Amgen 2011 Annual Report Download - page 92

Operating expenses
Operating expenses were as follows (dollar amounts in millions):
2011 Change 2010 Change 2009
Operating expenses:
Cost of sales (excludes amortization of certain acquired
intangible assets presented separately) ............... $2,427 9% $ 2,220 6% $ 2,091
% of product sales ............................. 15.9% 15.1% 14.6%
Research and development .......................... $3,167 9% $ 2,894 1% $ 2,864
% of product sales ............................. 20.7% 19.7% 20.0%
Selling, general and administrative .................... $4,486 13% $ 3,983 4% $ 3,820
% of product sales ............................. 29.3% 27.2% 26.6%
Amortization of certain acquired intangible assets ............ $ 294 — $ 294 — $ 294
Other ............................................... $ 896 — $ 117 — $ 67
Cost of sales
Cost of sales, which excludes the amortization of certain acquired intangible assets, increased to 15.9% of
product sales for 2011. Excluding the impact of the Puerto Rico excise tax, cost of sales would have been 14.5%
of product sales compared with 15.1% for 2010. This decrease was driven by improved productivity, offset
partially by certain expenses related to actions to improve cost efficiencies.
Cost of sales 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.
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 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
had not reached technological feasibility and did not have an alternative future use. Net payment or
reimbursement of R&D costs is recognized when the obligations are incurred or as we become entitled to the cost
recovery.
The Company groups all of its R&D activities and related expenditures into three categories: (1) Discovery
Research and Translational Sciences, (2) later stage clinical programs and (3) marketed products. These
categories include the Company’s R&D activities as set forth in the following table:
Category Description
Discovery Research and
Translational Sciences
R&D expenses incurred in activities substantially in support of early
research through the completion of phase 1 clinical trials. These activities
encompass our discovery research and translational sciences functions,
including drug discovery, toxicology, pharmacokinetics and drug
metabolism, and process development.
Later stage clinical programs R&D expenses incurred in or related to phase 2 and phase 3 clinical
programs intended to result in registration of a new product or a new
indication for an existing product in the United States or the EU.
Marketed products R&D expenses incurred in support of the Company’s marketed products
that are authorized to be sold in the United States or the EU. Includes
clinical trials designed to gather information on product safety (certain of
which may be required by regulatory authorities) and their product
characteristics after regulatory approval has been obtained, as well as the
costs of obtaining regulatory approval of a product in a new market after
approval in either the United States or the EU has been obtained.
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