Johnson and Johnson 2014 Annual Report Download - page 19

billion higher amortization of the inventory step-up charge related to the Synthes, Inc. acquisition. There was a decrease in
the percent to sales of selling, marketing and administrative expenses in 2013 compared to the prior year primarily due to
cost containment initiatives across many of the businesses.
Research and Development Expense: Research and development expense by segment of business was as follows:
2014 2013 2012
(Dollars in Millions) Amount % of Sales* Amount % of Sales* Amount % of Sales*
Consumer $629 4.3% $590 4.0 622 4.3
Pharmaceutical 6,213 19.2 5,810 20.7 5,362 21.2
Medical Devices 1,652 6.0 1,783 6.3 1,681 6.1
Total research and development expense $8,494 11.4% 8,183 11.5 7,665 11.4
Percent increase/(decrease) over the prior
year 3.8% 6.8 1.6
* As a percent to segment sales
Research and development activities represent a significant part of the Company’s business. These expenditures relate to
the processes of discovering, testing and developing new products, improving existing products, as well as ensuring
product efficacy and regulatory compliance prior to launch. The Company remains committed to investing in research and
development with the aim of delivering high quality and innovative products. In 2014, worldwide costs of research and
development activities increased by 3.8% compared to 2013. The reduction as a percent to sales was primarily due to
strong sales growth in the Pharmaceutical business. Research spending in the Pharmaceutical segment increased in
absolute dollars to $6.2 billion as compared to $5.8 billion primarily due to higher levels of spending to advance the
Company’s Pharmaceutical pipeline. In 2013, worldwide costs of research and development activities increased by 6.8%
compared to 2012. The increase in the Pharmaceutical segment was primarily due to higher levels of spending to advance
the Company’s Pharmaceutical pipeline.
In-Process Research and Development (IPR&D): In 2014, the Company recorded charges of $0.2 billion for the
impairment of various IPR&D projects related to RespiVert, Crucell, Mentor and Synthes for the delay or discontinuation of
certain development projects. In 2013, the Company recorded charges of $0.6 billion primarily for the impairment of
various IPR&D projects related to Crucell, CorImmun and Acclarent for the delay or discontinuation of certain development
projects. In 2012, the Company recorded charges of $1.2 billion, which included $0.7 billion for the impairment of the
IPR&D related to the discontinuation of the Phase III clinical development of bapineuzumab IV and the partial impairment of
the IPR&D related to the Crucell vaccine business in the amount of $0.4 billion. Of the $0.7 billion impairment of the
IPR&D related to the discontinuation of the Phase III clinical development of bapineuzumab IV, $0.3 billion is attributable to
noncontrolling interest. The 2012 charges relate to development projects which have been discontinued or delayed.
Other (Income) Expense, Net: Other (income) expense, net includes royalty income; gains and losses related to the
sale and write-down of certain investments in equity securities held by Johnson & Johnson Development Corporation;
gains or losses on divestitures; currency gains and losses; and litigation accruals and settlements. The change in other
(income) expense, net for the fiscal year 2014 was a favorable change of $2.6 billion as compared to the prior year. The
fiscal year 2014 included higher net gains on divestitures of $2.3 billion, primarily the divestiture of the Ortho-Clinical
Diagnostics business, lower litigation expense of $1.0 billion and lower costs of $0.1 billion related to the DePuy ASR™
Hip program as compared to 2013. This was partially offset by higher Synthes integration/transaction costs of $0.2 billion
and higher intangible asset write-downs of $0.1 billion primarily related to INCIVO®(telaprevir) in 2014. Additionally, the
fiscal year 2013 included a higher net gain of $0.5 billion as compared to 2014 on equity investment transactions,
primarily the sale of Elan American Depositary Shares.
The change in other (income) expense, net for the fiscal year 2013, was an unfavorable change of $0.9 billion as
compared to the prior year. The fiscal year 2013 included a net gain of $0.4 billion on equity investment transactions,
primarily the sale of Elan American Depositary Shares, offset by higher litigation expenses of $1.1 billion, higher expenses
of $0.1 billion related to the DePuy ASR™ Hip program and higher currency losses of $0.1 billion. The fiscal year 2012
included higher write-downs of intangible assets of $0.8 billion, primarily related to the Crucell vaccine business and
higher costs of $0.1 billion related to the Synthes acquisition. Additionally, 2012 included higher gains of $0.8 billion
related to divestitures.
Interest (Income) Expense: Interest income in 2014 was comparable to the prior year. A higher balance in cash, cash
equivalents and marketable securities was offset by lower interest rates. Cash, cash equivalents and marketable securities
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