Fair Value Measurements
 12 Months Ended
Dec. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
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 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.” As of December 31, 2019, the Company’s investments were in money market funds, government-sponsored enterprise securities, corporate debt securities, commercial paper and corporate equity securities. Additionally, the Company utilizes foreign currency forward contracts intended to mitigate the effect of changes in foreign exchange rates on its consolidated statement of operations.
As of December 31, 2019, the Company’s financial assets and liabilities that were subject to fair value measurements were valued using both observable and unobservable inputs. The Company’s financial assets valued based on Level 1 inputs consisted of money market funds, government-sponsored enterprise securities and corporate equity securities. The Company’s financial assets and liabilities valued based on Level 2 inputs consisted of certain corporate equity securities as described below, corporate debt securities, commercial paper, which consisted of investments in highly-rated investment-grade corporations and foreign currency forward contracts with reputable and creditworthy counterparties. As discussed further below, the Company’s financial liabilities valued based on Level 3 inputs consisted of acquisition related contingent milestones. During 2019, 2018 and 2017, 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 (and does not include $2.3 billion and $1.4 billion of cash as of December 31, 2019 and 2018, respectively):
 
Fair Value Measurements as of December 31, 2019
 
 
 
Fair Value Hierarchy
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(in thousands)
Financial instruments carried at fair value (asset position):
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
791,039

 
$
791,039

 
$
—

 
$
—

Corporate debt securities
6,070

 
—

 
6,070

 
—

Commercial paper
29,472

 
—

 
29,472

 
—

Marketable securities:
 
 
 
 
 
 
 
Corporate equity securities
282,084

 
261,797

 
20,287

 
—

Government-sponsored enterprise securities
12,733

 
12,733

 
—

 
—

Corporate debt securities
301,799

 
—

 
301,799

 
—

Commercial paper
102,356

 
—

 
102,356

 
—

Prepaid expenses and other current assets:
 
 
 
 
 
 
 
Foreign currency forward contracts
9,725

 
—

 
9,725

 
—

Total financial assets
$
1,535,278

 
$
1,065,569

 
$
469,709

 
$
—

Financial instruments carried at fair value (liability position):
 
 
 
 
 
 
 
Other current liabilities:
 
 
 
 
 
 
 
Foreign currency forward contracts
$
(5,533
)
 
$
—

 
$
(5,533
)
 
$
—

Long-term contingent consideration
(176,500
)
 
—

 
—

 
(176,500
)
Other long-term liabilities:
 
 
 
 
 
 
 
Foreign currency forward contracts
(1,821
)
 
—

 
(1,821
)
 
—

Total financial liabilities
$
(183,854
)
 
$
—

 
$
(7,354
)
 
$
(176,500
)

 
Fair Value Measurements as of December 31, 2018
 
 
 
Fair Value Hierarchy
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(in thousands)
Financial instruments carried at fair value (asset position):
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
1,226,603

 
$
1,226,603

 
$
—

 
$
—

U.S. Treasury securities
5,966

 
5,966

 
—

 
—

Government-sponsored enterprise securities
7,123

 
7,123

 
—

 
—

Commercial paper
58,268

 
—

 
58,268

 
—

Marketable securities:
 
 
 
 
 
 
 
Corporate equity securities
167,323

 
153,733

 
13,590

 
—

U.S. Treasury securities
6,026

 
6,026

 
—

 
—

Government-sponsored enterprise securities
10,704

 
10,704

 
—

 
—

Corporate debt securities
233,665

 
—

 
233,665

 
—

Commercial paper
100,390

 
—

 
100,390

 
—

Prepaid expenses and other current assets:
 
 
 
 
 
 
 
Foreign currency forward contracts
19,023

 
—

 
19,023

 
—

Other assets:
 
 
 
 
 
 
 
Foreign currency forward contracts
1,514

 
—

 
1,514

 
—

Total financial assets
$
1,836,605

 
$
1,410,155

 
$
426,450

 
$
—

Financial instruments carried at fair value (liability position):
 
 
 
 
 
 
 
Other current liabilities:
 
 
 
 
 
 
 
Foreign currency forward contracts
$
(340
)
 
$
—

 
$
(340
)
 
$
—

Other long-term liabilities:
 
 
 
 
 
 
 
Foreign currency forward contracts
(108
)
 
—

 
(108
)
 
—

Total financial liabilities
$
(448
)
 
$
—

 
$
(448
)
 
$
—


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 maintains strategic investments in corporate equity securities separately from the investment policy that governs its other cash, cash equivalents and marketable securities. The Company classifies its investments in publicly traded companies as “Marketable securities” on its 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. During the year ended December 31, 2019, the Company transferred the fair value of one of its strategic investments in a publicly traded company from Level 2 to Level 1 upon the expiration of transfer restrictions associated with this investment. Please refer to Note F, “Marketable Securities and Equity Investments,” for further information on these investments.
Fair Value of Contingent Consideration
The Company’s contingent consideration liabilities, which are related to development and regulatory milestones potentially payable to Exonics’ former equity holders, are classified as Level 3 within the valuation hierarchy. 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 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 a drug candidate in the pharmaceutical industry, the Company's estimates regarding the fair value of contingent consideration will 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:
 
Year Ended December 31, 2019
 
(in thousands)
Balance at December 31, 2018
$
—

Contingent consideration related to acquisition of Exonics
172,041

Increase in fair value of contingent payments
4,459

Balance at December 31, 2019
$
176,500


The “Increase in fair value of contingent payments” in the table above was due to changes in market interest rates and the time value of money.
Fair Value of Intangible Asset    
The fair value of the Company’s in-process research and development intangible assets, which totaled $400.0 million as of December 31, 2019, was determined through discounted cash flow models utilizing Level 3 fair value inputs. Please refer to Note C, “Acquisitions,” for further information on the key assumptions utilized to determine the fair value of the in-process research and development assets that the Company acquired as a result of its acquisitions of Semma and Exonics in 2019.