NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview
Gilead Sciences, Inc. (“Gilead”, “we”, “our” or “us”), incorporated in Delaware on June 22, 1987, is a research-based biopharmaceutical company that discovers, develops and commercializes innovative medicines in areas of unmet medical need. With each new discovery and investigational drug candidate, we strive to transform and simplify care for people with life-threatening illnesses around the world. We have operations in more than 35 countries worldwide, with headquarters in Foster City, California. Gilead’s primary areas of focus include HIV, viral hepatitis and cancer. We seek to add to our existing portfolio of products through our internal discovery and clinical development programs, product acquisition, in-licensing and strategic collaborations.
Our portfolio of marketed products includes AmBisome®, Atripla®, Biktarvy®, Cayston®, Complera®, Descovy®, Descovy for PrEP®, Emtriva®, Epclusa®, Eviplera®, Genvoya®, Harvoni®, Hepsera®, Jyseleca®, Letairis®, Odefsey®, Ranexa®, Sovaldi®, Stribild®, TecartusTM, Trodelvy®, Truvada®, Truvada for PrEP®, Tybost®, Veklury®, Vemlidy®, Viread®, Vosevi®, Yescarta® and Zydelig®. The approval status of Jyseleca varies worldwide, and Jyseleca is not approved in the United States. We also sell and distribute authorized generic versions of Epclusa and Harvoni in the United States through our separate subsidiary, Asegua Therapeutics, LLC. In addition, we sell and distribute certain products through our corporate partners under collaborative agreements.
Basis of Presentation
The accompanying Consolidated Financial Statements include the accounts of Gilead, our wholly-owned subsidiaries and certain variable interest entities for which we are the primary beneficiary. All intercompany transactions have been eliminated. For consolidated entities where we own or are exposed to less than 100% of the economics, we record net income (loss) attributable to noncontrolling interests in our Consolidated Statements of Income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties.
We assess whether we are the primary beneficiary of a variable interest entity (“VIE”) at the inception of the arrangement and at each reporting date. This assessment is based on our power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and our obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
Segment Information
We have one operating segment which primarily focuses on the discovery, development and commercialization of innovative medicines in areas of unmet medical need. Our Chief Executive Officer (“CEO”), as the chief operating decision-maker, manages and allocates resources to the operations of our company on an entity-wide basis. Managing and allocating resources on an entity-wide basis enables our CEO to assess the overall level of resources available and how to best deploy these resources across functions and research and development (“R&D”) projects based on unmet medical need and, as necessary, reallocate resources among our internal R&D portfolio and external opportunities to best support the long-term growth of our business. See Note 2. Revenues for a summary of disaggregated revenues by product and geographic region.
Significant Accounting Policies, Estimates and Judgments
The preparation of these Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an ongoing basis, we evaluate our significant accounting policies and estimates. We base our estimates on historical experience and on various market specific and other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates are assessed each period and updated to reflect current information, such as the economic considerations related to the impact that the recent coronavirus disease (“COVID-19”) could have on our significant accounting estimates. Actual results may differ significantly from these estimates.
Reclassification
Beginning 2020, acquired in-process research and development (“IPR&D”) expenses are reported separately from Research and development expenses on our Consolidated Statements of Income. Acquired IPR&D expenses on our Consolidated Statements of Income reflect IPR&D impairments as well as the initial costs of externally developed IPR&D projects, acquired directly in a transaction other than a business combination, that do not have an alternative future use, including upfront payments related to various collaborations and the initial costs of rights to IPR&D projects. Our Consolidated Statements of Income for the years ended December 31, 2019 and 2018 have been conformed to separately present acquired IPR&D expenses.
Our Consolidated Statement of Cash Flows for the year ended December 31, 2019, has been conformed to separately present acquired IPR&D expenses exclusive of IPR&D impairments. Comparative amounts in our Consolidated Statement of Cash Flows for the year ended December 31, 2018 were not material. There was no change in income from operations or operating cash flow as a result of these reclassifications.
Revenue Recognition
Product Sales
We recognize revenue from product sales when control of the product transfers, generally upon shipment or delivery, to the customer, or in certain cases, upon the corresponding sales by our customer to a third party. The revenues are recognized, net of estimated government and other rebates and chargebacks, cash discounts for prompt payment, distributor fees, sales return provisions and other related deductions. These deductions to product sales are referred to as gross-to-net deductions, and are estimated and recorded in the period in which the related product sales occur. Our payment terms to customers generally range from 30 to 90 days; however, payment terms differ by jurisdiction, by customer and in some instances by type of product. Variable consideration is included in the net sales price only to the extent a significant reversal in the amount of cumulative revenue recognized is not probable of occurring when the uncertainty associated with the variable consideration is subsequently resolved. If we expect, at contract inception, that the period between the transfer of control and corresponding payment from the customer will be one year or less, we do not adjust the amount of consideration for the effects of a significant financing component.
Gross to Net Deductions
Rebates and Chargebacks
Government and other rebates and chargebacks include amounts payable to payers and healthcare providers under various programs, and may vary by product, by payer and individual payer plans. Rebates and chargebacks are based on contractual arrangements or statutory requirements which may vary by product, payer and individual payer plans. For qualified programs that can purchase our products through wholesalers or other distributors at a lower contractual price, the wholesalers or distributors charge back to us the difference between their acquisition cost and the lower contractual price.
Rebates and chargebacks are estimated primarily based on product sales, and expected payer mix and discount rates, which require significant estimates and judgment. Additionally, in developing our estimates we consider: historical and estimated payer mix; statutory discount requirements and contractual terms; historical claims experience and processing time lags; estimated patient population; known market events or trends; market research; channel inventory data obtained from our major U.S. wholesalers; and other pertinent internal or external information. We assess and update our estimates every quarter to reflect actual claims and other current information.
Government and other chargebacks that are payable to our direct customers are generally classified as reductions of Accounts receivable on our Consolidated Balance Sheets. Government and other rebates that are payable to third party payers and healthcare providers are recorded in Accrued government and other rebates on our Consolidated Balance Sheets.
Cash Discounts
We estimate cash discounts based on contractual terms, historical customer payment patterns and our expectations regarding future customer payment patterns.
Distributor Fees
Under our inventory management agreements with our significant U.S. wholesalers, we pay the wholesalers a fee primarily for compliance with certain contractually determined covenants such as the maintenance of agreed upon inventory levels. These distributor fees are based on a contractually determined fixed percentage of sales.
Allowance for Sales Returns
Allowances are made for estimated sales returns by our customers and are recorded in the period the related revenue is recognized. We typically permit returns if the product is damaged, defective, or otherwise cannot be used by the customer. In the United States we typically permit returns six months prior to and up to one year after the product expiration date. Outside the United States returns are only allowed in certain countries on a limited basis.
Our estimates of sales returns are based primarily on analysis of our historical product return patterns, industry information reporting the return rates for similar products and contractual agreement terms. We also take into consideration known or expected changes in the marketplace specific to each product.
Shipping and Handling
Shipping and handling activities are considered to be fulfillment activities and not considered to be a separate performance obligation.
Royalty, Contract and Other Revenues
Royalty revenue is recognized in the period in which the obligation is satisfied and the corresponding sales by our corporate partners occur.
Research and Development Expenses
R&D expenses consist primarily of personnel costs, including salaries, benefits and stock-based compensation, clinical studies performed by contract research organizations (“CROs”), materials and supplies, payments under collaborative and other arrangements, including milestone payments, license and option fees, as well as expense reimbursements to the collaboration partners and overhead allocations consisting of various support and infrastructure costs. Upfront and milestone payments made to third-party collaborators are expensed as incurred up to the point of regulatory approval. Milestone payments made upon regulatory approval are capitalized and amortized over the remaining useful life of the related product. From time to time, we enter into development and collaboration agreements in which we share expenses with a collaborative partner. We record payments received from our collaborative partners for their share of the development costs as a reduction of research and development expense.
We charge R&D costs, including clinical study costs, to expense when incurred. Clinical study costs are a significant component of R&D expenses. Most of our clinical studies are performed by third-party CROs. We monitor levels of performance under each significant contract including the extent of patient enrollment and other activities through communications with our CROs. We accrue costs for clinical studies performed by CROs over the service periods specified in the contracts and adjust our estimates, if required, based upon our ongoing review of the level of effort and costs actually incurred by the CROs. All of our material CRO contracts are terminable by us upon written notice and we are generally only liable for actual services completed by the CRO and certain non-cancelable expenses incurred at any point of termination. Payments we make for research and development services prior to the services being rendered are recorded as prepaid assets in our Consolidated Balance Sheets and are expensed as the services are provided.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses relate to sales and marketing, finance, human resources, legal and other administrative activities. SG&A expenses consist primarily of personnel costs, facilities and overhead costs, outside marketing, advertising and legal expenses, and other general and administrative costs. SG&A expenses also include the branded prescription drug (“BPD”) fee. In the United States, we, along with other pharmaceutical manufacturers of branded drug products, are required to pay a portion of the BPD fee, which is estimated based on select government sales during the prior year as a percentage of total industry government sales.
We expense the costs of advertising, including promotional expenses, as incurred. Advertising expenses were $795 million, $784 million and $587 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Cash and Cash Equivalents
We consider highly liquid investments with insignificant interest rate risk and an original maturity of three months or less on the purchase date to be cash equivalents.
Marketable and Nonmarketable Securities
Marketable Debt Securities
We determine the appropriate classification of our marketable debt securities at the time of purchase and reevaluate such designation at each balance sheet date. All of our marketable debt securities are considered available-for-sale and carried at estimated fair values and reported in cash equivalents, short-term marketable securities or long-term marketable securities. Unrealized gains and losses on available-for-sale debt securities are excluded from net income and reported in accumulated other comprehensive income (loss) (“AOCI”) as a separate component of stockholders’ equity. Other income (expense), net, includes interest, amortization of purchase premiums and discounts, realized gains and losses on sales of securities and expected credit losses, if any. The cost of securities sold is based on the specific identification method. We regularly review our investments for declines in fair value below their amortized cost basis to determine whether the impairment is due to credit-related factors or noncredit-related factors. Our review includes the creditworthiness of the security issuers, the number of securities in an unrealized loss position, the severity of the unrealized losses, whether we have the intent to sell the securities and whether it is more likely than not that we will be required to sell the securities before the recovery of their amortized cost basis. When we determine that a portion of the unrealized loss is due to an expected credit loss, we recognize the loss amount in Other income (expense), net, with a corresponding allowance against the carrying value of the security we hold. The portion of the unrealized loss related to factors other than credit losses is recognized in AOCI.
Marketable and Non-Marketable Equity Securities
Investments in equity securities, other than equity method investments, are recorded at fair market value, if fair value is readily determinable and unrealized gains and losses are included in Other income (expense), net on our Consolidated Statements of Income.
For investments in entities over which we have significant influence but do not meet the requirements for consolidation and have not elected the fair value option, we use the equity method of accounting with our share of the underlying income or loss of such entities reported in Other income (expense), net on our Consolidated Statements of Income. We have elected the fair value option to account for our equity investment in Galapagos NV (“Galapagos”) over which we have significant influence. We believe the fair value option best reflects the underlying economics of the investment. See Note 11. Collaborations and Other Arrangements for additional information.
Equity securities without readily determinable fair values are recorded using the measurement alternative of cost less impairment, if any, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer. Certain investments in equity securities of non-public companies are accounted for using the equity method based on our ownership percentage and other factors that indicate we have significant influence over the investee. See Note 11. Collaborations and Other Arrangements for additional information.
Our investments in equity securities are recorded in Prepaid and other current assets or Other long-term assets on our Consolidated Balance Sheets. We regularly review our securities for indicators of impairment.
Concentrations of Risk
We are subject to credit risk from our portfolio of cash equivalents and marketable securities. Under our investment policy, we limit amounts invested in such securities by credit rating, maturity, industry group, investment type and issuer, except for securities issued by the U.S. government. We are not exposed to any significant concentrations of credit risk from these financial instruments. The goals of our investment policy, in order of priority, are as follows: safety and preservation of principal and diversification of risk; liquidity of investments sufficient to meet cash flow requirements; and a competitive after-tax rate of return.
We are also subject to credit risk from our accounts receivable related to our product sales. Trade accounts receivable are recorded net of allowances for wholesaler chargebacks related to government and other programs, cash discounts for prompt payment and credit losses. Estimates of our allowance for credit losses consider a number of factors including existing contractual payment terms, individual customer circumstances, historical payment patterns of our customers, a review of the local economic environment and its potential impact on expected future customer payment patterns and government funding and reimbursement practices. The majority of our trade accounts receivable arises from product sales in the United States, Europe and Japan. There were no material write-offs charged against the allowance for the year ended December 31, 2020.
Certain of the raw materials and components that we utilize in our operations are obtained through single suppliers. Certain of the raw materials that we utilize in our operations are made at only one facility. Since the suppliers of key components and raw materials must be named in a new drug application filed with U.S. Food and Drug Administration (“FDA”) for a product, significant delays can occur if the qualification of a new supplier is required. If delivery of material from our suppliers is interrupted for any reason, we may be unable to ship our commercial products or to supply our product candidates for clinical trials.
Inventories
Inventories are recorded at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. We periodically review our inventories to identify obsolete, slow moving, excess or otherwise unsaleable items. If obsolete, slow moving, excess or unsaleable items are observed and there are no alternate uses for the inventory, we record a write-down to net realizable value through a charge to Cost of goods sold on our Consolidated Statements of Income. The determination of net realizable value requires judgment including consideration of many factors, such as estimates of future product demand, product net selling prices, current and future market conditions and potential product obsolescence, among others.
When future commercialization is considered probable and the future economic benefit is expected to be realized, based on management’s judgment, we capitalize pre-launch inventory costs prior to regulatory approval. A number of factors are considered, including the current status in the regulatory approval process, potential impediments to the approval process such as safety or efficacy, anticipated R&D initiatives that could impact the indication in which the compound will be used, viability of commercialization and marketplace trends.
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are recognized using the straight-line method. Repairs and maintenance costs are expensed as incurred. Estimated useful lives in years are generally as follows:
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Description
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Estimated Useful Life
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Buildings and improvements
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Shorter of 35 years or useful life
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Laboratory and manufacturing equipment
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4-10
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Office, computer equipment and other
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3-15
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Leasehold improvements
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Shorter of useful life or lease term
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Leases
On January 1, 2019, we adopted Accounting Standards Update No. 2016-02 (Topic 842) “Leases,” which requires lessees to recognize right-of-use assets and lease liabilities for operating leases with a lease term greater than one year. We adopted Topic 842 using the modified retrospective method. As such, results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under Topic 840 “Leases.”
We determine if an arrangement contains a lease at inception. Right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term, which is the non-cancelable period stated in the contract adjusted for any options to extend or terminate when it is reasonably certain that we will exercise that option. Right-of-use assets are adjusted for prepaid lease payments, lease incentives and initial direct costs incurred. Operating lease expense for the minimum lease payments is recognized on a straight-line basis over the lease term.
We account for lease and nonlease components in our lease agreements as a single lease component in determining lease assets and liabilities. In addition, we do not recognize the right-of-use assets and liabilities for leases with lease terms of one year or less.
As most of our operating leases do not provide an implicit interest rate, we generally utilize a collateralized incremental borrowing rate, applied in a portfolio approach when relevant, based on the information available at the commencement date to determine the lease liability.
Acquisitions
We account for business combinations using the acquisition method of accounting, which generally requires that assets acquired, including IPR&D projects, and liabilities assumed be recorded at their fair values as of the acquisition date on our Consolidated Balance Sheets. Any excess of consideration over the fair value of net assets acquired is recorded as goodwill. The determination of estimated fair value requires us to make significant estimates and assumptions. As a result, we may record adjustments to the fair values of assets acquired and liabilities assumed within the measurement period (up to one year from the acquisition date) with the corresponding offset to goodwill. Transaction costs associated with business combinations are expensed as they are incurred.
When we determine net assets acquired do not meet the definition of a business combination under the acquisition method of accounting, the transaction is accounted for as an acquisition of assets and, therefore, no goodwill is recorded and contingent consideration such as payments upon achievement of various developmental, regulatory and commercial milestones generally is not recognized at the acquisition date. In an asset acquisition, upfront payments allocated to IPR&D projects at the acquisition date and subsequent milestone payments are charged to expense in our Consolidated Statements of Income unless there is an alternative future use.
Goodwill and Intangible Assets
Goodwill represents the excess of the consideration transferred over the estimated fair value of assets acquired and liabilities assumed in a business combination. Intangible assets are measured at their respective fair values as of the acquisition date and may be subject to adjustment within the measurement period, which may be up to one year from the acquisition date. Intangible assets related to IPR&D projects are considered to be indefinite-lived until the completion or abandonment of the associated R&D efforts. We do not amortize goodwill and intangible assets with indefinite useful lives. Goodwill and indefinite-lived intangible assets are tested for impairment annually, or more frequently if events or changes in circumstances indicate that it is more likely than not that the assets are impaired.
When development is successfully completed, which generally occurs when regulatory approval is obtained, the associated assets are deemed finite-lived and amortized over their respective estimated useful lives beginning at that point in time. Intangible assets with finite useful lives are amortized over their estimated useful lives, primarily on a straight-line basis, and are reviewed for impairment when facts or circumstances indicate that the carrying value of these assets may not be recoverable.
Impairment of Long-Lived Assets
Long-lived assets, including property, plant and equipment and finite-lived intangible assets, are reviewed for impairment whenever facts or circumstances either internally or externally may indicate that the carrying value of an asset may not be recoverable. Should there be an indication of impairment, we test for recoverability by comparing the estimated undiscounted future cash flows expected to result from the use of the asset to the carrying amount of the asset or asset group. If the asset or asset group is determined to be impaired, any excess of the carrying value of the asset or asset group over its estimated fair value is recognized as an impairment loss.
Valuation of Contingent Consideration Resulting from a Business Combination
In connection with certain acquisitions, we may be required to pay future consideration that is contingent upon the achievement of specified development, regulatory approval or sales-based milestone events. We record contingent consideration resulting from a business combination at its fair value on the acquisition date. Each quarter thereafter, we revalue these obligations and record increases or decreases in their fair value in R&D expense within our Consolidated Statement of Income until such time that the related product candidate receives marketing approval.
Increases or decreases in fair value of the contingent consideration liabilities can result from updates to assumptions such as the expected timing or probability of achieving the specified milestones, changes in projected revenues or changes in discount rates. Significant judgment is employed in determining these assumptions as of the acquisition date and for each subsequent period. Updates to assumptions could have a significant impact on our results of operations in any given period. Actual results may differ from estimates.
Foreign Currency Translation, Transaction Gains and Losses, and Hedging Contracts
Non-U.S. entity operations are recorded in the functional currency of each entity. Results of operations for non-U.S. dollar functional currency entities are translated into U.S. dollars using average currency rates. Assets and liabilities are translated using currency rates at period end. Foreign currency translation adjustments are recorded as a component of AOCI within stockholders’ equity. Foreign currency transaction gains and losses are recorded in Other income (expense), net, on our Consolidated Statements of Income. Net foreign currency transaction gains and losses were not material for the years ended December 31, 2020, 2019 and 2018.
We hedge a portion of our foreign currency exposures related to outstanding monetary assets and liabilities as well as forecasted product sales using foreign currency exchange forward contracts. In general, the market risk related to these contracts is offset by corresponding gains and losses on the hedged transactions. The credit risk associated with these contracts is driven by changes in interest and currency exchange rates and, as a result, varies over time. By working only with major banks and closely monitoring current market conditions, we seek to limit the risk that counterparties to these contracts may be unable to perform. We also seek to limit our risk of loss by entering into contracts that permit net settlement at maturity. Therefore, our overall risk of loss in the event of a counterparty default is limited to the amount of any unrealized gains on outstanding contracts (i.e., those contracts that have a positive fair value) at the date of default. We do not enter into derivative contracts for trading purposes.
Fair Value of Financial Instruments
We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. We define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risks.
Derivative Financial Instruments
We recognize all derivative instruments as either assets or liabilities at fair value on our Consolidated Balance Sheets. Changes in the fair value of derivatives designated as part of a hedge transaction are recorded each period in current earnings or AOCI. Changes in the fair value of derivatives that are not part of a hedge transaction are recorded each period in current earnings.
We assess, both at inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are effective in offsetting the changes in cash flows or fair values of the hedged items. If we determine that a forecasted transaction is probable of not occurring, we discontinue hedge accounting for the affected portion of the hedge instrument, and any related unrealized gain or loss on the contract is recognized in Other income (expense), net on our Consolidated Statements of Income.
Income Taxes
Our income tax provision is computed under the liability method. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Significant estimates are required in determining our provision for income taxes. Some of these estimates are based on interpretations of applicable tax laws or regulations.
We record liabilities related to unrecognized tax benefits in accordance with the guidance that clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. An adverse resolution of one or more of these uncertain tax positions in any period could have a material impact on the results of operations for that period.
We have elected to account for the tax on Global Intangible Low-Taxed Income (“GILTI”), enacted as part of the Tax Cuts and Jobs Act (“Tax Reform”), as a component of tax expense in the period in which the tax is incurred (“period cost method”).
Other Significant Accounting Policies
Our other significant accounting policies are described in the remaining appropriate notes to the Consolidated Financial Statements.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13 “Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments” and has since modified the standard with several ASUs (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets. On January 1, 2020, we adopted this standard using a modified retrospective approach. The adoption did not have a material impact on our Consolidated Financial Statements. In connection with the adoption of Topic 326, we made an accounting policy election to not measure an allowance for credit losses for accrued interest receivable.
In November 2018, the FASB issued Accounting Standards Update No. 2018-18 “Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606” (“ASU 2018-18”). ASU 2018-18 clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under Topic 606, “Revenue from Contracts with Customers” when the counterparty is a customer. In addition, the update precludes an entity from presenting consideration from a transaction in a collaborative arrangement as customer revenue if the counterparty is not a customer for that transaction. On January 1, 2020, we adopted this standard and applied it retrospectively to January 1, 2018 when we initially adopted Topic 606. The adoption did not have an impact on our Consolidated Financial Statements.
2. REVENUES
Disaggregation of Revenues
Revenues were as follows:
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Year Ended December 31, 2020
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Year Ended December 31, 2019
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Year Ended December 31, 2018
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(in millions)
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U.S.
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Europe
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Other International
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Total
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U.S.
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Europe
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Other International
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Total
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U.S.
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Europe
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Other International
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Total
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Product Sales:
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HIV Products
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Atripla
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$
|
307
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$
|
21
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$
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21
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$
|
349
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|
|
$
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501
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|
|
$
|
60
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|
|
$
|
39
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|
|
$
|
600
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|
|
$
|
967
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|
|
$
|
131
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|
|
$
|
108
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|
|
$
|
1,206
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|
|
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Biktarvy
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6,095
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|
|
735
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|
|
429
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|
|
7,259
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|
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4,225
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|
|
370
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|
|
143
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|
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4,738
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|
|
1,144
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|
|
39
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|
|
1
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|
|
1,184
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|
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Complera/Eviplera
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|
89
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|
|
159
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|
|
21
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|
|
269
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|
|
160
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|
|
214
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|
|
32
|
|
|
406
|
|
|
276
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|
|
327
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|
|
50
|
|
|
653
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|
|
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|
|
Descovy
|
|
1,526
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|
|
197
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|
|
138
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|
|
1,861
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|
|
1,078
|
|
|
255
|
|
|
167
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|
|
1,500
|
|
|
1,217
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|
|
308
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|
|
56
|
|
|
1,581
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Genvoya
|
|
2,605
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|
|
490
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|
|
243
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|
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3,338
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|
|
2,984
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|
|
664
|
|
|
283
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|
|
3,931
|
|
|
3,631
|
|
|
794
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|
|
199
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|
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4,624
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|
|
|
|
|
Odefsey
|
|
1,172
|
|
|
450
|
|
|
50
|
|
|
1,672
|
|
|
1,180
|
|
|
438
|
|
|
37
|
|
|
1,655
|
|
|
1,242
|
|
|
335
|
|
|
21
|
|
|
1,598
|
|
|
|
|
|
Stribild
|
|
125
|
|
|
54
|
|
|
17
|
|
|
196
|
|
|
268
|
|
|
75
|
|
|
26
|
|
|
369
|
|
|
505
|
|
|
97
|
|
|
42
|
|
|
644
|
|
|
|
|
|
Truvada
|
|
1,376
|
|
|
27
|
|
|
45
|
|
|
1,448
|
|
|
2,640
|
|
|
101
|
|
|
72
|
|
|
2,813
|
|
|
2,605
|
|
|
260
|
|
|
132
|
|
|
2,997
|
|
|
|
|
|
Other HIV (1)
|
|
25
|
|
|
5
|
|
|
28
|
|
|
58
|
|
|
30
|
|
|
5
|
|
|
12
|
|
|
47
|
|
|
40
|
|
|
7
|
|
|
14
|
|
|
61
|
|
|
|
|
|
Revenue share - Symtuza (2)
|
|
331
|
|
|
149
|
|
|
8
|
|
|
488
|
|
|
249
|
|
|
130
|
|
|
—
|
|
|
379
|
|
|
27
|
|
|
52
|
|
|
—
|
|
|
79
|
|
|
|
|
|
Total HIV product sales
|
|
13,651
|
|
|
2,287
|
|
|
1,000
|
|
|
16,938
|
|
|
13,315
|
|
|
2,312
|
|
|
811
|
|
|
16,438
|
|
|
11,654
|
|
|
2,350
|
|
|
623
|
|
|
14,627
|
|
|
|
|
|
Hepatitis C virus (“HCV”) Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ledipasvir/Sofosbuvir (3)
|
|
92
|
|
|
29
|
|
|
151
|
|
|
272
|
|
|
312
|
|
|
71
|
|
|
260
|
|
|
643
|
|
|
802
|
|
|
144
|
|
|
276
|
|
|
1,222
|
|
|
|
|
|
Sofosbuvir/Velpatasvir (4)
|
|
864
|
|
|
337
|
|
|
398
|
|
|
1,599
|
|
|
971
|
|
|
553
|
|
|
441
|
|
|
1,965
|
|
|
934
|
|
|
654
|
|
|
378
|
|
|
1,966
|
|
|
|
|
|
Other HCV (5)
|
|
132
|
|
|
48
|
|
|
13
|
|
|
193
|
|
|
182
|
|
|
118
|
|
|
28
|
|
|
328
|
|
|
287
|
|
|
98
|
|
|
113
|
|
|
498
|
|
|
|
|
|
Total HCV product sales
|
|
1,088
|
|
|
414
|
|
|
562
|
|
|
2,064
|
|
|
1,465
|
|
|
742
|
|
|
729
|
|
|
2,936
|
|
|
2,023
|
|
|
896
|
|
|
767
|
|
|
3,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Veklury
|
|
2,026
|
|
|
607
|
|
|
178
|
|
|
2,811
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cell Therapy Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yescarta
|
|
362
|
|
|
191
|
|
|
10
|
|
|
563
|
|
|
373
|
|
|
83
|
|
|
—
|
|
|
456
|
|
|
263
|
|
|
1
|
|
|
—
|
|
|
264
|
|
|
|
|
|
Tecartus
|
|
34
|
|
|
10
|
|
|
—
|
|
|
44
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Total Cell Therapy product sales
|
|
396
|
|
|
201
|
|
|
10
|
|
|
607
|
|
|
373
|
|
|
83
|
|
|
—
|
|
|
456
|
|
|
263
|
|
|
1
|
|
|
—
|
|
|
264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trodelvy
|
|
49
|
|
|
—
|
|
|
—
|
|
|
49
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AmBisome
|
|
61
|
|
|
230
|
|
|
145
|
|
|
436
|
|
|
37
|
|
|
234
|
|
|
136
|
|
|
407
|
|
|
46
|
|
|
229
|
|
|
145
|
|
|
420
|
|
|
|
|
|
Letairis
|
|
314
|
|
|
—
|
|
|
—
|
|
|
314
|
|
|
618
|
|
|
—
|
|
|
—
|
|
|
618
|
|
|
943
|
|
|
—
|
|
|
—
|
|
|
943
|
|
|
|
|
|
Ranexa
|
|
9
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
216
|
|
|
—
|
|
|
—
|
|
|
216
|
|
|
758
|
|
|
—
|
|
|
—
|
|
|
758
|
|
|
|
|
|
Vemlidy
|
|
356
|
|
|
29
|
|
|
272
|
|
|
657
|
|
|
309
|
|
|
21
|
|
|
158
|
|
|
488
|
|
|
245
|
|
|
12
|
|
|
64
|
|
|
321
|
|
|
|
|
|
Viread
|
|
14
|
|
|
34
|
|
|
137
|
|
|
185
|
|
|
32
|
|
|
69
|
|
|
142
|
|
|
243
|
|
|
50
|
|
|
82
|
|
|
175
|
|
|
307
|
|
|
|
|
|
Zydelig
|
|
31
|
|
|
39
|
|
|
2
|
|
|
72
|
|
|
47
|
|
|
54
|
|
|
2
|
|
|
103
|
|
|
61
|
|
|
70
|
|
|
2
|
|
|
133
|
|
|
|
|
|
Other (6)
|
|
146
|
|
|
53
|
|
|
14
|
|
|
213
|
|
|
153
|
|
|
52
|
|
|
9
|
|
|
214
|
|
|
154
|
|
|
56
|
|
|
8
|
|
|
218
|
|
|
|
|
|
Total Other product sales
|
|
931
|
|
|
385
|
|
|
570
|
|
|
1,886
|
|
|
1,412
|
|
|
430
|
|
|
447
|
|
|
2,289
|
|
|
2,257
|
|
|
449
|
|
|
394
|
|
|
3,100
|
|
|
|
|
|
Total product sales
|
|
18,141
|
|
|
3,894
|
|
|
2,320
|
|
|
24,355
|
|
|
16,565
|
|
|
3,567
|
|
|
1,987
|
|
|
22,119
|
|
|
16,197
|
|
|
3,696
|
|
|
1,784
|
|
|
21,677
|
|
|
|
|
|
Royalty, contract and other revenues
|
|
76
|
|
|
241
|
|
|
17
|
|
|
334
|
|
|
80
|
|
|
244
|
|
|
6
|
|
|
330
|
|
|
72
|
|
|
310
|
|
|
68
|
|
|
450
|
|
|
|
|
|
Total revenues
|
|
$
|
18,217
|
|
|
$
|
4,135
|
|
|
$
|
2,337
|
|
|
$
|
24,689
|
|
|
$
|
16,645
|
|
|
$
|
3,811
|
|
|
$
|
1,993
|
|
|
$
|
22,449
|
|
|
$
|
16,269
|
|
|
$
|
4,006
|
|
|
$
|
1,852
|
|
|
$
|
22,127
|
|
|
|
|
|
_______________________________
(1) Includes Emtriva and Tybost.
(2) Represents our revenue from cobicistat (C), emtricitabine (FTC) and tenofovir alafenamide (TAF) in Symtuza (darunavir/C/FTC/TAF), a fixed dose combination product commercialized by Janssen Sciences Ireland Unlimited Company.
(3) Amounts consist of sales of Harvoni and the authorized generic version of Harvoni sold by our separate subsidiary, Asegua Therapeutics LLC.
(4) Amounts consist of sales of Epclusa and the authorized generic version of Epclusa sold by our separate subsidiary, Asegua Therapeutics LLC.
(5) Includes Vosevi and Sovaldi.
(6) Includes Cayston, Hepsera and Jyseleca.
Revenues From Major Customers
The following table summarizes revenues from each of our customers who individually accounted for 10% or more of our total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(as a percentage of total revenues)
|
|
2020
|
|
2019
|
|
2018
|
AmerisourceBergen Corporation
|
|
27
|
%
|
|
21
|
%
|
|
20
|
%
|
Cardinal Health, Inc.
|
|
21
|
%
|
|
21
|
%
|
|
21
|
%
|
McKesson Corporation
|
|
20
|
%
|
|
22
|
%
|
|
21
|
%
|
Revenues Recognized from Performance Obligations Satisfied in Prior Periods
Revenues recognized from performance obligations satisfied in prior years related to royalties for licenses of our intellectual property were $841 million and $741 million for the years ended December 31, 2020 and 2019, respectively.
Variable consideration is included in the net sales price only to the extent a significant reversal in the amount of cumulative revenue recognized is not probable of occurring when the uncertainty associated with the variable consideration is subsequently resolved. Estimates are assessed each period and updated to reflect current information. Changes in estimates for variable consideration related to sales made in prior years resulted in a $101 million increase and a $257 million increase in revenues for the years ended December 31, 2020 and 2019, respectively.
Contract Balances
Our contract assets, which consist of unbilled amounts primarily from arrangements where the licensing of intellectual property is the only or predominant performance obligation, totaled $198 million and $144 million as of December 31, 2020 and 2019, respectively. Contract liabilities were $97 million and $45 million as of December 31, 2020 and 2019, respectively. During 2020 and 2019, revenue recognized that was included in the contract liability balance as of the beginning of the respective years was not material. Revenue expected to be recognized in the future from contract liabilities as the related performance obligations are satisfied is not expected to be material in any one year.
3. FAIR VALUE MEASUREMENTS
We determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value, as follows:
•Level 1 inputs include quoted prices in active markets for identical assets or liabilities;
•Level 2 inputs include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. For our marketable securities, we review trading activity and pricing as of the measurement date. When sufficient quoted pricing for identical securities is not available, we use market pricing and other observable market inputs for similar securities obtained from various third-party data providers. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data; and
•Level 3 inputs include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Our Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation.
Our financial instruments consist primarily of cash and cash equivalents, marketable debt securities, accounts receivable, foreign currency exchange contracts, equity securities, accounts payable and short-term and long-term debt. Cash and cash equivalents, marketable debt securities, certain equity securities, and foreign currency exchange contracts are reported at their respective fair values in our Consolidated Balance Sheets. Equity securities without readily determinable fair values are recorded using the measurement alternative of cost less impairment, if any, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer. Short-term and long-term debt are reported at their amortized costs in our Consolidated Balance Sheets. The remaining financial instruments are reported in our Consolidated Balance Sheets at amounts that approximate current fair values.
The following table summarizes the types of assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities
|
|
$
|
309
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
309
|
|
|
$
|
2,433
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
—
|
|
|
216
|
|
|
—
|
|
|
216
|
|
|
—
|
|
|
3,517
|
|
|
—
|
|
|
3,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,081
|
|
|
—
|
|
|
1,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. government securities
|
|
—
|
|
|
43
|
|
|
—
|
|
|
43
|
|
|
—
|
|
|
174
|
|
|
—
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
—
|
|
|
1,142
|
|
|
—
|
|
|
1,142
|
|
|
—
|
|
|
9,204
|
|
|
—
|
|
|
9,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage and asset-backed securities
|
|
—
|
|
|
316
|
|
|
—
|
|
|
316
|
|
|
—
|
|
|
91
|
|
|
—
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investment in Galapagos
|
|
1,648
|
|
|
—
|
|
|
—
|
|
|
1,648
|
|
|
3,477
|
|
|
—
|
|
|
—
|
|
|
3,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
4,361
|
|
|
—
|
|
|
—
|
|
|
4,361
|
|
|
7,069
|
|
|
—
|
|
|
—
|
|
|
7,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other publicly traded equity securities
|
|
743
|
|
|
—
|
|
|
—
|
|
|
743
|
|
|
322
|
|
|
—
|
|
|
—
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan
|
|
218
|
|
|
—
|
|
|
—
|
|
|
218
|
|
|
171
|
|
|
—
|
|
|
—
|
|
|
171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivative contracts
|
|
—
|
|
|
12
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
37
|
|
|
—
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,279
|
|
|
$
|
1,729
|
|
|
$
|
—
|
|
|
$
|
9,008
|
|
|
$
|
13,472
|
|
|
$
|
14,104
|
|
|
$
|
—
|
|
|
$
|
27,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan
|
|
$
|
218
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
218
|
|
|
$
|
171
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivative contracts
|
|
—
|
|
|
121
|
|
|
—
|
|
|
121
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
218
|
|
|
$
|
121
|
|
|
$
|
—
|
|
|
$
|
339
|
|
|
$
|
171
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investments not measured at fair value and excluded from the above table were limited partnerships and other equity method investments of $58 million and $24 million at December 31, 2020 and 2019, respectively and other equity investments without readily determinable fair values of $204 million and $82 million at December 31, 2020 and 2019, respectively. These amounts were included in Other long-term assets on our Consolidated Balance Sheets.
Changes in the fair value of equity securities resulted in net unrealized losses of $1.7 billion and net unrealized gains of $1.2 billion for the years ended December 31, 2020 and 2019, respectively, which were included in Other income (expense), net, on our Consolidated Statements of Income.
The following table summarizes the classification of our equity securities in our Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
December 31, 2020
|
|
December 31, 2019
|
Cash and cash equivalents
|
|
$
|
4,361
|
|
|
$
|
7,069
|
|
Prepaid and other current assets
|
|
853
|
|
|
319
|
|
Other long-term assets
|
|
1,756
|
|
|
3,651
|
|
Total
|
|
$
|
6,970
|
|
|
$
|
11,039
|
|
Our available-for-sale debt securities are classified as cash equivalents, short-term marketable securities and long-term marketable securities in our Consolidated Balance Sheets. See Note 4. Available-for-Sale Debt Securities for additional information. See Note 11. Collaborations and Other Arrangements for additional information on our equity investment in Galapagos.
Level 2 Inputs
We estimate the fair values of Level 2 instruments by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income-based and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate the fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities, prepayment/default projections based on historical data and other observable inputs.
Substantially all of our foreign currency derivative contracts have maturities within an 18 month time horizon and all are with counterparties that have a minimum credit rating of A- or equivalent by S&P Global Ratings, Moody’s Investors Service, Inc. or Fitch Ratings, Inc. We estimate the fair values of these contracts by taking into consideration the valuations obtained from a third-party valuation service that utilizes an income-based industry standard valuation model for which all significant inputs are observable, either directly or indirectly. These inputs include foreign currency exchange rates, London Interbank Offered Rates and swap rates. These inputs, where applicable, are observable at commonly quoted intervals.
The total estimated fair values of our aggregate short-term and long-term senior unsecured notes and term loan facility, determined using Level 2 inputs based on their quoted market values, were approximately $34.6 billion and $27.3 billion at December 31, 2020 and 2019, respectively, and the carrying values were $30.3 billion and $24.6 billion at December 31, 2020 and 2019, respectively.
Level 3 Inputs
In 2020, we measured assets acquired and liabilities assumed at fair value on a nonrecurring basis, in connection with our acquisition of Immunomedics, Inc. (“Immunomedics”). See Note 6. Acquisitions for additional information.
In 2020, in connection with collaborations and other equity arrangements we entered into separately with Pionyr Immunotherapeutics, Inc. (“Pionyr”) and Tizona Therapeutics, Inc. (“Tizona”), we also measured fair values of our exclusive options to acquire the remaining outstanding capital stock of Pionyr and Tizona on a nonrecurring basis. See Note 11. Collaborations and Other Arrangements for additional information.
In 2019 and 2018, we measured IPR&D intangible assets acquired in connection with the acquisition of Kite Pharma, Inc. (“Kite”) at fair value on a nonrecurring basis, and recognized pre-tax impairment charges of $800 million and $820 million, respectively. The fair values of the acquired IPR&D assets are estimated based on probability-adjusted discounted cash flow calculations using Level 3 fair value measurements and inputs include estimated revenues, costs, probability of technical and regulatory success and discount rates. Amounts capitalized as IPR&D are subject to impairment testing until the completion or abandonment of the associated R&D efforts. See Note 9. Goodwill and Intangible Assets for additional information.
The other level 3 liabilities were our contingent consideration liabilities, which were not material at December 31, 2020 and 2019.
Our policy is to recognize transfers into or out of Level 3 classification as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers between Level 1, Level 2 and Level 3 in the periods presented.
4. AVAILABLE-FOR-SALE DEBT SECURITIES
The following table summarizes our available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
(in millions)
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair Value
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair Value
|
U.S. treasury securities
|
|
$
|
308
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
309
|
|
|
$
|
2,433
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,433
|
|
Certificates of deposit
|
|
216
|
|
|
—
|
|
|
—
|
|
|
216
|
|
|
3,517
|
|
|
—
|
|
|
—
|
|
|
3,517
|
|
U.S. government agencies securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,081
|
|
|
—
|
|
|
—
|
|
|
1,081
|
|
Non-U.S. government securities
|
|
43
|
|
|
—
|
|
|
—
|
|
|
43
|
|
|
174
|
|
|
—
|
|
|
—
|
|
|
174
|
|
Corporate debt securities
|
|
1,140
|
|
|
2
|
|
|
—
|
|
|
1,142
|
|
|
9,203
|
|
|
2
|
|
|
(1)
|
|
|
9,204
|
|
Residential mortgage and asset-backed securities
|
|
316
|
|
|
—
|
|
|
—
|
|
|
316
|
|
|
91
|
|
|
—
|
|
|
—
|
|
|
91
|
|
Total
|
|
$
|
2,023
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
2,026
|
|
|
$
|
16,499
|
|
|
$
|
2
|
|
|
$
|
(1)
|
|
|
$
|
16,500
|
|
The following table summarizes the classification of our available-for-sale debt securities in our Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
December 31, 2020
|
|
December 31, 2019
|
Cash and cash equivalents
|
|
$
|
113
|
|
|
$
|
2,291
|
|
Short-term marketable securities
|
|
1,411
|
|
|
12,721
|
|
Long-term marketable securities
|
|
502
|
|
|
1,488
|
|
Total
|
|
$
|
2,026
|
|
|
$
|
16,500
|
|
Accrued interest receivable excluded from both the fair value and amortized cost basis of the available-for-sale debt securities was $9 million and $37 million as of December 31, 2020 and 2019, respectively, and is recorded in Prepaid and other current assets on our Consolidated Balance Sheets. There were no write-offs of accrued interest receivable during the years ended December 31, 2020 and 2019.
The following table summarizes our available-for-sale debt securities by contractual maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(in millions)
|
|
Amortized Cost
|
|
Fair Value
|
Within one year
|
|
$
|
1,522
|
|
|
$
|
1,524
|
|
After one year through five years
|
|
489
|
|
|
490
|
|
After five years
|
|
12
|
|
|
12
|
|
Total
|
|
$
|
2,023
|
|
|
$
|
2,026
|
|
The following table summarizes our available-for-sale debt securities in an unrealized loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Total
|
(in millions)
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair Value
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair Value
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
(1)
|
|
|
$
|
1,866
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
(1)
|
|
|
$
|
1,870
|
|
We held a total of 75 and 305 positions which were in an unrealized loss position as of December 31, 2020 and 2019, respectively. Aggregated gross unrealized losses on available-for-sale corporate debt securities were not material, and accordingly, no impairments were recognized for the years ended December 31, 2020 and 2019. Gross realized gains and gross realized losses on available-for-sale debt securities were not material for the years ended December 31, 2020 and 2019.
5. DERIVATIVE FINANCIAL INSTRUMENTS
Our operations in foreign countries expose us to market risk associated with foreign currency exchange rate fluctuations between the U.S. dollar and various foreign currencies, primarily the Euro. To manage this risk, we may hedge a portion of our foreign currency exposures related to outstanding monetary assets and liabilities as well as forecasted product sales using foreign currency exchange forward or option contracts. In general, the market risk related to these contracts is offset by corresponding gains and losses on the hedged transactions. The credit risk associated with these contracts is driven by changes in interest and currency exchange rates, and as a result, varies over time.
We hedge our exposure to foreign currency exchange rate fluctuations for certain monetary assets and liabilities that are denominated in a non-functional currency. The derivative instruments we use to hedge this exposure are not designated as hedges, and as a result, changes in their fair value are recorded in Other income (expense), net, on our Consolidated Statements of Income.
We hedge our exposure to foreign currency exchange rate fluctuations for forecasted product sales that are denominated in a non-functional currency. The derivative instruments we use to hedge this exposure are designated as cash flow hedges and have maturities of 18 months or less. Upon executing a hedging contract and quarterly thereafter, we assess hedge effectiveness using regression analysis. The unrealized gains or losses in AOCI are reclassified into product sales when the respective hedged transactions affect earnings. The majority of gains and losses related to the hedged forecasted transactions reported in AOCI at December 31, 2020 are expected to be reclassified to product sales within 12 months.
The cash flow effects of our derivative contracts for the years ended December 31, 2020, 2019 and 2018 are included within Net cash provided by operating activities on our Consolidated Statements of Cash Flows.
We had notional amounts on foreign currency exchange contracts outstanding totaling $2.4 billion and $2.9 billion at December 31, 2020 and 2019, respectively.
While all our derivative contracts allow us the right to offset assets and liabilities, we have presented amounts on a gross basis. The following table summarizes the classification and fair values of derivative instruments in our Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
(in millions)
|
|
Classification
|
|
Fair Value
|
|
Classification
|
|
Fair
Value
|
Derivatives designated as hedges:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
Prepaid and other current assets
|
|
$
|
—
|
|
|
Other accrued liabilities
|
|
$
|
(113)
|
|
Foreign currency exchange contracts
|
|
Other long-term assets
|
|
—
|
|
|
Other long-term obligations
|
|
(7)
|
|
Total derivatives designated as hedges
|
|
|
|
—
|
|
|
|
|
(120)
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
Prepaid and other current assets
|
|
12
|
|
|
Other accrued liabilities
|
|
(1)
|
|
Total derivatives not designated as hedges
|
|
|
|
12
|
|
|
|
|
(1)
|
|
Total derivatives
|
|
|
|
$
|
12
|
|
|
|
|
$
|
(121)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
(in millions)
|
|
Classification
|
|
Fair Value
|
|
Classification
|
|
Fair
Value
|
Derivatives designated as hedges:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
Prepaid and other current assets
|
|
$
|
36
|
|
|
Other accrued liabilities
|
|
$
|
(6)
|
|
Foreign currency exchange contracts
|
|
Other long-term assets
|
|
—
|
|
|
Other long-term obligations
|
|
(2)
|
|
Total derivatives designated as hedges
|
|
|
|
36
|
|
|
|
|
(8)
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
Prepaid and other current assets
|
|
1
|
|
|
Other accrued liabilities
|
|
—
|
|
Total derivatives not designated as hedges
|
|
|
|
1
|
|
|
|
|
—
|
|
Total derivatives
|
|
|
|
$
|
37
|
|
|
|
|
$
|
(8)
|
|
The following table summarizes the effect of our foreign currency exchange contracts on our Consolidated Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in millions)
|
|
2020
|
|
2019
|
|
2018
|
Derivatives designated as hedges:
|
|
|
|
|
|
|
Gain (loss) recognized in AOCI
|
|
$
|
(118)
|
|
|
$
|
76
|
|
|
$
|
114
|
|
Gain (loss) reclassified from AOCI into product sales
|
|
$
|
47
|
|
|
$
|
127
|
|
|
$
|
(87)
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
Gain (loss) recognized in Other income (expense), net
|
|
$
|
(51)
|
|
|
$
|
22
|
|
|
$
|
(2)
|
|
From time to time, we may discontinue cash flow hedges and, as a result, record related amounts in Other income (expense), net on our Consolidated Statements of Income. There were no discontinuances of cash flow hedges for the years presented.
As of December 31, 2020 and 2019, we only held foreign currency exchange contracts. The following table summarizes the potential effect of offsetting our foreign currency exchange contracts on our Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset on the Consolidated Balance Sheets
|
|
|
(in millions)
|
|
Gross Amounts of Recognized Assets/Liabilities
|
|
Gross Amounts Offset on the Consolidated Balance Sheets
|
|
Amounts of Assets/Liabilities Presented on the Consolidated Balance Sheets
|
|
Derivative Financial Instruments
|
|
Cash Collateral Received/Pledged
|
|
Net Amount (Legal Offset)
|
As of December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
12
|
|
|
$
|
(12)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivative liabilities
|
|
$
|
(121)
|
|
|
$
|
—
|
|
|
$
|
(121)
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
(109)
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
37
|
|
|
$
|
—
|
|
|
$
|
37
|
|
|
$
|
(6)
|
|
|
$
|
—
|
|
|
$
|
31
|
|
Derivative liabilities
|
|
$
|
(8)
|
|
|
$
|
—
|
|
|
$
|
(8)
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
(1)
|
|
6. ACQUISITIONS
Forty Seven, Inc. (“Forty Seven”)
On April 7, 2020, we acquired all of the then issued and outstanding common stock of Forty Seven, a clinical-stage immuno-oncology company focused on developing therapies targeting cancer immune evasion pathways and specific cell targeting approaches, for a price of $95.50 per share in cash, for total consideration of $4.7 billion, net of acquired cash. As a result, Forty Seven became our wholly-owned subsidiary. Forty Seven’s lead program, magrolimab, is an investigational monoclonal antibody in clinical development for the treatment of myelodysplastic syndrome, acute myeloid leukemia, non-Hodgkin lymphoma and solid tumors.
We accounted for the transaction as an asset acquisition since the lead asset, magrolimab, represented substantially all the fair value of the gross assets acquired. At the acquisition date, we recorded a $4.5 billion charge representing an acquired IPR&D asset with no alternative future use in Acquired in-process research and development expenses on our Consolidated Statements of Income. In connection with this acquisition, we recorded $202 million of assets acquired primarily consisting of deferred tax assets. Liabilities assumed were not material. We also recorded stock-based compensation expense of $144 million related to the cash settlement of unvested Forty Seven employee stock awards attributable to post-acquisition services, which was primarily recorded in Research and development expenses on our Consolidated Statements of Income, for the year ended December 31, 2020.
Immunomedics
On September 13, 2020, we entered into an agreement and plan of merger (“Agreement and Plan of Merger”) to acquire Immunomedics, a company focused on the development of antibody-drug conjugate (“ADC”) technology. Immunomedics researches and develops biopharmaceutical products, particularly antibody-based products for patients with solid tumors and blood cancers, and manufactures and markets Trodelvy. Trodelvy, a Trop-2-directed ADC developed by Immunomedics, is the first ADC FDA approved for the treatment of adult patients with metastatic triple-negative breast cancer (“mTNBC”).
On October 23, 2020, the acquisition was completed and Immunomedics became a wholly-owned subsidiary of Gilead. The financial results of Immunomedics were included in our consolidated financial results for the year ended December 31, 2020 from the date of the acquisition. Immunomedics contributed $49 million of revenues and an immaterial net loss from the date of the acquisition through December 31, 2020.
The cash consideration for the acquisition was $20.6 billion, consisting of a $20.4 billion cash payment to the outstanding Immunomedics common stockholders and a $242 million cash payment to equity award holders of Immunomedics for the vested equity awards and accelerated vesting of stock-based awards attributable to the pre-combination period. We financed the acquisition with the majority of the proceeds from the September 2020 senior unsecured notes offering, an additional $1.0 billion borrowing under a new senior unsecured term loan facility and cash on hand. See Note 12. Debt and Credit Facilities for additional information.
The acquisition of Immunomedics was accounted for as a business combination using the acquisition method of accounting. This method requires, among other things, that assets acquired and liabilities assumed be generally recognized at fair value as of the acquisition date. The fair value estimates for the assets acquired and liabilities assumed were based upon valuations using information known and knowable as of the date of this filing. Changes to these assumptions and estimates could cause an impact to the valuation of assets acquired, including intangible assets, goodwill and the related tax impacts of the acquisition, as well as legal and other contingencies. The amounts recognized will be finalized as the information necessary to complete the analysis is obtained, but no later than one year after the acquisition date.
We also recorded share-based compensation expense of $289 million related to the cash settlement of the accelerated share-based compensation expense attributable to the post combination period, which was primarily recorded in Selling, general and administrative expenses and Research and development expenses on our Consolidated Statements of Income for the year ended December 31, 2020. We also recorded other acquisition-related expenses of $39 million, primarily representing closing costs and related fees, in Selling, general and administrative expenses on our Consolidated Statements of Income for the year ended December 31, 2020.
The following table summarizes fair values of assets acquired and liabilities assumed as of the acquisition date:
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Amount
|
Cash and cash equivalents
|
|
$
|
726
|
|
Inventories
|
|
946
|
|
Intangible assets
|
|
|
Finite-lived intangible asset
|
|
4,600
|
|
Acquired IPR&D
|
|
15,760
|
|
Outlicense contract
|
|
175
|
|
Deferred income taxes
|
|
(4,565)
|
|
Liability related to future royalties
|
|
(1,100)
|
|
Other assets (and liabilities), net
|
|
64
|
|
Total identifiable net assets
|
|
16,606
|
|
Goodwill
|
|
3,991
|
|
Total consideration transferred
|
|
$
|
20,597
|
|
Inventories
The fair value step-up adjustment of $881 million, included in the inventories of $946 million as of the acquisition date, was primarily determined by the estimated selling price of finished inventory less the cost to complete the manufacturing process and selling effort. The step-up adjustment is being recorded in Cost of goods sold on our Consolidated Statements of Income as the inventory is sold to customers from the acquisition date.
Intangible Assets
The finite-lived intangible asset of $4.6 billion represents the estimated fair value of Trodelvy for mTNBC as of the acquisition date. The fair value was determined by applying the income approach using unobservable inputs to estimate probability-weighted net cash flows attributable to Trodelvy for mTNBC and a discount rate of 7.0%. The discount rate used represents the estimated rate that market participants would use to value this intangible asset. This intangible asset is being amortized over an estimated useful life of 12 years.
Acquired intangible assets related to IPR&D consist of Trodelvy for hormone receptor positive (“HR+”), human epidermal growth factor receptor 2 negative (“HER2-”), metastatic breast cancer, Trodelvy for non-small cell lung cancer (“NSCLC”) and Trodelvy for urothelial cancer. The estimated aggregate fair value of $15.8 billion as of the acquisition date was determined by applying the income approach using unobservable inputs to estimate probability-weighted net cash flows attributable to these assets and a discount rate of 7.0%. The discount rate used represents the estimated rate that market participants would use to value these intangible assets.
Some of the more significant assumptions inherent in the development of intangible asset fair values include: the amount and timing of projected future cash flows (including revenue, cost of sales, research and development costs, sales and marketing expenses); probability of success; the discount rate selected to measure inherent risk of future cash flows; and the assessment of the asset’s life cycle and the competitive trends impacting the asset, among other factors.
Intangible assets related to IPR&D projects are considered to be indefinite-lived assets until the completion or abandonment of the associated R&D efforts.
We also recorded an intangible asset related to a license and supply agreement with a third party, which was entered into by Immunomedics prior to the acquisition. Under the agreement, the third party was granted an exclusive license to develop and commercialize Trodelvy in certain territories in Asia and make certain sales milestones and royalty payments to us. The acquisition date fair value of $175 million was determined by estimating the probability-weighted net cash flows attributable to the outlicense and a discount rate of 7.0%. The discount rate represents the estimated rate that market participants would use to value this intangible asset. This intangible asset is being amortized over an estimated useful life of 15 years on a straight-line basis.
The inputs used for valuing these identifiable intangibles are unobservable and considered Level 3 under the fair value measurement and disclosure guidance.
Deferred Income Taxes
The net deferred tax liability was based upon the difference between the estimated book basis and tax basis of net assets acquired and an estimate for the final pre-acquisition net operating losses of Immunomedics.
Liability Related to Future Royalties
We assumed a liability related to a funding arrangement, which was originally entered into by Immunomedics and RPI Finance Trust, a Delaware statutory trust (“RPI”), prior to the completion of our acquisition of Immunomedics. Under the funding agreement, RPI has the right to receive certain royalty amounts, subject to certain reductions, based on the net sales of Trodelvy for each calendar quarter during the term of the agreement through approximately 2036. The acquisition date fair value of the liability was estimated as $1.1 billion, which was primarily determined based on current estimates of future royalty payments to RPI over the life of the arrangement using the real options method and effective annual interest rate of 2.5%. The liability is amortized using the effective interest rate method, resulting in recognition of interest expense over 16 years. The estimated timing and amount of future expected royalty payments over the estimated term will be re-assessed each reporting period. The impact from changes in estimates will be recognized in the liability and the related interest expense prospectively. The inputs used for valuation of this liability are unobservable and are considered Level 3 under the fair value measurement and disclosure guidance. The liability related to future royalties was categorized as debt and primarily included in Long-term debt, net on our Consolidated Balance Sheets. See Note 12. Debt and Credit Facilities for additional information.
Goodwill
The excess of the consideration transferred over the fair values of assets acquired and liabilities assumed of $4.0 billion was recorded as goodwill, which primarily reflects the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill recognized for Immunomedics is not expected to be deductible for income tax purposes.
Supplemental Pro Forma Information
The following pro forma information presents the combined results of operations of Gilead and Immunomedics as if the acquisition of Immunomedics had been completed on January 1, 2019, with adjustments to give effect to pro forma events that are directly attributable to the acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
(in millions, unaudited)
|
|
2020
|
|
2019
|
Total revenues
|
|
$
|
24,778
|
|
|
$
|
22,449
|
|
Net income (loss) attributable to Gilead
|
|
$
|
(323)
|
|
|
$
|
4,488
|
|
The primary adjustments include: (i) post-combination compensation expense of $289 million related to the acceleration of unvested share-based awards of Immunomedics, (ii) the impact of additional interest expense in connection with the Immunomedics acquisition borrowings as well as the liability related to future royalties, (iii) amortization of the finite-lived intangible asset related to Trodelvy for mTNBC beginning on April 22, 2020 when it received FDA accelerated approval, (iv) amortization of the acquired Immunomedics’ inventory related to Trodelvy mTNBC over the period in which the inventory was expected to be sold beginning on April 22, 2020, (v) amortization of the license and supply agreement with a third party over an estimated useful life of 15 years, (vi) the impacts of the sale of marketable securities based on their use as a source of liquidity to fund the acquisition, and (vii) acquisition-related transaction costs. The unaudited pro forma financial results do not reflect any operating efficiencies or potential cost savings which may result from the consolidation of the operations of Gilead and Immunomedics. Accordingly, these unaudited pro forma financial results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of 2019, nor are they indicative of future results of operations.
MYR GmbH (“MYR”)
On December 10, 2020, we entered into a definitive agreement pursuant to which we expect to acquire MYR, a German biotechnology company, for approximately €1.2 billion in cash (or approximately $1.4 billion using a foreign currency exchange rate of 1.2 at December 31, 2020), which is payable upon closing of the transaction and a potential future milestone payment of up to €300 million (or approximately $360 million using a foreign currency exchange rate of 1.2 at December 31, 2020), upon FDA approval of Hepcludex®. Both payments are subject to customary adjustments. MYR focuses on the development and commercialization of therapeutics for the treatment of chronic hepatitis delta virus (“HDV”). The acquisition will provide Gilead with Hepcludex, which was conditionally approved by the European Medicines Agency (“EMA”) in July 2020 for the treatment of chronic HDV infection in adults with compensated liver disease.
Consummation of the transaction is subject to expiration or termination of the waiting period under the Hart-Scott Rodino Antitrust Improvements Act, and receipt of merger control and foreign direct investment approvals in certain European jurisdictions and certain other customary closing conditions. We anticipate that the closing of the transaction will occur by the end of the first quarter of 2021 and expect our acquisition of MYR to be accounted for as a business combination using the acquisition method of accounting upon closing.
7. INVENTORIES
The following table summarizes our Inventories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in millions)
|
|
2020
|
|
2019
|
Raw materials
|
|
$
|
1,080
|
|
|
$
|
1,348
|
|
Work in process
|
|
976
|
|
|
170
|
|
Finished goods
|
|
958
|
|
|
549
|
|
Total
|
|
$
|
3,014
|
|
|
$
|
2,067
|
|
|
|
|
|
|
Reported as:
|
|
|
|
|
Inventories
|
|
$
|
1,683
|
|
|
$
|
922
|
|
Other long-term assets
|
|
1,331
|
|
|
1,145
|
|
Total
|
|
$
|
3,014
|
|
|
$
|
2,067
|
|
Amounts reported as other long-term assets primarily consisted of raw materials as of December 31, 2020 and 2019. Total inventories at December 31, 2020 include fair value adjustments resulting from the Immunomedics acquisition which will be recognized in future periods. See Note 6. Acquisitions for additional information.
Inventory write down charges for the year ended December 31, 2020 were not material. During the year ended December 31, 2019, we recorded inventory write down charges of $649 million, of which $547 million was related to slow moving and excess raw material and work in process inventory primarily due to lower long-term demand for our HCV products. During the year ended December 31, 2018, we recorded inventory write down charges of $572 million, of which $440 million was related to excess raw materials primarily due to a sustained decrease in demand for Harvoni.
8. PROPERTY, PLANT AND EQUIPMENT
The following table summarizes our Property, plant and equipment, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in millions)
|
|
2020
|
|
2019
|
Land and land improvements
|
|
$
|
404
|
|
|
$
|
404
|
|
Buildings and improvements (including leasehold improvements)
|
|
3,678
|
|
|
3,358
|
|
Laboratory and manufacturing equipment
|
|
904
|
|
|
805
|
|
Office, computer equipment and other
|
|
793
|
|
|
634
|
|
Construction in progress
|
|
856
|
|
|
723
|
|
Subtotal
|
|
6,635
|
|
|
5,924
|
|
Less: accumulated depreciation and amortization
|
|
1,668
|
|
|
1,422
|
|
Total
|
|
$
|
4,967
|
|
|
$
|
4,502
|
|
We had unamortized capitalized software costs, included in Office, computer equipment and other, of $124 million and $108 million as of December 31, 2020 and 2019, respectively. Capitalized interest on construction in-progress is included in Property, plant and equipment. Interest capitalized in 2020, 2019 and 2018 was not material.
Long-Lived Assets
The net book value of our property, plant and equipment (less office, computer equipment and other) in the United States was $3.8 billion as of December 31, 2020, $3.5 billion as of December 31, 2019 and $3.2 billion as of December 31, 2018. The corresponding amount in international locations was $897 million as of December 31, 2020, $791 million as of December 31, 2019 and $620 million as of December 31, 2018. All individual international locations accounted for less than 10% of the total balances.
9. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table summarizes the changes in the carrying amount of goodwill:
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Amount
|
Balance at December 31, 2019
|
|
$
|
4,117
|
|
Goodwill resulting from the acquisition of Immunomedics
|
|
3,991
|
|
Balance at December 31, 2020
|
|
$
|
8,108
|
|
We perform an annual goodwill impairment assessment in the fourth quarter, or earlier if impairment indicators exist. As of December 31, 2020, there were no accumulated goodwill impairment losses.
Intangible Assets
The following table summarizes our Intangible assets, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
(in millions)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Foreign Currency Translation Adjustment
|
|
Net Carrying Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Foreign Currency Translation Adjustment
|
|
Net Carrying Amount
|
Finite-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset - sofosbuvir
|
|
$
|
10,720
|
|
|
$
|
(4,952)
|
|
|
$
|
—
|
|
|
$
|
5,768
|
|
|
$
|
10,720
|
|
|
$
|
(4,253)
|
|
|
$
|
—
|
|
|
$
|
6,467
|
|
Intangible asset - axicabtagene ciloleucel (DLBCL)
|
|
6,200
|
|
|
(1,105)
|
|
|
—
|
|
|
5,095
|
|
|
6,200
|
|
|
(761)
|
|
|
—
|
|
|
5,439
|
|
Intangible asset - Trodelvy for mTNBC
|
|
4,600
|
|
|
(63)
|
|
|
—
|
|
|
4,537
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other
|
|
1,377
|
|
|
(540)
|
|
|
(1)
|
|
|
836
|
|
|
1,098
|
|
|
(454)
|
|
|
(6)
|
|
|
638
|
|
Total finite-lived assets
|
|
22,897
|
|
|
(6,660)
|
|
|
(1)
|
|
|
16,236
|
|
|
18,018
|
|
|
(5,468)
|
|
|
(6)
|
|
|
12,544
|
|
Indefinite-lived assets - IPR&D(1)
|
|
16,890
|
|
|
—
|
|
|
—
|
|
|
16,890
|
|
|
1,247
|
|
|
—
|
|
|
(5)
|
|
|
1,242
|
|
Total intangible assets
|
|
$
|
39,787
|
|
|
$
|
(6,660)
|
|
|
$
|
(1)
|
|
|
$
|
33,126
|
|
|
$
|
19,265
|
|
|
$
|
(5,468)
|
|
|
$
|
(11)
|
|
|
$
|
13,786
|
|
________________________________
(1) Includes indefinite-lived assets - IPR&D recognized as part of the Immunomedics acquisition in October 2020. See Note 6. Acquisitions for additional information.
Aggregate amortization expense related to finite-lived intangible assets was $1.2 billion, $1.1 billion and $1.2 billion for the years ended December 31, 2020, 2019 and 2018, respectively, and is primarily included in Cost of goods sold on our Consolidated Statements of Income.
Amounts capitalized as IPR&D are subject to impairment testing until the completion or abandonment of the associated R&D efforts. During 2020, we performed quantitative impairment testing of our IPR&D intangible assets using a probability-weighted income approach that discounts expected future cash flows to present value using a discount rate of 8%. No IPR&D impairment charges were recorded in 2020. During 2019, we performed quantitative impairment testing of our IPR&D intangible assets using a probability-weighted income approach that discounts expected future cash flows to present value. The estimated net cash flows were discounted using a discount rate of 9.5%, which is based on the estimated weighted-average cost of capital for companies with profiles similar to our profile and represents the rate that market participants would use to value the intangible assets. The discounted cash flow models used in valuing these intangible assets also require the use of Level 3 fair value measurements and inputs including estimated revenues, costs, and probability of technical and regulatory success. In comparison to the 2018 assessment, we used lower estimated revenues in 2019 due to changes in the estimated market opportunities as new therapies or combinations of existing therapies were approved. The lower estimated revenues reduced the fair value of the IPR&D intangible assets, primarily related to axicabtagene ciloleucel for the treatment of indolent B-cell non-Hodgkin lymphoma (“iNHL”), below carrying value resulting in the recognition of an impairment charge of $800 million, which was recorded within Research and development expenses on our Consolidated Statements of Income.
In 2018, we concluded that the KITE-585 program did not justify further efforts based on the totality of the clinical data gathered and discontinued the program. As a result, the carrying value of the IPR&D relating to the KITE-585 program was written down to zero and we recorded an impairment charge of $820 million within Research and development expenses on our Consolidated Statements of Income.
The following table summarizes the estimated future amortization expense associated with our finite-lived intangible assets as of December 31, 2020:
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Amount
|
2021
|
|
$
|
1,527
|
|
2022
|
|
1,527
|
|
2023
|
|
1,527
|
|
2024
|
|
1,527
|
|
2025
|
|
1,521
|
|
Thereafter
|
|
8,607
|
|
Total
|
|
$
|
16,236
|
|
10. OTHER FINANCIAL INFORMATION
Accounts Receivable, Net
The following table summarizes our Accounts receivable, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in millions)
|
|
2020
|
|
2019
|
Accounts receivable
|
|
$
|
5,560
|
|
|
$
|
4,351
|
|
Less: chargebacks
|
|
552
|
|
|
655
|
|
Less: cash discounts and other
|
|
72
|
|
|
74
|
|
Less: allowances for credit losses
|
|
44
|
|
|
40
|
|
Accounts receivable, net
|
|
$
|
4,892
|
|
|
$
|
3,582
|
|
Other Accrued Liabilities
The following table summarizes the components of Other accrued liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in millions)
|
|
2020
|
|
2019
|
Compensation and employee benefits
|
|
$
|
864
|
|
|
$
|
599
|
|
Income taxes payable
|
|
598
|
|
|
287
|
|
Allowance for sales returns
|
|
587
|
|
|
137
|
|
Other accrued expenses
|
|
2,287
|
|
|
2,051
|
|
Total
|
|
$
|
4,336
|
|
|
$
|
3,074
|
|
11. COLLABORATIONS AND OTHER ARRANGEMENTS
We continue to pursue licensing and strategic collaborations and other similar arrangements with third parties for, and equity investments in third parties focused on, the development and commercialization of certain products and product candidates. These arrangements may involve two or more parties who are active participants in the operating activities of the collaboration and are exposed to significant risks and rewards depending on the commercial success of the activities. These arrangements may include non-refundable upfront payments, expense reimbursements or payments by us for options to acquire certain rights, contingent obligations by us for potential development and regulatory milestone payments and/or sales-based milestone payments, royalty payments, revenue or profit-sharing arrangements and cost-sharing arrangements.
Arcus Biosciences, Inc. (“Arcus”)
On May 29, 2020, we acquired 2.2 million shares of the common stock of Arcus, a publicly traded oncology-focused biopharmaceutical company, for approximately $61 million in a secondary equity offering.
Separately, on May 27, 2020, we entered into a transaction with Arcus, which included entry into an option, license and collaboration agreement (the “Arcus Collaboration Agreement”) and a common stock purchase agreement and an investor rights agreement (together, and as subsequently amended, the “Arcus Stock Purchase Agreements”).
Upon closing of the Arcus Collaboration Agreement and Arcus Stock Purchase Agreements, on July 13, 2020, we made an upfront payment of $175 million and acquired approximately 6.0 million additional shares of Arcus’ common stock for $200 million in accordance with the terms of the Arcus Collaboration Agreement and Arcus Stock Purchase Agreements. Of the total $391 million initial cash payments made under the agreements and direct transactional costs, we recorded $135 million as an equity investment, which was calculated based on Arcus’ closing stock price of $22.67 on the closing date of the transaction. We recorded our equity investments in Arcus in Other long-term assets on our Consolidated Balance Sheets as the investments are subject to contractual lock-up provisions for a period up to 2 years from the closing date of the agreements, subject to certain conditions. We account for our equity investments in Arcus at fair value with changes in fair value recognized in Other income (expense), net for each reporting period. The remaining $256 million was attributed to the acquired license and option rights of $175 million representing IPR&D assets with no alternative future use, $65 million of an issuance premium for the equity purchase and $16 million of direct transactional costs. These amounts were expensed as Acquired in-process research and development expenses during the year ended December 31, 2020 on our Consolidated Statements of Income. In an event subsequent to December 31, 2020, on January 31, 2021, we amended and restated the common stock purchase agreement, pursuant to which we acquired approximately 5.7 million additional shares of Arcus’ common stock for $220 million on February 8, 2021. As a result, combined with our existing share holdings, we own 13.8 million shares of Arcus, representing approximately 19.5% of the issued and outstanding voting stock of Arcus immediately following the closing of the transaction.
Gilead has the right to opt-in to all current and future investigational product candidates that emerge from Arcus’ research portfolio for the ten years following the closing of the transaction. Upon our exercise of an option for a program, unless Arcus opts out according to the terms of the Arcus Collaboration Agreement, the companies will co-develop and share global development costs and co-commercialize and share profits in the U.S. We will obtain exclusive rights to commercialize any optioned programs outside of the U.S., subject to any rights of Arcus’ existing partners, for which we will pay to Arcus tiered royalties ranging from the high teens to the low twenties on net sales.
Under the Arcus Collaboration Agreement, subject to certain limited exceptions, we are required to provide $100 million to Arcus on the second anniversary of the agreement and may pay an additional $100 million at our option on each of the fourth, sixth, and eighth anniversaries of the agreement, unless terminated early, as ongoing research and development support to extend our collaboration term to up to 10 years. Accordingly, during the year ended December 31, 2020, we recorded a $100 million charge representing the contractually committed payment in Acquired in-process research and development expenses on our Consolidated Statements of Income.
Under the Arcus Collaboration Agreement, we will potentially provide up to $1.2 billion in opt-in and milestone payments with respect to current clinical product candidates, if and when such payments are triggered under the Arcus Collaboration Agreement.
Under the Arcus Stock Purchase Agreements, we have the right to purchase additional shares of Arcus from Arcus over the next five years, up to a maximum of 35% of the outstanding voting stock. We are subject to a three-year standstill restricting our ability to acquire voting stock of Arcus exceeding more than 35% of the then issued and outstanding voting stock of Arcus, subject to certain exceptions. Additionally, we agreed not to dispose of any equity securities of Arcus prior to the second anniversary of the closing of the Arcus Stock Purchase Agreements without the prior consent of Arcus, subject to certain exceptions.
Pionyr
On June 19, 2020, we entered into a transaction with Pionyr, a privately held company pursuing novel biology in the field of immuno-oncology, which included entry into two separate merger agreements, one contemplating the initial acquisition of 49.9% equity interest in Pionyr, and the other providing us the exclusive option, subject to certain terms and conditions, to acquire the remaining outstanding capital stock of Pionyr (together, the “Pionyr Merger and Option Agreements”) and a research and development service agreement.
On July 13, 2020, we closed the transaction with Pionyr and paid $269 million in cash and accrued an additional $6 million payable, subject to certain customary adjustments, to Pionyr’s shareholders in accordance with the terms of the Pionyr Merger and Option Agreements. We account for our investment in Pionyr using the equity method of accounting because our equity interest provides us with the ability to exercise significant influence over Pionyr. Our investment in Pionyr, consisting of the transaction price noted above and transaction costs, exceeded our pro-rata portion of Pionyr's net assets at transaction closing. We determined that the resulting basis difference primarily relates to Pionyr’s IPR&D which has no alternative future use and that Pionyr is not a business as defined in ASC 805, “Business Combinations.” As a result, we immediately recorded a charge for this basis difference of $215 million in Acquired in-process research and development expenses on our Consolidated Statements of Income during the year ended December 31, 2020.
The estimated fair value of our exclusive option to acquire the remaining outstanding capital stock of Pionyr is approximately $70 million based on a probability-weighted option pricing model using unobservable inputs, which are considered Level 3 under the fair value measurement and disclosure guidance. The estimated amount was recorded in Other long-term assets on our Consolidated Balance Sheets. From the first anniversary of the closing date, we may choose to exercise our exclusive option to purchase the remaining equity interest from Pionyr’s current shareholders for a $315 million option exercise fee and up to $1.2 billion in potential future milestone payments upon achievement of certain development and regulatory milestones, in each case subject to certain negotiated adjustments. Such option to purchase will expire following the earliest occurrence of specified events, including the delivery of data following completion of certain Phase 1b trials by Pionyr.
Under the research and development service agreement, we made an initial cash funding of $80 million and recorded a charge in Acquired in-process research and development expenses on our Consolidated Statements of Income during the year ended December 31, 2020. In addition, we committed to provide additional payments of up to $115 million to Pionyr upon achievement of certain development milestones. We accrued $70 million milestone payments, related to the initiation of two Phase-1 studies, with a charge to Research and development expenses on our Consolidated Statements of Income during the year ended December 31, 2020. Subsequently, in February 2021, milestone cash payments of $70 million were made.
Tizona
On July 17, 2020, we entered into a transaction with Tizona, a privately held company developing cancer immunotherapies, which included entry into two separate merger agreements, one contemplating the initial acquisition of a 49.9% equity interest in Tizona, and the other providing us the exclusive option, subject to certain terms and conditions, to acquire the remaining outstanding capital stock of Tizona (together, the “Tizona Merger and Option Agreements”) and a development agreement.
On August 25, 2020, we closed the transaction with Tizona and paid $302 million in cash to Tizona’s shareholders in accordance with the terms of the Tizona Merger and Option Agreements. We account for our investment in Tizona using the equity method of accounting because our equity interest provides us with the ability to exercise significant influence over Tizona. Our investment in Tizona, consisting of the transaction price noted above and transaction costs, exceeded our pro-rata portion of Tizona’s net assets at transaction closing. We determined that the resulting basis difference primarily relates to Tizona’s IPR&D with no alternative future use and that Tizona is not a business as defined in ASC 805, “Business Combinations.” As a result, during the year ended December 31, 2020, we immediately recorded a charge for this basis difference of $272 million in Acquired in-process research and development expenses on our Consolidated Statements of Income.
The estimated fair value of our exclusive option to acquire the remaining outstanding capital stock of Tizona is approximately $41 million based on a probability-weighted option pricing model using unobservable inputs, which are considered Level 3 under the fair value measurement and disclosure guidance. The estimated amount was recorded in Other long-term assets on our Consolidated Balance Sheets. From the first anniversary of the closing date, we may choose to exercise our exclusive option to purchase the remaining equity interest from Tizona’s current shareholders for up to $1.3 billion, including an option fee and potential future milestone payments upon achievement of certain development and regulatory milestones, in each case subject to certain negotiated adjustments. Such option to purchase will expire following the earliest occurrence of specified events, including the delivery of data following completion of certain Phase 1b trials by Tizona.
Under the development agreement, we committed to provide funding to Tizona of $115 million, which was recorded in Acquired in-process research and development expenses on our Consolidated Statements of Income during the year ended December 31, 2020.
Tango Therapeutics, Inc. (“Tango”)
On August 17, 2020, we entered into a transaction with Tango, a privately held company pursuing innovative targeted immune evasion therapies for patients with cancer through its proprietary, CRISPR-enabled functional genomics target discovery platform, which included entry into an amended and restated research collaboration and license agreement and a stock purchase agreement (together, the “Tango Collaboration and Stock Purchase Agreements”).
Upon entering into this transaction, we made an upfront payment of $125 million and a $20 million equity investment in Tango, representing approximately 7% of the issued and outstanding voting stock of Tango immediately following the transaction, in accordance with the terms of the Tango Collaboration and Stock Purchase Agreements. During the year ended December 31, 2020, we recorded the $125 million upfront expense in Acquired in-process research and development expenses on our Consolidated Statements of Income. Our equity investment in Tango is recorded at cost less impairment, if any, adjusted for observable price changes in orderly transactions for identical or similar investments of Tango.
Under the Tango Collaboration and Stock Purchase Agreements, Gilead has the right to option up to 15 programs over the seven-year collaboration for up to $410 million per program in opt-in, extension and milestone payments. For the products that Tango opts to co-develop and co-promote, the parties will equally split profits and losses, as well as development costs in the U.S. For products that Tango does not opt to co-develop and co-promote, we will pay Tango up to low double digit tiered royalties on net sales. We will provide Tango milestone payments and royalties on sales outside of the U.S.
Jounce Therapeutics, Inc. (“Jounce”)
On September 1, 2020, we entered into a transaction with Jounce, a publicly traded company developing novel cancer immunotherapies, which included entry into license, registration rights and stock purchase agreements (together, “Jounce License and Stock Purchase Agreement”). In October 2020, we closed this transaction and made a total payment of $120 million in accordance with the terms of the Jounce License and Stock Purchase Agreement and recorded $56 million as an equity investment in Other long-term assets on our Consolidated Balance Sheets, representing approximately 14% of the issued and outstanding voting stock of Jounce immediately following the transaction, which was calculated based on Jounce’s closing stock price of $10.06 on the closing date of the transaction. During the year ended December 31, 2020, we recorded $64 million upfront expense in Acquired in-process research and development expenses on our Consolidated Statements of Income. In addition, we will provide up to $685 million in future potential clinical, regulatory and commercial milestone payments upon achievement of certain milestones, and pay Jounce royalties ranging from high single digit to mid-teens based upon worldwide sales, subject to certain adjustments.
Galapagos
Filgotinib Collaboration
In 2016, we closed a license and collaboration agreement with Galapagos, a clinical-stage biotechnology company based in Belgium, for the development and commercialization of filgotinib, a JAK1-selective inhibitor being evaluated for inflammatory disease indications (the “filgotinib agreement”). Upon closing, we made an upfront license fee payment and an equity investment in Galapagos by subscribing for 6.8 million new ordinary shares of Galapagos at a price of €58 per share. The equity investment, net of issuance premium, was $357 million. We amended the terms of the filgotinib agreement in 2019 and then in 2020 agreed to amend the terms further.
Under the terms of the filgotinib agreement, as amended in 2019 (the “2019 Agreement”), we obtained an exclusive, worldwide, royalty-bearing, sublicensable license for filgotinib and products containing filgotinib. As of December 31, 2019, Galapagos was eligible to receive from us potential future development and regulatory milestone-based payments of up to $640 million, sales-based milestone payments of up to $600 million, plus tiered royalties on global net sales ranging from 20% to 30%, with the exception of certain co-commercialization territories where profits would be shared equally. The co-commercialization territories were the UK, Germany, France, Italy, Spain, Belgium, the Netherlands and Luxembourg. We shared global development costs for filgotinib equally. Termination of the agreement could be on a country-by-country basis and depends on the circumstances, including expiration of royalty term or in the co-commercialization territories, sale of a generic product, or material breach by either party. We could also terminate the entire agreement without cause following a certain period.
In December 2020, following a Type A meeting with FDA to discuss the points raised in the Complete Response Letter related to the New Drug Application for filgotinib in the treatment of rheumatoid arthritis, Gilead and Galapagos agreed to amend the 2019 Agreement where Galapagos will assume development, manufacturing, commercialization and certain other rights for filgotinib in Europe. Through a phased transition including the transfer of filgotinib’s marketing authorization to Galapagos, the parties intend to transfer most activities by December 31, 2021 and complete the transition by December 31, 2022. The transfer will be subject to applicable local legal, regulatory and consultation requirements. Beginning on January 1, 2021, Galapagos bears the development costs for certain studies, in lieu of the equal cost split contemplated by the 2019 Agreement. All commercial economics on filgotinib in Europe will transfer to Galapagos as of January 1, 2022, subject to payment of tiered royalties of 8% to 15% of net sales in Europe to Gilead, starting in 2024. In connection with the amendments to the 2019 Agreement, Gilead agreed to irrevocably pay Galapagos €160 million (or approximately $190 million), which is subject to certain adjustments for higher than budgeted development costs. Of this total amount, Gilead paid €35 million (or approximately $42 million) in January 2021 and will pay an additional €75 million (or approximately $89 million) in 2021 and will pay €50 million (or approximately $60 million) in 2022. We accrued the full amount of this liability with a charge to Research and development expenses on our Consolidated Statements of Income for the year ended December 31, 2020. In addition, Galapagos will no longer be eligible to receive any future milestone payments relating to filgotinib in Europe. For the periods presented, the payments between Galapagos and us for the development costs and milestones were not material.
Global Collaboration
In August 2019, we closed an option, license and collaboration Agreement (the “Galapagos Collaboration Agreement”) and a subscription agreement (the “Galapagos Subscription Agreement”), each with Galapagos, pursuant to which the parties entered into a global collaboration that covers Galapagos’ current and future product portfolio (other than filgotinib). Upon closing, we paid $5.05 billion for the license and option rights and for 6.8 million new ordinary shares of Galapagos at a subscription price of €140.59 per share with a fair value of $1.13 billion, which included an issuance discount of $63 million calculated based on Galapagos’ closing stock price on the date of closing of the Galapagos Subscription Agreement. The remaining $3.92 billion of the payment was recorded within Acquired in-process research and development expenses on our Consolidated Statements of Income for the year ended December 31, 2019.
Pursuant to the Galapagos Subscription Agreement, we were issued warrants that confer the right to subscribe, from time to time, for a number of new shares to be issued by Galapagos sufficient to bring the number of shares owned by us to 29.9% of the issued and outstanding shares at the time of our exercises. In 2019, we exercised a warrant to subscribe for 2.6 million ordinary shares of Galapagos at €140.59 per share and purchased shares on the open market with an aggregate fair value of $586 million, which brought the number of shares owned by us to 16.7 million or approximately 25.8% of the shares then issued and outstanding.
In 2019, our equity investment in Galapagos was initially classified as Other long-term assets on our Consolidated Balance Sheets as it is subject to contractual lock-up provisions. We are subject to a 10-year standstill restricting our ability to acquire voting securities of Galapagos exceeding more than 29.9% of the then issued and outstanding voting securities of Galapagos. We agreed not to, without the prior consent of Galapagos, dispose of any equity securities of Galapagos prior to the second anniversary of the closing of the Galapagos Subscription Agreement or dispose of any equity securities of Galapagos thereafter until the fifth anniversary of the closing of the Galapagos Subscription Agreement, if after such disposal we would own less than 20.1% of the then issued and outstanding voting securities of Galapagos, subject to certain exceptions and termination events. We have two designees appointed to Galapagos’ board of directors.
As the initial contractual lock-up provision for certain Galapagos shares will expire in August 2021, the corresponding equity investment balance of $351 million was included within Prepaid and other current assets on our Consolidated Balance Sheets as of December 31, 2020. At December 31, 2020 and 2019, Gilead’s total investment balance in Galapagos was $1.65 billion and $3.48 billion, respectively.
We have elected the fair value option to account for our equity investment in Galapagos whereby the investment is marked to market through earnings each reporting period based on the market price of Galapagos’ shares. We believe the fair value option best reflects the underlying economics of the investment. During the year ended December 31, 2020, we recorded a pre-tax unrealized loss of $1.83 billion related to our investment in Galapagos in Other income (expense), net on our Consolidated Statements of Income due to a decline in Galapagos’ stock price. See Note 3. Fair Value Measurements for additional information.
Under the Galapagos Collaboration Agreement, we have an exclusive license for the development and commercialization of GLPG-1690, a Phase 3 candidate for idiopathic pulmonary fibrosis, in our territories and have an option to participate in the development and commercialization of Galapagos’ other current and future clinical programs that have entered clinical development during the first ten years of the collaboration, subject to extension in certain circumstances. We may exercise our option for a program after the receipt of a data package from a completed, qualifying Phase 2 study for such program (or, in certain circumstances, the first Phase 3 study). If GLPG-1690 receives marketing approval in the U.S., we will pay Galapagos $325 million as well as tiered royalties described below. With respect to all other programs in Galapagos’ current and future pipeline, if we exercise our option to a program, we will pay a $150 million option exercise fee per program. In addition, Galapagos will receive tiered royalties ranging from 20% to 24% on net sales in our territories of each Galapagos product optioned by us (including GLPG-1690). If we exercise our option for a program, the parties will share equally in development costs and mutually agreed commercialization costs incurred subsequent to our exercise of the option. Galapagos retains exclusive commercialization rights for the optioned programs in the European Union, the UK, Iceland, Norway, Lichtenstein and Switzerland, and we have exclusive commercialization rights for all other countries globally. We may terminate the collaboration in its entirety or on a program-by-program and country-by-country basis with advance notice as well as following other customary termination events. In 2020, Galapagos delivered to us a data package with respect to our option to participate in the development and commercialization of GLPG-1972, a Phase 2b candidate for osteoarthritis, under the Galapagos Collaboration Agreement, which we declined to exercise in November 2020. In addition, Gilead and Galapagos announced the decision to halt the ISABELA Phase 3 clinical studies with GLPG-1690 in February 2021.
Janssen
Complera/Eviplera and Odefsey
In 2009, we entered into a license and collaboration agreement with Janssen, formerly Tibotec Pharmaceuticals, to develop and commercialize a fixed-dose combination of our Truvada and Janssen’s non-nucleoside reverse transcriptase inhibitor, rilpivirine. This combination was approved in the U.S. and European Union in 2011 and is sold under the brand name Complera in the U.S. and Eviplera in the European Union.
The agreement was amended in 2014 to expand the collaboration to include another product containing Janssen’s rilpivirine and our emtricitabine and tenofovir alafenamide (“Odefsey”).
Under the amended agreement, Janssen granted us an exclusive license to Complera/Eviplera and Odefsey worldwide, but retained rights to distribute both combination products in certain countries outside of the U.S. Neither party is restricted from combining its drugs with any other drug products except those which are similar to the components of Complera/Eviplera and Odefsey.
We are responsible for manufacturing Complera/Eviplera and Odefsey and have the lead role in registration, distribution and commercialization of both products except in the countries where Janssen distributes. Janssen has exercised a right to co-detail the combination product in some of the countries where we are the selling party.
Under the financial provisions of the 2014 amendment, the selling party sets the price of the combined products and the parties share revenues based on the ratio of the net selling prices of the party’s component(s), subject to certain restrictions and adjustments. We retain a specified percentage of Janssen’s share of revenues, including up to 30% in major markets. Sales of these products are included in Product sales and Janssen’s shares of revenues are included in Cost of goods sold on our Consolidated Statements of Income. Cost of goods sold relating to Janssen’s shares were $570 million, $574 million and $608 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Termination of the agreement may be on a product or country basis and will depend on the circumstances, including withdrawal of a product from the market, material breach by either party or expiry of revenue share payment term. We may terminate the agreement without cause with respect to the countries where we sell the products in which case Janssen has the right to become the selling party for such country if the product has launched but has been on the market for fewer than 10 years.
Symtuza
In 2014, we amended a license and collaboration agreement with Janssen to develop and commercialize a fixed-dose combination of Janssen’s darunavir and our cobicistat, emtricitabine and tenofovir alafenamide. This combination was approved in the U.S. and European Union in July 2018 and September 2017, respectively, and is sold under the brand name Symtuza.
Under the terms of the 2014 amendment, we granted Janssen an exclusive license to Symtuza worldwide. Janssen is responsible for manufacturing, registration, distribution and commercialization of Symtuza worldwide. We are responsible for the intellectual property related to cobicistat, emtricitabine and tenofovir alafenamide (“Gilead Compounds”) and are the exclusive supplier of the Gilead Compounds. Neither party is restricted from combining its drugs with any other drug products except those which are similar to the components of Symtuza.
Janssen sets the price of Symtuza and the parties share revenue based on the ratio of the net selling prices of the party’s component(s), subject to certain restrictions and adjustments. The intellectual property license and supply obligations related to the Gilead Compounds are accounted for as a single performance obligation. As the license was deemed to be the predominant item to which the revenue share relates, we recognize our share of the Symtuza revenue in the period when the corresponding sales of Symtuza by Janssen occur. We record our share of the Symtuza revenue as Product sales on our Consolidated Statements of Income primarily because we supply the Gilead Compounds to Janssen for Symtuza. See Note 2. Revenues for additional information on revenue recognized for the periods presented.
Termination of the agreement may be on a product or country basis and will depend on the circumstances, including withdrawal of a product from the market, material breach by either party or expiry of revenue share payment term. Janssen may terminate the agreement without cause on a country-by-country basis, in which case Gilead has the right to become the selling party for such country(ies) if the product has launched but has been on the market for fewer than 10 years. Janssen may also terminate the entire agreement without cause.
Japan Tobacco, Inc. (“Japan Tobacco”)
In 2005, Japan Tobacco granted us exclusive rights to develop and commercialize elvitegravir, a novel HIV integrase inhibitor, in all countries of the world, excluding Japan, where Japan Tobacco retained such rights and paid a royalty to us based on its product sales in Japan. Under the agreement, we are responsible for seeking regulatory approval in our territories and are required to use diligent efforts to commercialize elvitegravir for the treatment of HIV infection. We bear all costs and expenses associated with such commercialization efforts and pay a royalty to Japan Tobacco based on our product sales. Japan Tobacco also marketed and distributed certain other products in our HIV portfolio in Japan and paid a royalty to us based on these product sales.
We received approval for Stribild and Genvoya (elvitegravir-containing products) in 2012 and 2015, respectively. Our sales of these products are included in Product sales. Royalties due to Japan Tobacco based on our product sales are included in Cost of goods sold. Royalties due from Japan Tobacco based on its product sales in Japan are included in Royalty, contract and other revenues on our Consolidated Statements of Income. Royalty expenses recognized were $291 million, $358 million and $452 million for the years ended December 31, 2020, 2019 and 2018, respectively. Royalty income recognized was not material for the periods presented.
Effective in December 2018, we entered into an agreement with Japan Tobacco to acquire the rights to market and distribute certain products in our HIV portfolio in Japan and to expand our rights to develop and commercialize elvitegravir to include Japan. We are responsible for the marketing of the products as of January 1, 2019.
Under the terms of the agreement, we paid Japan Tobacco $559 million in cash, of which $194 million was paid as an upfront payment in 2018, and the remaining $365 million was paid in 2019. We recognized an intangible asset of $550 million reflecting the estimated fair value of the marketing-related rights acquired from Japan Tobacco with the remaining $9 million recorded as Prepaid and other current assets on our Consolidated Balance Sheets. The intangible asset is being amortized over nine years, representing the period over which the majority of the benefits are expected to be derived from the applicable products in our HIV portfolio. The amortization expense is classified as selling expense and recorded as Selling, general and administrative expenses on our Consolidated Statements of Income.
Termination of the agreement may be on a product or country basis and will depend on the circumstances, including material breach by either party or expiry of royalty payment term. We may also terminate the entire agreement without cause.
Gadeta
In July 2018, we entered into a collaboration arrangement with Gadeta and made a purchase of equity in Gadeta from Gadeta’s shareholders. We determined that Gadeta was a VIE, and we were its primary beneficiary because we had the power to direct the activities of Gadeta that most significantly impact its economic performance. Upon the initial consolidation of Gadeta, we recorded $82 million to Noncontrolling interest, primarily reflecting acquired intangible assets related to IPR&D on our Consolidated Balance Sheets.
During the year ended December 31, 2020, we effectively terminated the agreement with Gadeta. Upon the effective termination, we ceased to have a controlling interest and deconsolidated this VIE by removing the related net assets and noncontrolling interest of $82 million from our Consolidated Balance Sheets. The net loss from the deconsolidation was not material.
Bristol-Myers Squibb Company (“BMS”)
North America
We had a collaboration arrangement with BMS to develop and commercialize a single tablet regimen containing our Truvada and BMS’s Sustiva (efavirenz) in the U.S. and Canada. This combination is sold under the brand name Atripla. We and BMS structured this collaboration as a joint venture that operated as a limited liability company, which we consolidated.
On December 31, 2017, we terminated BMS’s participation in the collaboration following the launch of a generic version of Sustiva in the U.S. and became the sole owner of the joint venture. BMS is not permitted to commercialize Atripla in the U.S. and Canada but is entitled to receive from us certain fees based on net sales of Atripla in 2018, 2019 and 2020 on a declining annual scale. BMS supplies Sustiva to us at cost plus a markup during this three-year period but may terminate the supply agreement after a notice period. BMS notified us of their voluntary termination of the supply agreement in 2019.
For the years ended December 31, 2020, 2019 and 2018, we recorded $19 million, $58 million and $198 million, respectively, of fee expenses within Cost of goods sold on our Consolidated Statements of Income.
Europe
Gilead Sciences Ireland UC, our wholly-owned subsidiary, and BMS have a collaboration agreement which sets forth the terms and conditions under which we and BMS commercialize and distribute Atripla in the European Union, Iceland, Liechtenstein, Norway and Switzerland (collectively, the “European Territory”). The parties formed a limited liability company which we consolidate, to manufacture Atripla for distribution in the European Territory using efavirenz that it purchases from BMS at BMS’s estimated net selling price of efavirenz in the European Territory. The parties also formed a limited liability company to hold the marketing authorization for Atripla in the European Territory.
Starting in 2012, except for a limited number of activities that are jointly managed, the parties no longer coordinate detailing and promotional activities in the European Territory. We are responsible for manufacturing, product distribution, inventory management and warehousing and have primary responsibility for regulatory activities. Through our local subsidiaries, we have primary responsibility for order fulfillment, collection of receivables, customer relations and handling of sales returns in all the territories where we and BMS promote Atripla. In general, the parties share revenues and out-of-pocket expenses in proportion to the net selling prices of the components of Atripla, Truvada and efavirenz. As of December 31, 2020 and 2019, efavirenz purchased from BMS at BMS’s estimated net selling price of efavirenz in the European Territory was included in Inventories on our Consolidated Balance Sheets.
In September 2019, BMS elected to voluntarily terminate the agreement effective March 31, 2020. Post termination, BMS is not permitted to commercialize Atripla in the European territory but is entitled to receive from us certain fees based on net sales of Atripla on a declining annual scale for a three-year period following the effective date of the termination.
Other collaboration arrangements that are not individually significant
During 2020, 2019 and 2018, we entered into several other collaborative, equity investments and licensing arrangements as well as other similar arrangements that we do not consider to be individually material. We recorded upfront collaboration expenses related to these arrangements of $129 million, $331 million and $278 million for the years ended December 31, 2020, 2019 and 2018, respectively, within Acquired in-process research and development expenses on our Consolidated Statements of Income. Cash payments made related to our equity investments for the years ended December 31, 2020, 2019 and 2018 were $72 million, $118 million and $156 million, respectively, which were primarily recorded within Prepaid and other current assets and Other long-term assets on our Consolidated Balance Sheets.
Under the financial terms of these arrangements, we may be required to make payments upon achievement of various developmental, regulatory and commercial milestones, which could be significant. Future milestone payments, if any, will be reflected in our Consolidated Statements of Income when the corresponding events become probable. In connection with the regulatory approvals, milestone payments made were capitalized as intangible assets and are being amortized to Cost of goods sold through the terms of these collaboration arrangements. In addition, we may be required to pay significant royalties on future sales if products related to these arrangements are commercialized. The payment of these amounts, however, is contingent upon the occurrence of various future events, which have a high degree of uncertainty of occurrence.
12. DEBT AND CREDIT FACILITIES
The following table summarizes the carrying amount of our borrowings under various financing arrangements:
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(in millions)
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December 31,
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Type of Borrowing
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Issue Date
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Due Date
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Interest Rate
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2020
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2019
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Senior Unsecured
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November 2014
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February 2020
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2.35%
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$
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—
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$
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500
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Senior Unsecured
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September 2015
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September 2020
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2.55%
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—
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1,999
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Senior Unsecured
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March 2011
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April 2021
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4.50%
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1,000
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998
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Senior Unsecured
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September 2020
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September 2021
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3-month LIBOR + 0.15%
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499
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—
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Senior Unsecured
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December 2011
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December 2021
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4.40%
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1,249
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1,248
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Senior Unsecured
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September 2016
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March 2022
|
|
1.95%
|
|
499
|
|
|
499
|
|
Senior Unsecured
|
|
September 2015
|
|
September 2022
|
|
3.25%
|
|
998
|
|
|
998
|
|
Senior Unsecured
|
|
September 2016
|
|
September 2023
|
|
2.50%
|
|
748
|
|
|
747
|
|
Senior Unsecured
|
|
September 2020
|
|
September 2023
|
|
3-month LIBOR + 0.52%
|
|
498
|
|
|
—
|
|
Senior Unsecured
|
|
September 2020
|
|
September 2023
|
|
0.75%
|
|
1,992
|
|
|
—
|
|
Term Loan
|
|
October 2020
|
|
October 2023
|
|
variable
|
|
998
|
|
|
—
|
|
Senior Unsecured
|
|
March 2014
|
|
April 2024
|
|
3.70%
|
|
1,746
|
|
|
1,745
|
|
Senior Unsecured
|
|
November 2014
|
|
February 2025
|
|
3.50%
|
|
1,746
|
|
|
1,746
|
|
Senior Unsecured
|
|
September 2015
|
|
March 2026
|
|
3.65%
|
|
2,737
|
|
|
2,734
|
|
Senior Unsecured
|
|
September 2016
|
|
March 2027
|
|
2.95%
|
|
1,246
|
|
|
1,245
|
|
Senior Unsecured
|
|
September 2020
|
|
October 2027
|
|
1.20%
|
|
745
|
|
|
—
|
|
Senior Unsecured
|
|
September 2020
|
|
October 2030
|
|
1.65%
|
|
992
|
|
|
—
|
|
Senior Unsecured
|
|
September 2015
|
|
September 2035
|
|
4.60%
|
|
991
|
|
|
991
|
|
Senior Unsecured
|
|
September 2016
|
|
September 2036
|
|
4.00%
|
|
741
|
|
|
741
|
|
Senior Unsecured
|
|
September 2020
|
|
October 2040
|
|
2.60%
|
|
986
|
|
|
—
|
|
Senior Unsecured
|
|
December 2011
|
|
December 2041
|
|
5.65%
|
|
996
|
|
|
995
|
|
Senior Unsecured
|
|
March 2014
|
|
April 2044
|
|
4.80%
|
|
1,735
|
|
|
1,734
|
|
Senior Unsecured
|
|
November 2014
|
|
February 2045
|
|
4.50%
|
|
1,732
|
|
|
1,731
|
|
Senior Unsecured
|
|
September 2015
|
|
March 2046
|
|
4.75%
|
|
2,219
|
|
|
2,217
|
|
Senior Unsecured
|
|
September 2016
|
|
March 2047
|
|
4.15%
|
|
1,726
|
|
|
1,725
|
|
Senior Unsecured
|
|
September 2020
|
|
October 2050
|
|
2.80%
|
|
1,476
|
|
|
—
|
|
Total senior unsecured notes and term loan facility
|
|
30,295
|
|
|
24,593
|
|
Liability related to future royalties
|
|
1,107
|
|
|
—
|
|
Total debt, net
|
|
31,402
|
|
|
24,593
|
|
Less: current portion of long-term debt and other obligations, net
|
|
2,757
|
|
|
2,499
|
|
Total long-term debt, net
|
|
$
|
28,645
|
|
|
$
|
22,094
|
|
Senior Unsecured Notes
In September 2020, we issued senior unsecured notes consisting of (i) $500 million principal amount of floating rate notes due September 2021 and $500 million principal amount of floating rate notes due September 2023 (together, the “Floating Rate Notes”); and (ii) $2.0 billion principal amount of 0.75% senior notes due September 2023, $750 million principal amount of 1.20% senior notes due October 2027, $1.0 billion principal amount of 1.65% senior notes due October 2030, $1.0 billion principal amount of 2.60% senior notes due October 2040 and $1.5 billion principal amount of 2.80% senior notes due October 2050, the terms of which are summarized in the table above.
In February 2020, we repaid at maturity $500 million of principal balance related to our 2014 senior unsecured notes. In September 2020, we repaid at maturity $2.0 billion principal balance related to our 2015 senior unsecured notes. In 2019, we repaid $2.75 billion of our senior unsecured notes upon maturity. In January 2021, we repaid $1.0 billion of senior unsecured notes prior to the April 2021 maturity.
Our senior unsecured fixed rate notes may be redeemed at our option at a redemption price equal to the greater of (i) 100% of the principal amount of the notes to be redeemed and (ii) the sum, as determined by an independent investment banker, of the present values of the remaining scheduled payments of principal and interest on the notes to be redeemed (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semiannual basis at the Treasury Rate, plus a make-whole premium as defined in the indenture. The senior unsecured fixed rate notes also have a call feature, exercisable at our option, to redeem the notes at par in whole, or in part, on dates ranging from one month to two years prior to maturity. In each case, accrued and unpaid interest is also required to be redeemed to the date of redemption. The September 2023 floating rate notes also have a call feature, exercisable at our option, to redeem the notes at par, in whole, or in part, approximately two years prior to maturity.
In the event of the occurrence of a change in control and a downgrade in the rating of our senior unsecured notes below investment grade by Moody’s Investors Service, Inc. and S&P Global Ratings, the holders may require us to purchase all or a portion of their notes at a price equal to 101% of the aggregate principal amount of the notes repurchased, plus accrued and unpaid interest to the date of repurchase. We are required to comply with certain covenants under our senior unsecured notes and as of December 31, 2020 and 2019, we were not in violation of any covenants.
Term Loan Facility
In September 2020, we entered into a commitment letter with a group of institutional lenders to provide for a three-year senior unsecured term loan facility in an aggregate principal amount of $1.0 billion. Pursuant to the commitment letter, in October 2020, in connection with our acquisition of Immunomedics, we entered into a term loan credit agreement (the “Term Loan Facility”) and borrowed an aggregate principal amount of $1.0 billion.
The Term Loan Facility contains customary representations, warranties, affirmative and negative covenants and events of default. The Term Loan Facility bears interest at the Eurodollar Rate plus the Applicable Percentage as defined in the Term Loan Facility. We may terminate or reduce the amount borrowed under the Term Loan Facility in whole or in part at any time without premium or penalty.
Liability Related to Future Royalties
In connection with our acquisition of Immunomedics, we assumed a liability related to a funding arrangement, which was originally entered into by Immunomedics and RPI, prior to the completion of our acquisition of Immunomedics. The liability related to future royalties was primarily included in Long-term debt, net on our Consolidated Balance Sheets. See Note 6. Acquisitions for additional information.
Revolving Credit Facilities
In May 2016, we entered into a $2.5 billion five-year revolving credit facility agreement maturing in May 2021 (the “2016 Revolving Credit Facility”). In June 2020, we terminated the 2016 Revolving Credit Facility. As of December 31, 2019, there were no amounts outstanding under the 2016 Revolving Credit Facility.
In June 2020, we entered into a new $2.5 billion five-year revolving credit facility maturing in June 2025 (the “2020 Revolving Credit Facility”), which has terms substantially similar to the 2016 Revolving Credit Facility. The 2020 Revolving Credit Facility can be used for working capital requirements and for general corporate purposes, including, without limitation, acquisitions. As of December 31, 2020, there were no amounts outstanding under the 2020 Revolving Credit Facility.
The 2020 Revolving Credit Facility contains customary representations, warranties, affirmative and negative covenants and events of default. At December 31, 2020, we were in compliance with all covenants. Loans under the 2020 Revolving Credit Facility bear interest at either (i) the Eurodollar Rate plus the Applicable Percentage, or (ii) the Base Rate plus the Applicable Percentage, each as defined in the 2020 Revolving Credit Facility agreement. We may terminate or reduce the commitments, and may prepay any loans under the new credit facility in whole or in part at any time without premium or penalty.
Contractual Maturities of Financing Obligations
The following table summarizes the aggregate future principal maturities of our senior unsecured notes and Term Loan Facility as of December 31, 2020:
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Amount
|
2021
|
|
$
|
2,750
|
|
2022
|
|
1,500
|
|
2023
|
|
4,250
|
|
2024
|
|
1,750
|
|
2025
|
|
1,750
|
|
Thereafter
|
|
18,500
|
|
Total
|
|
$
|
30,500
|
|
Interest Expense
Interest expense on our debt and credit facilities related to the contractual coupon rates and amortization of the debt discount and issuance costs was $994 million, $1.0 billion and $1.1 billion in 2020, 2019 and 2018, respectively.
13. LEASES
Our operating leases consist primarily of properties and equipment for our administrative, manufacturing and R&D activities. Some of our leases include options to extend the terms for up to 15 years and some include options to terminate the lease within one year after the lease commencement date. As of December 31, 2020 and 2019, we did not have material finance leases. Operating lease expense, including variable costs and short-term leases, was $171 million and $162 million in 2020 and 2019, respectively. Operating lease expense under the prior lease accounting standard was $109 million in 2018.
The following table summarizes balance sheet and other information related to our operating leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in millions, except weighted average amounts)
|
|
Classification
|
|
2020
|
|
2019
|
Right-of-use assets, net
|
|
Other long-term assets
|
|
$
|
646
|
|
|
$
|
668
|
|
Lease liabilities - current
|
|
Other accrued liabilities
|
|
$
|
107
|
|
|
$
|
99
|
|
Lease liabilities - noncurrent
|
|
Other long-term obligations
|
|
$
|
608
|
|
|
$
|
626
|
|
Weighted average remaining lease term
|
|
|
|
8.6 years
|
|
8.7 years
|
Weighted average discount rate
|
|
|
|
3.32
|
%
|
|
3.47
|
%
|
The following table summarizes other supplemental information related to our operating leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in millions)
|
|
2020
|
|
2019
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
$
|
66
|
|
|
$
|
66
|
|
Right-of-use assets obtained in exchange for lease liabilities
|
|
$
|
88
|
|
|
$
|
313
|
|
The following table summarizes a maturity analysis of our operating lease liabilities showing the aggregate lease payments as of December 31, 2020:
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Amount
|
2021
|
|
$
|
127
|
|
2022
|
|
122
|
|
2023
|
|
112
|
|
2024
|
|
97
|
|
2025
|
|
70
|
|
Thereafter
|
|
300
|
|
Total undiscounted lease payments
|
|
828
|
|
Less: imputed interest
|
|
113
|
|
Total discounted lease payments
|
|
$
|
715
|
|
14. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We are a party to various legal actions. The most significant of these are described below. We recognize accruals for such actions to the extent that we conclude that a loss is both probable and reasonably estimable. We accrue for the best estimate of a loss within a range; however, if no estimate in the range is better than any other, then we accrue the minimum amount in the range. If we determine that a material loss is reasonably possible and the loss or range of loss can be estimated, we disclose the possible loss. It is not possible to determine the outcome of these matters or, unless otherwise noted, the outcome (including in excess of any accrual) is not expected to be material, and we cannot reasonably estimate the maximum potential exposure or the range of possible loss.
We did not have any material accruals for the matters described below in our Consolidated Balance Sheets as of December 31, 2020 and 2019.
Litigation Related to Sofosbuvir
In 2012, we acquired Pharmasset, Inc. Through the acquisition, we acquired sofosbuvir, a nucleotide analog that acts to inhibit the replication of the HCV. In 2013, we received approval from FDA for sofosbuvir, now known commercially as Sovaldi. Sofosbuvir is also included in all of our marketed HCV products. We have received a number of litigation claims regarding sofosbuvir. While we have carefully considered these claims both prior to and following the acquisition and believe they are without merit, we cannot predict the ultimate outcome of such claims or range of loss.
We are aware of patents and patent applications owned by third parties that have been or may in the future be alleged by such parties to cover the use of our HCV products. If third parties obtain valid and enforceable patents, and successfully prove infringement of those patents by our HCV products, we could be required to pay significant monetary damages. We cannot predict the ultimate outcome of intellectual property claims related to our HCV products. We have spent, and will continue to spend, significant resources defending against these claims.
Litigation with Idenix Pharmaceuticals, Inc. (“Idenix”), Universita Degli Studi di Cagliari (“UDSG”), Centre National de la Recherche Scientifique and L’Université Montpellier II
In 2013, Idenix, UDSG, Centre National de la Recherche Scientifique and L’Université Montpellier II sued us in the U.S. District Court for the District of Delaware alleging that the commercialization of sofosbuvir infringes U.S. Patent No. 7,608,600 (the “’600 patent”). We prevailed at all phases of litigation concerning the ’600 patent, and in 2018, the U.S. Supreme Court denied Idenix’s petition for certiorari. Also in 2013, Idenix and UDSG sued us in the U.S. District Court for the District of Massachusetts alleging that the commercialization of sofosbuvir infringes U.S. Patent Nos. 6,914,054 (the “’054 patent”) and 7,608,597 (the “’597 patent”). In 2014, the court transferred the Massachusetts litigation to the U.S. District Court for the District of Delaware.
Prior to trial in 2016, Idenix committed to give us a covenant not to sue with respect to any claims arising out of the ’054 patent related to sofosbuvir and withdrew that patent from the trial. A jury trial was held in 2016 on the ’597 patent, and the jury found that we willfully infringed the asserted claims of the ’597 patent and awarded Idenix $2.54 billion in past damages. In 2018, the judge invalidated Idenix’s ’597 patent and vacated the jury’s award of $2.54 billion in past damages. Idenix appealed this decision to the U.S. Court of Appeals for the Federal Circuit (“CAFC”), and in October 2019, the CAFC issued an opinion affirming the trial court’s decision that the ’597 patent is invalid. In April 2020, the CAFC denied Idenix’s petition for rehearing en banc. In January 2021, the U.S. Supreme Court denied Idenix’s petition for review, making the judgment against Idenix final.
Litigation with the University of Minnesota
The University of Minnesota (the “University”) has obtained U.S. Patent No. 8,815,830 (the “’830 patent”), which purports to broadly cover nucleosides with antiviral and anticancer activity. In 2016, the University filed a lawsuit against us in the U.S. District Court for the District of Minnesota, alleging that the commercialization of sofosbuvir-containing products infringes the ’830 patent. We believe the ’830 patent is invalid and will not be infringed by the continued commercialization of sofosbuvir. In 2017, the court granted our motion to transfer the case to California. We have also filed petitions for inter partes review with the U.S. Patent and Trademark Office Patent Trial and Appeal Board (“PTAB”) alleging that all asserted claims are invalid for anticipation and obviousness. The PTAB instituted one of these petitions and has scheduled a merits hearing for February 2021. In 2018, the U.S. District Court for the Northern District of California stayed the litigation until after the PTAB concludes the inter partes review that it has initiated, which we expect will occur in 2021.
Litigation Related to Axicabtagene Ciloleucel
In October 2017, Juno Therapeutics, Inc. and Sloan Kettering Cancer Center (collectively, “Juno”) filed a lawsuit against us in the U.S. District Court for the Central District of California, alleging that the commercialization of axicabtagene ciloleucel, sold commercially as Yescarta, infringes on U.S. Patent No. 7,446,190 (the “’190 patent”). A jury trial was held on the ’190 patent, and in December 2019, the jury found that the asserted claims of the ’190 patent were valid, and that we willfully infringed the asserted claims of the ’190 patent. The jury also awarded Juno damages in amounts of $585 million in an up-front payment and a 27.6% running royalty from October 2017 through the date of the jury’s verdict. The parties filed post-trial motions in the first quarter of 2020, and the trial judge entered a judgment in April 2020. The trial judge affirmed the jury’s verdict, enhanced the past damages by 50% and maintained the royalties on future Yescarta sales at 27.6%. In April 2020, we filed an appeal seeking to reverse the judgment or obtain a new trial due to errors made by the trial judge.
In assessing whether we should accrue a liability for this litigation in our Consolidated Financial Statements, we considered various factors, including the legal and factual circumstances of the case, the jury’s verdict, the district court’s pre- and post-trial orders, the current status of the proceedings, applicable law, the views of legal counsel and the likelihood that the judgment will be upheld on appeal. As a result of this review, we have determined, in accordance with applicable accounting standards, that it is not probable that we will incur a material loss as a result of this litigation.
If the judgment is reversed on appeal, the loss is expected to be zero. If the judgment is upheld in its entirety on appeal, we estimate a loss through the fourth quarter of 2020 to be approximately $1.4 billion, which consists primarily of (i) approximately $811 million, which represents damages on Yescarta revenues through December 12, 2019, and prejudgment interest thereon, (ii) approximately $389 million, which represents a 50% enhancement of past damages and (iii) approximately $172 million for royalties on Yescarta revenues from December 13, 2019 to December 31, 2020. The estimated loss does not include post-judgment interest on the foregoing, which is not estimated to be material as of December 31, 2020. Although we cannot predict with certainty the ultimate outcome of this litigation on appeal, we believe the jury’s verdict and the judgment to be in error.
Litigation Related to Bictegravir
In 2018, ViiV Healthcare Company (“ViiV”) filed a lawsuit against us in the U.S. District Court of Delaware, alleging that the commercialization of bictegravir, sold commercially in combination with tenofovir alafenamide and emtricitabine as Biktarvy, infringes ViiV’s U.S. Patent No. 8,129,385 (the “’385 patent”) covering ViiV’s dolutegravir. Bictegravir is structurally different from dolutegravir, and we believe that bictegravir does not infringe the sole asserted claim of the ’385 patent. The court has set a trial date of January 2022 for this lawsuit. ViiV is seeking billions of dollars for alleged damages comprised of ViiV’s lost profits and a royalty on sales of bictegravir from launch through the trial. ViiV calculates these damages based on the cumulative U.S. revenues from Biktarvy since launch, which have totaled $11.46 billion through December 31, 2020. In addition, should a court find that we are liable for infringement, we expect ViiV will seek a royalty on sales after the trial. Although we cannot predict with certainty the ultimate outcome of this litigation, an adverse judgment could result in substantial monetary damages, including ViiV’s lost profits and royalties through trial, and a going-forward royalty stream on future sales.
In 2018, ViiV also filed a lawsuit against us in the Federal Court of Canada, alleging that our activities relating to our bictegravir compound have infringed ViiV’s Canadian Patent No. 2,606,282 (the “’282 patent”), which was issued to Shionogi & Co. Ltd. and ViiV. The ’282 patent is the compound patent covering ViiV’s dolutegravir. We believe that bictegravir does not infringe the claims of the ’282 patent. In January 2020, the court held a summary trial to assess ViiV’s infringement allegations. In April 2020, the court determined that bictegravir does not infringe the claims of the ’282 patent and dismissed the case. ViiV has appealed this decision. Argument on the appeal is expected to take place later in 2021.
In November and December 2019, ViiV filed lawsuits in France, Germany, Ireland and the UK asserting the relevant national designations of European Patent No. 3 045 206 (“EP ’206”); in Australia asserting Australian Patent No. 2006239177; in Japan asserting Japanese Patent No. 4295353; and in Korea asserting Korean Patent Nos. 1848819 (“KR ’819”) and 1363875. These patents all relate to molecules which ViiV claims would act as integrase inhibitors. We believe that bictegravir does not infringe the claims of any of ViiV’s patents. In 2019, we filed an opposition in the European Patent Office (“EPO”) requesting revocation of EP ’206. The EPO hearing is scheduled for 2021. In 2020, we filed a petition in the Korean Intellectual Property Office requesting invalidation of KR ’819. Following a trial, a tribunal of the Korean Intellectual Property Trial and Appeal Board found KR ’819 to be invalid. ViiV may appeal this decision. The court in Germany has scheduled a hearing on the issue of infringement in April 2021. In all jurisdictions, to the extent that the claims of ViiV’s patents are interpreted to cover bictegravir, we believe that those claims are invalid. We cannot predict the ultimate outcome of intellectual property claims related to bictegravir.
Litigation Relating to Pre-Exposure Prophylaxis
In August 2019, we filed petitions requesting inter partes review of U.S. Patent Nos. 9,044,509, 9,579,333, 9,937,191 and 10,335,423 (collectively, “HHS Patents”) by PTAB. The HHS Patents are assigned to the U.S. Department of Health and Human Services (“HHS”) and purport to claim a process of protecting a primate host from infection by an immunodeficiency retrovirus by administering a combination of emtricitabine and tenofovir or TDF prior to exposure of the host to the immunodeficiency retrovirus, a process commonly known as pre-exposure prophylaxis (“PrEP”). In November 2019, the U.S. Department of Justice filed a lawsuit against us in the U.S. District Court of Delaware, alleging that the sale of Truvada and Descovy for use as PrEP infringes the HHS Patents. In February 2020, PTAB declined to institute our petitions for inter partes review of the HHS Patents. In April 2020, we filed a breach of contract lawsuit against the U.S. federal government in the Court of Federal Claims, alleging violations of four material transfer agreements (“MTAs”) related to the research underlying the HHS Patents and a clinical trial agreement (“CTA”) by the U.S. Centers for Disease Control and Prevention related to PrEP research. Although we cannot predict with certainty the ultimate outcome of these litigation matters, we believe that the U.S. federal government breached the MTAs and CTA, that Truvada and Descovy do not infringe the HHS Patents and that the HHS Patents are invalid over prior art descriptions of Truvada’s use for PrEP and post-exposure prophylaxis as well because physicians and patients were using the claimed methods years before HHS filed the applications for the patents. A trial date for the lawsuit in the District Court of Delaware has been set for May 2023.
Litigation with Generic Manufacturers
As part of the approval process for some of our products, FDA granted us a New Chemical Entity (“NCE”) exclusivity period during which other manufacturers’ applications for approval of generic versions of our product will not be approved. Generic manufacturers may challenge the patents protecting products that have been granted NCE exclusivity one year prior to the end of the NCE exclusivity period. Generic manufacturers have sought and may continue to seek FDA approval for a similar or identical drug through an abbreviated new drug application (“ANDA”), the application form typically used by manufacturers seeking approval of a generic drug. The sale of generic versions of our products earlier than their patent expiration would have a significant negative effect on our revenues and results of operations. To seek approval for a generic version of a product having NCE status, a generic company may submit its ANDA to FDA four years after the branded product’s approval.
Starting in December 2019, we received letters from Lupin Ltd., Apotex Inc., Shilpa Medicare Ltd., Sunshine Lake Pharma Co. Ltd., Laurus Labs, Natco Pharma Ltd., Macleods Pharma Ltd., Hetero Labs Ltd. and Cipla Ltd. (collectively, “generic manufacturers”) indicating that they have submitted ANDAs to FDA requesting permission to market and manufacture generic versions of certain of our tenofovir alafenamide (“TAF”)-containing products. Between them, these generic manufacturers seek to market generic versions of Odefsey, Descovy and Vemlidy. Some generic manufacturers have challenged the validity of four patents listed on the Orange Book and associated with TAF, while others have challenged the validity of two of our Orange Book-listed patents associated with TAF. We filed lawsuits against the generic manufacturers, and we intend to enforce and defend our intellectual property.
European Patent Claims
In 2015, several parties filed oppositions in the EPO requesting revocation of one of our granted European patents covering sofosbuvir that expires in 2028. In 2016, the EPO upheld the validity of certain claims of our sofosbuvir patent. We have appealed this decision, seeking to restore all of the original claims, and several of the original opposing parties have also appealed, requesting full revocation. The appeal hearing is scheduled for July 2021.
In 2017, several parties filed oppositions in the EPO requesting revocation of our granted European patent relating to sofosbuvir that expires in 2024. The EPO conducted an oral hearing for this opposition in 2018 and upheld the claims. Two of the original opposing parties have appealed, requesting full revocation.
In 2016, several parties filed oppositions in the EPO requesting revocation of our granted European patent covering TAF that expires in 2026. In 2017, the EPO upheld the validity of the claims of our TAF patent. Three parties have appealed this decision. The appeal hearing is scheduled for March 2021.
In 2017, several parties filed oppositions in the EPO requesting revocation of our granted European patent relating to TAF hemifumarate that expires in 2032. In 2019, the EPO upheld the validity of the claims of our TAF hemifumarate patent. Three parties have appealed this decision.
In 2016, three parties filed oppositions in the EPO requesting revocation of our granted European patent covering cobicistat that expires in 2027. In 2017, the EPO upheld the validity of the claims of our cobicistat patent. Two parties have appealed this decision.
The appeal process may take several years for all EPO opposition proceedings. While we are confident in the strength of our patents, we cannot predict the ultimate outcome of these oppositions. If we are unsuccessful in defending these oppositions, some or all of our patent claims may be narrowed or revoked and the patent protection for sofosbuvir, TAF, TAF hemifumarate and cobicistat in the European Union could be substantially shortened or eliminated entirely. If our patents are revoked, and no other European patents are granted covering these compounds, our exclusivity may be based entirely on regulatory exclusivity granted by EMA. If we lose patent protection for any of these compounds, our revenues and results of operations could be negatively impacted for the years including and succeeding the year in which such exclusivity is lost.
Government Investigations and Related Litigation
In 2011, we received a subpoena from the U.S. Attorney’s Office for the Northern District of California requesting documents related to the manufacture, quality and distribution practices of Complera, Atripla, Truvada, Viread, Emtriva, Hepsera and Letairis. We cooperated with the government’s inquiry. In 2014, the U.S. Department of Justice informed us that it had declined to intervene in a False Claims Act lawsuit filed by two former employees. In 2019, the District Court granted the Department of Justice’s motion to dismiss plaintiffs’ federal claims. In April 2020, plaintiffs refiled their California False Claims Act and California retaliation claims in the Superior Court of California, County of San Mateo. In July 2020, the California Attorney General declined to intervene in the case, and the state court complaint was unsealed. In September 2020, we filed a demurrer requesting that the Superior Court dismiss plaintiffs’ claims, which was overruled in November 2020. We have sought an appeal of the Superior Court’s order overruling our demurrer. Although we cannot predict the ultimate outcome of this lawsuit, we believe the action is without merit and we intend to vigorously defend against it.
In 2017, we received a voluntary request for information from the U.S. Attorney’s Office for the Eastern District of Pennsylvania requesting information related to our reimbursement support offerings, clinical education programs and interactions with specialty pharmacies for Sovaldi and Harvoni. In 2018, we received another voluntary request for information related to our speaker programs and advisory boards for our HCV and HBV products. In October 2019, the government informed us that, following its investigation, it declined to intervene in two False Claims Act lawsuits against us. Notwithstanding the government’s declination, relators have continued to pursue the lawsuit relating to HBV speaker programs and advisory boards and served us with the Second Amended Complaint in November 2019. In December 2020, the lawsuit relating to HCV sales and marketing issues was unsealed. The relator has indicated that he intends to pursue the case against Gilead. Although we cannot predict the ultimate outcome of these lawsuits, we believe the actions are without merit and we intend to vigorously defend against them.
In 2017, we also received a subpoena from the U.S. Attorney’s Office for the Southern District of New York requesting documents related to our promotional speaker programs for HIV. We are cooperating with this inquiry.
In April 2020, Health Choice Advocates, LLC (“Health Choice Advocates”) filed a qui tam lawsuit against us under seal in New Jersey state court alleging violations of the New Jersey False Claims Act through our clinical education programs for Sovaldi and Harvoni and our HCV and HIV patient access programs. The lawsuit seeks all available relief under the New Jersey False Claims Act. In July 2020, the New Jersey Attorney General’s Office declined to intervene in the lawsuit and the complaint was unsealed. In May 2020, Health Choice Advocates filed a qui tam lawsuit under seal against us in Texas state court making similar allegations under the Texas Medicare Fraud Prevention Act (“TMFPA”). This lawsuit seeks all available relief under the TMFPA. In October 2020, the Texas Attorney General’s Office declined to intervene in the lawsuit and the complaint was unsealed. Health Choice Advocates previously filed a lawsuit making similar allegations under the federal False Claims Act and various state False Claims Acts, including the TMFPA, in federal court in the Eastern District of Texas in June 2017 and the court entered an order dismissing that matter without prejudice in July 2018. Although we cannot predict the ultimate outcome of these lawsuits, we believe these actions are without merit.
Product Liability
We have been named as a defendant in two class action lawsuits and various product liability lawsuits related to Viread, Truvada, Atripla, Complera and Stribild. Plaintiffs allege that Viread, Truvada, Atripla, Complera and/or Stribild caused them to experience kidney, bone and/or tooth injuries. The lawsuits, which are pending in state or federal court in California, Delaware, Florida, New Jersey and Missouri, involve more than 21,000 plaintiffs. Plaintiffs in these cases seek damages and other relief on various grounds for alleged personal injury and economic loss. We intend to vigorously defend ourselves in these actions. While we believe these cases are without merit, we cannot predict the ultimate outcome. If plaintiffs are successful in their claims, we could be required to pay significant monetary damages.
Antitrust and Consumer Protection
We (along with Japan Tobacco, BMS and Johnson & Johnson, Inc.) have been named as defendants in class action lawsuits filed in 2019 and 2020 related to various drugs used to treat HIV, including drugs used in combination antiretroviral therapy. Japan Tobacco was dismissed from the lawsuit after a favorable court ruling on the defendants’ motion to dismiss. Plaintiffs allege that we (and the other remaining defendants) engaged in various conduct to restrain competition in violation of federal and state antitrust laws and state consumer protection laws. The lawsuits, which have been or may be consolidated, are all pending in the U.S. District Court for the Northern District of California. The lawsuits seek to bring claims on behalf of two nationwide classes - one of direct purchasers consisting largely of wholesales, and another of end-payor purchasers, including health insurers and individual patients. Plaintiffs seek damages, permanent injunctive relief and other relief.
In September 2020, we along with generic manufacturers Cipla Ltd. and Cipla USA Inc. (“Cipla”) were named as defendants in a class action lawsuit filed in the U.S. District Court for the Northern District of California by Jacksonville Police Officers and Fire Fighters Health Insurance Trust (“Jacksonville Trust”) on behalf of end-payor purchasers. Jacksonville Trust claims that the 2014 settlement agreement between us and Cipla, which settled a patent dispute relating to patents covering our Emtriva, Truvada, and Atripla products and permitted generic entry prior to patent expiry, violates certain federal and state antitrust and consumer protection laws. Plaintiffs seek damages, permanent injunctive relief and other relief.
While we believe these cases are without merit, we cannot predict the ultimate outcome. If plaintiffs are successful in their claims, we could be required to pay significant monetary damages or could be subject to permanent injunctive relief awarded in favor of plaintiffs.
Securities Litigation
Immunomedics and several of its former officers and directors have been named as defendants in putative class actions filed in 2018 and 2019. The lawsuits were consolidated in September 2019, and plaintiffs filed a consolidated complaint in November 2019. Plaintiffs allege that Immunomedics and the individual defendants violated the federal securities laws in connection with Immunomedics’ Biologics License Application for Trodelvy, and seek certification of a class of shareholders, damages and other relief. The consolidated lawsuit is pending in the United States District Court for the District of New Jersey. In January 2020, Immunomedics filed a motion to dismiss the consolidated complaint, which was denied in July 2020. While we believe this case is without merit, we cannot predict the ultimate outcome. If plaintiffs are successful in their claims, we could be required to pay significant monetary damages.
Other Matters
We are a party to various legal actions that arose in the ordinary course of our business. We do not believe that these other legal actions will have a material adverse impact on our consolidated business, financial position or results of operations.
Other Commitments
In the normal course of business, we enter into various firm purchase commitments primarily related to active pharmaceutical ingredients (“API”) and certain inventory related items. As of December 31, 2020, these commitments for the next five years were approximately $1.2 billion in 2021, $486 million in 2022, $192 million in 2023, $70 million in 2024 and $55 million in 2025. The amounts related to API represent minimum purchase commitments.
15. STOCKHOLDERS’ EQUITY
Stock Repurchase Programs
In the first quarter of 2016, our Board of Directors authorized a $12.0 billion stock repurchase program (“2016 Program”) under which repurchases may be made in the open market or in privately negotiated transactions. We started repurchases under the 2016 Program in April 2016.
In the first quarter of 2020, our Board of Directors authorized a new $5.0 billion stock repurchase program (“2020 Program”), which will commence upon the completion of the 2016 Program. Purchases under the 2020 Program may be made in the open market or in privately negotiated transactions.
As of December 31, 2020, the remaining authorized repurchase amount from both programs was $6.8 billion.
The following table summarizes our stock repurchases under the 2016 Program:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in millions, except per share amounts)
|
|
2020
|
|
2019
|
|
2018
|
Shares repurchased and retired
|
|
22
|
|
|
26
|
|
|
40
|
|
Amount
|
|
$
|
1,583
|
|
|
$
|
1,749
|
|
|
$
|
2,900
|
|
Average price per share
|
|
$
|
70.64
|
|
|
$
|
66.36
|
|
|
$
|
72.95
|
|
In addition to repurchases from the 2016 Program and 2020 Program, we repurchased shares of common stock withheld by us from employee restricted stock awards to satisfy our applicable tax withholding obligations, which are immaterial and excluded from the table above.
We use the par value method of accounting for our stock repurchases. Under the par value method, common stock is first charged with the par value of the shares involved. The excess of the cost of shares acquired over the par value is allocated to additional paid-in capital (“APIC”) based on an estimated average sales price per issued share with the excess amounts charged to retained earnings.
Dividends
The following table summarizes cash dividends declared on our common stock:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
(in millions, except per share amounts)
|
|
Dividend Per Share
|
|
Amount
|
|
Dividend Per Share
|
|
Amount
|
First quarter
|
|
$
|
0.68
|
|
|
$
|
867
|
|
|
$
|
0.63
|
|
|
$
|
814
|
|
Second quarter
|
|
0.68
|
|
|
866
|
|
|
0.63
|
|
|
810
|
|
Third quarter
|
|
0.68
|
|
|
866
|
|
|
0.63
|
|
|
807
|
|
Fourth quarter
|
|
0.68
|
|
|
865
|
|
|
0.63
|
|
|
808
|
|
Total
|
|
$
|
2.72
|
|
|
$
|
3,464
|
|
|
$
|
2.52
|
|
|
$
|
3,239
|
|
Our restricted stock and performance share awards or units have dividend equivalent rights entitling holders to dividend equivalents to be paid upon vesting for each share of the underlying unit.
On February 4, 2021, we announced that our Board of Directors declared a quarterly cash dividend of $0.71 per share of our common stock, with a payment date of March 30, 2021 to all stockholders of record as of the close of business on March 15, 2021. Future dividends are subject to declaration by our Board of Directors.
Preferred Stock
We have 5 million shares of authorized preferred stock issuable in series. Our Board is authorized to determine the designation, powers, preferences and rights of any such series. There was no preferred stock outstanding as of December 31, 2020 and 2019.
Accumulated Other Comprehensive Income
The following table summarizes the changes in AOCI by component, net of tax:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Foreign Currency Translation, Net of Tax
|
|
Unrealized Gains and Losses on Available-for-Sale Debt Securities, Net of Tax
|
|
Unrealized Gains and Losses on Cash Flow Hedges, Net of Tax
|
|
Total
|
Balance at January 1, 2018
|
|
$
|
85
|
|
|
$
|
(99)
|
|
|
$
|
(114)
|
|
|
$
|
(128)
|
|
Net unrealized gain (loss)
|
|
(38)
|
|
|
43
|
|
|
112
|
|
|
117
|
|
Reclassifications to net income
|
|
—
|
|
|
4
|
|
|
87
|
|
|
91
|
|
Net current period other comprehensive income (loss)
|
|
(38)
|
|
|
47
|
|
|
199
|
|
|
208
|
|
Balance at December 31, 2018
|
|
$
|
47
|
|
|
$
|
(52)
|
|
|
$
|
85
|
|
|
$
|
80
|
|
Net unrealized gain
|
|
6
|
|
|
54
|
|
|
72
|
|
|
132
|
|
Reclassifications to net income
|
|
—
|
|
|
(1)
|
|
|
(126)
|
|
|
(127)
|
|
Net current period other comprehensive income (loss)
|
|
6
|
|
|
53
|
|
|
(54)
|
|
|
5
|
|
Balance at December 31, 2019
|
|
$
|
53
|
|
|
$
|
1
|
|
|
$
|
31
|
|
|
$
|
85
|
|
Net unrealized gain (loss)
|
|
$
|
(2)
|
|
|
$
|
43
|
|
|
$
|
(103)
|
|
|
$
|
(62)
|
|
Reclassifications to net income
|
|
—
|
|
|
(42)
|
|
|
(41)
|
|
|
(83)
|
|
Net current period other comprehensive income (loss)
|
|
(2)
|
|
|
1
|
|
|
(144)
|
|
|
(145)
|
|
Balance at December 31, 2020
|
|
$
|
51
|
|
|
$
|
2
|
|
|
$
|
(113)
|
|
|
$
|
(60)
|
|
The amounts reclassified to net income for gains and losses on cash flow hedges are recorded as part of Product sales on our Consolidated Statements of Income. See Note 5. Derivative Financial Instruments for additional information. The amounts reclassified to net income for gains and losses on available-for-sale debt securities are recorded as part of Other income (expense), net, on our Consolidated Statements of Income. The income tax impact allocated to each component of other comprehensive income was not material for the periods presented.
16. EMPLOYEE BENEFITS
We provide share-based compensation in the form of various types of equity-based awards, including restricted stock units (“RSU”s), performance share awards or units (“PSU”s) and stock options. Compensation expense is recognized on the Consolidated Statements of Income based on the estimated fair value of the award on the grant date. The estimated fair value of RSUs is based on the closing price of our common stock. For PSUs, estimated fair value is based on either the Monte Carlo valuation methodology or the stock price on the date of grant. For stock option awards, estimated fair value is based on the Black-Scholes option valuation model.
Equity Incentive Plans
In May 2004, our stockholders approved and we adopted the Gilead Sciences, Inc. 2004 Equity Incentive Plan (as amended, the “2004 Plan”). The 2004 Plan authorized the issuance of a total of 309 million shares of common stock.
As part of the Forty Seven acquisition, we assumed the Forty Seven, Inc. 2018 Equity Incentive Plan, which we subsequently amended and restated as the Gilead Sciences, Inc. 2018 Equity Incentive Plan (as amended and restated, the “2018 Plan”). The aggregate amount of shares that may be issued under the 2018 Plan on or after the assumption date will not exceed 12 million shares. As part of the Immunomedics acquisition, we assumed the Immunomedics Amended and Restated 2014 Long-Term Incentive Plan (the “Immunomedics Plan” and referred together with the 2004 Plan and 2018 Plan as the “Plans”), which we subsequently merged into the 2004 Plan. The aggregate amount of shares that may be issued under the Immunomedics Plan on or after the assumption date will not exceed 26 million shares. See Note 6. Acquisitions for additional information on the settlement of stock awards.
The Plans are broad based incentive plans that provide for the grant of equity-based awards, including stock options, restricted stock units, restricted stock awards and performance share awards, to employees, directors and consultants. As of December 31, 2020, a total of 96 million shares remain available for future grant under the Plans.
Stock Options
The Plans provide for option grants designated as either non-qualified or incentive stock options. All stock options granted after January 1, 2006 have been non-qualified stock options. Employee stock options generally vest over three or four years. All options are exercisable over a period not to exceed the contractual term of ten years from the date the stock options are issued and are granted at prices not less than the fair market value of our common stock on the grant date. Stock option exercises are settled with common stock from the Plans’ previously authorized and available pool of shares.
The following table summarizes activity and related information under our stock option plans. All option grants presented in the table had exercise prices not less than the fair value of the underlying common stock on the grant date:
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Shares
(in millions)
|
|
Weighted-
Average
Exercise Price
(in dollars)
|
|
Weighted-Average
Remaining
Contractual Term
(years)
|
|
Aggregate
Intrinsic
Value
(in millions)
|
Outstanding at December 31, 2019
|
|
19.5
|
|
|
$
|
61.35
|
|
|
|
|
|
Granted
|
|
3.3
|
|
|
$
|
71.63
|
|
|
|
|
|
Forfeited
|
|
(0.9)
|
|
|
$
|
72.64
|
|
|
|
|
|
Expired
|
|
(0.7)
|
|
|
$
|
81.68
|
|
|
|
|
|
Exercised
|
|
(4.6)
|
|
|
$
|
34.07
|
|
|
|
|
|
Outstanding at December 31, 2020
|
|
16.6
|
|
|
$
|
69.40
|
|
|
5.26
|
|
$
|
70
|
|
Exercisable at December 31, 2020
|
|
11.6
|
|
|
$
|
68.85
|
|
|
3.84
|
|
$
|
70
|
|
Expected to vest, net of estimated forfeitures at December 31, 2020
|
|
4.8
|
|
|
$
|
70.70
|
|
|
8.49
|
|
$
|
—
|
|
Aggregate intrinsic value represents the value of our closing stock price on the last trading day of the year in excess of the weighted-average exercise price multiplied by the number of options outstanding or exercisable. Total intrinsic value of options exercised was $179 million for 2020, $209 million for 2019 and $412 million for 2018.
The weighted-average grant date fair value of the stock options granted was $11.69 per share for 2020, $12.15 per share for 2019 and $17.03 per share for 2018.
As of December 31, 2020, there was $55 million of unrecognized compensation cost related to stock options, which is expected to be recognized over an estimated weighted-average period of 2.3 years.
Restricted Stock and Performance Share Awards
We grant time-based RSUs to certain employees as part of our annual employee equity compensation review program as well as to new hire employees and to non-employee members of our Board. RSUs are share-based awards that entitle the holder to receive freely tradable shares of our common stock upon vesting. RSUs generally vest over three or four years from the date of grant. The fair value of an RSU is equal to the closing price of our common stock on the grant date.
We grant PSUs which vest upon the achievement of specified market or performance goals, which could include achieving a total shareholder return compared to a pre-determined peer group or achieving revenue targets. The actual number of common shares ultimately issued is calculated by multiplying the number of PSUs by a payout percentage ranging from 0% to 200%, and these awards generally vest only when a committee (or subcommittee) of our Board has determined that the specified market and performance goals have been achieved. The fair value of each PSU is estimated at the date of grant or when performance objectives are defined for the grants. Depending on the terms of the award, fair value on the date of grant is determined based on either the Monte Carlo valuation methodology or the closing stock price on the date of grant.
In addition, we have also granted other PSUs to certain of our employees under the 2004 Plan. The vesting of these awards is subject to the achievement of specified individual performance goals, typically within a one to two year period. The fair value of such an award is equal to the closing price of our common stock on the grant date.
The following table summarizes our RSU and PSU activity and related information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs
|
|
PSUs
|
(in millions, except per share amounts)
|
|
Shares
|
|
Weighted-
Average
Grant Date Fair Value Per Share
|
|
Shares (1)
|
|
Weighted-
Average
Grant Date Fair Value Per Share(1)
|
Outstanding at December 31, 2019
|
|
17.2
|
|
|
$
|
70.08
|
|
|
0.7
|
|
|
$
|
80.42
|
|
Granted
|
|
10.8
|
|
|
$
|
70.94
|
|
|
0.3
|
|
|
$
|
83.64
|
|
Vested
|
|
(6.4)
|
|
|
$
|
72.20
|
|
|
(0.2)
|
|
|
$
|
73.15
|
|
Forfeited
|
|
(2.1)
|
|
|
$
|
70.66
|
|
|
(0.2)
|
|
|
$
|
81.06
|
|
Outstanding at December 31, 2020
|
|
19.5
|
|
$
|
69.80
|
|
|
0.6
|
|
$
|
84.87
|
|
________________________________
(1) Weighted-average grant-date fair value per share excludes shares related to grants that currently have no grant date as the performance objectives have not yet been defined.
The weighted-average grant date fair value of RSUs granted was $70.94 per share for 2020, $64.31 per share for 2019, and $77.98 per share for 2018. The weighted-average grant date fair value of PSUs granted was $83.64 per share for 2020, $68.30 per share for 2019, and $88.76 per share for 2018. The total grant date fair value of our vested RSUs and PSUs was $479 million for 2020, $450 million for 2019 and $481 million for 2018, and total fair value as of the respective vesting dates was $459 million for 2020, $372 million for 2019 and $446 million for 2018.
As of December 31, 2020, there was $860 million of unrecognized compensation cost related to unvested RSUs and PSUs, which is expected to be recognized over a weighted-average period of 2.2 years.
Employee Stock Purchase Plan
Under our Employee Stock Purchase Plan and the International Employee Stock Purchase Plan (together, as amended, the ESPP), employees can purchase shares of our common stock based on a percentage of their compensation subject to certain limits. The purchase price per share is equal to the lower of 85% of the fair market value of our common stock on the offering date or the purchase date. The ESPP offers a six-month look-back feature as well as an automatic reset feature that provides for an offering period to be reset to a new lower-priced offering if the offering price of the new offering period is less than that of the current offering period. ESPP purchases are settled with common stock from the ESPP’s previously authorized and available pool of shares. During 2020, 2 million shares were issued under the ESPP for $100 million. A total of 79 million shares of common stock have been authorized for issuance under the ESPP, and there were 7 million shares available for issuance under the ESPP as of December 31, 2020.
Stock-Based Compensation
The following table summarizes total stock-based compensation expenses included on our Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in millions)
|
|
2020
|
|
2019
|
|
2018
|
Cost of goods sold
|
|
$
|
109
|
|
|
$
|
48
|
|
|
$
|
61
|
|
Research and development expenses
|
|
462
|
|
|
289
|
|
|
379
|
|
Selling, general and administrative expenses
|
|
505
|
|
|
299
|
|
|
405
|
|
Stock-based compensation expense included in total costs and expenses(1)
|
|
1,076
|
|
|
636
|
|
|
845
|
|
Income tax effect(2)
|
|
(222)
|
|
|
2
|
|
|
(164)
|
|
Stock-based compensation expense, net of tax
|
|
$
|
854
|
|
|
$
|
638
|
|
|
$
|
681
|
|
________________________________
(1) Pre-tax stock-based compensation expense for the year ended December 31, 2020 of $1,076 million included $643 million non-cash stock-based expense and $289 million and $144 million of accelerated post-acquisition stock-based expense related to the acquisitions of Immunomedics and Forty Seven, respectively. See Note 6. Acquisitions for additional information.
(2) Income tax effect for the year ended December 31, 2019 included a $114 million income tax expense following the U.S. Court of Appeals decision in Altera Corp v. Commissioner, which requires related parties in an intercompany cost sharing arrangement to share expenses related to stock-based compensation.
Stock-based compensation is recognized as expense over the requisite service periods on our Consolidated Statements of Income using the straight-line expense attribution approach, reduced for estimated forfeitures. We estimate forfeitures based on our historical experience. The requisite service period could be shorter than the vesting period if an employee is retirement eligible.
Valuation Assumptions
Fair value of options granted under our 2004 Plan and purchases under our ESPP were estimated at grant or purchase dates using a Black-Scholes option valuation model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including expected stock price volatility and expected award life. We used the following assumptions to calculate the estimated fair value of the awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Expected volatility:
|
|
|
|
|
|
|
Stock options
|
|
29
|
%
|
|
27
|
%
|
|
28
|
%
|
ESPP
|
|
28
|
%
|
|
27
|
%
|
|
28
|
%
|
Expected term in years:
|
|
|
|
|
|
|
Stock options
|
|
5.0
|
|
5.5
|
|
5.2
|
ESPP
|
|
0.5
|
|
0.5
|
|
0.5
|
Risk-free interest rate:
|
|
|
|
|
|
|
Stock options
|
|
0.8
|
%
|
|
2.3
|
%
|
|
2.5
|
%
|
ESPP
|
|
0.6
|
%
|
|
1.8
|
%
|
|
2.6
|
%
|
Expected dividend yield
|
|
4.0
|
%
|
|
3.6
|
%
|
|
2.8
|
%
|
The fair value of stock options granted was calculated using the single option approach. We use a blend of historical volatility along with implied volatility for traded options on our common stock to determine our expected volatility. The expected term of stock-based awards represents the weighted-average period the awards are expected to remain outstanding. We estimate the weighted-average expected term based on historical cancellation and historical exercise data related to our stock options as well as the contractual term and vesting terms of the awards. The risk-free interest rate is based upon observed interest rates appropriate for the term of the stock-based awards. The dividend yield is based on our history and expectation of dividend payouts.
Deferred Compensation
We maintain a retirement saving plan under which eligible U.S. employees may defer compensation for income tax purposes under Section 401(k) of the Internal Revenue Code (the Gilead Sciences 401k Plan). In certain foreign subsidiaries, we maintain defined benefit plans as required by local regulatory requirements. Our total matching contribution expense under the Gilead Sciences 401k Plan and other defined benefit plans was $144 million during 2020, $110 million during 2019 and $91 million during 2018.
We maintain a deferred compensation plan under which our directors and key employees may defer compensation. Amounts deferred by participants are deposited into a rabbi trust. The total assets and liabilities associated with the deferred compensation plan were $218 million as of December 31, 2020 and $171 million as of December 31, 2019.
17. NET INCOME PER SHARE ATTRIBUTABLE TO GILEAD COMMON STOCKHOLDERS
Basic net income per share attributable to Gilead common stockholders is calculated based on the weighted-average number of shares of our common stock outstanding during the period. Diluted net income per share attributable to Gilead common stockholders is calculated based on the weighted-average number of shares of our common stock and other dilutive securities outstanding during the period. The potentially dilutive shares of our common stock resulting from the assumed exercise of outstanding stock options and equivalents were determined under the treasury stock method.
Potential shares of common stock excluded from the computation of diluted net income per share attributable to Gilead common shareholders because their effect would have been antidilutive were 13 million, 14 million and 13 million during 2020, 2019 and 2018, respectively.
The following table shows the calculation of basic and diluted net income per share attributable to Gilead common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in millions, except per share amounts)
|
|
2020
|
|
2019
|
|
2018
|
Net income attributable to Gilead
|
|
$
|
123
|
|
|
$
|
5,386
|
|
|
$
|
5,455
|
|
Shares used in per share calculation - basic
|
|
1,257
|
|
|
1,270
|
|
|
1,298
|
|
Dilutive effect of stock options and equivalents
|
|
6
|
|
|
7
|
|
|
10
|
|
Shares used in per share calculation - diluted
|
|
1,263
|
|
|
1,277
|
|
|
1,308
|
|
Net income per share attributable to Gilead common stockholders - basic
|
|
$
|
0.10
|
|
|
$
|
4.24
|
|
|
$
|
4.20
|
|
Net income per share attributable to Gilead common stockholders - diluted
|
|
$
|
0.10
|
|
|
$
|
4.22
|
|
|
$
|
4.17
|
|
18. INCOME TAXES
Income (loss) before income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in millions)
|
|
2020
|
|
2019
|
|
2018
|
Domestic
|
|
$
|
2,505
|
|
|
$
|
4,112
|
|
|
$
|
7,074
|
|
Foreign
|
|
(836)
|
|
|
1,048
|
|
|
725
|
|
Income before income taxes
|
|
$
|
1,669
|
|
|
$
|
5,160
|
|
|
$
|
7,799
|
|
The income tax expense (benefit) consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in millions)
|
|
2020
|
|
2019
|
|
2018
|
Federal:
|
|
|
|
|
|
|
Current
|
|
$
|
1,450
|
|
|
$
|
1,646
|
|
|
$
|
1,716
|
|
Deferred
|
|
(164)
|
|
|
(843)
|
|
|
324
|
|
|
|
1,286
|
|
|
803
|
|
|
2,040
|
|
State:
|
|
|
|
|
|
|
Current
|
|
198
|
|
|
135
|
|
|
162
|
|
Deferred
|
|
(97)
|
|
|
(42)
|
|
|
(17)
|
|
|
|
101
|
|
|
93
|
|
|
145
|
|
Foreign:
|
|
|
|
|
|
|
Current
|
|
155
|
|
|
124
|
|
|
175
|
|
Deferred
|
|
38
|
|
|
(1,224)
|
|
|
(21)
|
|
|
|
193
|
|
|
(1,100)
|
|
|
154
|
|
Income tax expense (benefit)
|
|
$
|
1,580
|
|
|
$
|
(204)
|
|
|
$
|
2,339
|
|
The 2019 income tax benefit included a $1.2 billion deferred tax benefit related to intangible asset transfers from a foreign subsidiary to Ireland and the United States. In the fourth quarter of 2019, we completed an intra-entity asset transfer of certain intangible assets from a foreign subsidiary to Ireland. The transaction resulted in a step-up of the Irish tax-deductible basis in the transferred assets, and accordingly, created a temporary difference where the tax basis exceeded the book basis of such intangible assets. As a result, we recognized a deferred tax asset of $1.2 billion on our Consolidated Financial Statements. We expect to be able to realize the deferred tax asset resulting from this intra-entity asset transfer. The impact of the intangible asset transfer from a foreign subsidiary to the United States was not material.
The 2018 income tax expense included a $588 million deferred tax charge related to a transfer of acquired intangible assets from a foreign subsidiary to the United States. This transaction did not result in a step-up of the U.S. tax-deductible basis; and as a result, we recognized a deferred tax liability of $588 million for the temporary difference where the book basis exceeded the tax basis of these acquired intangible assets.
The reconciliation between the federal statutory tax rate applied to income before taxes and our effective tax rate is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Federal statutory rate
|
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
State taxes, net of federal benefit
|
|
4.2
|
%
|
|
0.4
|
%
|
|
0.6
|
%
|
Foreign earnings at different rates
|
|
(10.0)
|
%
|
|
2.5
|
%
|
|
(0.9)
|
%
|
Research and other credits
|
|
(6.9)
|
%
|
|
(1.9)
|
%
|
|
(1.1)
|
%
|
US tax on foreign earnings
|
|
7.2
|
%
|
|
4.3
|
%
|
|
2.1
|
%
|
Deferred tax - intra-entity transfer of intangible assets
|
|
0.6
|
%
|
|
(24.0)
|
%
|
|
7.5
|
%
|
Settlement of tax examinations
|
|
(10.2)
|
%
|
|
(2.4)
|
%
|
|
(1.9)
|
%
|
Acquired IPR&D and related charges
|
|
56.2
|
%
|
|
—
|
%
|
|
—
|
%
|
Changes in valuation allowance
|
|
6.7
|
%
|
|
—
|
%
|
|
—
|
%
|
Non-taxable unrealized gain / loss on investment
|
|
23.0
|
%
|
|
(5.0)
|
%
|
|
—
|
%
|
Other
|
|
2.9
|
%
|
|
1.1
|
%
|
|
2.7
|
%
|
Effective tax rate
|
|
94.7
|
%
|
|
(4.0)
|
%
|
|
30.0
|
%
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in millions)
|
|
2020
|
|
2019
|
Deferred tax assets:
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
587
|
|
|
$
|
184
|
|
Stock-based compensation
|
|
113
|
|
|
113
|
|
Reserves and accruals not currently deductible
|
|
444
|
|
|
423
|
|
Excess of tax basis over book basis of intangible assets
|
|
1,177
|
|
|
1,232
|
|
Upfront and milestone payments
|
|
1,144
|
|
|
988
|
|
Research and other credit carryforwards
|
|
219
|
|
|
247
|
|
Equity investments
|
|
116
|
|
|
—
|
|
Liability related to future royalties
|
|
247
|
|
|
—
|
|
Other, net
|
|
311
|
|
|
168
|
|
Total deferred tax assets before valuation allowance
|
|
4,358
|
|
|
3,355
|
|
Valuation allowance
|
|
(398)
|
|
|
(217)
|
|
Total deferred tax assets
|
|
3,960
|
|
|
3,138
|
|
Deferred tax liabilities:
|
|
|
|
|
Property, plant and equipment
|
|
(202)
|
|
|
(88)
|
|
Excess of book basis over tax basis of intangible assets
|
|
(6,168)
|
|
|
(1,401)
|
|
Other
|
|
(202)
|
|
|
(93)
|
|
Total deferred tax liabilities
|
|
(6,572)
|
|
|
(1,582)
|
|
Net deferred tax assets (liabilities)
|
|
$
|
(2,612)
|
|
|
$
|
1,556
|
|
The valuation allowance was $398 million and $217 million at December 31, 2020 and 2019, respectively. The increase of our valuation allowance in 2020 was primarily related to acquired attributes related to Forty Seven and Immunomedics acquisitions, and unrealized losses on our equity method investments reflected as acquired IPR&D expenses.
The valuation allowance decreased to $217 million at December 31, 2019 from $331 million at December 31, 2018, primarily due to a reduction in net operating loss carryforwards under the asset recognition framework and corresponding valuation allowance with respect to certain foreign jurisdictions.
At December 31, 2020, we had U.S. federal net operating loss and tax credit carryforwards of approximately $1.5 billion. and $61 million, respectively, which will start to expire in 2021, if not utilized. In addition, we had state net operating loss and tax credit carryforwards of approximately $1.8 billion and $673 million, respectively. The state net operating loss will start to expire in 2021 if not utilized and state tax credit carryforwards will start to expire in 2022 if not utilized.
Utilization of net operating losses and tax credits may be subject to an annual limitation due to ownership change limitations provided in the Internal Revenue Code of 1986, as amended, and similar state provisions. This annual limitation may result in the expiration of the net operating losses and credits before utilization.
We file federal, state and foreign income tax returns in the United States and in many foreign jurisdictions. For federal income tax purposes, the statute of limitations is open for 2013 and onwards and 2010 and onwards for California income tax purposes. For certain acquired entities, the statute of limitations is open for all years from inception due to our utilization of their net operating losses and credits carried over from prior years.
Our income tax returns are subject to audit by federal, state and foreign tax authorities. We are currently under examination by various state and foreign jurisdictions. There are differing interpretations of tax laws and regulations, and as a result, significant disputes may arise with these tax authorities involving issues of the timing and amount of deductions and allocations of income among various tax jurisdictions. We periodically evaluate our exposures associated with our tax filing positions.
Of the total unrecognized tax benefits, $1.2 billion and $1.6 billion at December 31, 2020 and 2019, respectively, if recognized, would reduce our effective tax rate in the period of recognition. Interest and penalties related to unrecognized tax benefits included as part of income tax expense (benefit) on our Consolidated Statements of Income were $(82) million and $105 million for the years ended December 31, 2020 and 2019, respectively. Interest and penalties related to unrecognized tax benefits for the year ended December 31, 2018 was not material. Accrued interest and penalties related to unrecognized tax benefits were $177 million and $259 million at December 31, 2020 and 2019, respectively. As of December 31, 2020, we do not believe that it is reasonably possible that our unrecognized tax benefits will significantly change in the next 12 months.
The following is a rollforward of our total gross unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in millions)
|
|
2020
|
|
2019
|
|
2018
|
Balance, beginning of period
|
|
$
|
2,031
|
|
|
$
|
1,595
|
|
|
$
|
2,181
|
|
Tax positions related to current year:
|
|
|
|
|
|
|
Additions
|
|
121
|
|
|
138
|
|
|
64
|
|
Reductions
|
|
—
|
|
|
—
|
|
|
—
|
|
Tax positions related to prior years:
|
|
|
|
|
|
|
Additions
|
|
398
|
|
|
405
|
|
|
125
|
|
Reductions
|
|
(481)
|
|
|
—
|
|
|
—
|
|
Settlements
|
|
(454)
|
|
|
(104)
|
|
|
(774)
|
|
Lapse of statute of limitations
|
|
(1)
|
|
|
(3)
|
|
|
(1)
|
|
Balance, end of period
|
|
$
|
1,614
|
|
|
$
|
2,031
|
|
|
$
|
1,595
|
|
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share amounts)
|
|
1st Quarter
|
|
2nd Quarter
|
|
3rd Quarter
|
|
4th Quarter
|
2020
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
5,548
|
|
|
$
|
5,143
|
|
|
$
|
6,577
|
|
|
$
|
7,421
|
|
Gross profit on product sales
|
|
$
|
4,498
|
|
|
$
|
4,003
|
|
|
$
|
5,352
|
|
|
$
|
5,930
|
|
Net income (loss)(1)(2)(3)
|
|
$
|
1,538
|
|
|
$
|
(3,346)
|
|
|
$
|
353
|
|
|
$
|
1,544
|
|
Net income (loss) attributable to Gilead(1)(2)(3)
|
|
$
|
1,551
|
|
|
$
|
(3,339)
|
|
|
$
|
360
|
|
|
$
|
1,551
|
|
Net income (loss) per share attributable to Gilead common stockholders - basic(1)(2)(3)
|
|
$
|
1.23
|
|
|
$
|
(2.66)
|
|
|
$
|
0.29
|
|
|
$
|
1.24
|
|
Net income (loss) per share attributable to Gilead common stockholders - diluted(1)(2)(3)
|
|
$
|
1.22
|
|
|
$
|
(2.66)
|
|
|
$
|
0.29
|
|
|
$
|
1.23
|
|
2019
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
5,281
|
|
|
$
|
5,685
|
|
|
$
|
5,604
|
|
|
$
|
5,879
|
|
Gross profit on product sales
|
|
$
|
4,243
|
|
|
$
|
4,607
|
|
|
$
|
4,481
|
|
|
$
|
4,113
|
|
Net income (loss)(4)(5)
|
|
$
|
1,968
|
|
|
$
|
1,875
|
|
|
$
|
(1,168)
|
|
|
$
|
2,689
|
|
Net income (loss) attributable to Gilead(4)(5)
|
|
$
|
1,975
|
|
|
$
|
1,880
|
|
|
$
|
(1,165)
|
|
|
$
|
2,696
|
|
Net income (loss) per share attributable to Gilead common stockholders - basic(4)(5)
|
|
$
|
1.55
|
|
|
$
|
1.48
|
|
|
$
|
(0.92)
|
|
|
$
|
2.13
|
|
Net income (loss) per share attributable to Gilead common stockholders - diluted(4)(5)
|
|
$
|
1.54
|
|
|
$
|
1.47
|
|
|
$
|
(0.92)
|
|
|
$
|
2.12
|
|
________________________________
(1) Amounts for the second quarter of 2020 included an acquired IPR&D expenses of $4.5 billion, or $3.58 per basic and diluted share, primarily related to our acquisition of Forty Seven. See Note 6. Acquisitions for additional information.
(2) Amounts for the third quarter of 2020 included acquired IPR&D expenses of $1.0 billion, or $0.82 per basic and diluted share, related to collaborations and other investments we entered into separately with Arcus, Pionyr, Tango and Tizona and $983 million or $0.78 per basic and diluted share, of unrealized losses from changes in the fair value of our equity investments largely with Galapagos. See Note 3. Fair Value Measurements and Note 11. Collaborations and Other Arrangements for additional information.
(3) Amounts for the fourth quarter of 2020 included $628 million, or $0.50 per basic and diluted share, of unrealized losses from changes in the fair value of our equity investments largely with Galapagos and $615 million, or $0.49 per basic and diluted share of acquisition-related expenses primarily from amortization of intangible assets, inventory step-up charges and accelerated stock-based compensation expenses related to our acquisition of Immunomedics. See Note 3. Fair Value Measurements, Note 6. Acquisitions and Note 11. Collaborations and Other Arrangements for additional information.
(4) Amounts for the third quarter of 2019 included upfront collaboration and licensing expenses of $3.92 billion, or $2.40 per basic and diluted share related to the collaboration with Galapagos. See Note 11. Collaborations and Other Arrangements for additional information.
(5) Amounts for the fourth quarter of 2019 included a $1.2 billion favorable tax effect related to intra-entity intangible asset transfers and $929 million of pre-tax net gains from equity securities primarily our equity investment in Galapagos, partially offset by an $800 million pre-tax impairment charge related to IPR&D intangible assets acquired in connection with the acquisition of Kite and pre-tax write-down charges of $500 million for slow moving and excess raw material and work in process inventory. The impact of these factors resulted in a net favorable impact of $0.83 per basic share and $0.81 per diluted share. See Note 3. Fair Value Measurements, Note 7. Inventories, Note 9. Goodwill and Intangible Assets and Note 18. Income Taxes for additional information.