Fair Value Measurements

9 Months Ended

Sep. 30, 2021

We record cash equivalents and investments in debt securities available-for-sale and equity securities at fair value based on a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). The fair value hierarchy consists of the following three levels:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 – Unobservable inputs that reflect our own assumptions about the assumptions that market participants would use in pricing the asset or liability when there is little, if any, market activity for the asset or liability at the measurement date.

Investments in debt securities available-for-sale are classified as Level 2 and carried at fair value. We estimate the fair value of debt securities available-for-sale by utilizing third-party pricing services. These pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. Such inputs include market pricing based on real-time trade data for similar instruments, issuer credit spreads, benchmark yields, broker/dealer quotes and other observable inputs. We validate valuations obtained from third-party pricing services by understanding the models used, obtaining market values from other pricing sources, and analyzing data in certain instances.

Investments in equity securities of certain companies that are subject to certain holding period restrictions are classified as Level 3 and carried at fair value using an option pricing valuation model. The most significant assumptions within the option pricing valuation model are the stock price volatility, which is based on the historical volatility of similar companies, and the discount for lack of marketability related to the term of the restrictions.

The carrying amounts of accounts receivable and accounts payable and accrued liabilities approximate their fair values due to their short-term maturities.

Investments, which were measured at fair value on a recurring basis, consisted of the following:


	September 30, 2021								December 31, 2020
	Fair Value		Fair Value Measurements Using						Fair Value		Fair Value Measurements Using
(in millions)			Level 1		Level 2		Level 3				Level 1		Level 2		Level 3
Cash and cash equivalents:
Cash and money market funds	$	311.1	$	311.1	$	—	$	—	$	187.1	$	187.1	$	—	$	—

Restricted cash:
Certificates of deposit	3.2		3.2		—		—		3.2		3.2		—		—

Debt securities available-for-sale:
Commercial paper	208.6		—		208.6		—		82.2		—		82.2		—
Corporate debt securities	499.3		—		499.3		—		445.9		—		445.9		—
Securities of government-sponsored entities	260.6		—		260.6		—		312.9		—		312.9		—

Equity securities:
Equity securities–biotechnology industry	35.3		—		—		35.3		38.2		—		—		38.2

	$	1,318.1	$	314.3	$	968.5	$	35.3	$	1,069.5	$	190.3	$	841.0	$	38.2

The following table presents a reconciliation of equity security investments, which were measured at fair value on a recurring basis using significant unobservable inputs (Level 3):


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2021		2020		2021		2020
Balance at beginning of period	$	38.9	$	50.7	$	38.2	$	55.9
Purchases (1)	4.6		—		4.6		—
Unrealized loss included in earnings	(8.2)		(7.0)		(7.5)		(12.2)
Balance at end of period	$	35.3	$	43.7	$	35.3	$	43.7

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(1) In September 2021, we purchased 0.3 million shares of Xenon's common stock, valued at $4.6 million on the date of purchase, in connection with the approval of the CTA for NBI-921352.

As of September 30, 2021, the discount for lack of marketability used in the valuation analysis of equity security investments ranged from 2.5% to 7.5% (weighted average of 3.9%). The discount for lack of marketability was weighted by the relative fair value of the instruments. A significant increase (decrease) in the discount for lack of marketability in isolation would result in a significantly lower (higher) fair value measurement. Unrealized gains and losses on equity security investments are included in other income (expense), net.

- 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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