Amgen 2009 Annual Report Download - page 88

certain restructuring charges, principally with respect to accelerated depreciation, in connection with our
co-promotion agreement with Pfizer and $11 million of benefit associated with the reversal of previously accrued
expenses for bonuses and stock-based compensation awards, which were forfeited as a result of the employees’
termination. See Note 9, “Restructuring” to the Consolidated Financial Statements for further discussion.
Amortization of certain acquired intangible assets
Amortization of certain acquired intangible assets relates to products technology rights acquired in con-
nection with the Immunex acquisition. For the year ended December 31, 2007, amortization expense also
included $3 million 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
In accordance with the accounting standards for business combinations, prior to January 1, 2009, the fair
value of acquired IPR&D projects, which have no alternative future use and which have not reached techno-
logical feasibility at the date of acquisition, were immediately expensed. In 2007, we wrote-off $270 million and
$320 million of acquired IPR&D related to the acquisitions of Alantos and Ilypsa, respectively. The Alantos
IPR&D amount is related to an orally-administered treatment for type II diabetes that, at the date of acquisition,
was in phase 2a clinical trials. The Ilypsa IPR&D amount is related to a phosphate binder that, at the date of ac-
quisition, was in phase 2 clinical trials for the treatment of hyperphosphatemia in CKD patients on hemodialysis.
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 and 77% for the Ilypsa product candidate.
The incremental R&D expenses assumed to be incurred to obtain necessary regulatory approval for the Alantos
and Ilypsa product candidates are immaterial.
The above assumptions were used solely for the purposes of estimating fair values of these product candi-
dates as of the date of their acquisition. However, we cannot provide assurance that the underlying assumptions
used to forecast the cash flows or the timely and successful completion of development and commercialization
will materialize, as estimated. The major risks and uncertainties associated with the timely and successful com-
pletion of development and commercialization of these product candidates are our ability to confirm their safety
and efficacy based on data from clinical trials, our ability to obtain necessary regulatory approvals and our ability
to successfully complete these tasks within budgeted costs. We are not able to market a human therapeutic with-
out obtaining regulatory approvals, and such approvals require completing clinical trials that demonstrate a
product candidate is safe and effective. Consequently, the eventual realized value of the acquired IPR&D may
vary from its estimated value at the date of acquisition.
We are continuing to develop the product candidate acquired in the Alantos acquisition. We have reviewed
data from recently-completed phase 1 and 2 clinical trials for AMG 223, the product candidate acquired in the
Ilypsa acquisition. The results were consistent with what is likely required for registration of a phosphate-binding
therapy. However, in the context of our overall development portfolio, the Company will be reviewing other op-
tions for the commercialization of this investigational product.
In addition, in 2006, we wrote-off acquired IPR&D related to the acquisition of Abgenix. The IPR&D
amount was primarily related to the rights which we did not own pursuant to our agreement with Abgenix to
jointly develop and commercialize panitumumab and related 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 technologies in the
development of this product candidate (see “Item 1. Business – Marketed Products and Selected Product
Candidates”). The elimination of the royalty on potential future sales of denosumab did not result in us incurring
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