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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2018
Fair Value Measurements [Abstract] |
Fair Value Measurements | 4. Fair Value Measurements We use a three-tier fair value hierarchy to prioritize the inputs used in our fair value measurements. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets, which includes our money market funds and treasury securities classified as available-for-sale securities and our investment in equity securities in publicly-held biotechnology companies; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, which includes our fixed income securities and commercial paper classified as available-for-sale securities; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring us to develop our own assumptions. We classify the majority of our securities as Level 2. We obtain the fair value of our Level 2 investments from our custodian bank or from a professional pricing service. We validate the fair value of our Level 2 investments by understanding the pricing model used by the custodian banks or professional pricing service provider and comparing that fair value to the fair value based on observable market prices. During the nine months ended September 30, 2018, there were no transfers between our Level 1 and Level 2 investments. When we recognize transfers between levels of the fair value hierarchy, we recognize the transfer on the date the event or change in circumstances that caused the transfer occurs. The following tables present the major security types we held at September 30, 2018 and December 31, 2017 that are regularly measured and carried at fair value. At September 30, 2018 and December 31, 2017, we did not have any financial instruments that we valued using Level 3 inputs. The tables segregate each security type by the level within the fair value hierarchy of the valuation techniques we utilized to determine the respective securities’ fair value (in thousands):
|  | At September 30, 2018 |  |  | Quoted Prices in Active Markets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |
Cash equivalents (1) |  | $ | 395,649 |  |  | $ | 395,649 |  |  | $ | — |
Corporate debt securities (2) |  |  | 1,078,960 |  |  |  | — |  |  |  | 1,078,960 |
Debt securities issued by U.S. government agencies (3) |  |  | 175,167 |  |  |  | — |  |  |  | 175,167 |
Debt securities issued by the U.S. Treasury (3) |  |  | 164,053 |  |  |  | 164,053 |  |  |  | — |
Debt securities issued by states of the U.S. and political subdivisions of the states (3) |  |  | 80,658 |  |  |  | — |  |  |  | 80,658 |
Total |  | $ | 1,894,487 |  |  | $ | 559,702 |  |  | $ | 1,334,785 |
|  | At December 31, 2017 |  |  | Quoted Prices in Active Markets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |
Cash equivalents (1) |  | $ | 86,262 |  |  | $ | 86,262 |  |  | $ | — |
Corporate debt securities (3) |  |  | 647,461 |  |  |  | — |  |  |  | 647,461 |
Debt securities issued by U.S. government agencies (3) |  |  | 136,325 |  |  |  | — |  |  |  | 136,325 |
Debt securities issued by the U.S. Treasury (3) |  |  | 30,818 |  |  |  | 30,818 |  |  |  | — |
Debt securities issued by states of the U.S. and political subdivisions of the states (4) |  |  | 93,932 |  |  |  | — |  |  |  | 93,932 |
Total |  | $ | 994,798 |  |  | $ | 117,080 |  |  | $ | 877,718 |
| (1) | Included in cash and cash equivalents on our condensed consolidated balance sheet.
| (2) | At September 30, 2018, $19.7 million was included in cash and cash equivalents on our condensed consolidated balance sheet, with the difference included in short-term investments on our condensed consolidated balance sheet.
| (3) | Included in short-term investments on our condensed consolidated balance sheet.
| (4) | At December 31, 2017, $3.5 million was included in cash and cash equivalents on our condensed consolidated balance sheet, with the difference included in short-term investments on our condensed consolidated balance sheet.
Other Fair Value Disclosures Novartis Future Stock Purchase In January 2017, we and Akcea entered into a SPA with Novartis. As part of the SPA, Novartis was required to purchase $50 million of Akcea’s common stock at the IPO price or our common stock at a premium if an IPO did not occur by April 2018. Therefore, at the inception of the SPA, we recorded a $5.0 million asset representing the fair value of the potential future premium we could have received if Novartis purchased our common stock. We determined the fair value of the future premium by calculating the value based on the stated premium in the SPA and estimating the probability of an Akcea IPO. We also included a lack of marketability discount when we determined the fair value of the premium because we would have issued unregistered shares to Novartis if they had purchased our common stock. We measured this asset using Level 3 inputs and recorded it in other assets on our consolidated balance sheet. Because Akcea completed its IPO before April 2018, Novartis did not purchase additional shares of Ionis stock. Therefore, we wrote-off the remaining balance to other expenses in the third quarter of 2017 because this asset no longer had any value. The following is a reconciliation of the potential premium we would have received if Akcea had not completed its IPO, measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2017 (in thousands):
Beginning balance of Level 3 instruments at January 1, 2017 |  | $ | — |
Value of the potential premium we would have received from Novartis at inception of the SPA (January 2017) |  |  | 5,035 |
Recurring fair value adjustment during the nine months ended September 30, 2017 |  |  | (5,035 | )
Ending balance of Level 3 instruments at September 30, 2017 |  | $ | — |
Convertible Notes Our 1 percent notes had a fair value of $725.7 million at September 30, 2018. We determine the fair value of our notes based on quoted market prices for these notes, which are Level 2 measurements because the notes do not trade regularly.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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