F-14
Licensingand royalty revenue
We often enter into agreements to license our proprietarypatent rights on an exclusive or non-exclusive basis in exchange for
license fees and/or royalties.We generally recognize as revenue immediately those licensing fees and royalties forwhichwe have no
significant future performance obligations and are reasonably assured of collecting the resulting receivable.
Research, development andpatent expenses
Our research anddevelopment expenses includewages, benefits, facilities, supplies, external services, clinical trial and
manufacturing costs and other expenses that are directly related toour research anddevelopment operations. We expense research
and development costs aswe incur them. Whenwemake payments for research anddevelopment services prior to the services being
rendered, we record those amounts as prepaid assets onour consolidatedbalance sheet andwe expense them as the services are
provided. For the years endedDecember 31, 2013, 2012 and 2011, research and development expenseswere $173.7million, $154.6
million and$153.1million, respectively. Aportionof the costs included in research anddevelopment expenses are costs associated
withour collaboration agreements. For the years endedDecember 31, 2013, 2012 and2011, research anddevelopment costs of
approximately$51.9million, $39.0million, and$26.3million, respectively, were related toour collaborative research and
development arrangements.
We capitalize costs consistingprincipally of outside legal costs and filing fees related toobtainingpatents and amortize these
costs over the useful life of the patent, beginningwith the date theUnitedStates Patent andTrademarkOffice, or foreign equivalent,
issues the patent. Theweighted average remaining amortizable life of our issuedpatentswas 9.8 years atDecember 31, 2013.
The cost of our patents capitalized onour consolidatedbalance sheet atDecember 31, 2013 and2012was $24.9million and
$31.4million, respectively. Accumulated amortization related to patentswas $9.4million and$12.8million atDecember 31, 2013
and2012, respectively. Basedon existingpatents, estimated amortization expense related to patents in eachof the next fiveyears is as
follows:
YearsEndingDecember 31,
Amortization
(inmillions)
2014 ........................................................................................................................................... $
1.0
2015 ........................................................................................................................................... $
0.9
2016 ........................................................................................................................................... $
0.9
2017 ........................................................................................................................................... $
0.8
2018 ........................................................................................................................................... $
0.7
We reviewour capitalizedpatent costs regularly to ensure that they include costs for patents andpatent applications that have
future value.We evaluate patents andpatent applications thatwe are not actively pursuing andwrite off any associated costs. In2013,
2012 and2011, patent expenseswere $10.3million, $3.9million and$4.3million, respectively, and includednon-cash charges related
to thewrite-down of our patent costs to their estimated net realizable values of $6.4million, $817,000 and$1.9million, respectively.
Concentration of credit risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarilyof cash equivalents, short-
term investments and receivables.We place our cash equivalents and short-term investmentswith reputable financial institutions.We
primarily invest our excess cash in commercial paper anddebt instruments of theU.S. Treasury, financial institutions, corporations,
andU.S. government agencieswith strong credit ratings and an investment grade rating at or aboveA-1, P-1or F-1byMoody’s,
Standard&Poor’s (S&P) or Fitch, respectively. We have establishedguidelines relative todiversification andmaturities that
maintain safety and liquidity.We periodically review andmodify these guidelines tomaximize trends in yields and interest rates
without compromising safety and liquidity.
Cash, cash equivalents and short-term investments
We consider all liquid investmentswithmaturities of 90days or lesswhenwe purchase them to be cash equivalents. Our
short-term investments have initialmaturities of greater than90days fromdate of purchase.We classifyour short-term investments as
“available-for-sale” and carry them at fairmarket value baseduponprices for identical or similar items on the last dayof the fiscal
period.We recordunrealizedgains and losses as a separate component of comprehensive income (loss) and include net realizedgains
and losses in gain (loss) on investments.We use the specific identificationmethod todetermine the cost of securities sold.
