offset by favorable foreign exchange of 3%.

2013 v. 2012

Cost of sales decreased 2% in 2013, compared to 2012, primarily due to the favorable impact of foreign exchange of 4%, which more than offset the unfavorable impact of a shift in product mix due to the loss of exclusivity of certain products in various markets.

        • lower expenses for field force and marketing expenses, reflecting the benefits of cost-reduction and productivity initiatives, partly in response to product losses of exclusivity;

• a reduction related to a true-up of the 2013 fee payable to the federal government under the U.S. Healthcare Legislation based on our prior-calendar-year share relative to other companies of branded prescription drug sales to specified government programs; and

• the favorable impact of foreign exchange of 1%,

partially offset by:

• increased investments in recently launched products and certain in-line products, as well as the launch and pre-launch marketing expenses for Trumenba (meningitis B vaccine) and Ibrance (palbociclib); and

• a $215 million charge to account for an additional year of the non-tax deductible Branded Prescription Drug Fee in accordance with final regulations issued in the third quarter of 2014 by the U.S. Internal Revenue Service (IRS).

2013 v. 2012

SI&A expenses decreased 5% in 2013, compared to 2012, primarily due to:

• savings generated from a reduction in marketing functions, partly in response to product losses of exclusivity and more streamlined corporate support functions; and

• the favorable impact of foreign exchange of 1%,

partially offset by:

• increased spending in support of several new product launches.

Research and Development (R&D) Expenses

• a charge associated with a collaborative arrangement with Merck KGaA, announced in November 2014, to jointly develop and commercialize an investigational anti-PD-L1 antibody currently in development as a potential treatment for multiple types of cancer. The charge includes an $850 million upfront cash payment as well as an additional amount of $309 million, reflecting the estimated fair value of certain co-promotion rights for Xalkori given to Merck KGaA (for further discussion, see the "Our Business Development Initiatives" section of this Financial Review); and

• costs associated with ongoing Phase 3 programs for certain new drug candidates, including our PCSK9 inhibitor, and ertugliflozin (in collaboration with Merck), investments in Ibrance (palbociclib) and our vaccines portfolio, including Trumenba, as well as potential new indications for previously approved products, especially for Xeljanz.

2013 v. 2012

R&D expenses decreased 11% in 2013, compared to 2012, primarily due to:

• the non-recurrence of a $250 million payment to AstraZeneca in 2012 to obtain the exclusive, global, OTC rights to Nexium; and

• lower charges related to implementing our cost-reduction and productivity initiatives.

See also the “Analysis of Operating Segment Information” section of this Financial Review. Description of Research and Development Operations

Innovation is critical to the success of our company and drug discovery and development is time-consuming,