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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________

Commission File No. 0-19731
 
GILEAD SCIENCES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware 94-3047598
(State or Other Jurisdiction of Incorporation or Organization) (IRS Employer Identification No.)
333 Lakeside Drive, Foster City, California 94404
(Address of principal executive offices) (Zip Code)
650-574-3000
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value, $0.001 per share GILD The Nasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x    No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨    
Smaller reporting company Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes     No x
Number of shares outstanding of the issuer’s common stock, par value $0.001 per share, as of October 30, 2020: 1,253,528,149



GILEAD SCIENCES, INC.
INDEX
PART I.
2
Item 1.
2
2
3
4
5
7
8
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
We own or have rights to various trademarks, copyrights and trade names used in our business, including the following: GILEAD®, GILEAD SCIENCES®, AMBISOME®, ATRIPLA®, BIKTARVY®, CAYSTON®, COMPLERA®, DESCOVY®, DESCOVY FOR PREP®, EMTRIVA®, EPCLUSA®, EVIPLERA®, GENVOYA®, HARVONI®, HEPSERA®, JYSELECA®, LETAIRIS®, ODEFSEY®, RANEXA®, SOVALDI®, STRIBILD®, TECARTUSTM, TRODELVY®, TRUVADA®, TRUVADA FOR PREP®, TYBOST®, VEKLURY®, VEMLIDY®, VIREAD®, VOSEVI®, YESCARTA® and ZYDELIG®. This report also includes other trademarks, service marks and trade names of other companies.







PART I.    FINANCIAL INFORMATION
Item 1.    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in millions, except per share amounts)
  September 30, 2020 December 31, 2019
Assets    
Current assets:    
Cash and cash equivalents $ 12,886  $ 11,631 
Short-term marketable securities 11,089  12,721 
Accounts receivable, net of allowances of $714 and $758, respectively
3,913  3,582 
Inventories 1,008  922 
Prepaid and other current assets 2,030  1,440 
Total current assets 30,926  30,296 
Property, plant and equipment, net 4,810  4,502 
Long-term marketable securities 2,074  1,488 
Intangible assets, net 12,939  13,786 
Goodwill 4,117  4,117 
Other long-term assets 6,012  7,438 
Total assets $ 60,878  $ 61,627 
Liabilities and Stockholders’ Equity    
Current liabilities:    
Accounts payable $ 527  $ 713 
Accrued government and other rebates 3,343  3,473 
Other accrued liabilities 4,141  3,074 
Current portion of long-term debt 1,498  2,499 
Total current liabilities 9,509  9,759 
Long-term debt, net 27,792  22,094 
Long-term income taxes payable 5,020  6,115 
Other long-term obligations 1,086  1,009 
Commitments and contingencies (Note 10)
Stockholders’ equity:    
Preferred stock, par value $0.001 per share; 5 shares authorized; none outstanding
—  — 
Common stock, par value $0.001 per share; 5,600 shares authorized; 1,253 and 1,266 shares issued and outstanding, respectively
Additional paid-in capital 3,712  3,051 
Accumulated other comprehensive income 23  85 
Retained earnings 13,709  19,388 
Total Gilead stockholders’ equity 17,445  22,525 
Noncontrolling interest 26  125 
Total stockholders’ equity 17,471  22,650 
Total liabilities and stockholders’ equity $ 60,878  $ 61,627 




See accompanying notes.



GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in millions, except per share amounts)
  Three Months Ended Nine Months Ended
September 30, September 30,
  2020 2019 2020 2019
Revenues:
Product sales $ 6,493  $ 5,516  $ 17,027  $ 16,323 
Royalty, contract and other revenues 84  88  241  247 
Total revenues 6,577  5,604  17,268  16,570 
Costs and expenses:
Cost of goods sold 1,141  1,035  3,174  2,992 
Research and development expenses 1,158  1,030  3,461  2,956 
Acquired in-process research and development expenses 1,171  3,960  5,792  4,251 
Selling, general and administrative expenses 1,106  1,052  3,421  3,177 
Total costs and expenses 4,576  7,077  15,848  13,376 
Income (loss) from operations 2,001  (1,473) 1,420  3,194 
Interest expense (236) (250) (717) (752)
Other income (expense), net (940) 222  (848) 817 
Income (loss) before income taxes 825  (1,501) (145) 3,259 
Income tax expense (benefit) 472  (333) 1,310  584 
Net income (loss) 353  (1,168) (1,455) 2,675 
Net loss attributable to noncontrolling interest (7) (3) (27) (15)
Net income (loss) attributable to Gilead $ 360  $ (1,165) $ (1,428) $ 2,690 
Net income (loss) per share attributable to Gilead common stockholders - basic $ 0.29  $ (0.92) $ (1.14) $ 2.12 
Shares used in per share calculation - basic 1,255  1,267  1,257  1,271 
Net income (loss) per share attributable to Gilead common stockholders - diluted $ 0.29  $ (0.92) $ (1.14) $ 2.10 
Shares used in per share calculation - diluted 1,261  1,267  1,257  1,278 





















See accompanying notes.
3


GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
(in millions)
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Net income (loss) $ 353  $ (1,168) $ (1,455) $ 2,675 
Other comprehensive income (loss):
Net foreign currency translation gain (loss), net of tax 23  (27) (12) (19)
Available-for-sale debt securities:
Unrealized gain (loss), net of tax (9) 42  53 
Reclassifications to net income (loss), net of tax (4) —  (17) — 
Net change
(13) 25  53 
Cash flow hedges:
Unrealized gain (loss), net of tax (46) 70  (25) 99 
Reclassifications to net income (loss), net of tax (11) (32) (50) (96)
Net change
(57) 38  (75)
Other comprehensive income (loss) (47) 15  (62) 37 
Comprehensive income (loss) 306  (1,153) (1,517) 2,712 
Less: Comprehensive (loss) attributable to noncontrolling interest (7) (3) (27) (15)
Comprehensive income (loss) attributable to Gilead $ 313  $ (1,150) $ (1,490) $ 2,727 































See accompanying notes.
4


GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
(in millions, except per share amounts)
Three Months Ended September 30, 2020
Gilead Stockholders’ Equity  Noncontrolling
Interest
Total
Stockholders’
Equity
Common Stock 
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income
Retained
Earnings
Shares Amount
Balance at June 30, 2020 1,254  $ $ 3,511  $ 70  $ 14,445  $ 115  $ 18,142 
Change in noncontrolling interest (Note 6) —  —  —  —  —  (82) (82)
Net income (loss) —  —  —  —  360  (7) 353 
Other comprehensive income (loss), net of tax —  —  (47) (1) —  (47)
Issuances under employee stock purchase plan —  34  —  —  —  34 
Issuances under equity incentive plans —  —  —  — 
Stock-based compensation —  —  173  —  —  —  173 
Repurchases of common stock (4) —  (9) —  (229) —  (238)
Dividends declared ($0.68 per share)
—  —  —  —  (866) —  (866)
Balance at September 30, 2020 1,253  $ $ 3,712  $ 23  $ 13,709  $ 26  $ 17,471 

Nine Months Ended September 30, 2020
Gilead Stockholders’ Equity  Noncontrolling
Interest
Total
Stockholders’
Equity
Common Stock 
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income
Retained
Earnings
Shares Amount
Balance at December 31, 2019 1,266  $ $ 3,051  $ 85  $ 19,388  $ 125  $ 22,650 
Cumulative effect from the adoption of new accounting standard (Note 1) —  —  —  —  (7) —  (7)
Change in noncontrolling interest (Note 6) —  —  —  —  —  (72) (72)
Net loss —  —  —  —  (1,428) (27) (1,455)
Other comprehensive income (loss), net of tax —  —  (62) (1) —  (62)
Issuances under employee stock purchase plan —  100  —  —  —  100 
Issuances under equity incentive plans 10  —  148  —  —  —  148 
Stock-based compensation —  —  482  —  —  —  482 
Repurchases of common stock (25) —  (70) —  (1,644) —  (1,714)
Dividends declared ($2.04 per share)
—  —  —  —  (2,599) —  (2,599)
Balance at September 30, 2020 1,253  $ $ 3,712  $ 23  $ 13,709  $ 26  $ 17,471 

5


Three Months Ended September 30, 2019
Gilead Stockholders’ Equity  Noncontrolling
Interest
Total
Stockholders’
Equity
Common Stock 
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income
Retained
Earnings
Shares Amount
Balance at June 30, 2019 1,267  $ $ 2,684  $ 102  $ 19,829  $ 135  $ 22,751 
Net loss —  —  —  —  (1,165) (3) (1,168)
Other comprehensive income, net of tax —  —  —  15  —  —  15 
Issuances under employee stock purchase plan —  27  —  —  —  27 
Issuances under equity incentive plans —  10  —  —  —  10 
Stock-based compensation —  —  160  —  —  —  160 
Repurchases of common stock (4) —  (11) —  (241) —  (252)
Dividends declared ($0.63 per share)
—  —  —  —  (807) —  (807)
Balance at September 30, 2019 1,266  $ $ 2,870  $ 117  $ 17,616  $ 132  $ 20,736 


Nine Months Ended September 30, 2019
Gilead Stockholders’ Equity  Noncontrolling
Interest
Total
Stockholders’
Equity
Common Stock 
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income
Retained
Earnings
Shares Amount
Balance at December 31, 2018 1,282  $ $ 2,282  $ 80  $ 19,024  $ 147  $ 21,534 
Cumulative effect from the adoption of accounting standard —  —  —  —  — 
Net income (loss) —  —  —  —  2,690  (15) 2,675 
Other comprehensive income, net of tax —  —  —  37  —  —  37 
Issuances under employee stock purchase plan —  90  —  —  —  90 
Issuances under equity incentive plans —  92  —  —  —  92 
Stock-based compensation —  —  479  —  —  —  479 
Repurchases of common stock (26) —  (73) —  (1,675) —  (1,748)
Dividends declared ($1.89 per share)
—  —  —  —  (2,431) —  (2,431)
Balance at September 30, 2019 1,266  $ $ 2,870  $ 117  $ 17,616  $ 132  $ 20,736 

















See accompanying notes.
6


GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
Nine Months Ended
September 30,
2020 2019
Operating Activities:
Net income (loss) $ (1,455) $ 2,675 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation expense 209  186 
Amortization expense 844  868 
Stock-based compensation expense 482  479 
Acquired in-process research and development expenses 5,792  4,251 
Deferred income taxes (12) (796)
Net unrealized (gain) loss from equity securities 1,046  (312)
Other 210  199 
Changes in operating assets and liabilities:
Accounts receivable, net (334) 33 
Inventories (48) (35)
Prepaid expenses and other 22  (225)
Accounts payable (134) (142)
Income taxes payable (428) 107 
Accrued liabilities and other 58  (724)
Net cash provided by operating activities 6,252  6,564 
Investing Activities:
Purchases of marketable debt securities (19,809) (24,057)
Proceeds from sales of marketable debt securities 12,367  4,522 
Proceeds from maturities of marketable debt securities 8,528  17,639 
Acquisitions, including in-process research and development, net of cash acquired (5,804) (4,251)
Purchases of equity securities (388) (1,251)
Capital expenditures (469) (622)
Other (63) (228)
Net cash used in investing activities (5,638) (8,248)
Financing Activities:
Proceeds from debt financing, net of issuance costs 7,189  — 
Proceeds from issuances of common stock 248  182 
Repurchases of common stock (1,583) (1,644)
Repayments of debt and other obligations (2,500) (2,750)
Payments of dividends (2,591) (2,421)
Other (124) (105)
Net cash provided by (used in) financing activities 639  (6,738)
Effect of exchange rate changes on cash and cash equivalents (44)
Net change in cash and cash equivalents 1,255  (8,466)
Cash and cash equivalents at beginning of period 11,631  17,940 
Cash and cash equivalents at end of period $ 12,886  $ 9,474 




See accompanying notes.
7


GILEAD SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. The financial statements include all adjustments consisting of normal recurring adjustments that the management of Gilead Sciences, Inc. (“Gilead”, “we”, “our” or “us”) believes are necessary for a fair presentation of the periods presented. These interim financial results are not necessarily indicative of results expected for the full fiscal year or for any subsequent interim period.
The accompanying Condensed Consolidated Financial Statements include the accounts of Gilead, our wholly-owned subsidiaries and certain variable interest entities for which we are the primary beneficiary. All intercompany transactions have been eliminated. For consolidated entities where we own or are exposed to less than 100% of the economics, we record net income (loss) attributable to noncontrolling interest in our Condensed Consolidated Statements of Operations equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties.
We assess whether we are the primary beneficiary of a variable interest entity (“VIE”) at the inception of the arrangement and at each reporting date. This assessment is based on our power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and our obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The accompanying Condensed Consolidated Financial Statements and related Notes to Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the related notes thereto for the year ended December 31, 2019, included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission.
Segment Information
We have one operating segment, which focuses on the discovery, development and commercialization of innovative medicines in areas of unmet medical need. Our Chief Executive Officer (“CEO”), as the chief operating decision-maker, manages and allocates resources to the operations of our company on an entity-wide basis. Managing and allocating resources on an entity-wide basis enables our CEO to assess the overall level of resources available and how to best deploy these resources across functions and research and development (“R&D”) projects based on unmet medical need and, as necessary, reallocate resources among our internal R&D portfolio and external opportunities to best support the long-term growth of our business. See Note 2. Revenues for additional information.
Significant Accounting Policies, Estimates and Judgments
The preparation of these Condensed Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. On an ongoing basis, we evaluate our significant accounting policies and estimates. We base our estimates on historical experience and on various market-specific and other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates are assessed each period and updated to reflect current information, such as the economic considerations related to the impact that the recent coronavirus disease (“COVID-19”) could have on our significant accounting estimates. Actual results could differ materially from these estimates under different assumptions or conditions.
Reclassification
Certain amounts for the three and nine months ended September 30, 2019 were reclassified to conform to the current period presentation. Beginning in the second quarter of 2020, acquired in-process research and development (“IPR&D”) expenses are reported separately from Research and development expenses on our Condensed Consolidated Statements of Operations. Acquired IPR&D expenses reflect IPR&D impairments as well as the initial costs of externally developed IPR&D projects, acquired directly in a transaction other than a business combination, that do not have an alternative future use, including upfront payments related to various collaborations and the initial costs of rights to IPR&D projects. Our Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019, has been conformed to separately present acquired IPR&D expenses.
8


Concentrations of Risk
We are subject to credit risk from our portfolio of cash equivalents and marketable securities. Under our investment policy, we limit amounts invested in such securities by credit rating, maturity, industry group, investment type and issuer, except for securities issued by the U.S. government. We are not exposed to any significant concentrations of credit risk from our investment portfolio. The goals of our investment policy, in order of priority, are as follows: safety and preservation of principal and diversification of risk; liquidity of investments sufficient to meet cash flow requirements; and a competitive after-tax rate of return.
We are also subject to credit risk from our accounts receivable related to our product sales. Trade accounts receivable are recorded net of allowances for wholesaler chargebacks related to government and other programs, cash discounts for prompt payment and credit losses. Estimates of our allowance for credit losses consider a number of factors including existing contractual payment terms, individual customer circumstances, historical payment patterns of our customers, a review of the local economic environment and its potential impact on expected future customer payment patterns and government funding and reimbursement practices. The majority of our trade accounts receivable arises from product sales in the United States, Europe and Japan. Our allowance for credit losses was $47 million as of September 30, 2020 and January 1, 2020. There were no material write-offs charged against the allowance for the three and nine months ended September 30, 2020.
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-13 “Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments” and has since modified the standard with several ASUs (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets. On January 1, 2020, we adopted this standard using a modified retrospective approach. The adoption did not have a material impact on our Condensed Consolidated Financial Statements. In connection with the adoption of Topic 326, we made an accounting policy election to not measure an allowance for credit losses for accrued interest receivable.
In November 2018, the FASB issued Accounting Standards Update No. 2018-18 “Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606” (“ASU 2018-18”). ASU 2018-18 clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under Topic 606, “Revenue from Contracts with Customers” when the counterparty is a customer. In addition, the update precludes an entity from presenting consideration from a transaction in a collaborative arrangement as customer revenue if the counterparty is not a customer for that transaction. On January 1, 2020, we adopted this standard and applied it retrospectively to January 1, 2018 when we initially adopted Topic 606. The adoption did not have an impact on our Condensed Consolidated Financial Statements.

9


2.    REVENUES
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):
Three Months Ended September 30, 2020 Three Months Ended September 30, 2019
U.S. Europe Other Locations Total U.S. Europe Other Locations Total
Product sales:
Atripla $ 99  $ $ $ 113  $ 132  $ 10  $ $ 149 
Biktarvy 1,584  194  113  1,891  1,106  108  45  1,259 
Complera/Eviplera 26  35  70  40  45  93 
Descovy 424  49  35  508  256  63  44  363 
Genvoya 669  116  61  846  761  152  65  978 
Odefsey 309  116  12  437  317  111  436 
Stribild 27  13  42  63  18  13  94 
Truvada 492  11  509  688  14  19  721 
Other HIV(1)
10  13 
Revenue share – Symtuza(2)
82  34  118  68  36  —  104 
AmBisome 18  58  35  111  57  33  99 
Ledipasvir/Sofosbuvir(3)
36  11  37  84  54  14  56  124 
Letairis 78  —  —  78  121  —  —  121 
Ranexa —  —  —  —  31  —  —  31 
Sofosbuvir/Velpatasvir(4)
170  74  86  330  282  118  116  516 
Veklury 785  60  28  873  —  —  —  — 
Vemlidy 99  70  177  78  50  134 
Viread 21  32  15  35  57 
Vosevi 33  45  42  12  63 
Yescarta 85  51  138  86  32  —  118 
Zydelig —  17  13  13  —  26 
Other(5)
39  20  61  42  (21) 25 
Total product sales 5,076  877  540  6,493  4,199  804  513  5,516 
Royalty, contract and other revenues 24  60  —  84  20  67  88 
Total revenues $ 5,100  $ 937  $ 540  $ 6,577  $ 4,219  $ 871  $ 514  $ 5,604 
10


Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019
U.S. Europe Other Locations Total U.S. Europe Other Locations Total
Product sales:
Atripla $ 275  $ 17  $ 19  $ 311  $ 387  $ 52  $ 33  $ 472 
Biktarvy 4,346  528  314  5,188  2,868  229  71  3,168 
Complera/Eviplera 77  124  17  218  126  179  26  331 
Descovy 1,124  156  103  1,383  735  200  128  1,063 
Genvoya 1,927  376  183  2,486  2,222  522  229  2,973 
Odefsey 851  341  36  1,228  865  328  27  1,220 
Stribild 100  42  12  154  208  60  30  298 
Truvada 1,245  20  37  1,302  1,896  88  61  2,045 
Other HIV(1)
24  21  49  23  11  37 
Revenue share – Symtuza(2)
244  112  362  165  89  —  254 
AmBisome 46  166  113  325  27  174  96  297 
Ledipasvir/Sofosbuvir(3)
113  26  124  263  257  63  222  542 
Letairis 241  —  —  241  522  —  —  522 
Ranexa —  —  205  —  —  205 
Sofosbuvir/Velpatasvir(4)
646  253  330  1,229  731  428  341  1,500 
Veklury 785  60  28  873  —  —  —  — 
Vemlidy 248  22  194  464  214  15  122  351 
Viread 10  27  100  137  28  57  119  204 
Vosevi 93  26  13  132  140  43  18  201 
Yescarta 283  144  434  275  59  —  334 
Zydelig 24  30  55  36  42  79 
Other(5)
124  54  184  119  96  12  227 
Total product sales 12,835  2,528  1,664  17,027  12,049  2,727  1,547  16,323 
Royalty, contract and other revenues 55  170  16  241  61  181  247 
Total revenues $ 12,890  $ 2,698  $ 1,680  $ 17,268  $ 12,110  $ 2,908  $ 1,552  $ 16,570 
________________________________
(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.
(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, Sovaldi and Tecartus. Europe product sales included unfavorable adjustments recorded in 2019 for statutory rebates related to sales of Sovaldi made in prior years.
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):
Three Months Ended Nine Months Ended
  September 30, September 30,
  2020 2019 2020 2019
AmerisourceBergen Corporation 30  % 21  % 25  % 21  %
Cardinal Health, Inc. 19  % 21  % 22  % 21  %
McKesson Corporation 22  % 23  % 22  % 21  %
Revenues Recognized from Performance Obligations Satisfied in Prior Periods
Revenues recognized from performance obligations satisfied in prior years related to royalties for licenses of our intellectual property were $206 million and $618 million for the three and nine months ended September 30, 2020, respectively, and $201 million and $527 million for the three and nine months ended September 30, 2019, respectively.
11


Variable consideration is included in the net sales price only to the extent a significant reversal in the amount of cumulative revenue recognized is not probable of occurring when the uncertainty associated with the variable consideration is subsequently resolved. Estimates are assessed each period and updated to reflect current information. Changes in estimates for variable consideration related to sales made in prior years resulted in a $13 million and $94 million increase in revenues for the three and nine months ended September 30, 2020, respectively, and a $9 million and $309 million increase in revenues for the three and nine months ended September 30, 2019, respectively.
Contract Balances
Our contract assets, which consist of unbilled amounts primarily from arrangements where the licensing of intellectual property is the only or predominant performance obligation, totaled $186 million and $144 million as of September 30, 2020 and December 31, 2019, respectively. Contract liabilities, which generally result from receipt of advance payment before our performance under the contract, were $103 million and $45 million as of September 30, 2020 and December 31, 2019. During the three and nine months ended September 30, 2020 and 2019, revenue recognized that was included in the contract liability balance as of the beginning of the respective years was not material. Revenue expected to be recognized in the future from contract liabilities as the related performance obligations are satisfied is not expected to be material in any one year.
3.        FAIR VALUE MEASUREMENTS
We determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value, as follows:
Level 1 inputs include quoted prices in active markets for identical assets or liabilities;
Level 2 inputs include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. For our marketable securities, we review trading activity and pricing as of the measurement date. When sufficient quoted pricing for identical securities is not available, we use market pricing and other observable market inputs for similar securities obtained from various third-party data providers. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data; and
Level 3 inputs include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Our Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation.
Our financial instruments consist primarily of cash and cash equivalents, marketable debt securities, accounts receivable, foreign currency exchange contracts, equity securities, accounts payable and short-term and long-term debt. Cash and cash equivalents, marketable debt securities, certain equity securities and foreign currency exchange contracts are reported at their respective fair values in our Condensed 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 Condensed Consolidated Balance Sheets. The remaining financial instruments are reported in our Condensed Consolidated Balance Sheets at amounts that approximate current fair values.
12


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):
  September 30, 2020 December 31, 2019
  Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Assets:                
Available-for-sale debt securities:
U.S. treasury securities $ 2,238  $ —  $ —  $ 2,238  $ 2,433  $ —  $ —  $ 2,433 
Certificates of deposit —  2,136  —  2,136  —  3,517  —  3,517 
U.S. government agencies securities —  71  —  71  —  1,081  —  1,081 
Non-U.S. government securities —  220  —  220  —  174  —  174 
Corporate debt securities —  7,525  —  7,525  —  9,204  —  9,204 
Residential mortgage and asset-backed securities —  1,209  —  1,209  —  91  —  91 
Equity securities:
Equity investment in Galapagos 2,361  —  —  2,361  3,477  —  —  3,477 
Money market funds 11,430  —  —  11,430  7,069  —  —  7,069 
Other publicly traded equity securities 619  —  —  619  322  —  —  322 
Deferred compensation plan 200  —  —  200  171  —  —  171 
Foreign currency derivative contracts —  —  —  37  —  37 
Total $ 16,848  $ 11,167  $ —  $ 28,015  $ 13,472  $ 14,104  $ —  $ 27,576 
Liabilities:                
Deferred compensation plan $ 200  $ —  $ —  $ 200  $ 171  $ —  $ —  $ 171 
Foreign currency derivative contracts —  50  —  50  —  — 
Total $ 200  $ 50  $ —  $ 250  $ 171  $ $ —  $ 179 
Changes in the fair value of equity securities resulted in net unrealized losses of $964 million and $1,046 million for the three and nine months ended September 30, 2020, respectively, and net unrealized gains of $58 million and $312 million for the three and nine months ended September 30, 2019, respectively, which were included in Other income (expense), net on our Condensed Consolidated Statements of Operations.
The following table summarizes the classification of our equity securities in our Condensed Consolidated Balance Sheets (in millions):
September 30, 2020 December 31, 2019
Cash and cash equivalents $ 11,430  $ 7,069 
Prepaid and other current assets 986  319 
Other long-term assets 2,194  3,651 
Total $ 14,610  $ 11,039 
Our available-for-sale debt securities are classified as cash equivalents, short-term marketable securities and long-term marketable securities in our Condensed Consolidated Balance Sheets. See Note 4. Available-For-Sale Debt Securities for additional information.
See Note 6. Acquisitions, Collaborations and Other Arrangements for additional information on our equity investment in Galapagos NV (“Galapagos”).
Level 2 Inputs
We estimate the fair values of Level 2 instruments by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income-based and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate the fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities, prepayment/default projections based on historical data and other observable inputs.
13


Substantially all of our foreign currency derivative contracts have maturities within an 18-month time horizon and all are with counterparties that have a minimum credit rating of A- or equivalent by S&P Global Ratings, Moody’s Investors Service, Inc. or Fitch Ratings, Inc. We estimate the fair values of these contracts by taking into consideration the valuations obtained from a third-party valuation service that utilizes an income-based industry standard valuation model for which all significant inputs are observable, either directly or indirectly. These inputs include foreign currency exchange rates, London Interbank Offered Rates and swap rates. These inputs, where applicable, are observable at commonly quoted intervals.
The total estimated fair values of our aggregate short-term and long-term debt, determined using Level 2 inputs based on their quoted market values, were approximately $33.3 billion and $27.3 billion as of September 30, 2020 and December 31, 2019, respectively, and the carrying values were $29.3 billion and $24.6 billion as of September 30, 2020 and December 31, 2019, respectively.
4.    AVAILABLE-FOR-SALE DEBT SECURITIES
The following table summarizes our available-for-sale debt securities (in millions):
September 30, 2020 December 31, 2019
  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 $ 2,225  $ 13  $ —  $ 2,238  $ 2,433  $ —  $ —  $ 2,433 
Certificates of deposit 2,136  —  —  2,136  3,517  —  —  3,517 
U.S. government agencies securities
71  —  —  71  1,081  —  —  1,081 
Non-U.S. government securities 220  —  —  220  174  —  —  174 
Corporate debt securities 7,506  20  (1) 7,525  9,203  (1) 9,204 
Residential mortgage and asset-backed securities
1,207  —  1,209  91  —  —  91 
Total $ 13,365  $ 35  $ (1) $ 13,399  $ 16,499  $ $ (1) $ 16,500 
The following table summarizes the classification of our available-for-sale debt securities in our Condensed Consolidated Balance Sheets (in millions):
  September 30, 2020 December 31, 2019
Cash and cash equivalents $ 236  $ 2,291 
Short-term marketable securities 11,089  12,721 
Long-term marketable securities 2,074  1,488 
Total $ 13,399  $ 16,500 
Accrued interest receivable excluded from both the fair value and amortized cost basis of the available-for-sale debt securities was $49 million and $37 million as of September 30, 2020 and December 31, 2019, respectively, and is recorded in Prepaid and other current assets on our Condensed Consolidated Balance Sheets. There were no write-offs of accrued interest receivable during the three and nine months ended September 30, 2020.
The following table summarizes our available-for-sale debt securities by contractual maturity (in millions):
  September 30, 2020
  Amortized Cost Fair Value
Within one year $ 11,292  $ 11,325 
After one year through five years 1,991  1,992 
After five years 82  82 
Total $ 13,365  $ 13,399 
14


The following table summarizes our available-for-sale debt securities in an unrealized loss position (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
September 30, 2020            
Corporate debt securities $ (1) $ 1,042  $ —  $ —  $ (1) $ 1,042 
December 31, 2019            
Corporate debt securities $ (1) $ 1,866  $ —  $ $ (1) $ 1,870 
We held a total of 208 positions which were in an unrealized loss position as of September 30, 2020. The unrealized losses are largely due to changes in interest rates. Aggregated gross unrealized losses on available-for-sale corporate debt securities were not material, and accordingly, no impairments were recognized for the three and nine months ended September 30, 2020.
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 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 Condensed Consolidated Statements of Operations.
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 Accumulated other comprehensive income (“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 as of September 30, 2020 are expected to be reclassified to product sales within 12 months.
The cash flow effects of our derivative contracts for the nine months ended September 30, 2020 and 2019 were included within Net cash provided by operating activities on our Condensed Consolidated Statements of Cash Flows.
We had notional amounts on foreign currency exchange contracts outstanding of $2.8 billion and $2.9 billion as of September 30, 2020 and December 31, 2019, respectively.
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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 Condensed Consolidated Balance Sheets (in millions):
  September 30, 2020
  Asset Derivatives Liability Derivatives
  Classification Fair Value Classification Fair Value
Derivatives designated as hedges:        
Foreign currency exchange contracts
Prepaid and other current assets $ Other accrued liabilities $ (45)
Foreign currency exchange contracts
Other long-term assets Other long-term obligations (5)
Total derivatives designated as hedges     (50)
Derivatives not designated as hedges:        
Foreign currency exchange contracts
Prepaid and other current assets —  Other accrued liabilities — 
Total derivatives not designated as hedges   —    — 
Total derivatives   $   $ (50)
  December 31, 2019
  Asset Derivatives Liability Derivatives
  Classification Fair Value Classification Fair Value
Derivatives designated as hedges:        
Foreign currency exchange contracts
Prepaid and other current assets $ 36  Other accrued liabilities $ (6)
Foreign currency exchange contracts
Other long-term assets —  Other long-term obligations (2)
Total derivatives designated as hedges   36    (8)
Derivatives not designated as hedges:        
Foreign currency exchange contracts
Prepaid and other current assets Other accrued liabilities — 
Total derivatives not designated as hedges     — 
Total derivatives   $ 37    $ (8)
The following table summarizes the effect of our foreign currency exchange contracts on our Condensed Consolidated Financial Statements (in millions):
Three Months Ended Nine Months Ended
  September 30, September 30,
  2020 2019 2020 2019
Derivatives designated as hedges:
Gains (losses) recognized in AOCI
$ (52) $ 69  $ (28) $ 98 
Gains reclassified from AOCI into product sales
$ 12  $ 31  $ 57  $ 96 
Derivatives not designated as hedges:
Gains (losses) recognized in Other income (expense), net
$ (13) $ 40  $ (10) $ 29 
From time to time, we may discontinue cash flow hedges and, as a result, record related amounts in Other income (expense), net on our Condensed Consolidated Statements of Operations. There were no discontinuances of cash flow hedges for the three and nine months ended September 30, 2020 and 2019.
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As of September 30, 2020 and December 31, 2019, we only held foreign currency exchange contracts. The following table summarizes the potential effect of offsetting our foreign currency exchange contracts on our Condensed Consolidated Balance Sheets (in millions):
Gross Amounts Not Offset
on our Condensed
Consolidated Balance Sheets
Description Gross Amounts
of Recognized
Assets/Liabilities
Gross Amounts
Offset on our
Condensed
Consolidated
Balance Sheets
Amounts of Assets/Liabilities Presented
on our Condensed Consolidated
Balance Sheets
Derivative
Financial
Instruments
Cash Collateral
Received/
Pledged
Net Amount
(Legal Offset)
As of September 30, 2020
Derivative assets $ $ —  $ $ (6) $ —  $ — 
Derivative liabilities $ (50) $ —  $ (50) $ $ —  $ (44)
As of December 31, 2019
Derivative assets $ 37  $ —  $ 37  $ (6) $ —  $ 31 
Derivative liabilities $ (8) $ —  $ (8) $ $ —  $ (1)
6.    ACQUISITIONS, COLLABORATIONS AND OTHER ARRANGEMENTS
We continue to pursue acquisitions, licensing and strategic collaborations and other similar arrangements including equity investments with third parties for the development and commercialization of certain products and product candidates. These arrangements may include non-refundable upfront payments, expense reimbursements or payments by us for options to acquire certain rights, contingent obligations by us for potential development and regulatory milestone payments and/or sales-based milestone payments, royalty payments, revenue or profit-sharing arrangements and cost-sharing arrangements.
Acquisitions
Forty Seven, Inc. (“Forty Seven”)
On April 7, 2020, we acquired all of the then issued and outstanding common stock of Forty Seven, a clinical-stage immuno-oncology company focused on developing therapies targeting cancer immune evasion pathways and specific cell targeting approaches, for a price of $95.50 per share in cash, for total consideration of $4.7 billion, net of acquired cash. As a result, Forty Seven became our wholly-owned subsidiary. Forty Seven’s lead program, magrolimab, is an investigational monoclonal antibody in clinical development for the treatment of myelodysplastic syndrome, acute myeloid leukemia, non-Hodgkin lymphoma and solid tumors.
We accounted for the transaction as an asset acquisition since the lead asset, magrolimab, represented substantially all the fair value of the gross assets acquired. At the acquisition date, we recorded a $4.5 billion charge representing an acquired IPR&D asset with no alternative future use in Acquired in-process research and development expenses on our Condensed Consolidated Statements of Operations. In connection with this acquisition, we recorded $202 million of assets acquired primarily consisting of deferred tax assets. Liabilities assumed were not material. During the three months ended June 30, 2020, we also recorded share-based compensation expense of $144 million related to the cash settlement of unvested Forty Seven employee stock awards attributable to post-acquisition services, which was primarily recorded in Research and development expenses on our Condensed Consolidated Statements of Operations.
Immunomedics, Inc. (“Immunomedics”)
On September 13, 2020, we entered into an agreement and plan of merger (“Agreement and Plan of Merger”) to acquire Immunomedics, a company focused on the development of antibody-drug conjugate (“ADC”) technology. Immunomedics researches and develops biopharmaceutical products, particularly antibody-based products for patients with solid tumors and blood cancers, and manufactures and markets Trodelvy. Trodelvy, a Trop-2-directed ADC, developed by Immunomedics is the first ADC that the U.S. Food and Drug Administration (“FDA”) approved for the treatment of adult patients with metastatic triple-negative breast cancer.
On September 24, 2020, under the terms of the Agreement and Plan of Merger, we commenced a tender offer (“Offer”) to acquire all of the outstanding shares of common stock of Immunomedics for approximately $21 billion (at a price of $88.00 per share), net in cash, without interest and subject to any withholding of taxes.
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In an event subsequent to September 30, 2020, on October 23, 2020, we completed the Offer for all outstanding shares of common stock of Immunomedics and accepted all shares validly tendered and not withdrawn as of the expiration time of the Offer. Following the Offer, we also acquired all remaining shares not tendered at Offer pursuant to the merger contemplated by the Agreement and Plan of Merger. As a result, the acquisition was completed and Immunomedics became a wholly owned subsidiary of Gilead. The financial results of Immunomedics will be included in our consolidated financial results for the year ending December 31, 2020 from the date of completion of the acquisition. We financed the acquisition with the majority of the proceeds from the September 2020 senior unsecured notes offering, an additional $1.0 billion borrowing under a new senior unsecured term loan facility and the balance with cash on hand. See Note 9. Debt and Credit Facilities for additional information.
Our acquisition of Immunomedics will be accounted for as a business combination using the acquisition method of accounting in the fourth quarter of 2020. Given the recent timing of the transaction close, we are in the process of estimating fair values of the assets acquired and liabilities assumed in the business combination. As a result, we are currently unable to provide preliminary allocation of purchase consideration based on the acquisition date fair values of the assets acquired and liabilities assumed as well as other related information, but we will disclose such information in our Annual Report on Form 10-K for the year ending December 31, 2020.
Collaborations and Other Arrangements
Arcus Biosciences, Inc. (“Arcus”)
On May 29, 2020, we acquired 2.2 million shares of the common stock of Arcus, a publicly traded oncology-focused biopharmaceutical company, for approximately $61 million in a secondary equity offering.
Separately, on May 27, 2020, we entered into a transaction with Arcus, which included entry into an option, license and collaboration agreement (the “Collaboration Agreement”) and a common stock purchase agreement and an investor rights agreement (together, the “Stock Purchase Agreements”).
Upon closing of the Collaboration Agreement and Stock Purchase Agreements, on July 13, 2020, we made an upfront payment of $175 million and acquired approximately 6 million additional shares of Arcus’ common stock for $200 million in accordance with the terms of the Collaboration Agreement and the Stock Purchase Agreements. Of the total $391 million initial cash payments made under the agreements and direct transactional costs, we recorded $135 million as an equity investment, which was calculated based on Arcus’ closing stock price of $22.67 on the closing date of the transaction. As a result, combined with our existing share holdings, we own 8.2 million shares of Arcus, representing approximately 13% of the issued and outstanding voting stock of Arcus immediately following the closing of the transaction. We recorded our equity investments in Arcus in Other long-term assets on our Condensed Consolidated Balance Sheets as the investments are subject to contractual lock-up provisions for a period up to 2 years from the closing date of the agreements, subject to certain conditions. We account for our equity investment in Arcus at fair value with changes in fair value recognized in Other income (expense), net for each reporting period. The remaining $256 million was attributed to the acquired license and option rights of $175 million representing IPR&D assets with no alternative future use, $65 million of an issuance premium for the equity purchase and $16 million of direct transactional costs. These amounts were expensed as Acquired in-process research and development expenses during the three months ended September 30, 2020 on our Condensed Consolidated Statements of Operations.
Gilead has the right to opt-in to all current and future investigational product candidates that emerge from Arcus’ research portfolio for the ten years following the closing of the transaction. Upon our exercise of an option for a program, unless Arcus opts out according to the terms of the Collaboration Agreement, the companies will co-develop and share global development costs and co-commercialize and share profits in the U.S. We will obtain exclusive rights to commercialize any optioned programs outside of the U.S., subject to any rights of Arcus’ existing partners, for which we will pay to Arcus tiered royalties ranging from the high teens to the low twenties on net sales.
Under the Collaboration Agreement, subject to certain limited exceptions, we are required to provide $100 million to Arcus on the second anniversary of the agreement and may pay an additional $100 million at our option on each of the fourth, sixth, and eighth anniversaries of the agreement, unless terminated early, as ongoing research and development support to extend our collaboration term to up to 10-years. Accordingly, during the three months ended September 30, 2020, we recorded a $100 million charge representing the contractually committed payment in Acquired in-process research and development expenses on our Condensed Consolidated Statements of Operations.
Under the Collaboration Agreement, we will potentially provide up to $1.2 billion in opt-in and milestone payments with respect to current clinical product candidates, if and when such payments are triggered under the Collaboration Agreement.
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Under the Stock Purchase Agreements, we have the right to purchase additional shares of Arcus from Arcus over the next five years, up to a maximum of 35% of the outstanding voting stock. We are subject to a three-year standstill restricting our ability to acquire voting stock of Arcus exceeding more than 35% of the then issued and outstanding voting stock of Arcus, subject to certain exceptions. Additionally, we agreed not to dispose of any equity securities of Arcus prior to the second anniversary of the closing of the Stock Purchase Agreements without the prior consent of Arcus, subject to certain exceptions.
Pionyr Immunotherapeutics, Inc. (“Pionyr”)
On June 19, 2020, we entered into a transaction with Pionyr, a privately held company pursuing novel biology in the field of immuno-oncology, which included entry into two separate merger agreements, one contemplating the initial acquisition of 49.9% equity interest in Pionyr, and the other providing us the exclusive option, subject to certain terms and conditions, to acquire the remaining outstanding capital stock of Pionyr (together, the “Pionyr Merger and Option Agreements”) and a research and development service agreement.
On July 13, 2020, we closed the transaction with Pionyr and paid $269 million in cash and accrued an additional $6 million payable, subject to certain customary adjustments, to Pionyr’s shareholders in accordance with the terms of the Pionyr Merger and Option Agreements. We account for our investment in Pionyr using the equity method of accounting because our equity interest provides us with the ability to exercise significance influence over Pionyr. Our investment in Pionyr, consisting of the transaction price noted above and transaction costs, exceeded our pro-rata portion of Pionyr's net assets at transaction closing. We determined that the resulting basis difference primarily relates to Pionyr’s IPR&D which has no alternative future use and that Pionyr is not a business as defined in ASC 805, “Business Combinations.” As a result, we immediately recorded a charge for this basis difference of $215 million in Acquired in-process research and development expenses on our Condensed Consolidated Statements of Operations during the three months ended September 30, 2020.
The estimated fair value of our exclusive option to acquire the remaining outstanding capital stock of Pionyr is approximately $70 million based on a probability weighted option pricing model and recorded in Other long-term assets on our Condensed Consolidated Balance Sheet. From the first anniversary of the closing date, we may choose to exercise our exclusive option to purchase the remaining equity interest from Pionyr’s current shareholders for a $315 million option exercise fee and up to $1.2 billion in potential future milestone payments upon achievement of certain development and regulatory milestones, in each case subject to certain negotiated adjustments. Such option to purchase will expire following the earliest occurrence of specified events, including the delivery of data following completion of certain Phase 1b trials by Pionyr.
Under the research and development service agreement, we made an initial cash funding of $80 million and recorded a charge in Acquired in-process research and development expenses on our Condensed Consolidated Statements of Operations during the three months ended September 30, 2020. We will provide additional payments of up to $115 million to Pionyr upon achievement of certain development milestones.
Tizona Therapeutics, Inc. (“Tizona”)
On July 17, 2020, we entered into a transaction with Tizona, a privately held company developing cancer immunotherapies, which included entry into two separate merger agreements, one contemplating the initial acquisition of a 49.9% equity interest in Tizona, and the other providing us the exclusive option, subject to certain terms and conditions, to acquire the remaining outstanding capital stock of Tizona (together, the “Tizona Merger and Option Agreements”) and a development agreement.
On August 25, 2020, we closed the transaction with Tizona and paid $302 million in cash to Tizona’s shareholders in accordance with the terms of the Tizona Merger and Option Agreements. We account for our investment in Tizona using the equity method of accounting because our equity interest provides us with the ability to exercise significance influence over Tizona. Our investment in Tizona, consisting of the transaction price noted above and transaction costs, exceeded our pro-rata portion of Tizona’s net assets at transaction closing. We determined that the resulting basis difference primarily relates to Tizona’s IPR&D with no alternative future use and that Tizona is not a business as defined in ASC 805, “Business Combinations.” As a result, during the three months ended September 30, 2020, we immediately recorded this basis difference of $272 million in Acquired in-process research and development expenses on our Condensed Consolidated Statements of Operations.
The estimated fair value of our exclusive option to acquire Tizona is approximately $41 million based on a probability weighted option pricing model and recorded in Other long-term assets on our Condensed Consolidated Balance Sheet. From the first anniversary of the closing date, we may choose to exercise our exclusive option to purchase the remaining equity interest from Tizona’s current shareholders for up to $1.3 billion, including an option fee and potential future milestone payments upon achievement of certain development and regulatory milestones, in each case subject to certain negotiated adjustments. Such option to purchase will expire following the earliest occurrence of specified events, including the delivery of data following completion of certain Phase 1b trials by Tizona.
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Under the development agreement, we committed to provide funding to Tizona of $115 million, which was recorded in Acquired in-process research and development expenses on our Condensed Consolidated Statements of Operations during the three months ended September 30, 2020.
Tango Therapeutics, Inc. (“Tango”)
On August 17, 2020, we entered into a transaction with Tango, a privately held company pursuing innovative targeted immune evasion therapies for patients with cancer through its proprietary, CRISPR-enabled functional genomics target discovery platform, which included entry into an amended and restated research collaboration and license agreement and a stock purchase agreement (together, the “Collaboration and Stock Purchase Agreements”).
Upon entering into this transaction, we made an upfront payment of $125 million and a $20 million equity investment in Tango, representing approximately 7% of the issued and outstanding voting stock of Tango immediately following the transaction, in accordance with the terms of the Collaboration and Stock Purchase Agreements. During the three months ended September 30, 2020, we recorded the $125 million upfront expense in Acquired in-process research and development expenses on our Condensed Consolidated Statements of Operations. Our equity investment in Tango is recorded at cost less impairment, if any, adjusted for observable price changes in orderly transactions for identical or similar investments of Tango.
Under the Collaboration and Stock Purchase Agreements, Gilead has the right to option up to 15 programs over the seven-year collaboration for up to $410 million per program in opt-in, extension and milestone payments. The parties will equally split profits and losses, as well as development costs in the U.S., for the products that Tango opts to co-develop and co-promote. We will provide Tango milestone payments and royalties on sales outside of the U.S. For products that Tango does not opt to co-develop and co-promote, we will pay Tango up to low double digit tiered royalties on net sales.
Jounce Therapeutics, Inc. (“Jounce”)
On September 1, 2020, we entered into a transaction with Jounce, a publicly traded company developing novel cancer immunotherapies, which included entry into license, registration rights and stock purchase agreements (together, “License and Stock Purchase Agreement”). In an event subsequent to September 30, 2020, in October 2020, we closed this transaction and made a total payment of $120 million in accordance with the terms of the License and Stock Purchase Agreement and recorded $56 million as an equity investment, representing approximately 14% of the issued and outstanding voting stock of Jounce immediately following the transaction, which was calculated based on Jounce’s closing stock price of $10.06 on the closing date of the transaction. In addition, we will provide up to $685 million in future potential clinical, regulatory and commercial milestone payments upon achievement of certain milestones, and pay Jounce royalties ranging from high single digit to mid-teens based upon worldwide sales, subject to certain adjustments.
Galapagos
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 $5.1 billion for the license and option rights and 6.8 million new ordinary shares of Galapagos at a subscription price of €140.59 per share. As a result, combined with our then existing share holdings, we owned 13.6 million ordinary shares of Galapagos, representing approximately 22% of the issued and outstanding voting securities of Galapagos at the closing of the Collaboration Agreement and Subscription Agreement. The parties also amended certain terms relating to the development and commercialization of filgotinib pursuant to the license and collaboration agreement previously entered into between Gilead and Galapagos in 2015.
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. The $1.1 billion equity investment, which included an issuance discount of $63 million calculated based on Galapagos’ closing stock price on the date of closing of the Subscription Agreement and the subscription price of €140.59 per share, and our existing equity investment in Galapagos was recorded in Other long-term assets on our Condensed Consolidated Balance Sheets as our equity investment in Galapagos is subject to contractual lock-up provisions for a period up to 5 years from the closing date of the Subscription Agreement. The remaining $3.9 billion of the payment was recorded in Acquired in-process research and development expenses on our Condensed Consolidated Statements of Operations.
During the three months ended September 30, 2020, as the initial contractual lock-up provision for certain Galapagos shares will expire in August 2021, the corresponding equity investment balance of $505 million was reclassified to Prepaid and other current assets from Other long-term assets on our Condensed Consolidated Balance Sheets. During the three months ended September 30, 2020, we recorded a pre-tax unrealized loss of $923 million related to our investment in Galapagos in Other income (expense), net on our Condensed Consolidated Statement of Operations due to a decline in Galapagos’ stock price. See Note 3. Fair Value Measurements for additional information.
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Gadeta B.V. (“Gadeta”)
In July 2018, we entered into a collaboration arrangement with Gadeta and made a purchase of equity in Gadeta from Gadeta’s shareholders. We determined that Gadeta was a VIE, and we were its primary beneficiary because we had the power to direct the activities of Gadeta that most significantly impact its economic performance. Upon the initial consolidation of Gadeta, we recorded $82 million to Noncontrolling interest, primarily reflecting acquired intangible assets related to IPR&D on our Condensed Consolidated Balance Sheets.
During the three months ended September 30, 2020, we effectively terminated the agreement with Gadeta. Upon the effective termination, we ceased to have a controlling interest and deconsolidated this VIE by removing the related net assets and noncontrolling interest of $82 million from our Condensed Consolidated Balance Sheets. The net loss from the deconsolidation was not material.
Other Arrangements
During the three and nine months ended September 30, 2020 and 2019, we entered into several collaborative, equity investments and licensing arrangements as well as other similar arrangements that we do not consider to be individually material. We recorded upfront collaboration expenses related to these arrangements of $7 million and $129 million for the three and nine months ended September 30, 2020, respectively, and $40 million and $331 million for the three and nine months ended September 30, 2019, respectively, within Acquired in-process research and development expenses on our Condensed Consolidated Statements of Operations. Cash payments made related to our equity investments for the three and nine months ended September 30, 2020 were $36 million and $61 million, respectively, and totaled $15 million and $119 million for the three and nine months ended September 30, 2019, respectively, which were primarily recorded within Prepaid and other current assets and Other long-term assets on our Condensed Consolidated Balance Sheets.
Under the financial terms of these arrangements, we may be required to make payments upon achievement of developmental, regulatory and commercial milestones, which could be significant. Future milestone payments, if any, will be reflected in our Condensed Consolidated Statements of Operations 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.
7.    OTHER FINANCIAL INFORMATION
Inventories
The following table summarizes our Inventories (in millions):
  September 30, 2020 December 31, 2019
Raw materials $ 1,061  $ 1,348 
Work in process 182  170 
Finished goods 710  549 
Total
$ 1,953  $ 2,067 
Reported as: