Amgen 2009 Annual Report Download - page 127

AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Taxes collected from customers and remitted to government authorities related to the sales of the Company’s
products, primarily in Europe, are excluded from revenues.
We have the exclusive right to sell Epoetin alfa for dialysis, certain diagnostics and all non-human,
non-research uses in the United States. We sell Epoetin alfa under the brand name EPOGEN
®
. We granted to Or-
tho Pharmaceutical Corporation (which has assigned its rights under the product license agreement to Centocor
Ortho Biotech Products, L.P. (“Centocor Ortho Biotech Products”)), a subsidiary of Johnson & Johnson (“J&J”), a
license relating to Epoetin alfa for sales in the United States for all human uses except dialysis and diagnostics.
This license agreement, which is perpetual, may be terminated for various reasons, including upon mutual agree-
ment of the parties, or default. The parties are required to compensate each other for Epoetin alfa sales that either
party makes into the other party’s exclusive market, sometimes referred to as “spillover.” Accordingly, we do not
recognize product sales we make into the exclusive market of J&J and do recognize the product sales made by J&J
into our exclusive market. Sales in our exclusive market are derived from our sales to our customers, as adjusted
for spillover. We are employing an arbitrated audit methodology to measure each party’s spillover based on esti-
mates of and subsequent adjustments thereto of third-party data on shipments to end users and their usage.
Other revenues
Other revenues primarily consist of royalty income and corporate partner revenues. Royalties from licensees
are based on third-party sales of licensed products and are recorded in accordance with contract terms when
third-party results are reliably measurable and collectibility is reasonably assured. Royalty estimates are made in
advance of amounts collected using historical and forecasted trends. Pursuant to the license agreement with J&J,
noted above, we earn a 10% royalty on net sales, as defined, of Epoetin alfa by J&J in the United States. For the
years ended December 31, 2009, 2008 and 2007, we recognized royalty income from J&J of $128 million, $126
million and $182 million, respectively. Corporate partner revenues are primarily comprised of amounts earned
from Kirin-Amgen, Inc. (“KA”) for certain research and development (“R&D”) activities and are generally
earned as the R&D activities are performed and the amounts become due. See Note 8, “Related party
transactions.” In addition, corporate partner revenues include license fees and milestone payments associated
with collaborations with third parties. Revenue from non-refundable, upfront license fees where we have continu-
ing involvement is recognized ratably over the estimated period of ongoing involvement. Revenue associated
with at risk performance milestones is recognized based upon the achievement of the milestone, as defined in the
respective agreements. Our collaboration agreements with third parties are performed on a “best efforts” basis
with no guarantee of either technological or commercial success.
Research and development costs
R&D costs are expensed as incurred and primarily include salaries, benefits and other staff-related costs; fa-
cilities and overhead costs; clinical trial and related clinical manufacturing costs; contract services and other
outside costs; information systems’ costs and amortization of acquired technology used in R&D with alternative
future uses. R&D expenses include costs incurred under R&D arrangements with our corporate partners, such as
activities performed on behalf of KA, and costs and cost recoveries associated with collaborative R&D and
in-licensing arrangements, including upfront fees and milestones paid to collaboration partners in connection
with technologies which have not reached technological feasibility and did not have an alternative future use. Net
payment or reimbursement of R&D costs for collaborations is recognized when the obligations are incurred or as
we become entitled to the cost recovery. See Note 7, “Collaborative arrangements.”
Selling, general and administrative costs
Selling, general and administrative (“SG&A”) expenses are primarily comprised of salaries, benefits and oth-
er staff-related costs associated with sales and marketing, finance, legal and other administrative personnel;
facilities and overhead costs; outside marketing, advertising and legal expenses and other general and admin-
istrative costs.
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