FAIR VALUE MEASUREMENTS

3 Months Ended

Mar. 31, 2013

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

6.      FAIR VALUE MEASUREMENTS

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following fair value hierarchy table presents the components and classification of the Company’s financial assets and liabilities measured at fair value as of March 31, 2013 and December 31, 2012:

	As of March 31, 2013										As of December 31, 2012
	Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	78,184		$	78,184	$	—	$	—		$	306,604		$	306,604	$	—	$	—
Available-for-sale equity securities	10,092			10,092		—		—			4,410			4,410		—		—
Available-for-sale debt securities:
Auction rate floating securities	—			—		—		—			7,167			—		—		7,167
Total financial assets	$	88,276		$	88,276	$	—	$	—		$	318,181		$	311,014	$	—	$	7,167
Cash equivalents	$	78,184		$	78,184	$	—	$	—		$	306,604		$	306,604	$	—	$	—
Marketable securities	10,092			10,092		—		—			11,577			4,410		—		7,167
Total financial assets	$	88,276		$	88,276	$	—	$	—		$	318,181		$	311,014	$	—	$	7,167
Liabilities:
Acquisition-related contingent consideration	$	(489,425	)	$	—	$	—	$	(489,425	)	$	(455,082	)	$	—	$	—	$	(455,082	)

Fair value measurements are estimated based on valuation techniques and inputs categorized as follows:

• Level 1 — Quoted prices in active markets for identical assets or liabilities;

• Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using discounted cash flow methodologies, pricing models, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

There were no transfers between Level 1 and level 2 during the three-month period ended March 31, 2013.

Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)

The fair value measurement of contingent consideration obligations arising from business combinations is determined using unobservable (Level 3) inputs. These inputs include (i) the estimated amount and timing of projected cash flows; (ii) the probability of the achievement of the factor(s) on which the contingency is based; and (iii) the risk-adjusted discount rate used to present value the probability-weighted cash flows. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement.

The following table presents a reconciliation of contingent consideration obligations measured on a recurring basis using significant unobservable inputs (Level 3) for the three-month period ended March 31, 2013:

	Balance, January 1, 2013			Issuances(a)			Payments(b)		Net unrealized Gain(c)		Foreign Exchange(d)		Transfers Into Level 3		Transfers Out of Level 3		Balance, March 31, 2013
Acquisition-related contingent consideration	$	(455,082	)	$	(59,064	)	$	21,692	$	2,185	$	844	$	—	$	—	$	(489,425	)

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(a) Relates primarily to the Eisai acquisition as described in note 3.

(b) Relates primarily to payments of acquisition-related contingent consideration related to the Elidel®/Xerese®/Zovirax® agreement entered into in June 2011.

(c) For the three-months ended March 31, 2013, a net gain of $2.2 million was recognized as Acquisition-related contingent consideration in the consolidated statements of loss. The Acquisition-related contingent consideration net gain was primarily driven by a net gain related to the Elidel®/Xerese®/Zovirax® agreement entered into with Meda Pharma SARL (“Meda”) in June 2011. In April 2013, Mylan Inc. launched a generic Zovirax® ointment, which was earlier than previously anticipated by the Company. Also, in April 2013, the Company entered into an agreement with Actavis, Inc. (“Actavis”) to launch the authorized generic ointment for Zovirax®. See note 19 titled “SUBSEQUENT EVENTS” for further information regarding the agreements with Actavis. As a result of these events, the projected revenue forecast was adjusted, resulting in an Acquisition-related contingent consideration net gain of $3.1 million. This net gain was partially offset by fair value adjustments related to other acquisitions, including accretion for the time value of money.

(d) Included in other comprehensive (loss) income.

During the three-month period ended March 31, 2013, the Company sold its entire investment in auction rate floating securities assumed in connection with the Medicis acquisition in December 2012 and realized a gain of $1.9 million.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

As of March 31, 2013, the Company’s assets measured at fair value on a non-recurring basis subsequent to initial recognition included:

(i) assets held for sale related to certain suncare and skincare brands, including inventory on hand, sold primarily in Australia. The Company recognized an additional impairment charge of $26.1 million in the three-month period ended March 31, 2013 for these brands in Amortization of intangible assets in the consolidated statements of loss. The additional impairment charge was driven by assessment of offers received during the first quarter and analysis of updated market data. The adjusted carrying amount of $44.4 million, including inventory, is equal to the estimated fair values of these assets less costs to sell, which was determined using discounted cash flows and represents Level 3 inputs; and

(ii) an intangible asset related to Cortaid®, a dermatological product sold in the U.S. The Company recognized an impairment charge of $5.7 million in the three-month period ended March 31, 2013 for this brand in Amortization of intangible assets in the consolidated statements of loss. The impairment charge was driven by discontinuations of the product by certain retailers. The adjusted carrying amount of $1.0 million for this asset is equal to its estimated fair value, which was determined using discounted cash flows and represents Level 3 inputs.

There were no other significant assets or liabilities that were re-measured at fair value on a non-recurring basis subsequent to initial recognition in the three-month period ended March 31, 2013.

For further information regarding asset impairment charges, see note 9 titled “INTANGIBLE ASSETS AND GOODWILL”.