Equity securities without readily determinable fair values are recorded using the measurement alternative of cost less impairment, if any, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer. Short-term and long-term debt are reported at their amortized costs in our Consolidated Balance Sheets. The remaining financial instruments are reported in our Consolidated Balance Sheets at amounts that approximate current fair values.
The following table summarizes the types of assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy:
 December 31, 2020December 31, 2019
(in millions)Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets:        
Available-for-sale debt securities:
U.S. treasury securities$309 $— $— $309 $2,433 $— $— $2,433 
Certificates of deposit— 216 — 216 — 3,517 — 3,517 
U.S. government agencies securities— — — — — 1,081 — 1,081 
Non-U.S. government securities— 43 — 43 — 174 — 174 
Corporate debt securities— 1,142 — 1,142 — 9,204 — 9,204 
Residential mortgage and asset-backed securities— 316 — 316 — 91 — 91 
Equity securities:
Equity investment in Galapagos1,648 — — 1,648 3,477 — — 3,477 
Money market funds4,361 — — 4,361 7,069 — — 7,069 
Other publicly traded equity securities743 — — 743 322 — — 322 
Deferred compensation plan218 — — 218 171 — — 171 
Foreign currency derivative contracts— 12 — 12 — 37 — 37 
Total$7,279 $1,729 $— $9,008 $13,472 $14,104 $— $27,576 
Liabilities:        
Deferred compensation plan$218 $— $— $218 $171 $— $— $171 
Foreign currency derivative contracts— 121 — 121 — 8 — 8 
Total$218 $121 $— $339 $171 $8 $— $179 
Equity investments not measured at fair value and excluded from the above table were limited partnerships and other equity method investments of $58 million and $24 million at December 31, 2020 and 2019, respectively and other equity investments without readily determinable fair values of $204 million and $82 million at December 31, 2020 and 2019, respectively. These amounts were included in Other long-term assets on our Consolidated Balance Sheets.
Changes in the fair value of equity securities resulted in net unrealized losses of $1.7 billion and net unrealized gains of $1.2 billion for the years ended December 31, 2020 and 2019, respectively, which were included in Other income (expense), net, on our Consolidated Statements of Income.
The following table summarizes the classification of our equity securities in our Consolidated Balance Sheets:
(in millions)December 31, 2020December 31, 2019
Cash and cash equivalents$4,361 $7,069 
Prepaid and other current assets853 319 
Other long-term assets1,756 3,651 
Total$6,970 $11,039 
Our available-for-sale debt securities are classified as cash equivalents, short-term marketable securities and long-term marketable securities in our Consolidated Balance Sheets. See Note 4. Available-for-Sale Debt Securities for additional information. See Note 11. Collaborations and Other Arrangements for additional information on our equity investment in Galapagos.
Level 2 Inputs
We estimate the fair values of Level 2 instruments by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income-based and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate the fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities, prepayment/default projections based on historical data and other observable inputs.
Substantially all of our foreign currency derivative contracts have maturities within an 18 month time horizon and all are with counterparties that have a minimum credit rating of A- or equivalent by S&P Global Ratings, Moody’s Investors Service, Inc. or Fitch Ratings, Inc. We estimate the fair values of these contracts by taking into consideration the valuations obtained from a third-party valuation service that utilizes an income-based industry standard valuation model for which all significant inputs are observable, either directly or indirectly. These inputs include foreign currency exchange rates, London Interbank Offered Rates and swap rates. These inputs, where applicable, are observable at commonly quoted intervals.
The total estimated fair values of our aggregate short-term and long-term senior unsecured notes and term loan facility, determined using Level 2 inputs based on their quoted market values, were approximately $34.6 billion and $27.3 billion at December 31, 2020 and 2019, respectively, and the carrying values were $30.3 billion and $24.6 billion at December 31, 2020 and 2019, respectively.
Level 3 Inputs
In 2020, we measured assets acquired and liabilities assumed at fair value on a nonrecurring basis, in connection with our acquisition of Immunomedics, Inc. (“Immunomedics”). See Note 6. Acquisitions for additional information.
In 2020, in connection with collaborations and other equity arrangements we entered into separately with Pionyr Immunotherapeutics, Inc. (“Pionyr”) and Tizona Therapeutics, Inc. (“Tizona”), we also measured fair values of our exclusive options to acquire the remaining outstanding capital stock of Pionyr and Tizona on a nonrecurring basis. See Note 11. Collaborations and Other Arrangements for additional information.
In 2019 and 2018, we measured IPR&D intangible assets acquired in connection with the acquisition of Kite Pharma, Inc. (“Kite”) at fair value on a nonrecurring basis, and recognized pre-tax impairment charges of $800 million and $820 million, respectively. The fair values of the acquired IPR&D assets are estimated based on probability-adjusted discounted cash flow calculations using Level 3 fair value measurements and inputs include estimated revenues, costs, probability of technical and regulatory success and discount rates. Amounts capitalized as IPR&D are subject to impairment testing until the completion or abandonment of the associated R&D efforts. See Note 9. Goodwill and Intangible Assets for additional information.
The other level 3 liabilities were our contingent consideration liabilities, which were not material at December 31, 2020 and 2019.
Our policy is to recognize transfers into or out of Level 3 classification as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers between Level 1, Level 2 and Level 3 in the periods presented.