Fair Value Measurements

12 Months Ended

Dec. 31, 2023

The following fair value hierarchy is used to classify assets and liabilities based on observable inputs and unobservable inputs used to determine the fair value of our 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 our assessment of the assumptions that market participants would use in pricing the asset or liability.

Our investment strategy is focused on capital preservation. We invest in instruments that meet the credit quality standards outlined in our investment policy, which also limits the amount of credit exposure to any one issue or type of instrument. We maintain strategic equity investments separately from the investment policy that governs our other cash, cash equivalents and marketable securities as described in Note E, “Marketable Securities and Equity Investments.” Additionally, we utilize foreign currency forward contracts intended to mitigate the effect of changes in foreign exchange rates on our consolidated statements of income.

The following tables set forth our financial assets and liabilities subject to fair value measurements by level within the fair value hierarchy (and does not include $3.3 billion and $3.1 billion of cash as of December 31, 2023 and 2022, respectively):


	As of December 31, 2023								As of December 31, 2022
			Fair Value Hierarchy								Fair Value Hierarchy
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(in millions)
Financial instruments carried at fair value (asset positions):
Cash equivalents:
Money market funds	$	5,328.4	$	5,328.4	$	—	$	—	$	5,162.6	$	5,162.6	$	—	$	—
Time deposits	1,450.0		—		1,450.0		—		2,000.0		—		2,000.0		—
U.S. Treasury securities	68.9		68.9		—		—		—		—		—		—
Government-sponsored enterprise securities	174.8		—		174.8		—		—		—		—		—
Corporate debt securities	5.2		—		5.2		—		5.8		—		5.8		—
Commercial paper	6.6		—		6.6		—		204.5		—		204.5		—
Marketable securities:
Corporate equity securities	46.0		46.0		—		—		116.8		88.8		28.0		—
U.S. Treasury securities	546.5		546.5		—		—		—		—		—		—
Government-sponsored enterprise securities	425.2		—		425.2		—		127.1		—		127.1		—
Asset-backed securities	306.0		—		306.0		—		—		—		—		—
Certificates of deposit	33.7		—		33.7		—		—		—		—		—
Corporate debt securities	1,802.8		—		1,802.8		—		87.0		—		87.0		—
Commercial paper	186.8		—		186.8		—		55.8		—		55.8		—
Prepaid expenses and other current assets:
Foreign currency forward contracts	1.8		—		1.8		—		47.5		—		47.5		—
Other assets:
Foreign currency forward contracts	—		—		—		—		0.8		—		0.8		—
Total financial assets	$	10,382.7	$	5,989.8	$	4,392.9	$	—	$	7,807.9	$	5,251.4	$	2,556.5	$	—

Financial instruments carried at fair value (liability positions):
Other current liabilities:
Foreign currency forward contracts	$	(33.7)	$	—	$	(33.7)	$	—	$	(14.3)	$	—	$	(14.3)	$	—
Contingent consideration	—		—		—		—		(14.6)		—		—		(14.6)
Other long-term liabilities:
Foreign currency forward contracts	—		—		—		—		(0.9)		—		(0.9)		—
Contingent consideration	(77.4)		—		—		(77.4)		(114.4)		—		—		(114.4)
Total financial liabilities	$	(111.1)	$	—	$	(33.7)	$	(77.4)	$	(144.2)	$	—	$	(15.2)	$	(129.0)

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

Fair Value of Corporate Equity Securities

We classify our investments in publicly traded corporate equity securities as “Marketable securities” on our consolidated balance sheets. Generally, our investments in the common stock of publicly traded companies are valued based on Level 1 inputs because they have readily determinable fair values. However, certain of our 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 E, “Marketable Securities and Equity Investments,” for further information on these investments.

As of December 31, 2023, one of our investments in publicly traded corporate equity securities was subject to a contractual sales restriction expiring partially in 2024 and partially in 2025 with a total fair value of $24.4 million. We

purchased this investment directly from the publicly traded company in the first quarter of 2023, and do not anticipate any circumstances that would cause this restriction to lapse prior to the periods listed above.

Fair Value of Contingent Consideration

In 2019, we acquired Exonics Therapeutics, Inc. (“Exonics”), a privately held company focused on creating transformative gene-editing therapies to repair mutations that cause Duchenne muscular dystrophy (“DMD”) and other severe neuromuscular diseases, including DM1. Our Level 3 contingent consideration liabilities are related to $678.3 million of development and regulatory milestones potentially payable to former Exonics equity holders. We base our estimates of the probability of achieving the milestones relevant to the fair value of contingent payments on industry data attributable to gene therapies and our knowledge of the progress and viability of the programs.

The following table represents a rollforward of the fair value of our contingent consideration liabilities:


	Year Ended December 31, 2023
	(in millions)
Balance at December 31, 2022	$	129.0
Decrease in fair value of contingent payments	(51.6)
Balance at December 31, 2023	$	77.4

In November 2023, we determined that additional pre-clinical studies of the delivery system for our gene-editing components for DMD will be required, which resulted in a decrease in the fair value of our contingent consideration liabilities in the fourth quarter of 2023. The primary drivers of this decrease were reassessments of our estimates regarding the timing of the development and regulatory milestones and the probability of achieving the milestones. The discount rates used in the valuation model for contingent payments, which were between 4.7% and 4.9% as of December 31, 2023, 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 product candidates in the pharmaceutical industry and the effects of changes in other assumptions including discount rates, we expect our estimates regarding the fair value of contingent consideration to continue to change in the future, resulting in adjustments to the fair value of our contingent consideration liabilities, and the effect of any such adjustments could be material.

- 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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