Fair value measurements

12 Months Ended

Dec. 31, 2012

Fair Value, Assets and Liabilities Measured on Recurring Basis [Abstract]

Fair Value Disclosures [Text Block]

FAIR VALUE MEASUREMENTS

We determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value, as follows:

• Level 1 inputs which include quoted prices in active markets for identical assets or liabilities;

• Level 2 inputs which include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. For our marketable securities, we review trading activity and pricing as of the measurement date. When sufficient quoted pricing for identical securities is not available, we use market pricing and other observable market inputs for similar securities obtained from various third-party data providers. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data; and

• Level 3 inputs which include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation.

The following table summarizes, for assets or liabilities recorded at fair value, the respective fair value and the classification by level of input within the fair value hierarchy defined above (in thousands):

	December 31, 2012								December 31, 2011
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Debt securities:
U.S. treasury securities	$	81,903	$	—	$	—	$	81,903	$	—	$	—	$	—	$	—
Money market funds	1,416,355		—		—		1,416,355		7,455,982		—		—		7,455,982
Certificates of deposit	—		—		—		—		—		1,139,982		—		1,139,982
U.S. government agencies securities	—		248,952		—		248,952		—		—		—		—
Municipal debt securities	—		12,088		—		12,088		—		—		—		—
Non-U.S. government securities	—		—		—		—		—		—		24,741		24,741
Corporate debt securities	—		352,718		—		352,718		—		404,989		—		404,989
Residential mortgage and asset-backed securities	—		82,732		—		82,732		—		—		—		—
Student loan-backed securities	—		—		—		—		—		—		46,952		46,952
Total debt securities	1,498,258		696,490		—		2,194,748		7,455,982		1,544,971		71,693		9,072,646
Equity securities	—		—		—		—		8,503		—		—		8,503
Derivatives	—		14,823		—		14,823		—		100,475		—		100,475
	$	1,498,258	$	711,313	$	—	$	2,209,571	$	7,464,485	$	1,645,446	$	71,693	$	9,181,624
Liabilities:
Contingent consideration	$	—	$	—	$	205,060	$	205,060	$	—	$	—	$	135,591	$	135,591
Derivatives	—		65,248		—		65,248		—		5,710		—		5,710
	$	—	$	65,248	$	205,060	$	270,308	$	—	$	5,710	$	135,591	$	141,301

Level 2 Inputs

We estimate the fair values of our government related debt, corporate debt, residential mortgage and asset-backed securities by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities; issuer credit spreads; benchmark securities; prepayment/default projections based on historical data; and other observable inputs.

Substantially all of our foreign currency derivatives contracts have maturities primarily over an 18 month time horizon and all are with counterparties that have a minimum credit rating of A- or equivalent by Standard & Poor's, Moody's Investors Service, Inc. or Fitch, Inc. We estimate the fair values of these contracts by taking into consideration valuations obtained from a third-party valuation service that utilizes an income-based industry standard valuation model for which all significant inputs are observable, either directly or indirectly. These inputs include foreign currency rates, London Interbank Offered Rates (LIBOR) and swap rates. These inputs, where applicable, are at commonly quoted intervals.

Level 3 Inputs

Assets measured at fair value using Level 3 inputs were comprised of auction rate securities and Greek bonds within our available-for-sale investment portfolio. Our policy is to recognize transfers into or out of Level 3 classification as of the actual date of the event or change in circumstances that caused the transfer. As of December 31, 2012, we held no assets measured using Level 3 inputs. The following table provides a rollforward of the changes in the fair value of our assets measured using Level 3 inputs (in thousands):

	Year Ended December 31,
	2012			2011
Fair value, beginning of period	$	71,693		$	80,365
Total realized and unrealized gains (losses) included in:
Other income (expense), net	(40,096		)	6,251
Other comprehensive income (loss), net	32,630			(30,376		)
Sales of marketable securities	(64,227		)	(38,430		)
Transfers into Level 3	—			53,883
Fair value, end of period	$	—		$	71,693

Auction Rate Securities

The underlying assets of our auction rate securities consisted of student loans. Although auction rate securities would typically be measured using Level 2 inputs, the failure of auctions and the lack of market activity and liquidity experienced since the beginning of 2008 required that these securities be measured using Level 3 inputs. The fair value of our auction rate securities was determined using a discounted cash flow model that considered projected cash flows for the issuing trusts, underlying collateral and expected yields. Projected cash flows were estimated based on the underlying loan principal, bonds outstanding and payout formulas. The weighted-average life over which the cash flows were projected considered the collateral composition of the securities and related historical and projected prepayments.

During the third quarter of 2012, we sold our remaining portfolio of auction rate securities. As a result of the sale, we received total proceeds of $37.3 million which resulted in a $3.8 million loss that was recognized in other income (expense), net on our Consolidated Statement of Income.

As of December 31, 2011, our auction rate securities were recorded in long-term marketable securities on our Consolidated Balance Sheets.

Greek Government Bonds

In 2010, the Greek government agreed to settle the majority of its aged outstanding accounts receivable with zero-coupon bonds, which were expected to trade at a discount to face value. We estimated the fair value of the Greek zero-coupon bonds using Level 3 inputs due to the then current lack of market activity and liquidity. The discount rates used in our fair value model for these bonds were based on credit default swap rates. In March 2012, the Greek government restructured its sovereign debt which impacted all holders of Greek bonds. As a result, we recorded a $40.1 million loss related to the debt restructuring as part of other income (expense), net on our Consolidated Statement of Income and exchanged the Greek government-issued bonds for new securities, which we liquidated during the first quarter of 2012.

As of December 31, 2011, our Greek government-issued bonds were recorded in short-term and long-term marketable securities on our Consolidated Balance Sheet.

Contingent Consideration Liabilities

In connection with certain acquisitions, we may be required to pay future consideration that is contingent upon the achievement of specified development, regulatory approval or sales-based milestone events. We estimate the fair value of the contingent consideration liabilities on the acquisition date and each reporting period thereafter using a probability-weighted income approach, which reflects the probability and timing of future payments. This fair value measurement is based on significant Level 3 inputs such as the anticipated timelines and probability of achieving development, regulatory approval or sales-based milestone events and projected revenues. The resulting probability-weighted cash flows are discounted using credit-risk adjusted interest rates.

Each reporting period thereafter, we revalue these obligations by performing a review of the assumptions listed above and record increases or decreases in the fair value of these contingent consideration obligations in R&D expense within our Consolidated Statements of Income until such time that the related product candidate receives marketing approval. In the absence of any significant changes in key assumptions, the quarterly determination of fair values of these contingent consideration obligations would primarily reflect the passage of time.

Significant judgment is employed in determining Level 3 inputs and fair value measurements as of the acquisition date and for each subsequent period. Updates to assumptions could have a significant impact on our results of operations in any given period and actual results may differ from estimates. For example: significant increases in the probability of achieving a milestone or projected revenues would result in a significantly higher fair value measurement while significant decreases in the estimated probability of achieving a milestone or projected revenues would result in a significantly lower fair value measurement. Significant increases in the discount rate or in the anticipated timelines would result in a significantly lower fair value measurement while significant decreases in the discount rate or anticipated timelines would result in a significantly higher fair value measurement.

The potential contingent consideration payments resulting from development or regulatory approval based milestones related to our CGI Pharmaceuticals, Inc. (CGI) and Calistoga Pharmaceuticals acquisitions range from no payment if none of the milestones are achieved to an estimated maximum of $254.0 million (undiscounted), of which we accrued $159.3 million as of December 31, 2012 and $127.1 million as of December 31, 2011. Potential future payments resulting from the acquisition of Arresto Biosciences, Inc. (Arresto) relate to royalty obligations on future sales once specified sales-based milestones are achieved.

The following table provides a rollforward of our contingent consideration liabilities, which are recorded as part of other long-term obligations in our Consolidated Balance Sheets (in thousands):

	Year Ended December 31,
	2012		2011
Balance, beginning of period	$	135,591	$	11,100
Additions from new acquisitions	—		116,008
Net changes in valuation	69,469		8,483
Balance, end of period	$	205,060	$	135,591