Amgen 2011 Annual Report Download - page 131

AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
third-party results are reliably measurable and collectability is reasonably assured. Royalty estimates are made in
advance of amounts collected using historical and forecasted trends. Corporate partner revenues are comprised of
amounts earned from Kirin-Amgen, Inc. (K-A) for certain research and development (R&D) activities, which are
earned as the R&D activities are performed. Corporate partner revenues also include license fees and milestone
payments earned from K-A and from third parties. See Multiple-deliverable revenue arrangements, discussed
below, Note 6, Collaborative arrangements, and Note 7, Related party transactions.
Muliple-deliverable revenue arrangements
Effective January 1, 2011, we adopted a new accounting standard that amends the guidance on the
accounting for arrangements involving the delivery of more than one element. Pursuant to the new standard, each
required deliverable is evaluated to determine whether it qualifies as a separate unit of accounting. For Amgen
this determination is generally based on whether the deliverable has “stand-alone value” to the customer. The
arrangement’s consideration that is fixed or determinable is then allocated to each separate unit of accounting
based on the relative selling price of each deliverable. In general, the consideration allocated to each unit of
accounting is recognized as the related goods or services are delivered, limited to the consideration that is not
contingent upon future deliverables. The Company adopted this new accounting standard on a prospective basis
for all multiple-deliverable revenue arrangements (MDRAs) entered into on or after January 1, 2011, and for any
MDRAs that were entered into prior to January 1, 2011, but materially modified on or after that date.
For MDRAs entered into prior to January 1, 2011, (pre-2011 arrangements) and not materially modified
thereafter, we continue to apply our prior accounting policy with respect to such arrangements. Under this policy,
in general, revenue from non-refundable, up-front fees related to intellectual property rights/licenses, where we
have continuing involvement and where standalone value could not be determined under the previous guidance,
is recognized ratably over the estimated period of ongoing involvement. In general, the consideration with
respect to the other deliverables is recognized when the goods or services are delivered.
Under all of our MDRAs, consideration associated with at-risk substantive performance milestones is
recognized as revenue upon the achievement of the related milestone, as defined in the respective contracts.
The primary impact of adopting the new accounting standard is expected to be the earlier recognition of
revenue associated with delivering rights to the underlying intellectual property. The adoption of this accounting
standard did not have a material impact on our consolidated results of operations for the year ended
December 31, 2011, or on our financial position as of December 31, 2011. Our consolidated results of operations
for the year ended December 31, 2010, or our financial position as of December 31, 2010, also would not have
been materially impacted if the accounting standard had been adopted on January 1, 2010. The impact of
adopting this new accounting standard is dependent on the terms and conditions of any future arrangements that
we may enter into that include multiple-deliverables and pre-2011 arrangements that are materially modified.
Depending on the terms of any such arrangements, the adoption of this accounting standard may have a material
impact on our consolidated results of operations or financial position.
Research and development costs
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 also include costs and cost recoveries associated with K-A and third-party R&D
arrangements, including upfront fees and milestones paid to third parties in connection with technologies which
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