Amgen 2010 Annual Report Download - page 91

Selected operating expenses
The following table summarizes our operating expenses for the years ended December 31, 2010, 2009 and
2008 (dollar amounts in millions):
2010 Change 2009 Change 2008
Operating expenses:
Cost of sales (excludes amortization of certain
acquired intangible assets presented below) ...... $2,220 6% $ 2,091 (9)% $ 2,296
% of product sales . . ..................... 15.1% 14.6% 15.6%
Research and development .................... $2,894 1% $ 2,864 (5)% $ 3,030
% of product sales . . ..................... 19.7% 20.0% 20.6%
Selling, general and administrative .............. $3,983 4% $ 3,820 1% $ 3,789
% of product sales . . ..................... 27.2% 26.6% 25.8%
Amortization of certain acquired intangible assets . . . $ 294 — $ 294 — $ 294
Other charges .............................. $ 117 75% $ 67 (82)% $ 380
Cost of sales
Cost of sales, which excludes the amortization of certain acquired intangible assets, increased to 15.1% of
product sales for 2010, driven primarily by higher bulk material costs and higher inventory write-offs due to
voluntary EPOGEN», PROCRIT»(Epoetin alfa) and ENBREL recalls. These increases were offset partially by
lower excess capacity charges and lower royalties, primarily for ENBREL.
Cost of sales decreased to 14.6% of product sales for 2009, driven primarily by lower excess capacity charges,
lower excess inventory write-offs, due primarily to the $84 million write-off of inventory in 2008 resulting from a
strategic decision to change manufacturing processes, and lower royalty expenses. These decreases were offset
partially by less favorable product mix and higher fill and finish costs resulting from lower utilization at our
manufacturing facility in Puerto Rico.
Research and development
R&D costs are expensed as incurred and include primarily salaries, benefits and other staff-related costs;
facilities 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 arrangements with our corporate partners is recognized when the
obligations are incurred or as we become entitled to the cost recovery.
The increase in R&D expenses for 2010 was driven primarily by $110 million of lower expense recoveries
associated with ongoing collaborations and higher staff-related costs of $84 million. These increases were offset
largely by lower licensing fees of $115 million, associated principally with payments made in 2009 under the
Cytokinetics and Array BioPharma Inc. (“Array”) agreements, and reduced denosumab clinical trial costs of
$73 million in 2010.
The decrease in R&D expenses for 2009 was driven primarily by lower clinical trial costs of $128 million,
including those associated with our denosumab and Vectibix»registrational studies, our marketed products and the
delay of the phase 3 motesanib NSCLC trial, and $14 million lower staff-related costs. The higher licensing fees
incurred in 2009, which were related to the $60 million expense associated with the Array agreement and the
$50 million expense resulting from the payment to Cytokinetics, were offset substantially by the $100 million
expense in 2008 resulting from the upfront payment associated with the Kyowa Hakko Kirin Co. Ltd. collaboration.
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