Amgen 2007 Annual Report Download - page 89

Pursuant to our co-promotion agreement, we share profits on sales of ENBREL in the United States and Can-
ada with Wyeth (see “Item 1. Business — Joint Ventures and Business Relationships”). For the years ended
December 31, 2007 and 2006, the Wyeth profit share expenses, excluding recoveries associated with our re-
structuring, were approximately 30% and 25%, respectively, of total SG&A.
SG&A increased 21% for the year ended December 31, 2006, primarily due to higher staff levels and addi-
tional infrastructure costs to support the growing organization, in particular our Global Enterprise Resource
Planning (“ERP”) system, higher Wyeth profit share expenses related to ENBREL sales and higher legal costs
associated with ongoing litigation. SG&A costs for the year ended December 31, 2006 included approximately
$120 million in stock option expense, which was not reflected in our results of operations prior to January 1,
2006. Staff-related costs, including stock option compensation and additional infrastructure costs increased over
2005 by $323 million and $59 million, respectively. In addition, outside marketing expenses and legal costs in-
creased by $198 million and $38 million, respectively. The increase in outside marketing expenses was in
support of our principal products, including the Wyeth profit share related to increased ENBREL sales growth in
2006 as compared to 2005.
Amortization of acquired intangible assets
Amortization of acquired intangible assets relates to products technology rights acquired in connection with
the Immunex acquisition. In 2007 and 2006, this amortization also included $3 million and $49 million, re-
spectively, related to the impairment of a non-ENBREL related intangible asset previously acquired in the
Immunex acquisition.
Write-off of acquired in-process research and development
The fair value of acquired IPR&D projects, which have no alternative future use and which have not
reached technological feasibility at the date of acquisition, are immediately expensed. In 2007, we wrote-off a to-
tal of $590 million of acquired IPR&D. This amount is comprised of $270 million in connection with the Alantos
acquisition related to an orally administered treatment for type II diabetes that at the date of acquisition was in
phase 2a clinical trials and $320 million in connection with the Ilypsa acquisition related to a phosphate binder
that at the date of acquisition was in phase 2 clinical trials for the treatment of hyperphosphatemia in CKD pa-
tients on hemodialysis. In 2006, we wrote-off $1.1 billion of acquired IPR&D related to the Abgenix acquisition
and $130 million of acquired IPR&D in connection with the Avidia acquisition. The Abgenix IPR&D amount is
primarily comprised of approximately $770 million related to the rights which we did not own pursuant to our
agreement with Abgenix to jointly develop and commercialize panitumumab and approximately $330 million re-
lated to a royalty that we would have owed to Abgenix with respect to future sales of denosumab as a result of
using certain of Abgenix’s patented technology in the development of this product candidate. Panitumumab was
Abgenix’s fully human monoclonal antibody which, at acquisition, was in phase 2/3 clinical trials for the treat-
ment of certain types of cancer. Denosumab is a fully human monoclonal antibody that is a key mediator of the
resorptive phase of bone remodeling and was in phase 2/3 clinical trials for various types of bone diseases at the
time of the Abgenix acquisition. There were no individually significant IPR&D projects acquired and written off
in the acquisition of Avidia.
We used the “income method” to determine the estimated fair values of acquired IPR&D, which uses a dis-
counted cash flow model and applies a probability weighting based on estimates of successful product
development and commercialization to estimated future net cash flows resulting from projected revenues and re-
lated costs. These success rates take into account the stages of completion and the risks surrounding successful
development and commercialization of the underlying product candidates. These cash flows were then dis-
counted to present value using a discount rate of 10%. The estimated after-tax cash flows were probability
weighted at success rates of 38% for the Alantos product candidate, 77% for the Ilypsa product candidate, and
43% to 85% for the Abgenix product candidates. The incremental R&D expenses assumed to be incurred to ob-
tain necessary regulatory approval for the Alantos and Ilypsa product candidates are immaterial. The incremental
R&D expenses assumed to be incurred to obtain necessary regulatory approvals for the various indications of
panitumumab were estimated at the time of acquisition at approximately $300 million and would be incurred
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