Amgen 2009 Annual Report Download - page 98

Wholesaler chargebacks relate to our contractual agreements to sell products to healthcare providers in the
United States at fixed prices that are lower than the prices we charge wholesalers. When the healthcare providers
purchase our products through wholesalers at these reduced prices, the wholesaler charges us for the difference
between the prices they pay us and the prices they sold the products to the healthcare providers. The provision for
chargebacks is based on the expected sales by our wholesaler customers to healthcare providers. These charge-
backs from wholesalers totaled $2.4 billion, $1.6 billion and $1.6 billion for the years ended December 31, 2009,
2008 and 2007, respectively. Accruals for wholesaler chargebacks are less difficult to estimate than rebates and
closely approximate actual results since chargeback amounts are fixed at the date of purchase by the healthcare
provider and we settle these deductions generally within a few weeks of incurring the liability.
Product returns
Returns are estimated through comparison of historical return data to their related sales on a production lot
basis. Historical rates of return are determined for each product and are adjusted for known or expected changes
in the marketplace specific to each product, when appropriate. Historically, sales return provisions have been in-
significant, amounting to less than 1% of gross product sales. Furthermore, changes in estimates for prior year
sales return provisions have historically also been insignificant.
Inventories produced in preparation for product launches
The Company capitalizes inventories produced in preparation for product launches when the related product
candidates are considered to have a high probability of regulatory approval and the related costs are expected to
be recoverable through the commercialization of the product. In connection with the decision to capitalize such
inventory, we evaluate among other factors any identified risks or concerns with respect to the product candi-
date’s safety and efficacy, the status of related discussions with regulatory authorities and the outlook for
commercial success, including the existence of current or anticipated competitive products and any reimburse-
ment concerns. In addition, we evaluate any risks associated with the manufacturing of the product candidate as
well as considering the remaining shelf life of the inventory in relation to the expected launch date. Upon capital-
ization, we continue to monitor any changes in these factors. In the event of any significant negative
developments, we may be required to impair previously capitalized costs.
At December 31, 2009, we had capitalized approximately $258 million of inventory costs related to our late-
stage product candidate, Prolia™. In the United States, Prolia™is currently being reviewed by the FDA for use in
the treatment of PMO in women. On February 19, 2010, we announced that the FDA has evaluated the content of
our Complete Response submission for Prolia™in the treatment of PMO, which we submitted on January 25,
2010, and classified it as a Class 2 resubmission. With the Class 2 designation, the FDA set a corresponding
PDUFA action date of July 25, 2010. In addition in December 2009, the CHMP announced a positive opinion for
the marketing authorization of Prolia™for the treatment of osteoporosis in postmenopausal women at increased
risk of fractures, and for the treatment of bone loss associated with hormone ablation in men with prostate cancer
at increased risk of fractures. If approved by the European Commission, we would receive marketing author-
ization for Prolia™in all EU Member States. The timing of actual launch dates would vary by country based on
reimbursement authority approval of pricing which could follow the EMA approval by many months.
Income taxes
The Company provides for income taxes based on pretax income, applicable tax rates and tax planning op-
portunities available in the various jurisdictions in which it operates.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax posi-
tion will be sustained on examination by the taxing authorities based on the technical merits of the position. The
tax benefits recognized in the financial statements on a particular tax position are measured based on the largest
benefit that has greater than a 50% likelihood of being realized upon settlement. The amount of UTBs is adjusted
as appropriate for changes in facts and circumstances, such as significant amendments to existing tax law, new
regulations or interpretations by the taxing authorities, new information obtained during a tax examination, or
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