Johnson and Johnson 2015 Annual Report Download - page 30

Research and Development Expense: Research and development expense by segment of business was as follows:
2015 2014 2013
(Dollars in Millions) Amount % of Sales* Amount % of Sales* Amount % of Sales*
Consumer $625 4.6% 629 4.3 590 4.0
Pharmaceutical 6,821 21.7 6,213 19.2 5,810 20.7
Medical Devices 1,600 6.4 1,652 6.0 1,783 6.3
Total research and development expense $9,046 12.9% 8,494 11.4 8,183 11.5
Percent increase/(decrease) over the prior
year 6.5% 3.8 6.8
* 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, upfront payments and milestones, 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
2015, worldwide costs of research and development activities increased by 6.5% compared to 2014. The increase as a
percent to sales was attributable to increased investment spending primarily in the Pharmaceutical segment, lower overall
sales and business mix. 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-Process Research and Development (IPR&D): In 2015, the Company recorded an IPR&D charge of $0.2 billion
primarily for the discontinuation of certain development projects related to Covagen. In 2014, the Company recorded an
IPR&D charge 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 an IPR&D
charge 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.
Other (Income) Expense, Net: Other (income) expense, net is the account where the Company records gains and
losses related to the sale and write-down of certain investments in equity securities held by Johnson & Johnson
Innovation—JJDC, Inc. (formerly Johnson & Johnson Development Corporation), gains and losses on divestitures,
transactional currency gains and losses, acquisition-related costs, litigation accruals and settlements, as well as royalty
income. The change in other (income) expense, net for the fiscal year 2015 was a favorable change of $2.0 billion as
compared to the prior year primarily due to lower litigation expense of $1.1 billion, lower Synthes integration costs of $0.6
billion and higher JJDC portfolio gains of $0.2 billion as compared to the prior year. Additionally, the fiscal year 2015
included higher gains of $0.3 billion primarily from the divestitures of the Cordis business, the SPLENDA®brand and the
U.S. divestiture of NUCYNTA®versus the gains recorded in 2014 from the divestitures of the Ortho-Clinical Diagnostics
business and the K-Y®brand. This was partially offset by higher intangible asset write-downs of $0.1 billion in 2015.
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.
Interest (Income) Expense: Interest income in 2015 increased by $61 million as compared to 2014 due to a higher
average balance of cash, cash equivalents and marketable securities and higher interest rates. Cash, cash equivalents and
marketable securities totaled $38.4 billion at the end of 2015, and averaged $35.7 billion as compared to the
$31.1 billion average cash balance in 2014. The increase in the year-end cash balance was primarily due to cash
generated from operating activities.
Interest expense in 2015 increased slightly as compared to 2014. The average debt balance was $19.3 billion in 2015
versus $18.5 billion in 2014. The total debt balance at the end of 2015 was $19.9 billion as compared to $18.8 billion at
the end of 2014. The higher debt balance of approximately $1.1 billion was an increase in commercial paper for general
corporate purposes, primarily the stock repurchase program.
18 •Johnson & Johnson 2015 Annual Report