United states securities and exchange commission

Table of Contents
83
as part of our various collaborations, including 
licensing and development programs. Payments under 
these agreements generally become due and payable 
upon achievement of certain development, regulatory 
or commercial milestones. Because the achievement 
of these milestones was not considered probable as 
of December 31, 2017, such contingencies have not 
been recorded in our financial statements. Amounts 
related to contingent milestone payments are not 
considered contractual obligations as they are 
contingent on the successful achievement of certain 
development, regulatory approval and commercial 
milestones. 
Provided various development, regulatory or 
commercial milestones are achieved, we anticipate 
that we may pay approximately $110.0 million of 
milestone payments in 2018. 
Other Funding Commitments
As of December 31, 2017, we have several on-
going clinical studies in various clinical trial stages. 
Our most significant clinical trial expenditures are to 
CROs. The contracts with CROs are generally 
cancellable, with notice, at our option. We have 
recorded accrued expenses of approximately $40.0 
million in our consolidated balance sheet for 
expenditures incurred by CROs as of December 31, 
2017. We have approximately $460.0 million in 
cancellable future commitments based on existing 
CRO contracts as of December 31, 2017.
Tax Related Obligations
We exclude liabilities pertaining to uncertain tax 
positions from our summary of contractual obligations 
as we cannot make a reliable estimate of the period 
of cash settlement with the respective taxing 
authorities. As of December 31, 2017, we have 
approximately $77.3 million of net liabilities 
associated with uncertain tax positions. 
As of December 31, 2017, we have accrued 
income tax liabilities of $989.6 million under the 
Transition Toll Tax, of which $78.3 million is expected 
to be paid within one year. The Transition Toll Tax will 
be paid over an eight-year period, starting in 2018, 
and will not accrue interest.
Other Off-Balance Sheet Arrangements
We do not have any relationships with entities 
often referred to as structured finance or special 
purpose entities that were established for the 
purpose of facilitating off-balance sheet 
arrangements. As such, we are not exposed to any 
financing, liquidity, market or credit risk that could 
arise if we had engaged in such relationships. We 
consolidate variable interest entities if we are the 
primary beneficiary.
Legal Matters
For a discussion of legal matters as of 
December 31, 2017, please read Note 21, Litigation, 
to our consolidated financial statements included in 
this report.
Critical Accounting Estimates
The preparation of our consolidated financial 
statements, which have been prepared in accordance 
with accounting principles generally accepted in the 
U.S. (U.S. GAAP), requires us to make estimates, 
judgments and assumptions that may affect the 
reported amounts of assets, liabilities, equity, 
revenues and expenses and related disclosure of 
contingent assets and liabilities. On an on-going basis 
we evaluate our estimates, judgments and 
methodologies. We base our estimates on historical 
experience and on various other assumptions that we 
believe are reasonable, the results of which form the 
basis for making judgments about the carrying values 
of assets, liabilities and equity and the amount of 
revenues and expenses. Actual results may differ 
from these estimates under different assumptions or 
conditions. Other significant accounting policies are 
outlined in Note 1, Summary of Significant Accounting 
Policies, to our consolidated financial statements 
included in this report. 
Revenue Recognition and Related Allowances
We recognize revenues when all of the following 
criteria are met: persuasive evidence of an 
arrangement exists; delivery has occurred or services 
have been rendered; our price to the customer is fixed 
or determinable; and collectability is reasonably 
assured. For additional information on the new 
accounting standard for revenues from contracts with 
customers please read Note 1, Summary of 
Significant Accounting Policies: New Accounting 
Pronouncements, to our consolidated financial 
statements included in this report.
Product Revenues
Revenues from product sales are recognized 
when title and risk of loss have passed to the 
customer, which is typically upon delivery. Product 
revenues are recorded net of applicable reserves for 
discounts and allowances. The timing of distributor 
orders and shipments can cause variability in 
earnings.
Reserves for Discounts and Allowances
Revenues from product sales are recorded net 
of reserves established for applicable discounts and 
allowances, including those associated with the 
implementation of pricing actions in certain of the 
international markets in which we operate. These 
reserves are based on estimates of the amounts 

---

Table of Contents
84
earned or to be claimed on the related sales and are 
classified as reductions of accounts receivable (if the 
amount is payable to our customer) or a liability (if the 
amount is payable to a party other than our 
customer). Our estimates take into consideration our 
historical experience, current contractual and 
statutory requirements, specific known market events 
and trends, industry data and forecasted customer 
buying and payment patterns. Actual amounts may 
ultimately differ from our estimates. If actual results 
vary, we adjust these estimates, which could have an 
effect on earnings in the period of adjustment. 
In addition to the discounts and rebates 
described above and classified as a reduction of 
revenue, we also maintain certain customer service 
contracts with distributors and other customers in the 
distribution channel that provide us with inventory 
management, data and distribution services, which 
are generally reflected as a reduction of revenue. To 
the extent we can demonstrate a separable benefit 
and fair value for these services we classify these 
payments within selling, general and administrative 
expenses.
Concentrations of Credit Risk
The majority of our accounts receivable arise 
from product sales in the U.S. and Europe and are 
primarily due from wholesale distributors, public 
hospitals and other government entities. We monitor 
the financial performance and creditworthiness of our 
customers so that we can properly assess and 
respond to changes in their credit profile. We continue 
to monitor these conditions, including the volatility 
associated with international economies and the 
relevant financial markets, and assess their possible 
impact on our business. Credit and economic 
conditions in the E.U. continue to remain uncertain, 
which has, from time to time, led to longer collection 
periods for our accounts receivable and greater 
collection risk in certain countries. 
 Where our collections continue to be subject to 
significant payment delays due to government funding 
and reimbursement practices and a portion of these 
receivables are routinely being collected beyond our 
contractual payment terms and over periods in excess 
of one year, we have discounted our receivables and 
reduced related revenues based on the period of time 
that we estimate those amounts will be paid, to the 
extent such period exceeds one year, using the 
country’s market-based borrowing rate for such 
period. The related receivables are classified at the 
time of sale as non-current assets.
To date, we have not experienced any significant 
losses with respect to the collection of our accounts 
receivable. If economic conditions worsen and/or the 
financial condition of our customers were to further 
deteriorate, our risk of collectability may increase, 
which may result in additional allowances and/or 
significant bad debts.
For additional information on our concentration 
of credit risk associated with our accounts receivable 
balances, please read the subsection entitled “Credit 
Risk” in Item 7A. Quantitative and Qualitative 
Disclosures About Market Risk included in this report.
Capitalization of Inventory Costs
We capitalize inventory costs associated with 
our products prior to regulatory approval, when, based 
on management’s judgment, future commercialization 
is considered probable and the future economic 
benefit is expected to be realized. We consider 
numerous attributes in evaluating whether the costs 
to manufacture a particular product should be 
capitalized as an asset. We assess the regulatory 
approval process and where the particular product 
stands in relation to that approval process, including 
any known safety or efficacy concerns, potential 
labeling restrictions and other impediments to 
approval. We evaluate our anticipated research and 
development initiatives and constraints relating to the 
product and the indication in which it will be used. We 
consider our manufacturing environment including our 
supply chain in determining logistical constraints that 
could hamper approval or commercialization. We 
consider the shelf life of the product in relation to the 
expected timeline for approval and we consider patent 
related or contract issues that may prevent or delay 
commercialization. We also base our judgment on the 
viability of commercialization, trends in the 
marketplace and market acceptance criteria. Finally, 
we consider the reimbursement strategies that may 
prevail with respect to the product and assess the 
economic benefit that we are likely to realize. We 
expense previously capitalized costs related to pre-
approval inventory upon a change in such judgment, 
due to, among other potential factors, a denial or 
significant delay of approval by necessary regulatory 
bodies. All changes in judgment in relation to pre-
approval inventory have historically been insignificant.
Acquired Intangible Assets, including In-process 
Research and Development (IPR&D)
When we purchase a business, the acquired 
IPR&D is measured at fair value, capitalized as an 
intangible asset and tested for impairment at least 
annually, as of October 31, until commercialization, 
after which time the IPR&D is amortized over its 
estimated useful life. If we acquire an asset or group 
of assets that do not meet the definition of a 
business under applicable accounting standards, the 
acquired IPR&D is expensed upon its acquisition 
date. Future costs to develop these assets are 
recorded to research and development expense as 
they are incurred.

---