Fair Value Measurements

3 Months Ended

Mar. 31, 2015

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, 2015 (In millions)	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	752.5	$	—	$	752.5	$	—
Marketable debt securities:
Corporate debt securities	991.0		—		991.0		—
Government securities	850.6		—		850.6		—
Mortgage and other asset backed securities	209.6		—		209.6		—
Marketable equity securities	6.2		6.2		—		—
Venture capital investments	12.1		—		—		12.1
Derivative contracts	168.2		—		168.2		—
Plan assets for deferred compensation	44.1		—		44.1		—
Total	$	3,034.3	$	6.2	$	3,016.0	$	12.1
Liabilities:
Derivative contracts	$	12.6	$	—	$	12.6	$	—
Contingent consideration obligations	461.8		—		—		461.8
Total	$	474.4	$	—	$	12.6	$	461.8



As of December 31, 2014 (In millions)	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	716.3	$	—	$	716.3	$	—
Marketable debt securities:
Corporate debt securities	1,063.0		—		1,063.0		—
Government securities	849.8		—		849.8		—
Mortgage and other asset backed securities	198.3		—		198.3		—
Marketable equity securities	6.9		6.9		—		—
Venture capital investments	14.5		—		—		14.5
Derivative contracts	72.7		—		72.7		—
Plan assets for deferred compensation	36.9		—		36.9		—
Total	$	2,958.4	$	6.9	$	2,937.0	$	14.5
Liabilities:
Derivative contracts	$	5.4	$	—	$	5.4	$	—
Contingent consideration obligations	215.5		—		—		215.5
Total	$	220.9	$	—	$	5.4	$	215.5

There have been no impairments of our assets measured and carried at fair value during the three months ended March 31, 2015. In addition, there were no changes in valuation techniques or inputs utilized or transfers between fair value measurement levels during the three months ended March 31, 2015. The fair value of Level 2 instruments classified as cash equivalents and marketable debt securities were determined through 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 2014 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, which are all Level 3 measurements, include investments in certain venture capital funds, accounted for at fair value, that primarily invest in small privately-owned, venture-backed biotechnology companies.

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



	For the Three Months Ended March 31,
(In millions)	2015			2014
Fair value, beginning of period	$	14.5		$	21.9
Unrealized gains included in earnings	—			2.9
Unrealized losses included in earnings	(2.4		)	(1.2		)
Fair value, end of period	$	12.1		$	23.6

Debt Instruments

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



	As of March 31, 2015				As of December 31, 2014
(In millions)	Fair Value		Carrying Value		Fair Value		Carrying Value
Notes payable to Fumedica	$	12.9	$	12.1	$	12.6	$	11.7
6.875% Senior Notes due March 1, 2018	633.9		571.8		634.6		573.5
Total	$	646.8	$	583.9	$	647.2	$	585.2

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 6.875% Senior Notes was determined through market, observable, and corroborated sources. For additional information related to our debt instruments, please read Note 12, Indebtedness to our consolidated financial statements included within our 2014 Form 10-K.

Contingent Consideration Obligations

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)	2015		2014
Fair value, beginning of period	$	215.5	$	280.9
Additions	238.5		—
Changes in fair value	7.8		(0.8		)
Payments	—		(5.0		)
Fair value, end of period	$	461.8	$	275.1

As of March 31, 2015 and December 31, 2014, approximately $397.5 million and $200.0 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 Convergence in February 2015, we recorded a liability of $238.5 million, representing the fair value of the contingent consideration. This valuation was based on probability weighted net cash outflow projections of $450.0 million, discounted using a rate of 2%, which is the estimated cost of debt financing for market participants.

Acquired IPR&D

In connection with our acquisition of Convergence, we also allocated $424.6 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 will be tested for impairment annually until commercialization, after which time the IPR&D will be 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.

- 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+ Details