Amgen 2015 Annual Report Download - page 55

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Research and development
The Company groups all of its R&D activities and related expenditures into three categories: (1) Discovery Research and
Translational Sciences (DRTS), (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
DRTS R&D expenses incurred in activities substantially in support of early research through
the completion of phase 1 clinical trials. These activities encompass our DRTS
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.
R&D expense by category was as follows (in millions):
Years ended December 31,
2015 2014 2013
DRTS $ 997 $ 1,212 $ 1,233
Later stage clinical programs 1,876 2,287 1,950
Marketed products 1,197 798 900
Total R&D expense $ 4,070 $ 4,297 $ 4,083
The decrease in R&D expense for 2015 was driven by decreased costs associated with later stage clinical programs support
of $411 million and DRTS of $215 million, offset partially by increased costs associated with marketed products support of $399
million. All categories of R&D spend benefited from savings from transformation and process improvement efforts under our
restructuring plan, which were offset partially by increased launch related spend in marketed products, primarily Repatha®. Prior
to approval, costs related to our launch products were largely categorized as later stage clinical programs. The 2015 DRTS expenses
also included up-front milestone payments related to our collaborations with Xencor, Inc. and Novartis.
The increase in R&D expense for 2014 was driven primarily by increased costs of $326 million associated with Onyx across
all categories of R&D spend, as well as increased costs associated with other later stage clinical program support. Overall, costs
associated with later stage clinical programs support increased $337 million, offset partially by reduced expenses associated with
marketed products support of $102 million and DRTS activities of $21 million. The 2014 DRTS expenses also included a $60
million upfront payment related to our cancer immunotherapy collaboration with Kite Pharma, Inc.
Selling, general and administrative
The increase in Selling, general and administrative (SG&A) expense for 2015 was driven primarily by new product launches
offset partially by savings from transformation and process improvement efforts under our restructuring plan. 2014 also included
an additional $129 million accrual for the BPD fee as the final regulations accelerated the expense recognition criteria for the fee
obligation by one year.
The decrease in SG&A expense for 2014 was driven primarily by the expiration of the ENBREL profit share in October
2013, which reduced expenses by $818 million. That decline was offset partially by the addition of $183 million as a result of the
Onyx acquisition, the aforementioned additional accrual for the BPD fee and increased commercial expenses of $109 million in
preparation for new product launches.
Historically, under our ENBREL collaboration agreement, we paid Pfizer a percentage of annual gross profits on our ENBREL
sales in the United States and Canada on a scale that increased with gross profits. The ENBREL co-promotion term expired on
October 31, 2013, and we are required to pay Pfizer residual royalties on a declining percentage of net ENBREL sales in the United
States and Canada. The royalty percentage was 12% through October 31, 2014, declining to 11% through October 31, 2015, and
10% through October 31, 2016. Effective November 1, 2016, there will be no further royalty payments.