Fair Value Measurements

6 Months Ended

Jun. 30, 2021

The following fair value hierarchy is used to classify assets and liabilities based on observable inputs and unobservable inputs used in order to determine the fair value of the Company’s financial assets and liabilities:


Level 1:			Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2:			Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3:			Unobservable inputs based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability.

The Company’s investment strategy is focused on capital preservation. The Company invests in instruments that meet the credit quality standards outlined in the Company’s investment policy. This policy also limits the amount of credit exposure to any one issue or type of instrument. The Company maintains strategic investments separately from the investment policy that governs its other cash, cash equivalents and marketable securities as described in Note F, “Marketable Securities and Equity Investments.” Additionally, the Company utilizes foreign currency forward contracts intended to mitigate the effect of changes in foreign exchange rates on its condensed consolidated statement of operations.

During the three and six months ended June 30, 2021 and 2020, the Company did not record any other-than-temporary impairment charges related to its financial assets.

The following tables set forth the Company’s financial assets and liabilities subject to fair value measurements by level within the fair value hierarchy (and does not include $2.4 billion and $2.8 billion of cash as of June 30, 2021 and December 31, 2020, respectively):


	As of June 30, 2021								As of December 31, 2020
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(in thousands)
Financial instruments carried at fair value (asset positions):
Cash equivalents:
Money market funds	$	3,674,645	$	3,674,645	$	—	$	—	$	3,141,053	$	3,141,053	$	—	$	—
Commercial paper	2,000		—		2,000		—		—		—		—		—
Marketable securities:
Corporate equity securities	154,095		13,033		141,062		—		195,781		15,650		180,131		—
U.S. Treasury securities	16,220		16,220		—		—		—		—		—		—
Government-sponsored enterprise securities	62,375		62,375		—		—		80,063		80,063		—		—
Corporate debt securities	135,783		—		135,783		—		231,598		—		231,598		—
Commercial paper	275,842		—		275,842		—		163,268		—		163,268		—
Prepaid expenses and other current assets:
Foreign currency forward contracts	9,545		—		9,545		—		—		—		—		—
Other assets:
Foreign currency forward contracts	1,378		—		1,378		—		—		—		—		—
Total financial assets	$	4,331,883	$	3,766,273	$	565,610	$	—	$	3,811,763	$	3,236,766	$	574,997	$	—

Financial instruments carried at fair value (liability positions):
Other current liabilities:
Foreign currency forward contracts	$	(20,361)	$	—	$	(20,361)	$	—	$	(59,184)	$	—	$	(59,184)	$	—
Long-term contingent consideration	(187,300)		—		—		(187,300)		(189,600)		—		—		(189,600)
Other long-term liabilities:
Foreign currency forward contracts	(206)		—		(206)		—		(4,283)		—		(4,283)		—
Total financial liabilities	$	(207,867)	$	—	$	(20,567)	$	(187,300)	$	(253,067)	$	—	$	(63,467)	$	(189,600)

Please refer to Note F, “Marketable Securities and Equity Investments,” for the carrying amount and related unrealized gains (losses) by type of investment.

Fair Value of Corporate Equity Securities

The Company classifies its investments in publicly traded corporate equity securities as “Marketable securities” on its condensed consolidated balance sheets. Generally, the Company’s investments in the common stock of these publicly traded companies are valued based on Level 1 inputs because they have readily determinable fair values. However, certain of the Company’s investments in publicly traded companies have been or continue to be valued based on Level 2 inputs due to transfer restrictions associated with these investments. Please refer to Note F, “Marketable Securities and Equity Investments,” for further information on these investments.

Fair Value of Contingent Consideration

In 2019, the Company acquired Exonics Therapeutics, Inc. (“Exonics”), a privately-held company focused on creating transformative gene-editing therapies to repair mutations that cause DMD and other severe neuromuscular diseases, including DM1. The Company’s Level 3 contingent consideration liabilities are related to $678.3 million of development and regulatory milestones potentially payable to Exonics’ former equity holders. The Company bases its estimates of the probability of achieving the milestones relevant to the fair value of contingent payments on industry data attributable to rare diseases. The discount rates used in the valuation model for contingent payments, which were between 0.6% and 2.2% as of June 30, 2021, represent a measure of credit risk and market risk associated with settling the liabilities. Significant judgment

is used in determining the appropriateness of these assumptions at each reporting period. Due to the uncertainties associated with development and commercialization of drug candidates in the pharmaceutical industry and the effects of changes in other assumptions including discount rates, the Company expects its estimates regarding the fair value of contingent consideration to change in the future, resulting in adjustments to the fair value of the Company’s contingent consideration liabilities, and the effect of any such adjustments could be material.

The following table represents a rollforward of the fair value of the Company’s contingent consideration liabilities:


	Six Months Ended June 30, 2021
	(in thousands)
Balance at December 31, 2020	$	189,600
Decrease in fair value of contingent payments	(2,300)
Balance at June 30, 2021	$	187,300

- 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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