Disaggregation of Revenues
The following table disaggregates our product sales by product and geographic region and disaggregates our royalty, contract and other revenues by geographic region (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017(6)
|
|
|
U.S.
|
|
Europe
|
|
Other International
|
|
Total
|
|
U.S.
|
|
Europe
|
|
Other International
|
|
Total
|
|
U.S.
|
|
Europe
|
|
Other International
|
|
Total
|
Product Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atripla
|
|
$
|
501
|
|
|
$
|
60
|
|
|
$
|
39
|
|
|
$
|
600
|
|
|
$
|
967
|
|
|
$
|
131
|
|
|
$
|
108
|
|
|
$
|
1,206
|
|
|
$
|
1,288
|
|
|
$
|
335
|
|
|
$
|
183
|
|
|
$
|
1,806
|
|
Biktarvy
|
|
4,225
|
|
|
370
|
|
|
143
|
|
|
4,738
|
|
|
1,144
|
|
|
39
|
|
|
1
|
|
|
1,184
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Complera/Eviplera
|
|
160
|
|
|
214
|
|
|
32
|
|
|
406
|
|
|
276
|
|
|
327
|
|
|
50
|
|
|
653
|
|
|
406
|
|
|
503
|
|
|
57
|
|
|
966
|
|
Descovy
|
|
1,078
|
|
|
255
|
|
|
167
|
|
|
1,500
|
|
|
1,217
|
|
|
308
|
|
|
56
|
|
|
1,581
|
|
|
958
|
|
|
226
|
|
|
34
|
|
|
1,218
|
|
Genvoya
|
|
2,984
|
|
|
664
|
|
|
283
|
|
|
3,931
|
|
|
3,631
|
|
|
794
|
|
|
199
|
|
|
4,624
|
|
|
3,033
|
|
|
534
|
|
|
107
|
|
|
3,674
|
|
Odefsey
|
|
1,180
|
|
|
438
|
|
|
37
|
|
|
1,655
|
|
|
1,242
|
|
|
335
|
|
|
21
|
|
|
1,598
|
|
|
964
|
|
|
132
|
|
|
10
|
|
|
1,106
|
|
Stribild
|
|
268
|
|
|
75
|
|
|
26
|
|
|
369
|
|
|
505
|
|
|
97
|
|
|
42
|
|
|
644
|
|
|
811
|
|
|
195
|
|
|
47
|
|
|
1,053
|
|
Truvada
|
|
2,640
|
|
|
101
|
|
|
72
|
|
|
2,813
|
|
|
2,605
|
|
|
260
|
|
|
132
|
|
|
2,997
|
|
|
2,266
|
|
|
644
|
|
|
224
|
|
|
3,134
|
|
Other HIV(1)
|
|
30
|
|
|
5
|
|
|
12
|
|
|
47
|
|
|
40
|
|
|
7
|
|
|
14
|
|
|
61
|
|
|
43
|
|
|
6
|
|
|
9
|
|
|
58
|
|
Revenue share – Symtuza(2)
|
|
249
|
|
|
130
|
|
|
—
|
|
|
379
|
|
|
27
|
|
|
52
|
|
|
—
|
|
|
79
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
AmBisome
|
|
37
|
|
|
234
|
|
|
136
|
|
|
407
|
|
|
46
|
|
|
229
|
|
|
145
|
|
|
420
|
|
|
28
|
|
|
207
|
|
|
131
|
|
|
366
|
|
Ledipasvir/Sofosbuvir(3)
|
|
312
|
|
|
71
|
|
|
260
|
|
|
643
|
|
|
802
|
|
|
144
|
|
|
276
|
|
|
1,222
|
|
|
3,053
|
|
|
704
|
|
|
613
|
|
|
4,370
|
|
Letairis
|
|
618
|
|
|
—
|
|
|
—
|
|
|
618
|
|
|
943
|
|
|
—
|
|
|
—
|
|
|
943
|
|
|
887
|
|
|
—
|
|
|
—
|
|
|
887
|
|
Ranexa
|
|
216
|
|
|
—
|
|
|
—
|
|
|
216
|
|
|
758
|
|
|
—
|
|
|
—
|
|
|
758
|
|
|
717
|
|
|
—
|
|
|
—
|
|
|
717
|
|
Sofosbuvir/Velpatasvir(4)
|
|
971
|
|
|
553
|
|
|
441
|
|
|
1,965
|
|
|
934
|
|
|
654
|
|
|
378
|
|
|
1,966
|
|
|
2,404
|
|
|
869
|
|
|
237
|
|
|
3,510
|
|
Vemlidy
|
|
309
|
|
|
21
|
|
|
158
|
|
|
488
|
|
|
245
|
|
|
12
|
|
|
64
|
|
|
321
|
|
|
111
|
|
|
5
|
|
|
6
|
|
|
122
|
|
Viread
|
|
32
|
|
|
69
|
|
|
142
|
|
|
243
|
|
|
50
|
|
|
82
|
|
|
175
|
|
|
307
|
|
|
514
|
|
|
238
|
|
|
294
|
|
|
1,046
|
|
Vosevi
|
|
178
|
|
|
54
|
|
|
25
|
|
|
257
|
|
|
304
|
|
|
78
|
|
|
14
|
|
|
396
|
|
|
267
|
|
|
22
|
|
|
4
|
|
|
293
|
|
Yescarta
|
|
373
|
|
|
83
|
|
|
—
|
|
|
456
|
|
|
263
|
|
|
1
|
|
|
—
|
|
|
264
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
7
|
|
Zydelig
|
|
47
|
|
|
54
|
|
|
2
|
|
|
103
|
|
|
61
|
|
|
70
|
|
|
2
|
|
|
133
|
|
|
69
|
|
|
77
|
|
|
3
|
|
|
149
|
|
Other(5)
|
|
157
|
|
|
116
|
|
|
12
|
|
|
285
|
|
|
137
|
|
|
76
|
|
|
107
|
|
|
320
|
|
|
283
|
|
|
314
|
|
|
583
|
|
|
1,180
|
|
Total product sales
|
|
16,565
|
|
|
3,567
|
|
|
1,987
|
|
|
22,119
|
|
|
16,197
|
|
|
3,696
|
|
|
1,784
|
|
|
21,677
|
|
|
18,109
|
|
|
5,011
|
|
|
2,542
|
|
|
25,662
|
|
Royalty, contract and other revenues
|
|
80
|
|
|
244
|
|
|
6
|
|
|
330
|
|
|
72
|
|
|
310
|
|
|
68
|
|
|
450
|
|
|
85
|
|
|
300
|
|
|
60
|
|
|
445
|
|
Total revenues
|
|
$
|
16,645
|
|
|
$
|
3,811
|
|
|
$
|
1,993
|
|
|
$
|
22,449
|
|
|
$
|
16,269
|
|
|
$
|
4,006
|
|
|
$
|
1,852
|
|
|
$
|
22,127
|
|
|
$
|
18,194
|
|
|
$
|
5,311
|
|
|
$
|
2,602
|
|
|
$
|
26,107
|
|
|
|
|
_________________________________________
|
(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 UC (Janssen).
|
(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 Cayston, Hepsera and Sovaldi.
|
(6)
|
The information for the year ended December 31, 2017 has not been adjusted in accordance with our modified retrospective adoption of Topic 606 and continues to be reported in accordance with our historical accounting under Topic 605.
|
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 $741 million and $541 million for the years ended December 31, 2019 and 2018, respectively. Changes in estimates for variable consideration related to sales made in prior years resulted in a $257 million increase and a $56 million decrease in revenues for the years ended December 31, 2019 and 2018, 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 $144 million and $125 million as of December 31, 2019 and 2018, respectively. Contract liabilities were not material as of December 31, 2019 and 2018.
|
|
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 and 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 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities
|
$
|
2,433
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,433
|
|
|
$
|
3,969
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,969
|
|
Certificates of deposit
|
—
|
|
|
3,517
|
|
|
—
|
|
|
3,517
|
|
|
—
|
|
|
4,361
|
|
|
—
|
|
|
4,361
|
|
U.S. government agencies securities
|
—
|
|
|
1,081
|
|
|
—
|
|
|
1,081
|
|
|
—
|
|
|
938
|
|
|
—
|
|
|
938
|
|
Non-U.S. government securities
|
—
|
|
|
174
|
|
|
—
|
|
|
174
|
|
|
—
|
|
|
305
|
|
|
—
|
|
|
305
|
|
Corporate debt securities
|
—
|
|
|
9,204
|
|
|
—
|
|
|
9,204
|
|
|
—
|
|
|
13,067
|
|
|
—
|
|
|
13,067
|
|
Residential mortgage and asset-backed securities
|
—
|
|
|
91
|
|
|
—
|
|
|
91
|
|
|
—
|
|
|
1,524
|
|
|
—
|
|
|
1,524
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investment in Galapagos
|
3,477
|
|
|
—
|
|
|
—
|
|
|
3,477
|
|
|
622
|
|
|
—
|
|
|
—
|
|
|
622
|
|
Money market funds
|
7,069
|
|
|
—
|
|
|
—
|
|
|
7,069
|
|
|
5,305
|
|
|
—
|
|
|
—
|
|
|
5,305
|
|
Other publicly traded equity securities
|
322
|
|
|
—
|
|
|
—
|
|
|
322
|
|
|
259
|
|
|
—
|
|
|
—
|
|
|
259
|
|
Deferred compensation plan
|
171
|
|
|
—
|
|
|
—
|
|
|
171
|
|
|
124
|
|
|
—
|
|
|
—
|
|
|
124
|
|
Foreign currency derivative contracts
|
—
|
|
|
37
|
|
|
—
|
|
|
37
|
|
|
—
|
|
|
78
|
|
|
—
|
|
|
78
|
|
Total
|
$
|
13,472
|
|
|
$
|
14,104
|
|
|
$
|
—
|
|
|
$
|
27,576
|
|
|
$
|
10,279
|
|
|
$
|
20,273
|
|
|
$
|
—
|
|
|
$
|
30,552
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan
|
$
|
171
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
171
|
|
|
$
|
124
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
124
|
|
Foreign currency derivative contracts
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Total
|
$
|
171
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
179
|
|
|
$
|
124
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
125
|
|
Changes in the fair value of equity securities resulted in net unrealized gains of $1.2 billion and $115 million for the years ended December 31, 2019 and 2018, respectively, which were included in Other income (expense), net, on our Consolidated Statements of Income.
The following table summarizes the classification of our equity investment in Galapagos in our Consolidated Balance Sheets (in millions):
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
Prepaid and other current assets
|
$
|
—
|
|
|
$
|
622
|
|
Other long-term assets
|
3,477
|
|
|
—
|
|
Total
|
$
|
3,477
|
|
|
$
|
622
|
|
See Note 11. Collaborative and Other Arrangements for additional information on our equity investment in Galapagos.
The following table summarizes the classification of our other equity securities in our Consolidated Balance Sheets (in millions):
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
Cash and cash equivalents
|
$
|
7,069
|
|
|
$
|
5,305
|
|
Prepaid and other current assets
|
319
|
|
|
241
|
|
Other long-term assets
|
174
|
|
|
142
|
|
Total
|
$
|
7,562
|
|
|
$
|
5,688
|
|
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.
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 (LIBOR) and swap rates. These inputs, where applicable, are observable at commonly quoted intervals.
The total estimated fair values of our short-term and long-term debt, determined using Level 2 inputs based on their quoted market values, were approximately $27.3 billion and $27.1 billion at December 31, 2019 and 2018, respectively, and the carrying values were $24.6 billion and $27.3 billion at December 31, 2019 and 2018, respectively.
Level 3 Inputs
As of December 31, 2019 and 2018, the only assets or liabilities that were measured using Level 3 inputs on a recurring basis were our contingent consideration liabilities, which were not material.
The fair values of our acquired IPR&D assets are based on probability-adjusted discounted cash flow calculations using Level 3 fair value measurements and inputs including 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. During the fourth quarter of 2019, we recognized an impairment charge of $800 million associated with the IPR&D intangible assets acquired in connection with the acquisition of Kite Pharma, Inc. (Kite) primarily for the treatment of indolent B-cell non-Hodgkin lymphoma (iNHL). During the fourth quarter of 2018, we recognized an impairment charge of $820 million to write down to zero the carrying value of the KITE-585 program (an anti-B cell maturation antigen being evaluated for the treatment of multiple myeloma). See Note 6. Acquisitions and Note 9. Intangible Assets for additional information.
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 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
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
|
|
$
|
2,433
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,433
|
|
|
$
|
3,978
|
|
|
$
|
—
|
|
|
$
|
(9
|
)
|
|
$
|
3,969
|
|
Certificates of deposit
|
|
3,517
|
|
|
—
|
|
|
—
|
|
|
3,517
|
|
|
4,361
|
|
|
—
|
|
|
—
|
|
|
4,361
|
|
U.S. government agencies securities
|
|
1,081
|
|
|
—
|
|
|
—
|
|
|
1,081
|
|
|
943
|
|
|
—
|
|
|
(5
|
)
|
|
938
|
|
Non-U.S. government securities
|
|
174
|
|
|
—
|
|
|
—
|
|
|
174
|
|
|
307
|
|
|
—
|
|
|
(2
|
)
|
|
305
|
|
Corporate debt securities
|
|
9,203
|
|
|
2
|
|
|
(1
|
)
|
|
9,204
|
|
|
13,095
|
|
|
1
|
|
|
(29
|
)
|
|
13,067
|
|
Residential mortgage and asset-backed securities
|
|
91
|
|
|
—
|
|
|
—
|
|
|
91
|
|
|
1,532
|
|
|
—
|
|
|
(8
|
)
|
|
1,524
|
|
Total
|
|
$
|
16,499
|
|
|
$
|
2
|
|
|
$
|
(1
|
)
|
|
$
|
16,500
|
|
|
$
|
24,216
|
|
|
$
|
1
|
|
|
$
|
(53
|
)
|
|
$
|
24,164
|
|
The following table summarizes the classification of our available-for-sale debt securities in our Consolidated Balance Sheets (in millions):
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
Cash and cash equivalents
|
$
|
2,291
|
|
|
$
|
10,592
|
|
Short-term marketable securities
|
12,721
|
|
|
12,149
|
|
Long-term marketable securities
|
1,488
|
|
|
1,423
|
|
Total
|
$
|
16,500
|
|
|
$
|
24,164
|
|
The following table summarizes our available-for-sale debt securities by contractual maturity (in millions):
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Amortized Cost
|
|
Fair Value
|
Within one year
|
$
|
15,011
|
|
|
$
|
15,012
|
|
After one year through five years
|
1,465
|
|
|
1,465
|
|
After five years
|
23
|
|
|
23
|
|
Total
|
$
|
16,499
|
|
|
$
|
16,500
|
|
The following table summarizes our available-for-sale debt securities that were in a continuous unrealized loss position, but were not deemed to be other-than-temporarily impaired (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Total
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities
|
|
$
|
—
|
|
|
$
|
896
|
|
|
$
|
(9
|
)
|
|
$
|
1,383
|
|
|
$
|
(9
|
)
|
|
$
|
2,279
|
|
U.S. government agencies securities
|
|
—
|
|
|
30
|
|
|
(5
|
)
|
|
553
|
|
|
(5
|
)
|
|
583
|
|
Non-U.S. government securities
|
|
—
|
|
|
86
|
|
|
(2
|
)
|
|
192
|
|
|
(2
|
)
|
|
278
|
|
Corporate debt securities
|
|
(1
|
)
|
|
1,600
|
|
|
(28
|
)
|
|
4,204
|
|
|
(29
|
)
|
|
5,804
|
|
Residential mortgage and asset-backed securities
|
|
—
|
|
|
192
|
|
|
(8
|
)
|
|
1,186
|
|
|
(8
|
)
|
|
1,378
|
|
Total
|
|
$
|
(1
|
)
|
|
$
|
2,804
|
|
|
$
|
(52
|
)
|
|
$
|
7,518
|
|
|
$
|
(53
|
)
|
|
$
|
10,322
|
|
We held a total of 305 and 1,348 positions, which were in an unrealized loss position as of December 31, 2019 and 2018, respectively.
Based on our review of these securities, we believe we had no other-than-temporary impairments as of December 31, 2019 and 2018, because we do not intend to sell these securities nor do we believe that we will be required to sell these securities before the recovery of their amortized cost basis. Gross realized gains and gross realized losses on available-for-sale debt securities were not material for the years ended December 31, 2019 and 2018.
|
|
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. 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.
We hedge our exposure to foreign currency exchange rate fluctuations for certain monetary assets and liabilities of our entities 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, 2019 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, 2019, 2018 and 2017 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 $2.9 billion and $2.2 billion at December 31, 2019 and 2018, 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 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
Classification
|
|
Fair Value
|
|
Classification
|
|
Fair
Value
|
Derivatives designated as hedges:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
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
|
|
Other current assets
|
|
1
|
|
|
Other accrued liabilities
|
|
—
|
|
Total derivatives not designated as hedges
|
|
|
|
1
|
|
|
|
|
—
|
|
Total derivatives
|
|
|
|
$
|
37
|
|
|
|
|
$
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
Classification
|
|
Fair Value
|
|
Classification
|
|
Fair
Value
|
Derivatives designated as hedges:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
Other current assets
|
|
$
|
73
|
|
|
Other accrued liabilities
|
|
$
|
(1
|
)
|
Foreign currency exchange contracts
|
|
Other long-term assets
|
|
5
|
|
|
Other long-term obligations
|
|
—
|
|
Total derivatives designated as hedges
|
|
|
|
78
|
|
|
|
|
(1
|
)
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
Other current assets
|
|
—
|
|
|
Other accrued liabilities
|
|
—
|
|
Total derivatives not designated as hedges
|
|
|
|
—
|
|
|
|
|
—
|
|
Total derivatives
|
|
|
|
$
|
78
|
|
|
|
|
$
|
(1
|
)
|
The following table summarizes the effect of our foreign currency exchange contracts on our Consolidated Financial Statements (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Derivatives designated as hedges:
|
|
|
|
|
|
|
Gain (loss) recognized in AOCI
|
|
$
|
76
|
|
|
$
|
114
|
|
|
$
|
(315
|
)
|
Gain (loss) reclassified from AOCI into product sales
|
|
$
|
127
|
|
|
$
|
(87
|
)
|
|
$
|
(28
|
)
|
Gain recognized in Other income (expense), net
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
41
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in Other income (expense), net
|
|
$
|
22
|
|
|
$
|
(2
|
)
|
|
$
|
(113
|
)
|
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 was no discontinuance of cash flow hedges for the years presented.
As of December 31, 2019 and 2018, we only held foreign currency exchange contracts. The following table summarizes the potential effect of offsetting derivatives by type of financial instrument on our Consolidated Balance Sheets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset on the Consolidated Balance Sheets
|
|
|
Description
|
|
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, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
37
|
|
|
$
|
—
|
|
|
$
|
37
|
|
|
$
|
(6
|
)
|
|
$
|
—
|
|
|
$
|
31
|
|
Derivative liabilities
|
|
(8
|
)
|
|
—
|
|
|
(8
|
)
|
|
7
|
|
|
—
|
|
|
(1
|
)
|
As of December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
78
|
|
|
$
|
—
|
|
|
$
|
78
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
77
|
|
Derivative liabilities
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
1
|
|
|
—
|
|
|
—
|
|
6. ACQUISITIONS
Kite Pharma, Inc.
In October 2017 (the Acquisition Date), we completed a tender offer for all of the outstanding common stock of Kite for $180 per share in cash. As a result, Kite became our wholly-owned subsidiary. The acquisition of Kite helps establish our foundation for improving the treatment of hematological malignancies and solid tumors.
The consideration transferred for the acquisition was $11,155 million, consisting of $10,420 million in cash to the outstanding Kite common stockholders, $645 million cash payment to vested equity award holders, $15 million to warrant holders and $75 million representing the portion of the replaced stock-based awards attributable to the pre-combination period. In addition, $733 million was excluded from the consideration transferred, representing the portion of the replaced stock-based awards attributable
to the post combination period (Replacement Awards), which is expected to be recognized through 2021. As of December 31, 2019, unrecognized compensation cost related to the Replacement Awards was not material.
The acquisition of Kite 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 recognized at fair value as of the acquisition date. The determination of estimated fair value requires us to make significant estimates and assumptions. During 2018, we recorded a $42 million reduction to goodwill primarily due to revision of deferred income taxes as a result of finalization of Kite’s pre-acquisition federal income tax return. The fair value estimates for the assets acquired and liabilities assumed have been completed.
The following table summarizes the acquisition date fair values of assets acquired and liabilities assumed, and the consideration transferred (in millions):
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
652
|
|
Identifiable intangible assets
|
|
|
Indefinite-lived intangible assets - IPR&D
|
|
8,950
|
|
Outlicense acquired
|
|
91
|
|
Deferred income taxes
|
|
(1,564
|
)
|
Other assets acquired (liabilities assumed), net
|
|
81
|
|
Total identifiable net assets
|
|
8,210
|
|
Goodwill
|
|
2,945
|
|
Total consideration transferred
|
|
$
|
11,155
|
|
Identifiable Intangible Assets
We acquired intangible assets primarily related to IPR&D for axicabtagene ciloleucel, KITE-585 program, and KTE-X19 (formerly KTE-C19, being evaluated for the treatment of acute lymphoblastic leukemia (ALL)), which had an estimated aggregate fair value of $8,950 million as of the Acquisition Date.
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. In October 2017, axicabtagene ciloleucel, now known commercially as Yescarta, was approved by FDA for the treatment of adult patients with relapsed or refractory diffuse large B-cell lymphoma (DLBCL) after two or more lines of systemic therapy. Upon FDA approval of Yescarta, $6,200 million of the purchased IPR&D was reclassified as a finite-lived intangible asset and is being amortized over an estimated useful life of 18 years using the straight-line method. In 2019, we recognized an impairment charge of $800 million primarily related to axicabtagene ciloleucel for the treatment of iNHL. In 2018, we recognized an impairment charge of $820 million to write down to zero the carrying value of the KITE-585 program. See Note 9. Intangible Assets for additional information.
Additionally, we acquired an outlicensing arrangement with Daiichi Sankyo Company Limited, which had an estimated fair value of $91 million as of the Acquisition Date. This definite-lived intangible asset is being amortized over an estimated useful life of 14 years on a straight-line basis. The fair value was determined by estimating the probability-weighted net cash flows attributable to the outlicense discounted to present value using a discount rate that represents the estimated rate that market participants would use to value this intangible asset.
Goodwill
The $2,945 million goodwill represents the excess of the consideration transferred over the fair values of assets acquired and liabilities assumed and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. None of the goodwill is deductible for income tax purposes.
Cell Design Labs, Inc.
In December 2017, we acquired all of the issued and outstanding stock of Cell Design Labs, Inc., a privately held company (Cell Design Labs), which was in addition to the approximately 12.2% of shares in Cell Design Labs we obtained in the acquisition of Kite. With this acquisition, we gained new technology platforms that will enhance R&D efforts in cellular therapy.
The cash consideration totaled $150 million, net of acquired cash. Additionally, the shareholders of Cell Design Labs, other than us, are eligible to receive contingent development and regulatory milestone-based payments of up to $322 million. Our 12.2% equity interest in Cell Design Labs had a carrying value of $30 million. The transaction was accounted for as an asset acquisition. As a result, $172 million was expensed as acquired IPR&D within Research and development expenses on our Consolidated Statements of Income.
The following table summarizes our inventories (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
Raw materials
|
|
$
|
1,348
|
|
|
$
|
1,888
|
|
Work in process
|
|
170
|
|
|
235
|
|
Finished goods
|
|
549
|
|
|
507
|
|
Total
|
|
$
|
2,067
|
|
|
$
|
2,630
|
|
|
|
|
|
|
Reported as:
|
|
|
|
|
Inventories
|
|
$
|
922
|
|
|
$
|
814
|
|
Other long-term assets
|
|
1,145
|
|
|
1,816
|
|
Total
|
|
$
|
2,067
|
|
|
$
|
2,630
|
|
Amounts reported as other long-term assets primarily consisted of raw materials as of December 31, 2019 and 2018.
During the year ended December 31, 2019, we recorded inventory write-downs of $649 million, of which $547 million was related to slow moving and excess raw material and work in progress inventory primarily due to lower long-term demand for our hepatitis C virus (HCV) products. During the year ended December 31, 2018, we recorded inventory write-downs of $572 million, of which $440 million was related to excess raw materials primarily due to a sustained decrease in demand for Harvoni. Inventory write-downs recorded for the year ended December 31, 2017 were not material.
|
|
8.
|
PROPERTY, PLANT AND EQUIPMENT
|
The following table summarizes our Property, plant and equipment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
Land and land improvements
|
|
$
|
404
|
|
|
$
|
404
|
|
Buildings and improvements (including leasehold improvements)
|
|
3,358
|
|
|
2,344
|
|
Laboratory and manufacturing equipment
|
|
805
|
|
|
697
|
|
Office and computer equipment
|
|
634
|
|
|
558
|
|
Construction in progress
|
|
723
|
|
|
1,194
|
|
Subtotal
|
|
5,924
|
|
|
5,197
|
|
Less accumulated depreciation and amortization
|
|
(1,422
|
)
|
|
(1,191
|
)
|
Total
|
|
$
|
4,502
|
|
|
$
|
4,006
|
|
Office and computer equipment includes capitalized software. We had unamortized capitalized software costs on our Consolidated Balance Sheets of $108 million and $121 million as of December 31, 2019 and 2018, respectively. Capitalized interest on construction in-progress is included in property, plant and equipment. Interest capitalized in 2019, 2018 and 2017 was not material.
The following table summarizes our intangible assets, net (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
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
|
|
|
$
|
(4,253
|
)
|
|
$
|
—
|
|
|
$
|
6,467
|
|
|
$
|
10,720
|
|
|
$
|
(3,554
|
)
|
|
$
|
—
|
|
|
$
|
7,166
|
|
Intangible asset - axicabtagene ciloleucel (DLBCL)
|
|
6,200
|
|
|
(761
|
)
|
|
—
|
|
|
5,439
|
|
|
6,200
|
|
|
(416
|
)
|
|
—
|
|
|
5,784
|
|
Intangible asset - Ranexa
|
|
688
|
|
|
(688
|
)
|
|
—
|
|
|
—
|
|
|
688
|
|
|
(678
|
)
|
|
—
|
|
|
10
|
|
Other
|
|
1,098
|
|
|
(454
|
)
|
|
(6
|
)
|
|
638
|
|
|
1,096
|
|
|
(359
|
)
|
|
(3
|
)
|
|
734
|
|
Total finite-lived assets
|
|
18,706
|
|
|
(6,156
|
)
|
|
(6
|
)
|
|
12,544
|
|
|
18,704
|
|
|
(5,007
|
)
|
|
(3
|
)
|
|
13,694
|
|
Indefinite-lived assets - IPR&D
|
|
1,247
|
|
|
—
|
|
|
(5
|
)
|
|
1,242
|
|
|
2,047
|
|
|
—
|
|
|
(3
|
)
|
|
2,044
|
|
Total intangible assets
|
|
$
|
19,953
|
|
|
$
|
(6,156
|
)
|
|
$
|
(11
|
)
|
|
$
|
13,786
|
|
|
$
|
20,751
|
|
|
$
|
(5,007
|
)
|
|
$
|
(6
|
)
|
|
$
|
15,738
|
|
Aggregate amortization expense related to finite-lived intangible assets was $1.1 billion, $1.2 billion and $912 million for the years ended December 31, 2019, 2018 and 2017, 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 the fourth quarter of 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 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. No IPR&D impairment charges were recorded in 2017.
The following table summarizes the estimated future amortization expense associated with our finite-lived intangible assets as of December 31, 2019 (in millions):
|
|
|
|
|
Fiscal Year
|
Amount
|
2020
|
$
|
1,125
|
|
2021
|
1,124
|
|
2022
|
1,124
|
|
2023
|
1,124
|
|
2024
|
1,125
|
|
Thereafter
|
6,922
|
|
Total
|
$
|
12,544
|
|
|
|
10.
|
OTHER FINANCIAL INFORMATION
|
Other Accrued Liabilities
The following table summarizes the components of Other accrued liabilities (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
Compensation and employee benefits
|
|
$
|
599
|
|
|
$
|
555
|
|
Income taxes payable
|
|
287
|
|
|
190
|
|
Accrued payment for marketing-related rights acquired from Japan Tobacco Inc.
|
|
—
|
|
|
365
|
|
Other accrued expenses
|
|
2,188
|
|
|
2,029
|
|
Total
|
|
$
|
3,074
|
|
|
$
|
3,139
|
|
|
|
11.
|
COLLABORATIVE AND OTHER ARRANGEMENTS
|
We enter into collaborative and other similar arrangements with third parties for the development and commercialization of certain products and product candidates. These arrangements 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, up-front payments, 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, cost-sharing arrangements and equity investments.
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 up-front 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.
Under the terms of the filgotinib agreement, as amended in 2019, we have an exclusive, worldwide, royalty-bearing, sublicensable license for filgotinib and products containing filgotinib. As of December 31, 2019, Galapagos is 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 are the UK, Germany, France, Italy, Spain, Belgium, the Netherlands and Luxembourg. We share global development costs for filgotinib equally. For the periods presented, the payments between Galapagos and us for the development costs and milestones were not material. Termination of the agreement may be on a country-by-country basis and will depend 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 may also terminate the entire agreement without cause following a certain period.
Global Collaboration
In August 2019, we closed an Option, License and Collaboration Agreement (the Collaboration Agreement) and a Subscription Agreement (the 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 Subscription Agreement. The remaining $3.92 billion of the payment was recorded within Research and development expenses on our Consolidated Statements of Income.
Pursuant to the 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 the fourth quarter of 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.
Our equity investment in Galapagos is 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 Subscription Agreement or dispose of any equity securities of Galapagos thereafter until the fifth anniversary of the closing of the 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.
We have elected the fair value option to account for our equity investment in Galapagos whereby the investment is marked to market through earnings in 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. See Note 3. Fair Value Measurements for additional information.
Under the 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 GLPG-1972, a Phase 2b candidate for osteoarthritis, and 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 United States, we will pay Galapagos $325 million as well as tiered royalties described below. If we exercise our option to the GLPG-1972 program, we will pay a $250 million option exercise fee and Galapagos would be eligible to receive up to $750 million in development, regulatory and commercial milestones 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 and GLPG-1972). 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, except for GLPG-1972 where we will only acquire the U.S. rights. 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.
Janssen
Complera/Eviplera and Odefsey
In 2009, we entered into a license and collaboration agreement with Janssen Sciences Ireland UC (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 United States and European Union in 2011 and is sold under the brand name Complera in the United States 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 United States. 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 $574 million, $608 million and $561 million for the years ended December 31, 2019, 2018 and 2017, 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 United States 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 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
In 2005, Japan Tobacco, Inc. (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 $358 million, $452 million and $400 million for the years ended December 31, 2019, 2018 and 2017, 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 up-front 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, a privately-held company based in Utrecht, the Netherlands, to develop gamma delta T cell receptor therapies for various cancers. Under the financial terms, we provide R&D funding for the collaboration, and Gadeta is eligible to receive future payments upon achievement of certain regulatory milestones. In addition, we made an upfront purchase of equity in Gadeta from Gadeta’s shareholders and may acquire additional equity in Gadeta upon achievement of certain R&D milestones. We also have the exclusive option to acquire the remaining equity in Gadeta
for €300 million, adjusted for closing cash, transaction expenses and closing indebtedness. The option is exercisable at our discretion.
Gadeta is a VIE, and we are its primary beneficiary because we have the power to direct the activities of Gadeta that most significantly impact its economic performance and as a result of the financial terms described above. Upon the initial consolidation of Gadeta, we recorded assets of $117 million, primarily intangible assets related to IPR&D and $82 million to Noncontrolling interest on our Consolidated Balance Sheets. Gadeta does not meet the definition of a business as defined in ASC 805, “Business Combinations”, and as a result, no goodwill was recognized.
Bristol-Myers Squibb Company
North America
We had a collaboration arrangement with Bristol-Myers Squibb Company (BMS) to develop and commercialize a single tablet regimen containing our Truvada and BMS’s Sustiva (efavirenz) in the United States 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 United States 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, 2019 and 2018 we recorded $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, 2019 and 2018, 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 2019 and 2018, we entered into several collaborative and other similar arrangements, including equity investments and licensing arrangements, that we do not consider to be individually material. Cash outflows related to these arrangements totaled $467 million and $474 million for the years ended December 31, 2019 and 2018, respectively. We recorded up-front collaboration and licensing expenses related to these arrangements of $331 million and $278 million for the years ended December 31, 2019 and 2018, respectively, within Research and development expenses on our Consolidated Statements of Income and the remaining amounts were recorded in current and other long-term assets on our Consolidated Balance Sheets. We made no material cash payments related to individually insignificant collaboration arrangements entered into in 2017.
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 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 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Type of Borrowing
|
|
Issue Date
|
|
Due Date
|
|
Interest Rate
|
|
2019
|
|
2018
|
Senior Unsecured
|
|
September 2017
|
|
March 2019
|
|
3-month LIBOR + 0.22%
|
|
$
|
—
|
|
|
$
|
750
|
|
Senior Unsecured
|
|
March 2014
|
|
April 2019
|
|
2.05%
|
|
—
|
|
|
500
|
|
Senior Unsecured
|
|
September 2017
|
|
September 2019
|
|
1.85%
|
|
—
|
|
|
999
|
|
Senior Unsecured
|
|
September 2017
|
|
September 2019
|
|
3-month LIBOR + 0.25%
|
|
—
|
|
|
499
|
|
Senior Unsecured
|
|
November 2014
|
|
February 2020
|
|
2.35%
|
|
500
|
|
|
499
|
|
Senior Unsecured
|
|
September 2015
|
|
September 2020
|
|
2.55%
|
|
1,999
|
|
|
1,996
|
|
Senior Unsecured
|
|
March 2011
|
|
April 2021
|
|
4.50%
|
|
998
|
|
|
997
|
|
Senior Unsecured
|
|
December 2011
|
|
December 2021
|
|
4.40%
|
|
1,248
|
|
|
1,247
|
|
Senior Unsecured
|
|
September 2016
|
|
March 2022
|
|
1.95%
|
|
499
|
|
|
498
|
|
Senior Unsecured
|
|
September 2015
|
|
September 2022
|
|
3.25%
|
|
998
|
|
|
997
|
|
Senior Unsecured
|
|
September 2016
|
|
September 2023
|
|
2.50%
|
|
747
|
|
|
746
|
|
Senior Unsecured
|
|
March 2014
|
|
April 2024
|
|
3.70%
|
|
1,745
|
|
|
1,744
|
|
Senior Unsecured
|
|
November 2014
|
|
February 2025
|
|
3.50%
|
|
1,746
|
|
|
1,745
|
|
Senior Unsecured
|
|
September 2015
|
|
March 2026
|
|
3.65%
|
|
2,734
|
|
|
2,731
|
|
Senior Unsecured
|
|
September 2016
|
|
March 2027
|
|
2.95%
|
|
1,245
|
|
|
1,245
|
|
Senior Unsecured
|
|
September 2015
|
|
September 2035
|
|
4.60%
|
|
991
|
|
|
990
|
|
Senior Unsecured
|
|
September 2016
|
|
September 2036
|
|
4.00%
|
|
741
|
|
|
740
|
|
Senior Unsecured
|
|
December 2011
|
|
December 2041
|
|
5.65%
|
|
995
|
|
|
995
|
|
Senior Unsecured
|
|
March 2014
|
|
April 2044
|
|
4.80%
|
|
1,734
|
|
|
1,734
|
|
Senior Unsecured
|
|
November 2014
|
|
February 2045
|
|
4.50%
|
|
1,731
|
|
|
1,730
|
|
Senior Unsecured
|
|
September 2015
|
|
March 2046
|
|
4.75%
|
|
2,217
|
|
|
2,216
|
|
Senior Unsecured
|
|
September 2016
|
|
March 2047
|
|
4.15%
|
|
1,725
|
|
|
1,724
|
|
Total debt, net
|
|
24,593
|
|
|
27,322
|
|
Less current portion
|
|
2,499
|
|
|
2,748
|
|
Total long-term debt, net
|
|
$
|
22,094
|
|
|
$
|
24,574
|
|
Senior Unsecured Notes
We did not enter into any borrowings in 2019 or 2018. In 2017, in connection with our acquisition of Kite, we issued $3.0 billion aggregate principal amount of senior unsecured notes, of which $750 million of principal balance was repaid at maturity in 2018 and the remaining $2.25 billion was repaid at maturity in 2019.
We collectively refer to our senior unsecured notes issued in September 2016 (the 2016 Notes), in September 2015 (the 2015 Notes), in March and November 2014 (the 2014 Notes) and in March and December 2011 (the 2011 Notes) as our Senior Notes. In 2019 and 2018, we repaid at maturity $500 million and $1.0 billion of principal balance related to the 2014 Notes and 2015 Notes, respectively. In February 2020, we repaid at maturity $500 million of principal balance related to the 2014 Notes.
Our Senior 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. Our Senior Notes maturing after 2020 also have a call feature, exercisable at our option, to redeem the notes at par in whole or in part one to six months immediately preceding maturity. In each case, accrued and unpaid interest is also required to be redeemed to the date of redemption.
In the event of the occurrence of a change in control and a downgrade in the rating of our Senior 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 Notes and as of December 31, 2019 and 2018, we were not in violation of any covenants.
Interest expense on our Senior Notes related to the contractual coupon rates and amortization of the debt discount and issuance costs was $1.0 billion, $1.1 billion and $1.0 billion in 2019, 2018 and 2017, respectively.
Credit Facilities
In 2017, in connection with our acquisition of Kite, we borrowed $6.0 billion against our term loan credit facility, of which $1.5 billion was repaid in 2017 and the remaining $4.5 billion was repaid in 2018. The term loan credit facility agreement was terminated in 2018.
In 2016, we entered into a $2.5 billion five-year revolving credit facility agreement maturing in May 2021 (the Five-Year Revolving Credit Agreement). The revolving credit facility can be used for working capital requirements and for general corporate purposes, including, without limitation, acquisitions. As of December 31, 2019 and 2018, there were no amounts outstanding under the Five-Year Revolving Credit Agreement.
The Five-Year Revolving Credit Agreement contains customary representations, warranties, affirmative and negative covenants and events of default. At December 31, 2019, we were not in violation of any covenants. Loans under the Five-Year Revolving Credit Agreement 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 Five-Year Revolving Credit Agreement. We may terminate or reduce the commitments and may prepay any loans under the Five-Year Revolving Credit Agreement in whole or in part at any time without premium or penalty.
Contractual Maturities of Financing Obligations
As of December 31, 2019, the aggregate future principal maturities of financing obligations for each of the next five years, based on contractual due dates, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
Contractual Maturities
|
|
$
|
2,500
|
|
|
$
|
2,250
|
|
|
$
|
1,500
|
|
|
$
|
750
|
|
|
$
|
1,750
|
|
Our operating leases consist primarily of properties and equipment for our administrative, manufacturing and R&D activities. 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. 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. Right-of-use assets are adjusted for prepaid lease payments, lease incentives and initial direct costs incurred.
As of December 31, 2019, we do not have material finance leases. 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. Operating lease expense for the minimum lease payments is recognized on a straight-line basis over the lease term. Operating lease expenses, including variable costs and short-term leases, were $162 million for the year ended December 31, 2019. Operating lease expense under the prior lease standard was $109 million and $84 million for the years ended December 31, 2018 and 2017, respectively.
The following table summarizes balance sheet and other information related to our operating leases as of December 31, 2019 (in millions, except weighted average amounts):
|
|
|
|
|
|
|
|
|
|
Classification
|
|
Amount
|
Right-of-use assets, net
|
|
Other long-term assets
|
|
$
|
668
|
|
Lease liabilities - current
|
|
Other accrued liabilities
|
|
$
|
99
|
|
Lease liabilities - noncurrent
|
|
Other long-term obligations
|
|
$
|
626
|
|
Weighted average remaining lease term
|
|
|
|
8.7 years
|
|
Weighted average discount rate
|
|
|
|
3.47
|
%
|
The following table summarizes other supplemental information related to our operating leases (in millions):
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31, 2019
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
$
|
66
|
|
Right-of-use assets obtained in exchange for lease liabilities
|
|
$
|
313
|
|
The following table summarizes a maturity analysis of our operating lease liabilities showing the aggregate lease payments as of December 31, 2019 (in millions):
|
|
|
|
|
|
Fiscal Year
|
|
Amount
|
2020
|
|
$
|
125
|
|
2021
|
|
117
|
|
2022
|
|
109
|
|
2023
|
|
100
|
|
2024
|
|
87
|
|
Thereafter
|
|
312
|
|
Total undiscounted lease payments
|
|
850
|
|
Less: imputed interest
|
|
(125
|
)
|
Total discounted lease payments
|
|
$
|
725
|
|
The following table summarizes the aggregate undiscounted non-cancelable future minimum lease payments for operating leases under the prior lease standard as of December 31, 2018 (in millions):
|
|
|
|
|
Fiscal Year
|
Amount
|
2019
|
$
|
89
|
|
2020
|
78
|
|
2021
|
66
|
|
2022
|
60
|
|
2023
|
52
|
|
Thereafter
|
229
|
|
Total minimum lease payments
|
$
|
574
|
|
|
|
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 loss is reasonably possible and the loss or range of loss can be estimated, we disclose the possible loss. Unless otherwise noted, it is not possible to determine the outcome of these matters, 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, 2019 and 2018.
Litigation Related to Sofosbuvir
In 2012, we acquired Pharmasset, Inc. (Pharmasset). 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 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. Idenix has petitioned for rehearing by the CAFC en banc and may seek review by the U.S. Supreme Court.
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 four petitions for inter partes review with the U.S. Patent and Trademark Office (USPTO) Patent Trial and Appeal Board (PTAB) alleging that all asserted claims are invalid for anticipation and obviousness. In 2018, the U.S. District Court for the Northern District of California stayed the litigation until after the PTAB rules on our petitions for inter partes review.
Litigation Related to Axicabtagene Ciloleucel
We own patents and patent applications that protect our axicabtagene ciloleucel chimeric DNA segments. Third parties may have, or may obtain rights to, patents that allegedly could be used to prevent or attempt to prevent us from commercializing axicabtagene ciloleucel or to require us to obtain a license in order to commercialize 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 January 2020 and will file further briefing during the first quarter of 2020, and we expect the judge to rule on these matters later in 2020. Once the district court has issued these rulings and has entered judgment, the case may be appealed to the CAFC. Although we cannot predict with certainty the ultimate outcome of this litigation, we believe the jury’s verdict to be in error, and we also believe that errors were made by the court with respect to certain rulings before and during trial.
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 jury’s verdict 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 jury’s verdict is not upheld on appeal, the loss will be zero, If the jury’s verdict is upheld in its entirety on appeal, we estimate the upper end of the range of possible loss through December 31, 2019 to be approximately $1.6 billion, which consists of (i) the $585 million up-front payment determined by the jury, (ii) approximately $200 million, which represents estimated royalties on our adjusted revenues from Yescarta from October 18, 2017 through December 31, 2019, and (iii) enhanced damages requested by Juno of up to two times the sum of (i) and (ii) above as a result of the jury’s finding of willfulness. This sum excludes costs and pre-judgment interest. Supplemental damages consisting of royalties on sales of Yescarta after December 13, 2019 through the date of judgment could be subject to the 27.6% royalty in the jury’s verdict, the 33.1% prospective royalty proposed
by Juno, or to enhancement. Any post-judgment sales of Yescarta would be subject to prospective royalties, which we have estimated could be up to 33.1%, and which would be payable on adjusted Yescarta revenues after the judgment in 2020 until the expiry of the ‘190 patent in August 2024. We expect the judge to rule on the amount of prospective royalties and any enhanced damages in the course of deciding the post-trial motions. The court’s determination of prospective royalties and enhanced damages, if any, can also be appealed.
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 claims of the ‘385 patent. To the extent that ViiV’s patent claims are interpreted to cover bictegravir, we believe those claims are invalid. The court has set a trial date of September 2020 for this lawsuit.
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. The court’s decision is expected in March 2020.
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; in Australia asserting Australian Patent No. 2006239177; in Japan asserting Japanese Patent No. 4295353; and in Korea asserting Korean Patent Nos. 1848819 and 1363875. These patents all relate to molecules which ViiV claim would act as integrase inhibitors. We believe that bictegravir does not infringe the claims of any of ViiV’s patents. 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 (‘191 patent) and 10,335,423 (‘423 patent) (collectively, HHS Patents) by PTAB. The HHS Patents are assigned to the U.S. Department of Health and Human Services 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. Although we cannot predict with certainty the ultimate outcome of this litigation, we believe 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, and because physicians and patients were using the claimed methods years before the Centers for Disease Control and Prevention filed the applications for the patents.
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. 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 are evaluating the letters and intend to enforce and defend our intellectual property.
European Patent Claims
In 2015, several parties filed oppositions in the European Patent Office (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 2020.
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.
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 the European Medicines Agency. 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, and related 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, following an investigation, it declined to intervene in a False Claims Act lawsuit filed by two former employees. Also in 2014, the former employees served a First Amended Complaint, and the U.S. District Court for the Northern District of California issued an order granting in its entirety, without prejudice, our motion to dismiss the First Amended Complaint. In 2015, the plaintiffs filed a Second Amended Complaint, and the District Court issued an order granting our motion to dismiss the Second Amended Complaint. The plaintiffs then filed a notice of appeal in the U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit). In 2017, the Ninth Circuit granted our motion to stay the case pending an appeal to the U.S. Supreme Court, and we filed a Petition for a Writ of Certiorari to the U.S. Supreme Court. In 2018, the Solicitor General submitted a brief for the United States to the U.S. Supreme Court stating its intention to file a motion to dismiss under the federal False Claims Act. In January 2019, the U.S. Supreme Court denied the petition and the case has been remanded to the District Court. In March 2019, the Department of Justice filed a motion to dismiss the Second Amended Complaint. The District Court granted the Department of Justice’s motion to dismiss in November 2019, dismissing relators’ federal False Claims Act claims.
In 2016, we received a subpoena from the U.S. Attorney’s Office for the District of Massachusetts requesting documents related to our support of 501(c)(3) organizations that provide financial assistance to patients and documents concerning our provision of financial assistance to patients for our HCV products. We are cooperating with this inquiry. In 2017, we received a subpoena from the U.S. Attorney’s Office for the District of Massachusetts requesting documents related to our copay coupon program and Medicaid price reporting methodology. We are cooperating with this inquiry.
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 hepatitis B virus products. We are cooperating with these voluntary requests. In October 2019, the U.S. Department of Justice informed us that, following an investigation, it declined to intervene in a False Claims Act lawsuit against us relating to hepatitis B speaker programs and advisory boards brought by two plaintiffs in the U.S. District Court for the Eastern District of Pennsylvania. Notwithstanding the government’s declination, plaintiffs have continued to pursue the lawsuit and served us with the Seconded Amended Complaint in November 2019. 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 subpoena from the California Department of Insurance and the Alameda County District Attorney’s Office requesting documents related to our marketing activities, reimbursement support offerings, clinical education programs and interactions with specialty pharmacies for Harvoni and Sovaldi. We are cooperating with this inquiry.
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.
Product Liability
We have been named as a defendant in one class action lawsuit 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 suffer kidney and/or bone injuries. The lawsuits, which are pending in state or federal court in California, Delaware or Florida, involve thousands of 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 a class action lawsuit filed in 2019 related to various drugs used to treat HIV, including drugs used in combination antiretroviral therapy. Plaintiffs allege that we (and the other defendants) engaged in various conduct to restrain competition in violation of federal and state antitrust laws and state consumer protection laws. The lawsuit, a consolidated action pending in the U.S. District Court for the Northern District of California, seeks to bring claims on behalf of a nationwide class of end-payor purchasers. A similar lawsuit was also recently filed in the U.S. District Court for the Southern District of Florida, which may also be consolidated. Plaintiffs seek damages, permanent injunctive relief, and other relief. We intend to vigorously defend ourselves in this action. While we believe this action 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 or could be subject to permanent injunctive relief.
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, 2019, these commitments for the next five years were approximately $271 million in 2020, $45 million in 2021, $22 million in 2022, $22 million in 2023 and $14 million in 2024. The amounts related to API represent minimum purchase commitments. Actual payments for the purchases of API and certain inventory related items were $529 million in 2019, $1.0 billion in 2018 and $1.7 billion in 2017. In January 2020, we amended an API contract, which increased our firm purchase commitments by approximately $220 million.
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. As of December 31, 2019, the remaining authorized repurchase amount under the 2016 Program was $3.4 billion.
The following table summarizes our stock repurchases under the 2016 Program (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Shares repurchased and retired
|
|
26
|
|
|
40
|
|
|
13
|
|
Amount
|
|
$
|
1,749
|
|
|
$
|
2,900
|
|
|
$
|
954
|
|
Average price per share
|
|
$
|
66.36
|
|
|
$
|
72.95
|
|
|
$
|
71.79
|
|
In addition to repurchases from the 2016 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.
The following table summarizes the reduction of common stock and APIC and the charge to retained earnings as a result of our stock repurchases (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Reduction of common stock and APIC
|
|
$
|
77
|
|
|
$
|
112
|
|
|
$
|
34
|
|
Charge to retained earnings
|
|
$
|
1,791
|
|
|
$
|
2,940
|
|
|
$
|
1,028
|
|
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.
Dividends
The following table summarizes cash dividends declared on our common stock (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
Dividend Per Share
|
|
Amount
|
|
Dividend Per Share
|
|
Amount
|
First quarter
|
|
$
|
0.63
|
|
|
$
|
814
|
|
|
$
|
0.57
|
|
|
$
|
752
|
|
Second quarter
|
|
0.63
|
|
|
810
|
|
|
0.57
|
|
|
747
|
|
Third quarter
|
|
0.63
|
|
|
807
|
|
|
0.57
|
|
|
746
|
|
Fourth quarter
|
|
0.63
|
|
|
808
|
|
|
0.57
|
|
|
741
|
|
Total
|
|
$
|
2.52
|
|
|
$
|
3,239
|
|
|
$
|
2.28
|
|
|
$
|
2,986
|
|
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, 2020, we announced that our Board of Directors declared a quarterly cash dividend of $0.68 per share of our common stock, with a payment date of March 30, 2020 to all stockholders of record as of the close of business on March 13, 2020. Future dividends are subject to declaration by the 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, 2019 and 2018.
Accumulated Other Comprehensive Income
The following table summarizes the changes in AOCI by component, net of tax (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation
|
|
Unrealized Gains and Losses on Available-for-Sale Debt Securities
|
|
Unrealized Gains and Losses on Cash Flow Hedges
|
|
Total
|
Balance at December 31, 2017
|
|
$
|
85
|
|
|
$
|
194
|
|
|
$
|
(114
|
)
|
|
$
|
165
|
|
Reclassifications to retained earnings as a result of the adoption of new accounting standards
|
|
—
|
|
|
(293
|
)
|
|
—
|
|
|
(293
|
)
|
Balance at January 1, 2018
|
|
$
|
85
|
|
|
$
|
(99
|
)
|
|
$
|
(114
|
)
|
|
$
|
(128
|
)
|
Net unrealized (loss) gain
|
|
(38
|
)
|
|
43
|
|
|
112
|
|
|
117
|
|
Reclassifications to net income
|
|
—
|
|
|
4
|
|
|
87
|
|
|
91
|
|
Net current period other comprehensive (loss) income
|
|
(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
|
|
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 period presented.
16. EMPLOYEE BENEFITS
We provide share-based compensation in the form of various types of equity-based awards, including restricted stock units (RSUs), performance share awards or units (PSUs) 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.
2004 Equity Incentive Plan
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 is a broad based incentive plan that provides 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. The 2004 Plan authorized the issuance of a total of 309 million shares of common stock. As of December 31, 2019, a total of 79 million shares remain available for future grant under the 2004 Plan.
Stock Options
The 2004 Plan provides 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 2004 Plan’s 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(in millions)
|
|
Weighted-
Average
Exercise Price
(in dollars)
|
|
Weighted-Average
Remaining
Contractual Term
(years)
|
|
Aggregate
Intrinsic
Value
(in millions)
|
Outstanding at December 31, 2018
|
|
23.5
|
|
|
$
|
53.80
|
|
|
|
|
|
Granted
|
|
2.8
|
|
|
$
|
65.87
|
|
|
|
|
|
Forfeited
|
|
(1.5
|
)
|
|
$
|
69.70
|
|
|
|
|
|
Expired
|
|
(0.4
|
)
|
|
$
|
75.64
|
|
|
|
|
|
Exercised
|
|
(4.9
|
)
|
|
$
|
24.06
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
19.5
|
|
|
$
|
61.35
|
|
|
5.11
|
|
$
|
238
|
|
Exercisable at December 31, 2019
|
|
14.3
|
|
|
$
|
58.74
|
|
|
4.03
|
|
$
|
224
|
|
Expected to vest, net of estimated forfeitures at December 31, 2019
|
|
4.9
|
|
|
$
|
68.51
|
|
|
8.08
|
|
$
|
13
|
|
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 $209 million for 2019, $412 million for 2018 and $337 million for 2017.
The weighted-average grant date fair value of the stock options granted was $12.15 per share for 2019, $17.03 per share for 2018 and $38.78 per share for 2017. The weighted-average grant date fair value of stock options granted in 2017 was higher due to replacement awards granted in connection with our acquisitions of Kite and Cell Design Labs.
As of December 31, 2019, there was $85 million of unrecognized compensation cost related to stock options, which is expected to be recognized over an estimated weighted-average period of 2.1 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 (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs
|
|
PSUs
|
|
|
Shares
|
|
Weighted-
Average
Grant Date Fair Value Per Share
|
|
Shares (1)
|
|
Weighted-
Average
Grant Date Fair Value Per Share(1)
|
Outstanding at December 31, 2018
|
|
14.9
|
|
|
$
|
77.72
|
|
|
0.8
|
|
|
$
|
82.42
|
|
Granted
|
|
9.6
|
|
|
$
|
64.31
|
|
|
0.5
|
|
|
$
|
68.30
|
|
Vested
|
|
(5.3
|
)
|
|
$
|
79.98
|
|
|
(0.3
|
)
|
|
$
|
77.37
|
|
Forfeited
|
|
(2.0
|
)
|
|
$
|
72.89
|
|
|
(0.3
|
)
|
|
$
|
69.25
|
|
Outstanding at December 31, 2019
|
|
17.2
|
|
|
$
|
70.08
|
|
|
0.7
|
|
|
$
|
80.42
|
|
_________________________________________
|
|
|
|
|
|
|
|
|
|
|
(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 $64.31 per share for 2019, $77.98 per share for 2018, and $73.56 per share for 2017. The weighted-average grant date fair value of PSUs granted was $68.30 per share for 2019, $88.76 per share for 2018, and $74.42 per share for 2017. The total grant date fair value of our vested RSUs and PSUs was $450 million for , $481 million for 2018 and $329 million for 2017, and total fair value as of the respective vesting dates was $372 million for 2019, $446 million for 2018 and $288 million for 2017.
As of December 31, 2019, there was $802 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 2019, 2 million shares were issued under the ESPP for $90 million. A total of 79 million shares of common stock have been authorized for issuance under the ESPP, and there were 9 million shares available for issuance under the ESPP as of December 31, 2019.
Stock-Based Compensation
The following table summarizes total stock-based compensation expenses included on our Consolidated Statements of Income (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Cost of goods sold
|
|
$
|
48
|
|
|
$
|
61
|
|
|
$
|
24
|
|
Research and development expenses
|
|
289
|
|
|
379
|
|
|
232
|
|
Selling, general and administrative expenses
|
|
299
|
|
|
405
|
|
|
393
|
|
Stock-based compensation expense included in total costs and expenses
|
|
636
|
|
|
845
|
|
|
649
|
|
Income tax effect(1)
|
|
2
|
|
|
(164
|
)
|
|
(280
|
)
|
Stock-based compensation expense, net of tax
|
|
$
|
638
|
|
|
$
|
681
|
|
|
$
|
369
|
|
_______________________
|
|
|
|
|
|
|
|
|
(1)
|
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. See 19. Income Taxes, for additional information.
|
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,
|
|
|
2019
|
|
2018
|
|
2017
|
Expected volatility:
|
|
|
|
|
|
|
Stock options
|
|
27
|
%
|
|
28
|
%
|
|
28
|
%
|
ESPP
|
|
27
|
%
|
|
28
|
%
|
|
28
|
%
|
Expected term in years:
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
5.5
|
|
|
5.2
|
|
|
4.6
|
|
ESPP
|
|
0.5
|
|
|
0.5
|
|
|
0.5
|
|
Risk-free interest rate:
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
2.3
|
%
|
|
2.5
|
%
|
|
2.1
|
%
|
ESPP
|
|
1.8
|
%
|
|
2.6
|
%
|
|
1.8
|
%
|
Expected dividend yield
|
|
3.6
|
%
|
|
2.8
|
%
|
|
2.7
|
%
|
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 $110 million during 2019, $91 million during 2018 and $74 million during 2017.
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 $171 million as of December 31, 2019 and $124 million as of December 31, 2018.
|
|
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 14 million, 13 million and 11 million during 2019, 2018 and 2017, respectively.
The following table shows the calculation of basic and diluted net income per share attributable to Gilead common stockholders (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Net income attributable to Gilead
|
|
$
|
5,386
|
|
|
$
|
5,455
|
|
|
$
|
4,628
|
|
Shares used in per share calculation - basic
|
|
1,270
|
|
|
1,298
|
|
|
1,307
|
|
Dilutive effect of stock options and equivalents
|
|
7
|
|
|
10
|
|
|
12
|
|
Shares used in per share calculation - diluted
|
|
1,277
|
|
|
1,308
|
|
|
1,319
|
|
Net income per share attributable to Gilead common stockholders - basic
|
|
$
|
4.24
|
|
|
$
|
4.20
|
|
|
$
|
3.54
|
|
Net income per share attributable to Gilead common stockholders - diluted
|
|
$
|
4.22
|
|
|
$
|
4.17
|
|
|
$
|
3.51
|
|
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 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.
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 (as a percentage of total revenues):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
AmerisourceBergen Corp.
|
|
21
|
%
|
|
20
|
%
|
|
20
|
%
|
Cardinal Health, Inc.
|
|
21
|
%
|
|
21
|
%
|
|
19
|
%
|
McKesson Corp.
|
|
22
|
%
|
|
21
|
%
|
|
23
|
%
|
Long-Lived Assets
The net book value of our property, plant and equipment (less office and computer equipment) in the United States was $3.5 billion as of December 31, 2019, $3.2 billion as of December 31, 2018 and $2.6 billion as of December 31, 2017. The corresponding amount in international locations was $791 million as of December 31, 2019, $620 million as of December 31, 2018 and $520 million as of December 31, 2017. All individual international locations accounted for less than 10% of the total balances.
19. INCOME TAXES
Income before provision for income taxes consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Domestic
|
|
$
|
4,112
|
|
|
$
|
7,074
|
|
|
$
|
8,099
|
|
Foreign
|
|
1,048
|
|
|
725
|
|
|
5,430
|
|
Income before provision for income taxes
|
|
$
|
5,160
|
|
|
$
|
7,799
|
|
|
$
|
13,529
|
|
The provision for income taxes consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Federal:
|
|
|
|
|
|
|
Current
|
|
$
|
1,646
|
|
|
$
|
1,716
|
|
|
$
|
8,817
|
|
Deferred
|
|
(843
|
)
|
|
324
|
|
|
(123
|
)
|
|
|
803
|
|
|
2,040
|
|
|
8,694
|
|
State:
|
|
|
|
|
|
|
|
|
|
Current
|
|
135
|
|
|
162
|
|
|
97
|
|
Deferred
|
|
(42
|
)
|
|
(17
|
)
|
|
(20
|
)
|
|
|
93
|
|
|
145
|
|
|
77
|
|
Foreign:
|
|
|
|
|
|
|
Current
|
|
124
|
|
|
175
|
|
|
54
|
|
Deferred
|
|
(1,224
|
)
|
|
(21
|
)
|
|
60
|
|
|
|
(1,100
|
)
|
|
154
|
|
|
114
|
|
Provision for income taxes
|
|
$
|
(204
|
)
|
|
$
|
2,339
|
|
|
$
|
8,885
|
|
The 2019 provision for income taxes 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. The tax deductions for amortization of the assets will be recognized in the future and any amortization not deducted for tax purposes will be carried forward indefinitely under Irish tax laws. 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 provision for income taxes 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 2017 provision for income taxes included a $5.5 billion provisional charge to income tax expense related to Tax Reform enacted in December 2017. Tax reform made significant changes to the Internal Revenue Code of 1986, as amended, which include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, a repatriation tax on deemed repatriated earnings of foreign subsidiaries, implementation of a modified territorial tax system, which has the effect of subjecting earnings of our foreign subsidiaries to U.S. taxation on GILTI. We elected to account for the tax on GILTI under the period cost method.
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,
|
|
|
2019
|
|
2018
|
|
2017
|
Federal statutory rate
|
|
21.0
|
%
|
|
21.0
|
%
|
|
35.0
|
%
|
State taxes, net of federal benefit
|
|
0.4
|
%
|
|
0.6
|
%
|
|
0.1
|
%
|
Foreign earnings at different rates
|
|
(2.5
|
)%
|
|
(0.9
|
)%
|
|
(11.2
|
)%
|
Research and other credits
|
|
(1.9
|
)%
|
|
(1.1
|
)%
|
|
(0.6
|
)%
|
US tax on foreign earnings
|
|
4.3
|
%
|
|
2.1
|
%
|
|
1.2
|
%
|
Deferred tax - intra-entity transfer of intangible assets
|
|
(24.0
|
)%
|
|
7.5
|
%
|
|
—
|
%
|
Transition tax
|
|
—
|
%
|
|
(0.7
|
)%
|
|
42.9
|
%
|
Deferred tax revaluation
|
|
—
|
%
|
|
0.8
|
%
|
|
(2.3
|
)%
|
Settlement of tax examinations
|
|
(2.4
|
)%
|
|
(1.9
|
)%
|
|
—
|
%
|
Other
|
|
1.1
|
%
|
|
2.6
|
%
|
|
0.6
|
%
|
Effective tax rate
|
|
(4.0
|
)%
|
|
30.0
|
%
|
|
65.7
|
%
|
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 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
Deferred tax assets:
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
184
|
|
|
$
|
344
|
|
Stock-based compensation
|
|
113
|
|
|
163
|
|
Reserves and accruals not currently deductible
|
|
423
|
|
|
426
|
|
Excess of tax basis over book basis of intangible assets
|
|
1,232
|
|
|
—
|
|
Up-front and milestone payments
|
|
988
|
|
|
97
|
|
Research and other credit carryforwards
|
|
247
|
|
|
363
|
|
Other, net
|
|
168
|
|
|
183
|
|
Total deferred tax assets before valuation allowance
|
|
3,355
|
|
|
1,576
|
|
Valuation allowance
|
|
(217
|
)
|
|
(331
|
)
|
Total deferred tax assets
|
|
3,138
|
|
|
1,245
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
Property, plant and equipment
|
|
(88
|
)
|
|
(47
|
)
|
Excess of book basis over tax basis of intangible assets
|
|
(1,401
|
)
|
|
(1,656
|
)
|
Other
|
|
(93
|
)
|
|
(80
|
)
|
Total deferred tax liabilities
|
|
(1,582
|
)
|
|
(1,783
|
)
|
Net deferred tax assets (liabilities)
|
|
$
|
1,556
|
|
|
$
|
(538
|
)
|
The valuation allowance was $217 million and $331 million at December 31, 2019 and 2018, respectively. The decrease of our valuation allowance in 2019 was primarily related to a reduction in net operating loss carryforwards under the asset recognition framework and the corresponding valuation allowance with respect to certain foreign jurisdictions.
At December 31, 2019, we had U.S. federal net operating loss carryforwards of approximately $231 million. The federal net operating loss carryforwards will start to expire in 2021, if not utilized. We also had federal tax credit carryforwards of approximately $88 million which will start to expire in 2020, if not utilized. In addition, we had state net operating loss and tax credit carryforwards of approximately $1.4 billion and $543 million, respectively. The state net operating loss will start to expire in 2021 if not utilized and state tax credit carryforwards is carried forward indefinitely.
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 the IRS for the tax years from 2013 to 2015 and 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, $1.6 billion and $1.3 billion at December 31, 2019 and 2018, 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 provision for income taxes on our Consolidated Statements of Income were $105 million for the year ended December 31, 2019. Interest and penalties related to unrecognized tax benefits for the years ended December 31, 2018 and 2017, respectively, were not material. Accrued interest and penalties related to unrecognized tax benefits were $259 million and $154 million at December 31, 2019 and 2018, respectively. As of December 31, 2019, we believe that it is reasonably possible that our unrecognized tax benefits may materially change in the next 12 months due to potential resolutions with a tax authority. An estimate of the range of the reasonably possible change cannot be determined at this time.
In June 2019, the Ninth Circuit Court of Appeals (Ninth Circuit) issued an opinion in Altera Corp. v. Commissioner reversing the prior decision of the United States Tax Court and requiring related parties in an intercompany cost-sharing arrangement to share expenses related to stock-based compensation. In July 2019, the taxpayer requested a rehearing before the full Ninth Circuit and the request was denied in November 2019. As a result, we recorded a cumulative income tax expense of $114 million in the fourth quarter of 2019. On February 10, 2020, the taxpayer requested a hearing before the Supreme Court of the United States; and as such, although the final outcome of the case is still uncertain, we recorded income tax expense in the fourth quarter of 2019 based on the Ninth Circuit’s denial.
The following is a rollforward of our total gross unrecognized tax benefits (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Balance, beginning of period
|
|
$
|
1,595
|
|
|
$
|
2,181
|
|
|
$
|
1,852
|
|
Tax positions related to current year:
|
|
|
|
|
|
|
|
|
|
Additions
|
|
138
|
|
|
64
|
|
|
299
|
|
Reductions
|
|
—
|
|
|
—
|
|
|
—
|
|
Tax positions related to prior years:
|
|
|
|
|
|
|
|
|
Additions
|
|
405
|
|
|
125
|
|
|
67
|
|
Reductions
|
|
—
|
|
|
—
|
|
|
(16
|
)
|
Settlements
|
|
(104
|
)
|
|
(774
|
)
|
|
(12
|
)
|
Lapse of statute of limitations
|
|
(3
|
)
|
|
(1
|
)
|
|
(9
|
)
|
Balance, end of period
|
|
$
|
2,031
|
|
|
$
|
1,595
|
|
|
$
|
2,181
|
|
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
2nd Quarter
|
|
3rd Quarter
|
|
4th Quarter
|
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)(1)(2)
|
|
$
|
1,968
|
|
|
$
|
1,875
|
|
|
$
|
(1,168
|
)
|
|
$
|
2,689
|
|
Net income (loss) attributable to Gilead(1)(2)
|
|
$
|
1,975
|
|
|
$
|
1,880
|
|
|
$
|
(1,165
|
)
|
|
$
|
2,696
|
|
Net income (loss) per share attributable to Gilead common stockholders - basic(1)(2)(3)
|
|
$
|
1.55
|
|
|
$
|
1.48
|
|
|
$
|
(0.92
|
)
|
|
$
|
2.13
|
|
Net income (loss) per share attributable to Gilead common stockholders - diluted(1)(2)(3)
|
|
$
|
1.54
|
|
|
$
|
1.47
|
|
|
$
|
(0.92
|
)
|
|
$
|
2.12
|
|
2018
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
5,088
|
|
|
$
|
5,648
|
|
|
$
|
5,596
|
|
|
$
|
5,795
|
|
Gross profit on product sales
|
|
$
|
4,000
|
|
|
$
|
4,344
|
|
|
$
|
4,369
|
|
|
$
|
4,111
|
|
Net income(4)
|
|
$
|
1,539
|
|
|
$
|
1,819
|
|
|
$
|
2,099
|
|
|
$
|
3
|
|
Net income attributable to Gilead(4)
|
|
$
|
1,538
|
|
|
$
|
1,817
|
|
|
$
|
2,097
|
|
|
$
|
3
|
|
Net income per share attributable to Gilead common stockholders - basic(4)(5)
|
|
$
|
1.18
|
|
|
$
|
1.40
|
|
|
$
|
1.62
|
|
|
$
|
—
|
|
Net income per share attributable to Gilead common stockholders - diluted(4)(5)
|
|
$
|
1.17
|
|
|
$
|
1.39
|
|
|
$
|
1.60
|
|
|
$
|
—
|
|
_________________________________________
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amounts for the third quarter of 2019 included up-front 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. Collaborative and Other Arrangements for additional details.
|
|
|
(2)
|
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, partially offset by an $800 million pre-tax impairment charge related to in-process research and development (IPR&D) intangible assets acquired in connection with the acquisition of Kite and pre-tax write-downs of $500 million for slow moving and excess raw material and work in process inventory. See Note 3. Fair Value Measurements, Note 7. Inventories, Note 9. Intangible Assets and Note 19. Income Taxes for additional details.
|
|
|
(3)
|
Amounts for the fourth quarter of 2019 included a net favorable impact of $0.83 per basic share and $0.81 per diluted share from the factors noted above in footnote (2).
|
|
|
(4)
|
Amounts for the fourth quarter of 2018 included an $820 million pre-tax impairment charge related to IPR&D intangible assets acquired in connection with the acquisition of Kite, a $588 million non-cash tax charge related to a transfer of acquired intangible assets from a foreign subsidiary to the United States and pre-tax write-downs of $410 million for excess raw materials primarily due to a sustained decrease in demand for Harvoni. See Note 7. Inventories, Note 9. Intangible Assets and Note 19. Income Taxes for additional details.
|
|
|
(5)
|
Amounts for the fourth quarter of 2018 included an unfavorable impact of $1.31 per basic share and $1.30 per diluted share from the factors noted above in footnote (4).
|