Investments

3 Months Ended

Mar. 31, 2020

Investments, Debt and Equity Securities [Abstract]

Available-for-sale investments

The amortized cost, gross unrealized gains, gross unrealized losses and fair values of interest-bearing securities, which are considered available-for-sale, by type of security were as follows (in millions):



Types of securities as of March 31, 2020	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair values
U.S. Treasury notes	$	173	$	3	$	—	$	176
U.S. Treasury bills	900		—		—		900
Corporate debt securities:
Financial	12		—		—		12
Industrial	12		—		—		12
Other	—		—		—		—
Residential-mortgage-backed securities	—		—		—		—
Money market mutual funds	5,762		—		—		5,762
Other short-term interest-bearing securities	432		—		—		432
Total interest-bearing securities	$	7,291	$	3	$	—	$	7,294



Types of securities as of December 31, 2019	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair values
U.S. Treasury notes	$	359	$	1	$	—	$	360
U.S. Treasury bills	—		—		—		—
Corporate debt securities:
Financial	1,108		13		—		1,121
Industrial	824		10		—		834
Other	195		3		—		198
Residential-mortgage-backed securities	181		1		—		182
Money market mutual funds	5,250		—		—		5,250
Other short-term interest-bearing securities	289		—		—		289
Total interest-bearing securities	$	8,206	$	28	$	—	$	8,234

The fair values of interest-bearing securities by location in the Condensed Consolidated Balance Sheets were as follows (in millions):



Condensed Consolidated Balance Sheets locations	March 31, 2020		December 31, 2019
Cash and cash equivalents	$	6,969	$	5,360
Marketable securities	325		2,874
Total interest-bearing securities	$	7,294	$	8,234

Cash and cash equivalents in the above table excludes bank account cash of $718 million and $677 million as of March 31, 2020 and December 31, 2019, respectively.

The fair values of interest-bearing securities by contractual maturity, except for residential-mortgage-backed securities that do not have a single maturity date, were as follows (in millions):



Contractual maturities	March 31, 2020		December 31, 2019
Maturing in one year or less	$	7,165	$	5,629
Maturing after one year through three years	129		2,304
Maturing after three years through five years	—		119
Residential mortgage-backed securities	—		182
Total interest-bearing securities	$	7,294	$	8,234

For the three months ended March 31, 2020 and 2019, realized gains on interest-bearing securities were $37 million and $1 million, respectively, and realized losses on interest-bearing securities were $4 million and $5 million, respectively. Realized gains and losses on interest-bearing securities are recorded in Interest and other income, net, in the Condensed Consolidated Statements of Income. The cost of securities sold is based on the specific-identification method.

The primary objective of our investment portfolio is to maintain safety of principal, prudent levels of liquidity and acceptable levels of risk. Our investment policy limits interest-bearing security investments to certain types of debt and money market instruments issued by institutions with primarily investment-grade credit ratings, and it places restrictions on maturities and concentration by asset class and issuer.

As of March 31, 2020 and December 31, 2019, aggregated gross unrealized losses of available-for-sale investments were not material, and accordingly, no allowance for credit losses was recorded as of March 31, 2020.

Equity securities

We held investments in equity securities with readily determinable fair values of $220 million and $303 million as of March 31, 2020 and December 31, 2019, respectively, which are included in Other assets in the Condensed Consolidated Balance Sheets. Gains and losses recognized on equity securities with readily determinable fair values, including gains and losses recognized on sales, were not material for the three months ended March 31, 2020 and 2019.

We held investments of $183 million and $176 million in equity securities without readily determinable fair values as of March 31, 2020 and December 31, 2019, respectively, which are included in Other assets in the Condensed Consolidated Balance Sheets. Adjustments to the carrying values of these securities were not material for the three months ended March 31, 2020 and 2019.

Equity method investments

Limited partnerships

We held limited partnership investments of $331 million and $320 million as of March 31, 2020 and December 31, 2019, respectively, which are included in Other assets in the Condensed Consolidated Balance Sheets. These investments, primarily investment funds of early-stage biotechnology companies, are accounted for by using the equity method of accounting and measured by using our proportionate share of the net asset values of the underlying investments held by the limited partnerships as a practical expedient. These investments are typically redeemable only through distributions upon liquidation of the underlying assets. As of March 31, 2020, unfunded additional commitments to be made for these investments during the next several years were not material. Gains and losses recognized on our limited partnership investments were not material for the three months ended March 31, 2020 and 2019.

BeiGene

On January 2, 2020, we acquired a 20.5% ownership interest in BeiGene for $2.8 billion, of which $2.6 billion was attributed to the fair value of equity securities upon closing, with the remainder attributed to prepaid R&D. Our equity investment in BeiGene is included in Other assets in the Condensed Consolidated Balance Sheets. The fair value of equity securities acquired exceeded our proportionate share of the carrying value of the underlying net assets of BeiGene by approximately $2.4 billion. This investment is accounted for by using the equity method of accounting, which requires us to identify and allocate amounts to the items that give rise to the basis difference and to amortize these items over their useful lives. This amortization, along with our share of the results of operations of BeiGene, will be recognized in Interest and other income, net, in our Condensed Consolidated Statements of Income. Recognition will occur one quarter in arrears, beginning in the second quarter of 2020. The basis difference was allocated to finite-lived intangible assets, indefinite-lived intangible assets, equity-method goodwill and related deferred taxes. The finite-lived intangible assets will be amortized over a period ranging from 8 to 15 years.

As of March 31, 2020, the carrying and fair values of our approximately 20.5% ownership interest in BeiGene totaled $2.6 billion and $2.0 billion, respectively. As of March 31, 2020, we believe the carrying value of our equity investment in BeiGene is fully recoverable. See Note 1, Summary of significant accounting policies, for factors considered in determining our conclusion. For information on a collaboration agreement we entered into with BeiGene in connection with this investment, see Note 5, Collaborations.