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Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2011

E. Fair Value of Financial Instruments

The fair value of the Company's financial assets and liabilities reflects the Company's estimate of amounts that it would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from sources independent from the Company) and to minimize the use of unobservable inputs (the Company's assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the 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 credit quality standards as outlined in the Company's investment policy guidelines. These guidelines also limit the amount of credit exposure to any one issue or type of instrument. As of June 30, 2011, the Company's investments are in money market funds and short-term government guaranteed or supported securities.

As of June 30, 2011, all of the Company's financial assets that were subject to fair value measurements were valued using observable inputs. The Company's financial assets that were valued based on Level 1 inputs consist of a money market fund, U.S. Treasury securities and government-sponsored enterprise securities. The Company's money market fund also invests in government-sponsored enterprise securities. During the three and six months ended June 30, 2011 and 2010, the Company did not record an other-than-temporary impairment charge related to its financial assets. The Company's financial liabilities that were subject to fair value measurement related to the financial transactions that the Company entered into in September 2009 and are valued based on Level 3 inputs. Please refer to Note M, "September 2009 Financial Transactions," for further information. The Company's noncontrolling interests (Alios) include the fair value of the contingent milestone and royalty payments, which is valued based on Level 3 inputs. Please refer to Note K, "Collaborative Arrangements," for further information.

The following table sets forth the Company's financial assets and liabilities (excluding restricted cash and cash equivalents (Alios)) subject to fair value measurements as of June 30, 2011:

			Fair Value Measurements as of June 30, 2011

					Fair Value Hierarchy
			Total		Level 1		Level 2		Level 3
			(in thousands)
Financial assets carried at fair value:
	Cash equivalents:
		Money market funds	$	373,003	$	373,003	$	—	$	—
		Government-sponsored enterprise securities		35,906		35,906		—		—
	Marketable securities:
		U.S. Treasury securities		9,547		9,547		—		—
		Government-sponsored enterprise securities		125,749		125,749		—		—
	Restricted cash			34,114		34,114		—		—

		Total	$	578,319	$	578,319	$	—	$	—

Financial liabilities carried at fair value:
	Embedded derivative related to 2012 Notes		$	4,973	$	—	$	—	$	4,973
	Liability related to sale of potential future milestone payments			87,131		—		—		87,131

		Total	$	92,104	$	—	$	—	$	92,104

The following table is a reconciliation of financial liabilities measured at fair value using significant unobservable inputs (Level 3):

		Six Months Ended June 30, 2011

		(in thousands)
Balance, December 31, 2010		$	89,888
	Change in fair value of derivative instruments		7,818
	Redemption of a portion of the 2012 Notes		(5,602	)

Balance, June 30, 2011		$	92,104

As of June 30, 2011, the Company had $400.0 million in aggregate principal amount of 3.35% convertible senior subordinated notes due 2015 (the "2015 Notes") on its condensed consolidated balance sheet. As of June 30, 2011, these 2015 Notes had a fair value of approximately $501 million as obtained from a quoted market source.

- Definition

This item represents the complete disclosure regarding the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments, 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 Company 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 risk is 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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