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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2012
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements 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 each fair value:
(In millions) | As of September 30, 2012 |  | Quoted Prices in Active Markets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Assets: |  |  |  |  |  |  |
Cash equivalents | $ | 309.0 |  |  | $ | — |  |  | $ | 309.0 |  |  | $ | — |
Marketable debt securities: |  |  |  |  |  |  |
Corporate debt securities | 914.7 |  |  | — |  |  | 914.7 |  |  | — |
Government securities | 1,539.9 |  |  | — |  |  | 1,539.9 |  |  | — |
Mortgage and other asset backed securities | 441.0 |  |  | — |  |  | 441.0 |  |  | — |
Marketable equity securities | 1.2 |  |  | 1.2 |  |  | — |  |  | — |
Venture capital investments | 25.2 |  |  | — |  |  | — |  |  | 25.2 |
Derivative contracts | 6.9 |  |  | — |  |  | 6.9 |  |  | — |
Plan assets for deferred compensation | 13.9 |  |  | — |  |  | 13.9 |  |  | — |
Total | $ | 3,251.8 |  |  | $ | 1.2 |  |  | $ | 3,225.4 |  |  | $ | 25.2 |
Liabilities: |  |  |  |  |  |  |
Derivative contracts | $ | 5.2 |  |  | $ | — |  |  | $ | 5.2 |  |  | $ | — |
Contingent consideration obligations | 290.3 |  |  | — |  |  | — |  |  | 290.3 |
Total | $ | 295.5 |  |  | $ | — |  |  | $ | 5.2 |  |  | $ | 290.3 |
(In millions) | As of December 31, 2011 |  | Quoted Prices in Active Markets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Assets: |  |  |  |  |  |  |
Cash equivalents | $ | 399.8 |  |  | $ | — |  |  | $ | 399.8 |  |  | $ | — |
Marketable debt securities: |  |  |  |  |  |  |
Corporate debt securities | 602.6 |  |  | — |  |  | 602.6 |  |  | — |
Government securities | 1,716.5 |  |  | — |  |  | 1,716.5 |  |  | — |
Mortgage and other asset backed securities | 273.8 |  |  | — |  |  | 273.8 |  |  | — |
Marketable equity securities | 0.1 |  |  | 0.1 |  |  | — |  |  | — |
Venture capital investments | 23.5 |  |  | — |  |  | — |  |  | 23.5 |
Derivative contracts | 39.5 |  |  | — |  |  | 39.5 |  |  | — |
Plan assets for deferred compensation | 11.6 |  |  | — |  |  | 11.6 |  |  | — |
Total | $ | 3,067.4 |  |  | $ | 0.1 |  |  | $ | 3,043.8 |  |  | $ | 23.5 |
Liabilities: |  |  |  |  |  |  |
Derivative contracts | $ | 0.5 |  |  | $ | — |  |  | $ | 0.5 |  |  | $ | — |
Contingent consideration obligations | 151.0 |  |  | — |  |  | — |  |  | 151.0 |
Total | $ | 151.5 |  |  | $ | — |  |  | $ | 0.5 |  |  | $ | 151.0 |
The fair value of Level 2 instruments classified as cash equivalents and marketable debt securities were determined through financial models of third party pricing services. For a description of our validation procedures related to prices provided by third party pricing services, refer to Note 1, Summary of Significant Accounting Policies: Fair Value Measurements, to our consolidated financial statements included within our 2011 Form 10-K. Marketable Equity Securities and Venture Capital Investments Our marketable equity securities represent investments in publicly traded equity securities. Our venture capital investments include investments in certain venture capital funds, accounted for at fair value, which primarily invest in small privately-owned, venture-backed biotechnology companies. These venture capital investments represented approximately 0.3% of total assets as of September 30, 2012 and December 31, 2011, respectively. 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 Ended September 30, |  | For the Nine Months Ended September 30,
(In millions) | 2012 |  | 2011 |  | 2012 |  | 2011
Fair value, beginning of period | $ | 25.4 |  |  | $ | 20.6 |  |  | $ | 23.5 |  |  | $ | 20.8 |
Unrealized gains included in earnings | 1.4 |  |  | 1.8 |  |  | 4.9 |  |  | 2.5 |
Unrealized losses included in earnings | (1.6 | ) |  | (0.2 | ) |  | (3.6 | ) |  | (1.5 | )
Purchases | — |  |  | 0.9 |  |  | 0.4 |  |  | 1.3 |
Fair value, end of period | $ | 25.2 |  |  | $ | 23.1 |  |  | $ | 25.2 |  |  | $ | 23.1 |
Debt Instruments The fair and carrying values of our debt instruments, which are all Level 2 liabilities, are summarized as follows:
| As of September 30, 2012 |  | As of December 31, 2011
(In millions) | Fair Value |  | Carrying Value |  | Fair Value |  | Carrying Value
Notes payable to Fumedica | $ | 18.9 |  |  | $ | 17.2 |  |  | $ | 22.4 |  |  | $ | 19.7 |
6.0% Senior Notes due March 1, 2013 | 459.6 |  |  | 450.0 |  |  | 474.1 |  |  | 449.9 |
6.875% Senior Notes due March 1, 2018 | 666.4 |  |  | 587.9 |  |  | 663.9 |  |  | 592.3 |
Total | $ | 1,144.9 |  |  | $ | 1,055.1 |  |  | $ | 1,160.4 |  |  | $ | 1,061.9 |
We utilized Level 2 inputs to determine the fair value of our notes payable to Fumedica and our Senior Notes. The fair value of our notes payable to Fumedica was 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. Contingent Consideration Obligations The following table provides a roll forward of the fair values of our contingent consideration obligations, which are all Level 3 liabilities:
| For the Three Months Ended September 30, |  | For the Nine Months Ended September 30,
(In millions) | 2012 |  | 2011 |  | 2012 |  | 2011
Fair value, beginning of period | $ | 280.9 |  |  | $ | 84.6 |  |  | $ | 151.0 |  |  | $ | 81.2 |
Additions | — |  |  | 38.8 |  |  | 122.2 |  |  | 38.8 |
Changes in fair value | 9.4 |  |  | 2.5 |  |  | 23.6 |  |  | 5.9 |
Payments | — |  |  | — |  |  | (6.5 | ) |  | — |
Fair value, end of period | $ | 290.3 |  |  | $ | 125.9 |  |  | $ | 290.3 |  |  | $ | 125.9 |
As of September 30, 2012 and December 31, 2011, approximately $269.0 million and $140.3 million, respectively, of the fair value of our total contingent consideration obligations were reflected as components of other long-term liabilities within our condensed consolidated balance sheets with the remaining balances reflected as a component of accrued expenses and other. In connection with our acquisition of Stromedix in March 2012, we recorded a liability of $122.2 million representing the fair value of the contingent consideration. This valuation was based on probability weighted net cash outflow projections of $487.5 million, discounted using a rate of 4.4%, which is a measure of the credit risk associated with settling the liability. The consideration for our acquisitions often includes future payments that are contingent upon the occurrence of a particular event. For acquisitions completed after January 1, 2009, we record a contingent consideration obligation for such contingent payments at fair value on the acquisition date. We estimate the fair value of contingent consideration obligations through valuation models that incorporate probability adjusted assumptions related to the achievement of the milestones and thus likelihood of making related payments. We revalue these contingent consideration obligations each reporting period. Changes in the fair value of our contingent consideration obligations are recognized within our condensed consolidated statements of income. Changes in the fair value of the contingent consideration obligations can result from changes to one or multiple inputs, including adjustments to the discount rates and periods utilized, changes in the amount or timing of expected expenditures associated with product development, changes in the amount or timing of cash flows and reserves associated with products upon commercialization, changes in the assumed achievement or timing of any development milestones, changes in the probability of certain clinical events and changes in the assumed probability associated with regulatory approval. Discount rates in our valuation models represent a measure of the credit risk associated with settling the liability. The value of our contingent obligations as of September 30, 2012 was based upon discount rates ranging from 2.5% to 3.7%. The period over which we discount our contingent obligations is based on the current development stage of the product candidates, our specific development plan for that product candidate adjusted for the probability of completing the development step, and when the contingent payments would be triggered. In determining the probability of success, we utilize data regarding similar milestone events from several sources, including industry studies and our own experience. These fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in the market. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense we record in any given period. Acquired IPR&D In connection with our acquisition of Stromedix, we allocated $219.2 million of the total purchase price to acquired IPR&D, which was capitalized as an intangible asset. The amount allocated to acquired IPR&D was based on significant inputs not observable in the market and thus represented a Level 3 fair value measurement. These assets are tested for impairment annually until commercialization, after which time the IPR&D is amortized over its estimated useful life. For a more detailed description of this transaction, please read Note 2, Acquisitions to these condensed consolidated financial statements. There has been no impairment of our assets measured at fair value during the three and nine months ended September 30, 2012. 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, 2012. For additional information related to the valuation techniques and inputs utilized in valuation of our financial assets and liabilities, please read Note 1, Summary of Significant Accounting Policies to our consolidated financial statements included within our 2011 Form 10-K.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13504-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. 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