United states securities and exchange commission

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65
Cost and Expenses
A summary of total cost and expenses is as follows:
 
For the Years Ended
December 31,
% Change
 
2017 
compared to 
2016
2016 
compared to 
2015
(In millions, except percentages)
2017
2016
2015
Cost of sales, excluding amortization of
acquired intangible assets
$
1,630.0
$
1,478.7 $
1,240.4
10.2 %
19.2 %
Research and development
2,253.6
1,973.3
2,012.8
14.2 %
(2.0)%
Selling, general and administrative
1,935.5
1,947.9
2,113.1
(0.6)%
(7.8)%
Amortization of acquired intangible
assets
814.7
385.6
382.6
111.3 %
0.8 %
Acquired in-process research and
development
120.0
—
—
**
**
Collaboration profit sharing
112.3
10.2
—
**
**
Loss (gain) on fair value remeasurement
of contingent consideration
62.7
14.8
30.5
323.6 %
(51.5)%
Restructuring charges
0.9
33.1
93.4
(97.3)%
(64.6)%
TECFIDERA litigation settlement charge
—
454.8
—
(100.0)%
**
Total cost and expenses
$
6,929.7
$
6,298.4 $
5,872.8
10.0 %
7.2 %
** Percentage not meaningful.
Cost of Sales, Excluding Amortization of Acquired 
Intangible Assets (Cost of Sales)
Product Cost of Sales
For 2017 compared to 2016, the increase in 
product cost of sales was primarily driven by higher 
unit sales volume related to our biosimilar product 
shipments, higher contract manufacturing shipments 
of drug substance production provided to our strategic 
partners, including Bioverativ, and an increase in 
inventory amounts written down as a result of excess, 
obsolescence, unmarketability or other reasons. 
These increases were partially offset by the impact 
from the spin-off of our hemophilia business on 
February 1, 2017, and the accelerated depreciation 
recorded in the second, third and fourth quarters of 
2016 as a result of our decision to cease 
manufacturing in Cambridge, MA. 
For 2016 compared to 2015, the increase in 
product cost of sales was primarily driven by costs 
noted below as well as increased contract 
manufacturing shipments and higher unit sales 
volume related to our biosimilars and hemophilia 
products, partially offset by favorable production costs 
and mix of products.
Product cost of sales for 2016 reflects the 
recognition of $45.5 million of accelerated 
depreciation as a result of the determination to cease 
manufacturing in Cambridge, MA and vacate our 
small-scale biologics manufacturing facility in 
Cambridge, MA and warehouse space in Somerville, 
MA.

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Inventory amounts written down as a result of 
excess, obsolescence, unmarketability or other 
reasons totaled $76.9 million, $48.2 million and 
$41.9 million for the years ended December 31, 
2017, 2016 and 2015, respectively. Amounts written 
down during the year ended December 31, 2017, 
includes the impairment of $14.4 million related to 
the EC approved restrictions on the use of ZINBRYTA. 
For additional information on the Article 20 
Procedure of ZINBRYTA and resulting impairment of 
ZINBRYTA related assets, please read Note 20, 
Collaborative and Other Relationships, to our 
consolidated financial statements included in this 
report.
Royalty Cost of Sales
For 2017 compared to 2016, the increase in 
royalty cost of sales was primarily driven by the 
recognition of royalties payable to Ionis on sales of 
SPINRAZA and higher royalties on sales of AVONEX 
and PLEGRIDY in the U.S., as described below. These 
increases were partially offset by the elimination of 
royalties payable on sales of hemophilia product 
resulting from the spin-off of our hemophilia business 
on February 1, 2017 and lower royalties on sales of 
TYSABRI resulting from the expiration of certain third-
party royalties.
For 2016 compared to 2015, the increase in 
royalty cost of sales was primarily driven by the 
increase in royalty rates payable to Sobi, increased 
sales of our hemophilia products and higher royalties 
on sales of AVONEX and PLEGRIDY in the U.S., 
partially offset by a decrease in TYSABRI royalties due 
to the expiration of certain third-party royalties.
On June 28, 2016, the U.S. Patent and 
Trademark Office issued to the Japanese Foundation 
for Cancer Research (JFCR) a patent related to 
recombinant interferon-beta protein. This patent, U.S. 
Patent No. 9,376,478, expires in June 2033. This 
patent was issued following an interference 
proceeding between JFCR and us. This patent is 
relevant to AVONEX and PLEGRIDY, and we will pay 
royalties in the mid-single digits in relation to this 
patent during the life of the patent. 
Research and Development

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We support our drug discovery and development 
efforts through the commitment of significant 
resources to discovery, research and development 
programs and business development opportunities, 
particularly within our core and emerging growth 
areas. 
A significant amount of our research and 
development costs consist of indirect costs incurred 
in support of overall research and development 
activities and non-specific programs, including 
activities that benefit multiple programs, such as 
management costs, as well as depreciation, 
information technology and facility-based expenses. 
These costs are considered other research and 
development costs in the table above and are not 
allocated to a specific program or stage.
Research and development expense incurred in 
support of our marketed products includes costs 
associated with product lifecycle management 
activities including, if applicable, costs associated 
with the development of new indications for existing 
products. Late stage programs are programs in Phase 
3 development or in registration stage. Early stage 
programs are programs in Phase 1 or Phase 2 
development. Research and discovery represents 
costs incurred to support our discovery research and 
translational science efforts. Costs are reflected in 
the development stage based upon the program 
status when incurred. Therefore, the same program 
could be reflected in different development stages in 
the same year. For several of our programs, the 
research and development activities are part of our 
collaborative and other relationships. Our costs reflect 
our share of the total costs incurred.
For 2017 compared to 2016, the increase in 
research and development expense was primarily 
related to milestone and upfront expenses and costs 
incurred in connection with our early stage and late 
stage programs, partially offset by decreased costs 
incurred in connection with our marketed products.
For 2016 compared to 2015, the decrease in 
research and development expense was primarily 
related to a decrease in costs incurred in connection 
with our early stage programs, marketed products and 
other research and development costs. These 
decreases were partially offset by increased costs 
incurred in connection with our late stage and 
research and discovery programs.
We intend to continue committing significant 
resources to targeted research and development 
opportunities where there is a significant unmet need 
and where a drug candidate has the potential to be 
highly differentiated.

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