NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Gilead Sciences, Inc. (“Gilead,” “we,” “our” or “us”) is a biopharmaceutical company that has pursued and achieved breakthroughs in medicine for more than three decades, with the goal of creating a healthier world for all people. We are committed to advancing innovative medicines to prevent and treat life-threatening diseases, including HIV, viral hepatitis and cancer. We operate in more than 35 countries worldwide, with headquarters in Foster City, California.
Our portfolio of marketed products includes AmBisome®, Atripla®, Biktarvy®, Cayston®, Complera®, Descovy®, Descovy for PrEP®, Emtriva®, Epclusa®, Eviplera®, Genvoya®, Harvoni®, Hepcludex®, Hepsera®, Jyseleca®, Letairis®, Odefsey®, Ranexa®, Sovaldi®, Stribild®, Sunlenca®, Tecartus®, Trodelvy®, Truvada®, Truvada for PrEP®, Tybost®, Veklury®, Vemlidy®, Viread®, Vosevi®, Yescarta® and Zydelig®. The approval status of Hepcludex and Jyseleca vary worldwide, and Hepcludex and Jyseleca are not approved in the U.S. We also sell and distribute authorized generic versions of Epclusa and Harvoni in the U.S. through our separate subsidiary, Asegua Therapeutics, LLC. In addition, we sell and distribute certain products through our corporate partners under collaborative agreements.
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, as the chief operating decision-maker (“CODM”), 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 CODM 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, scientific data, probability of technical and regulatory successful development, market potential and other considerations, 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.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles and include the accounts of Gilead, our wholly-owned subsidiaries and certain variable interest entities (“VIEs”) 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 or loss attributable to noncontrolling interests in our Consolidated Statements of Income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties.
When we obtain a variable interest in another entity, we assess at the inception of the relationship and upon occurrence of certain significant events whether the entity is a VIE and, if so, whether we are the primary beneficiary of the VIE 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 preparation of these 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. Actual results may differ significantly from these estimates. Certain amounts and percentages herein may not sum or recalculate due to rounding.
Beginning in the second quarter of 2022, expenses related to development milestones and other collaboration payments made prior to regulatory approval of a developed product were reclassified from Research and development expenses to Acquired in-process research and development expenses on our Consolidated Statements of Income. Concurrently, we reclassified the cash payments related to these expenses from Other to Acquisitions, including in-process research and development, net of cash acquired within Investing Activities in the Consolidated Statements of Cash Flows. We believe this presentation assists users of the financial statements to better understand the total costs incurred to acquire in-process research and development (“IPR&D”) projects. Prior periods have been revised to reflect this classification, resulting in a reduction of previously-reported Research and development expenses of $762 million and $112 million for the years ended December 31, 2021 and 2020, respectively.
Revenue Recognition
Product Sales
We recognize revenue from product sales when control of the product transfers to the customer, which is generally upon shipment or delivery, or in certain cases, upon the corresponding sales by our customer to a third party. Revenues are recognized net of estimated rebates and chargebacks, cash discounts for prompt payment, distributor fees, sales return provisions and other related deductions. These deductions to product sales are referred to as gross-to-net deductions and are estimated and recorded in the period in which the related product sales occur. Our payment terms to customers generally range from 30 to 90 days; however, payment terms differ by jurisdiction, by customer and, in some instances, by type of product. Revenues from product sales, net of gross-to-net deductions, are recorded only to the extent a significant reversal in the amount of cumulative revenue recognized is not probable of occurring when the uncertainty associated with gross-to-net deductions is subsequently resolved. Taxes assessed by governmental authorities and collected from customers are excluded from product sales. If we expect, at contract inception, that the period between the transfer of control and corresponding payment from the customer will be one year or less, we do not adjust the amount of consideration for the effects of a financing component. Shipping and handling activities are considered to be fulfillment activities and not a separate performance obligation.
Gross-to-Net Deductions
Rebates and Chargebacks
Rebates and chargebacks are based on contractual arrangements or statutory requirements and include amounts due to payers and healthcare providers under various programs. These amounts may vary by product, payer and individual plans. Providers qualified under certain programs can purchase our products through wholesalers or other distributors at a discount. The wholesalers or distributors then charge the discount back to us.
Rebates and chargebacks are estimated primarily based on product sales, including product mix and pricing, historical and estimated payer mix and discount rates, among other inputs, which require significant estimates and judgment. We assess and update our estimates each reporting period to reflect actual claims and other current information.
Chargebacks that are payable to our direct customers are generally classified as reductions of Accounts receivable on our Consolidated Balance Sheets. Rebates that are payable to third party payers and healthcare providers are recorded in Accrued rebates on our Consolidated Balance Sheets.
Cash Discounts
We estimate cash discounts based on contractual terms, historical customer payment patterns and our expectations regarding future customer payment patterns.
Distributor Fees
Under our inventory management agreements with our significant U.S. wholesalers, we pay the wholesalers a fee primarily for compliance with certain contractually-determined covenants such as the maintenance of agreed-upon inventory levels. These distributor fees are based on a contractually-determined fixed percentage of sales.
Allowance for Sales Returns
Allowances are made for estimated sales returns by our customers and are recorded in the period the related revenue is recognized. We typically permit returns if the product is damaged, defective, or otherwise cannot be used by the customer. In the U.S., we typically permit returns six months prior to and up to one year after the product expiration date. Outside the U.S., returns are only allowed in certain countries on a limited basis.
Our estimates of sales returns are based primarily on analysis of our historical product return patterns, industry information reporting the return rates for similar products and contractual agreement terms. We also take into consideration known or expected changes in the marketplace specific to each product.
Royalty, Contract and Other Revenues
Royalty revenue is recognized in the period in which the obligation is satisfied and the corresponding sales by our corporate partners occur. Contract and other revenues are recognized when the performance obligation is satisfied.
Research and Development Expenses
Research and development expenses are recorded when incurred and consist primarily of clinical studies performed by contract research organizations (“CROs”), materials and supplies, expense reimbursements to the collaboration partners, personnel costs including salaries, benefits and stock-based compensation expense, and overhead allocations consisting of various support and infrastructure costs. From time to time, we enter into development and collaboration agreements in which we share expenses with a collaborative partner. We record payments received from our collaborative partners for their share of the development costs as a reduction of Research and development expenses.
Clinical study costs are a significant component of Research and development expenses. Most of our clinical studies are performed by third-party CROs. We monitor levels of performance under each significant contract including the extent of patient enrollment and other activities through communications with our CROs. We accrue costs for clinical studies performed by CROs over the service periods specified in the contracts and adjust our estimates, if required, based upon our ongoing review of the level of effort and costs actually incurred by the CROs. All of our material CRO contracts are terminable by us upon written notice and we are generally only liable for actual services completed by the CRO and certain non-cancelable expenses incurred at any point of termination. Payments we make for R&D services prior to the services being rendered are recorded as prepaid assets within Prepaid and other current assets on our Consolidated Balance Sheets and are expensed as the services are provided.
Acquired In-Process Research and Development Expenses
Acquired in-process research and development expenses are recorded when incurred and reflect 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 and milestone payments related to various collaborations and the costs of rights to IPR&D projects.
Selling, General and Administrative Expenses
Selling, general and administrative expenses are recorded when incurred and consist primarily of personnel costs, facilities and overhead costs, outside marketing, advertising and legal expenses, and other general and administrative costs related to sales and marketing, finance, human resources, legal and other administrative activities.
Advertising expenses within Selling, general and administrative expenses, including promotional expenses, are recorded when incurred and were $778 million, $735 million and $795 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Stock-Based Compensation
We provide stock-based compensation in the form of various types of equity-based awards, including restricted stock units (“RSUs”), performance share units (“PSUs”) and stock options, and through our Employee Stock Purchase Plan and the International Employee Stock Purchase Plan (together, as amended, the “ESPP”). Stock-based compensation expense is based on the estimated fair value of the award on the grant date, or the first date of the ESPP purchase period, and recognized 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 or if an employee terminates due to death or disability.
The estimated fair value of RSUs is based on the closing price of our common stock on the grant date. For PSUs, 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. For stock option and ESPP awards, estimated fair value is based on the Black-Scholes option valuation model. Estimated inputs to that model include (i) expected volatility, based on a blend of historical volatility of our common stock price along with implied volatility for traded options on our common stock, (ii) expected term in years, based on the weighted-average period awards are expected to remain outstanding using historical cancellation and exercise data, contractual terms and vesting terms of the award, (iii) risk-free interest rate, based on observed interest rates appropriate for the term of the stock-based awards, and (iv) expected dividend yield, based on our history and expectation of dividend payments.
Earnings Per Share
Basic earnings per share attributable to Gilead is calculated based on Net income attributable to Gilead on our Consolidated Statements of Income divided by the weighted-average number of shares of our common stock outstanding during the period. Diluted earnings per share attributable to Gilead is calculated based on Net income attributable to Gilead on our Consolidated Statements of Income divided by 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 are determined under the treasury stock method.
Cash and Cash Equivalents
We consider highly liquid investments with insignificant interest rate risk and an original maturity of three months or less on the purchase date to be cash equivalents.
Marketable Debt Securities
All of our marketable debt securities are classified as available-for-sale and carried at estimated fair values. We determine the appropriate classification of our marketable debt securities at the time of purchase and reevaluate such designation at each balance sheet date. Unrealized gains and losses on available-for-sale debt securities are reported in Accumulated other comprehensive income on our Consolidated Balance Sheets until realized, at which point they are reclassified into Other income (expense), net on our Consolidated Statements of Income. Interest, amortization of purchase premiums and discounts, and expected credit losses, if any, are also recorded in Other income (expense), net on our Consolidated Statements of Income. The cost of securities sold is based on the specific identification method. We regularly review our investments for declines in fair value below their amortized cost basis to determine whether the impairment is due to credit-related factors or noncredit-related factors. Our review includes the creditworthiness of the security issuers, the severity of the unrealized losses, whether we have the intent to sell the securities and whether it is more likely than not that we will be required to sell the securities before the recovery of their amortized cost bases. When we determine that a portion of the unrealized loss is due to an expected credit loss, we recognize the loss amount in Other income (expense), net, with a corresponding allowance against the carrying value of the security we hold. The portion of the unrealized loss related to factors other than credit losses is recognized in Accumulated other comprehensive income.
Accounts Receivable
Trade accounts receivable are recorded net of allowances for wholesaler chargebacks related to government and other programs, cash discounts for prompt payment and estimated 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.
Inventories
Inventories are recorded at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. We periodically review our inventories to identify obsolete, slow-moving, excess or otherwise unsaleable items. If obsolete, slow-moving, excess or unsaleable items are observed and there are no alternate uses for the inventory, we record a write-down to net realizable value through a charge to Cost of goods sold on our Consolidated Statements of Income. The determination of net realizable value requires judgment, including consideration of many factors, such as estimates of future product demand, product net selling prices, current and future market conditions and potential product obsolescence, among others.
When future commercialization is considered probable and the future economic benefit is expected to be realized, based on management’s judgment, we capitalize pre-launch inventory costs prior to regulatory approval. A number of factors are considered, including the current status in the regulatory approval process, potential impediments to the approval process such as safety or efficacy, anticipated R&D initiatives that could impact the indication in which the compound will be used, viability of commercialization and marketplace trends.
Equity Securities
Equity securities with readily determinable fair values, including those for which we have elected the fair value option, are recorded at fair market value, and unrealized gains and losses are included in Other income (expense), net on our Consolidated Statements of Income.
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. Any impairments or adjustments are recorded in Other income (expense), net on our Consolidated Statements of Income.
For investments in entities over which we have significant influence but do not meet the requirements for consolidation and have not elected the fair value option, we use the equity method of accounting, with our share of the underlying income or loss of such entities reported in Other income (expense), net on our Consolidated Statements of Income.
Our investments in equity securities are classified in Prepaid and other current assets or Other long-term assets on our Consolidated Balance Sheets, generally depending on marketability and whether the securities are subject to lock-up provisions. We regularly review our securities for indicators of impairment.
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are recognized using the straight-line method. Repairs and maintenance costs are expensed as incurred. Estimated useful lives in years are generally as follows:
| | | | | |
Description | Estimated Useful Life |
Buildings and improvements | Shorter of 35 years or useful life |
Laboratory and manufacturing equipment | 4-10 |
Office, computer equipment and other | 3-15 |
Leasehold improvements | Shorter of useful life or lease term |
See “Impairment of Long-Lived Assets” for additional information.
Leases
We determine if an arrangement contains a lease at inception and classify each lease as operating or financing. Right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term, which is the non-cancelable period stated in the contract adjusted for any options to extend or terminate when it is reasonably certain that we will exercise that option. Right-of-use assets are adjusted for prepaid lease payments, lease incentives and initial direct costs incurred. Operating lease expense for the minimum lease payments is recognized on a straight-line basis over the lease term.
We account for lease and nonlease components in our lease agreements as a single lease component in determining lease assets and liabilities. In addition, we do not recognize the right-of-use assets and liabilities for leases with lease terms of one year or less.
As most of our operating leases do not provide an implicit interest rate, we generally utilize a collateralized incremental borrowing rate, applied in a portfolio approach when relevant, based on the information available at the commencement date to determine the lease liability.
Acquisitions, including Goodwill, Intangible Assets and Contingent Consideration
We account for business combinations using the acquisition method of accounting, which generally requires that assets acquired, including IPR&D projects, and liabilities assumed be recorded at their fair values as of the acquisition date on our Consolidated Balance Sheets. Any excess of consideration over the fair value of net assets acquired is recorded as goodwill. The determination of estimated fair value requires us to make significant estimates and assumptions. As a result, we may record adjustments to the fair values of assets acquired and liabilities assumed within the measurement period, which may be up to one year from the acquisition date, with the corresponding offset to goodwill. Transaction costs associated with business combinations are expensed as they are incurred.
Intangible assets related to IPR&D projects are considered to be indefinite-lived until the abandonment or completion of the associated R&D efforts, which generally occurs when regulatory approval is obtained. Goodwill and indefinite-lived intangible assets are not amortized and, instead, are tested for impairment annually or more frequently if events or changes in circumstances indicate that it is more likely than not that the assets are impaired.
Intangible assets with finite useful lives are amortized over their estimated useful lives, primarily on a straight-line basis, and, are also periodically reviewed for changes in facts or circumstances resulting in a reduction to the estimated useful life of the asset, requiring the acceleration of amortization. See “Impairment of Long-Lived Assets” for additional information.
In determining the initial fair value of an intangible asset, or when quantitative analysis is required to determine any impairment, we use a probability-weighted income approach that discounts expected future cash flows to present value using a discount rate that is based on the estimated weighted-average cost of capital for companies with profiles similar to ours and represents the rate that market participants would use to value the intangible assets. These cash flow models require the use of Level 3 fair value measurements and inputs, including estimated revenues, which, for example, include significant inputs such as addressable patient population, treatment duration, projected market share, assessment of the asset’s life cycle, and competitive trends impacting the asset; costs and probability of technical and regulatory success, among other factors.
In connection with certain acquisitions, we may be required to pay future consideration that is contingent upon the achievement of specified development, regulatory approval or sales-based milestone events. We record contingent consideration resulting from a business combination at its fair value on the acquisition date. Each reporting period thereafter, we revalue these obligations and record increases or decreases in their fair value on our Consolidated Statements of Income until such time that the payment is made. Increases or decreases in fair value of the contingent consideration liabilities can result from updates to assumptions such as the expected timing or probability of achieving the specified milestones, changes in projected revenues or changes in discount rates.
When we determine net assets acquired do not meet the definition of a business combination under the acquisition method of accounting, the transaction is accounted for as an asset acquisition and, therefore, no goodwill is recorded and contingent consideration generally is not recognized at the acquisition date. In an asset acquisition, upfront payments allocated to IPR&D projects at the acquisition date and subsequent milestone payments are expensed as incurred on our Consolidated Statements of Income unless there is an alternative future use.
Impairment of Long-Lived Assets
Long-lived assets, including property, plant and equipment and finite-lived intangible assets, are reviewed for impairment whenever facts or circumstances either internally or externally may indicate that the carrying value of an asset may not be recoverable. Should there be an indication of impairment, we test for recoverability by comparing the estimated undiscounted future cash flows expected to result from the use of the asset over its useful life to the carrying amount of the asset or asset group. If the asset or asset group is determined to be impaired, any excess of the carrying value of the asset or asset group over its estimated fair value is recognized as an impairment loss.
Derivatives
We recognize all derivative instruments as either assets or liabilities at fair value on our Consolidated Balance Sheets. Unrealized changes in the fair value of derivatives designated as part of a hedge transaction are recorded in Accumulated other comprehensive income. For our hedges related to forecasted product sales, the unrealized gains or losses in Accumulated other comprehensive income are reclassified into Product sales on our Consolidated Statements of Income when the respective hedged transactions affect earnings. Changes in the fair value of derivatives that are not part of a hedge transaction are recorded each period in Other income (expense), net on our Consolidated Statements of Income.
Using regression analysis, we assess, both at inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are effective in offsetting the changes in cash flows or fair values of the hedged items. If we determine that a forecasted transaction is probable of not occurring, we discontinue hedge accounting for the affected portion of the hedge instrument, and any related unrealized gain or loss on the contract is recognized in Other income (expense), net on our Consolidated Statements of Income.
Contingencies
We recognize accruals for loss contingencies to the extent that we conclude that a loss is both probable and reasonably estimable. We accrue the best estimate of loss within a range; however, if no estimate in the range is better than any other, then we accrue the minimum amount in the range. If we determine that a material loss is reasonably possible, we disclose the possible loss or range of loss, or that the amount of loss cannot be estimated at this time.
Income Taxes
Our income tax provision is computed under the liability method. Significant estimates are required in determining our provision for income taxes. Some of these estimates are based on interpretations of applicable tax laws or regulations.
Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We record a valuation allowance to reduce our deferred tax assets to the amounts that are more likely than not to be realized. We consider future taxable income, ongoing tax planning strategies and our historical financial performance in assessing the need for a valuation allowance. If we expect to realize deferred tax assets for which we have previously recorded a valuation allowance, we will reduce the valuation allowance in the period in which such determination is first made.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by tax authorities based on the technical merits of the position. The tax benefit recognized in the Consolidated Financial Statements for a particular tax position is based on the largest benefit that is more likely than not to be realized. The amount of unrecognized tax benefits (“UTB”) is adjusted as appropriate for changes in facts and circumstances, such as significant amendments to existing tax law, new regulations or interpretations by tax authorities, new information obtained during a tax examination or resolution of an examination. We recognize both accrued interest and penalties, where appropriate, related to UTB in Income tax expense on our Consolidated Statements of Income.
We have elected to account for the tax on Global Intangible Low-Taxed Income, enacted as part of the Tax Cuts and Jobs Act, as a component of tax expense in the period in which the tax is incurred.
Foreign Currency Translation and Transactions
Our Consolidated Financial Statements are presented in U.S. dollars. The functional currency for most of our foreign subsidiaries is their local currency. Revenues, expenses, gains and losses for non-U.S. dollar functional currency entities are translated into U.S. dollars using average currency exchange rates for the period. Assets and liabilities for such entities are translated using exchange rates that approximate the rate at the balance sheet date. Foreign currency translation adjustments are recorded as a component of Accumulated other comprehensive income on our Consolidated Balance Sheets. Foreign currency transaction gains and losses on transactions not denominated in functional currency are recorded in Other income (expense), net, on our Consolidated Statements of Income.
Fair Value Measurements
We apply fair value accounting for all financial and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. We define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risks.
We determine the fair value 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 in active markets; 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; 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.
2. REVENUES
Disaggregation of Revenues
The following table summarizes our Total revenues:
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| | Year Ended December 31, 2022 | | Year Ended December 31, 2021 | | Year Ended December 31, 2020 | | | | |
(in millions) | | U.S. | | Europe | | Other International | | Total | | U.S. | | Europe | | Other International | | Total | | U.S. | | Europe | | Other International | | Total | | | | |
Product sales: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
HIV | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Biktarvy | | 8,510 | | | 1,103 | | | 777 | | | 10,390 | | | 7,049 | | | 969 | | | 606 | | | 8,624 | | | 6,095 | | | 735 | | | 429 | | | 7,259 | | | | | |
Complera/Eviplera | | 74 | | | 113 | | | 13 | | | 200 | | | 102 | | | 142 | | | 14 | | | 258 | | | 89 | | | 159 | | | 21 | | | 269 | | | | | |
Descovy | | 1,631 | | | 118 | | | 123 | | | 1,872 | | | 1,397 | | | 164 | | | 139 | | | 1,700 | | | 1,526 | | | 197 | | | 138 | | | 1,861 | | | | | |
Genvoya | | 1,983 | | | 284 | | | 136 | | | 2,404 | | | 2,267 | | | 391 | | | 221 | | | 2,879 | | | 2,605 | | | 490 | | | 243 | | | 3,338 | | | | | |
Odefsey | | 1,058 | | | 364 | | | 47 | | | 1,469 | | | 1,076 | | | 440 | | | 52 | | | 1,568 | | | 1,172 | | | 450 | | | 50 | | | 1,672 | | | | | |
Stribild | | 88 | | | 29 | | | 10 | | | 127 | | | 132 | | | 43 | | | 14 | | | 189 | | | 125 | | | 54 | | | 17 | | | 196 | | | | | |
Truvada | | 113 | | | 15 | | | 18 | | | 147 | | | 314 | | | 22 | | | 35 | | | 371 | | | 1,376 | | | 27 | | | 45 | | | 1,448 | | | | | |
Revenue share - Symtuza(1) | | 348 | | | 168 | | | 14 | | | 530 | | | 355 | | | 165 | | | 11 | | | 531 | | | 331 | | | 149 | | | 8 | | | 488 | | | | | |
Other HIV(2) | | 15 | | | 24 | | | 17 | | | 57 | | | 136 | | | 30 | | | 29 | | | 195 | | | 332 | | | 26 | | | 49 | | | 407 | | | | | |
Total HIV | | 13,820 | | | 2,219 | | | 1,155 | | | 17,194 | | | 12,828 | | | 2,366 | | | 1,121 | | | 16,315 | | | 13,651 | | | 2,287 | | | 1,000 | | | 16,938 | | | | | |
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Veklury | | 1,575 | | | 702 | | | 1,628 | | | 3,905 | | | 3,640 | | | 1,095 | | | 830 | | | 5,565 | | | 2,026 | | | 607 | | | 178 | | | 2,811 | | | | | |
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Hepatitis C virus (“HCV”) | | | | | | | | | | | | | | | | | | | | | | | | |
Ledipasvir/ Sofosbuvir(3) | | 46 | | | 17 | | | 51 | | | 115 | | | 84 | | | 31 | | | 97 | | | 212 | | | 92 | | | 29 | | | 151 | | | 272 | | | | | |
Sofosbuvir/Velpatasvir(4) | | 844 | | | 355 | | | 331 | | | 1,530 | | | 815 | | | 316 | | | 331 | | | 1,462 | | | 864 | | | 337 | | | 398 | | | 1,599 | | | | | |
Other HCV(5) | | 115 | | | 40 | | | 10 | | | 166 | | | 119 | | | 74 | | | 14 | | | 207 | | | 132 | | | 48 | | | 13 | | | 193 | | | | | |
Total HCV | | 1,005 | | | 413 | | | 392 | | | 1,810 | | | 1,018 | | | 421 | | | 442 | | | 1,881 | | | 1,088 | | | 414 | | | 562 | | | 2,064 | | | | | |
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Hepatitis B virus (“HBV”) / Hepatitis Delta virus (“HDV”) | | | | | | | | | | | | | | | | | | | | |
Vemlidy | | 429 | | | 35 | | | 379 | | | 842 | | | 384 | | | 34 | | | 396 | | | 814 | | | 356 | | | 29 | | | 272 | | | 657 | | | | | |
Viread | | 6 | | | 23 | | | 62 | | | 91 | | | 11 | | | 28 | | | 72 | | | 111 | | | 14 | | | 34 | | | 137 | | | 185 | | | | | |
Other HBV/HDV(6) | | — | | | 55 | | | — | | | 55 | | | 2 | | | 42 | | | — | | | 44 | | | 10 | | | 8 | | | — | | | 18 | | | | | |
Total HBV/HDV | | 435 | | | 112 | | | 441 | | | 988 | | | 397 | | | 104 | | | 468 | | | 969 | | | 380 | | | 71 | | | 409 | | | 860 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cell therapy | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tecartus | | 221 | | | 75 | | | 3 | | | 299 | | | 136 | | | 40 | | | — | | | 176 | | | 34 | | | 10 | | | — | | | 44 | | | | | |
Yescarta | | 747 | | | 355 | | | 57 | | | 1,160 | | | 406 | | | 253 | | | 36 | | | 695 | | | 362 | | | 191 | | | 10 | | | 563 | | | | | |
Total cell therapy | | 968 | | | 430 | | | 60 | | | 1,459 | | | 542 | | | 293 | | | 36 | | | 871 | | | 396 | | | 201 | | | 10 | | | 607 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Trodelvy | | 525 | | | 143 | | | 12 | | | 680 | | | 370 | | | 10 | | | — | | | 380 | | | 49 | | | — | | | — | | | 49 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
AmBisome | | 57 | | | 258 | | | 182 | | | 497 | | | 39 | | | 274 | | | 227 | | | 540 | | | 61 | | | 230 | | | 145 | | | 436 | | | | | |
Letairis | | 196 | | | — | | | — | | | 196 | | | 206 | | | — | | | — | | | 206 | | | 314 | | | — | | | — | | | 314 | | | | | |
Other(7) | | 135 | | | 65 | | | 53 | | | 253 | | | 136 | | | 115 | | | 30 | | | 281 | | | 176 | | | 84 | | | 16 | | | 276 | | | | | |
Total Other | | 388 | | | 323 | | | 235 | | | 946 | | | 381 | | | 389 | | | 257 | | | 1,027 | | | 551 | | | 314 | | | 161 | | | 1,026 | | | | | |
Total product sales | | 18,716 | | | 4,342 | | | 3,924 | | | 26,982 | | | 19,176 | | | 4,678 | | | 3,154 | | | 27,008 | | | 18,141 | | | 3,894 | | | 2,320 | | | 24,355 | | | | | |
Royalty, contract and other revenues | | 168 | | | 127 | | | 4 | | | 299 | | | 91 | | | 196 | | | 10 | | | 297 | | | 76 | | | 241 | | | 17 | | | 334 | | | | | |
Total revenues | | $ | 18,884 | | | $ | 4,469 | | | $ | 3,928 | | | $ | 27,281 | | | $ | 19,267 | | | $ | 4,874 | | | $ | 3,164 | | | $ | 27,305 | | | $ | 18,217 | | | $ | 4,135 | | | $ | 2,337 | | | $ | 24,689 | | | | | |
_______________________________
(1) Represents our revenue from cobicistat (“C”), emtricitabine (“FTC”) and tenofovir alafenamide (“TAF”) in Symtuza (darunavir/C/FTC/TAF), a fixed dose combination product commercialized by Janssen Sciences Ireland Unlimited Company (“Janssen”). See Note 10. Collaborations and Other Arrangements for additional information.
(2) Includes Atripla, Emtriva, Sunlenca and Tybost.
(3) Amounts consist of sales of Harvoni and the authorized generic version of Harvoni sold by our separate subsidiary, Asegua Therapeutics LLC.
(4) Amounts consist of sales of Epclusa and the authorized generic version of Epclusa sold by our separate subsidiary, Asegua Therapeutics LLC.
(5) Includes Vosevi and Sovaldi.
(6) Includes Hepcludex and Hepsera.
(7) Includes Cayston, Jyseleca, Ranexa and Zydelig.
Revenues from Major Customers
The following table summarizes revenues from each of our customers who individually accounted for 10% or more of our Total revenues:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
(as a percentage of total revenues) | | 2022 | | 2021 | | 2020 |
AmerisourceBergen Corporation | | 18 | % | | 23 | % | | 27 | % |
Cardinal Health, Inc. | | 25 | % | | 22 | % | | 21 | % |
McKesson Corporation | | 20 | % | | 20 | % | | 20 | % |
Revenues Recognized from Performance Obligations Satisfied in Prior Periods
The following table summarizes revenues recognized from performance obligations satisfied in prior periods:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
(in millions) | | 2022 | | 2021 | | 2020 |
Revenue share with Janssen(1) and royalties for licenses of intellectual property | | $ | 783 | | | $ | 851 | | | $ | 841 | |
Changes in estimates | | $ | 582 | | | $ | 856 | | | $ | 101 | |
_______________________________
(1) See Note 10. Collaborations and Other Arrangements for additional information.
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 $171 million and $174 million as of December 31, 2022 and 2021, respectively. Contract liabilities, which generally result from receipt of advance payment before our performance under the contract, were $102 million and $79 million as of December 31, 2022 and 2021, respectively.
3. FAIR VALUE MEASUREMENTS
The following table summarizes the types of assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 | | | | | | | | | | | | | | |
(in millions) | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Available-for-sale debt securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. treasury securities | | $ | 410 | | | $ | — | | | $ | — | | | $ | 410 | | | $ | 407 | | | $ | — | | | $ | — | | | $ | 407 | | | | | | | | | | | | | | | |
U.S. government agencies securities | | — | | | 35 | | | — | | | 35 | | | — | | | 4 | | | — | | | 4 | | | | | | | | | | | | | | | |
Non-U.S. government securities | | — | | | 34 | | | — | | | 34 | | | — | | | 50 | | | — | | | 50 | | | | | | | | | | | | | | | |
Certificates of deposit | | — | | | 54 | | | — | | | 54 | | | — | | | 249 | | | — | | | 249 | | | | | | | | | | | | | | | |
Corporate debt securities | | — | | | 1,427 | | | — | | | 1,427 | | | — | | | 1,363 | | | — | | | 1,363 | | | | | | | | | | | | | | | |
Residential mortgage and asset-backed securities | | — | | | 333 | | | — | | | 333 | | | — | | | 424 | | | — | | | 424 | | | | | | | | | | | | | | | |
Equity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Money market funds | | 3,831 | | | — | | | — | | | 3,831 | | | 3,661 | | | — | | | — | | | 3,661 | | | | | | | | | | | | | | | |
Equity investment in Galapagos NV (“Galapagos”)(1) | | 736 | | | — | | | — | | | 736 | | | 931 | | | — | | | — | | | 931 | | | | | | | | | | | | | | | |
Equity investment in Arcus Biosciences, Inc. (“Arcus”)(1) | | 286 | | | — | | | — | | | 286 | | | 559 | | | — | | | — | | | 559 | | | | | | | | | | | | | | | |
Other publicly traded equity securities | | 175 | | | — | | | — | | | 175 | | | 331 | | | — | | | — | | | 331 | | | | | | | | | | | | | | | |
Deferred compensation plan | | 220 | | | — | | | — | | | 220 | | | 261 | | | — | | | — | | | 261 | | | | | | | | | | | | | | | |
Foreign currency derivative contracts | | — | | | 60 | | | — | | | 60 | | | — | | | 80 | | | — | | | 80 | | | | | | | | | | | | | | | |
Total | | $ | 5,658 | | | $ | 1,943 | | | $ | — | | | $ | 7,600 | | | $ | 6,150 | | | $ | 2,170 | | | $ | — | | | $ | 8,320 | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liability for MYR GmbH (“MYR”) contingent consideration | | $ | — | | | $ | — | | | $ | 275 | | | $ | 275 | | | $ | — | | | $ | — | | | $ | 317 | | | $ | 317 | | | | | | | | | | | | | | | |
Deferred compensation plan | | 220 | | | — | | | — | | | 220 | | | 261 | | | — | | | — | | | 261 | | | | | | | | | | | | | | | |
Foreign currency derivative contracts | | — | | | 42 | | | — | | | 42 | | | — | | | 5 | | | — | | | 5 | | | | | | | | | | | | | | | |
Total | | $ | 220 | | | $ | 42 | | | $ | 275 | | | $ | 538 | | | $ | 261 | | | $ | 5 | | | $ | 317 | | | $ | 583 | | | | | | | | | | | | | | | |
_______________________________
(1) See Note 10. Collaborations and Other Arrangements for additional information.
Level 2 Inputs
Available-for-Sale Debt Securities
For our available-for-sale debt securities, we estimate the fair values by reviewing trading activity and pricing as of the measurement date, and 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.
Foreign Currency Derivative Contracts
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, Secured Overnight Financing Rate and swap rates. These inputs, where applicable, are observable at commonly quoted intervals.
Senior Unsecured Notes
The total estimated fair values of our senior unsecured notes, determined using Level 2 inputs based on their quoted market values, were approximately $21.9 billion and $28.6 billion as of December 31, 2022 and 2021, respectively, and the carrying values were $24.1 billion and $25.6 billion as of December 31, 2022 and 2021, respectively.
Level 3 Inputs
Contingent Consideration
In connection with our first quarter 2021 acquisition of MYR, we recorded a liability for contingent consideration, which is revalued each reporting period until the related contingency is resolved. The contingent consideration was estimated using probability-weighted scenarios for U.S. Food and Drug Administration (“FDA”) approval of Hepcludex.
The following table summarizes the change in fair value of our contingent consideration:
| | | | | | | | | | | | | | | |
| | Year Ended December 31, | |
(in millions) | | 2022 | | 2021 | |
Beginning balance | | $ | 317 | | | $ | — | | |
Additions | | — | | | 341 | | |
Changes in valuation assumptions(1) | | (21) | | | (1) | | |
Effect of foreign exchange remeasurement(2) | | (21) | | | (23) | | |
Ending balance | | $ | 275 | | | $ | 317 | | |
________________________________
(1) Included in Research and development expenses on our Consolidated Statements of Income and primarily related to increasing discount rates and updated probability rate estimates.
(2) Included in Other income (expense), net on our Consolidated Statements of Income.
Liability Related to Future Royalties
We recorded a liability related to future royalties as part of our fourth quarter 2020 acquisition of Immunomedics, Inc. (“Immunomedics”), which is subsequently amortized using the effective interest method over the remaining estimated life. The fair values of the liability related to future royalties were $1.1 billion and $1.3 billion as of December 31, 2022 and 2021, respectively, and the carrying value was $1.1 billion as of December 31, 2022 and 2021. See Note 11. Debt and Credit Facilities for additional information.
Nonrecurring Fair Value Measurements
During 2022, we recorded a partial impairment charge of $2.7 billion related to certain IPR&D assets. See Note 8. Goodwill and Intangible Assets for additional information. There were no indicators of impairment noted during 2021.
Fair Value Level Transfers
There were no transfers between Level 1, Level 2 and Level 3 in the periods presented.
4. AVAILABLE-FOR-SALE DEBT SECURITIES AND EQUITY SECURITIES
Available-for-Sale Debt Securities
The following table summarizes our available-for-sale debt securities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 |
(in millions) | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
U.S. treasury securities | | $ | 415 | | | $ | — | | | $ | (5) | | | $ | 410 | | | $ | 408 | | | $ | — | | | $ | (1) | | | $ | 407 | |
U.S. government agencies securities | | 36 | | | — | | | — | | | 35 | | | 4 | | | — | | | — | | | 4 | |
Non-U.S. government securities | | 34 | | | — | | | — | | | 34 | | | 50 | | | — | | | — | | | 50 | |
Certificates of deposit | | 54 | | | — | | | — | | | 54 | | | 249 | | | — | | | — | | | 249 | |
Corporate debt securities | | 1,452 | | | — | | | (26) | | | 1,427 | | | 1,365 | | | — | | | (2) | | | 1,363 | |
Residential mortgage and asset-backed securities | | 335 | | | — | | | (3) | | | 333 | | | 425 | | | — | | | (1) | | | 424 | |
Total | | $ | 2,325 | | | $ | 1 | | | $ | (34) | | | $ | 2,293 | | | $ | 2,501 | | | $ | — | | | $ | (4) | | | $ | 2,497 | |
The following table summarizes information related to available-for-sale debt securities that have been in a continuous unrealized loss position, classified by length of time:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Less Than 12 Months | | 12 Months or Longer | | Total |
(in millions) | | Gross Unrealized Losses | | Estimated Fair Value | | Gross Unrealized Losses | | Estimated Fair Value | | Gross Unrealized Losses | | Estimated Fair Value |
U.S. treasury securities | | $ | (2) | | | $ | 174 | | | $ | (3) | | | $ | 206 | | | $ | (5) | | | $ | 379 | |
U.S. government agencies securities | | — | | | 21 | | | — | | | — | | | — | | | 21 | |
Non-U.S. government securities | | — | | | 31 | | | — | | | 3 | | | — | | | 34 | |
Certificates of deposit | | — | | | — | | | — | | | — | | | — | | | — | |
Corporate debt securities | | (17) | | | 774 | | | (8) | | | 439 | | | (26) | | | 1,213 | |
Residential mortgage and asset-backed securities | | (2) | | | 205 | | | (1) | | | 56 | | | (3) | | | 261 | |
Total | | $ | (22) | | | $ | 1,204 | | | $ | (12) | | | $ | 705 | | | $ | (34) | | | $ | 1,908 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Less Than 12 Months | | 12 Months or Longer | | Total |
(in millions) | | Gross Unrealized Losses | | Estimated Fair Value | | Gross Unrealized Losses | | Estimated Fair Value | | Gross Unrealized Losses | | Estimated Fair Value |
U.S. treasury securities | | $ | (1) | | | $ | 402 | | | $ | — | | | $ | — | | | $ | (1) | | | $ | 402 | |
U.S. government agencies securities | | — | | | 5 | | | — | | | — | | | — | | | 5 | |
Non-U.S. government securities | | — | | | 46 | | | — | | | — | | | — | | | 46 | |
Certificates of deposit | | — | | | — | | | — | | | — | | | — | | | — | |
Corporate debt securities | | (2) | | | 1,159 | | | — | | | — | | | (2) | | | 1,159 | |
Residential mortgage and asset-backed securities | | (1) | | | 410 | | | — | | | 10 | | | (1) | | | 420 | |
Total | | $ | (4) | | | $ | 2,022 | | | $ | — | | | $ | 10 | | | $ | (4) | | | $ | 2,032 | |
No allowance for credit losses was recognized for investments with unrealized losses as of December 31, 2022, as we do not currently intend to sell, and it is not more likely than not that we will be required to sell, such investments before recovery of their amortized cost bases. The unrealized losses were primarily driven by broader change in interest rates with no adverse conditions identified that would prevent the issuer from making scheduled principal and interest payments.
The following table summarizes the classification of our available-for-sale debt securities in our Consolidated Balance Sheets:
| | | | | | | | | | | | | | |
(in millions) | | December 31, 2022 | | December 31, 2021 |
Cash and cash equivalents | | $ | 75 | | | $ | 6 | |
Short-term marketable debt securities | | 973 | | | 1,182 | |
Long-term marketable debt securities | | 1,245 | | | 1,309 | |
Total | | $ | 2,293 | | | $ | 2,497 | |
The following table summarizes our available-for-sale debt securities by contractual maturity:
| | | | | | | | | | | | | | |
| | December 31, 2022 |
(in millions) | | Amortized Cost | | Fair Value |
Within one year | | $ | 1,057 | | | $ | 1,048 | |
After one year through five years | | 1,260 | | | 1,236 | |
After five years through ten years | | 3 | | | 3 | |
After ten years | | 6 | | | 6 | |
Total | | $ | 2,325 | | | $ | 2,293 | |
Equity Securities
Equity Securities Measured at Fair Value
The following table summarizes the classification of our equity securities measured at fair value on a recurring basis, on our Consolidated Balance Sheets:
| | | | | | | | | | | | | | |
(in millions) | | December 31, 2022 | | December 31, 2021 |
Cash and cash equivalents | | $ | 3,831 | | | $ | 3,661 | |
Prepaid and other current assets(1) | | 473 | | | 885 | |
Other long-term assets(1) | | 943 | | | 1,197 | |
Total | | $ | 5,248 | | | $ | 5,743 | |
________________________________(1) Prepaid and other current assets and Other long-term assets include our equity method investments in Arcus and Galapagos, respectively, for which we elected and applied the fair value option as we believe it best reflects the underlying economics of these investments. Our investment in Galapagos is classified in Other long-term assets due to certain lock-up provisions in our amended subscription agreement with them, which extend to August 2024.
Other Equity Securities
Equity method investments and other equity investments without readily determinable fair values were $423 million and $338 million as of December 31, 2022 and 2021, respectively, and were excluded from the table above. These amounts were included in Other long-term assets on our Consolidated Balance Sheets.
Unrealized Gains and Losses
Net unrealized losses recognized on equity securities were $657 million, $610 million and $1.7 billion for the years ended December 31, 2022, 2021 and 2020, respectively, and were included in Other income (expense), net on our Consolidated Statements of Income.
Related Party Transaction
During the years ended December 31, 2022 and 2021, Gilead donated certain equity securities at fair value to the Gilead Foundation, a California nonprofit public benefit corporation (the “Foundation”). The Foundation is a related party as certain of our officers also serve as directors of the Foundation. The donation expense of $85 million and $212 million was recorded within Selling, general and administrative expenses on our Consolidated Statements of Income during the for the years ended December 31, 2022 and 2021, respectively.
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 hedge a portion of our foreign currency exposures related to outstanding monetary assets and liabilities as well as forecasted product sales using foreign currency exchange forward contracts. In general, the market risk related to these contracts is offset by corresponding gains and losses on the hedged transactions. The credit risk associated with these contracts is driven by changes in interest and currency exchange rates and, as a result, varies over time. By working only with major banks and closely monitoring current market conditions, we seek to limit the risk that counterparties to these contracts may be unable to perform. We also seek to limit our risk of loss by entering into contracts that permit net settlement at maturity. Therefore, our overall risk of loss in the event of a counterparty default is limited to the amount of any unrealized gains on outstanding contracts (i.e., those contracts that have a positive fair value) at the date of default. We do not enter into derivative contracts for trading purposes.
The derivative instruments we use to hedge our exposures for certain monetary assets and liabilities that are denominated in a non-functional currency are not designated as hedges. The derivative instruments we use to hedge our exposures for forecasted product sales are designated as cash flow hedges and have maturities of 18 months or less.
As of December 31, 2022 and 2021, we held foreign currency exchange contracts with outstanding notional amounts of $3.0 billion and $2.9 billion, respectively.
While all our derivative contracts allow us the right to offset assets and liabilities, we have presented amounts in our Consolidated Balance Sheets on a gross basis. The following table summarizes the classification and fair values of derivative instruments, including the potential effect of offsetting:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Derivative Assets | | Derivative Liabilities |
(in millions) | | Classification | | Fair Value | | Classification | | Fair Value |
Derivatives designated as hedges: | | | | | | | | |
Foreign currency exchange contracts | | Prepaid and other current assets | | $ | 59 | | | Other current liabilities | | $ | 26 | |
Foreign currency exchange contracts | | Other long-term assets | | 1 | | | Other long-term obligations | | 9 | |
Total derivatives designated as hedges | | | | 59 | | | | | 35 | |
Derivatives not designated as hedges: | | | | | | | | |
Foreign currency exchange contracts | | Prepaid and other current assets | | 1 | | | Other current liabilities | | 7 | |
Total derivatives not designated as hedges | | | | 1 | | | | | 7 | |
Total derivatives presented gross on the Consolidated Balance Sheets | | | | $ | 60 | | | | | $ | 42 | |
| | | | | | | | |
Gross amounts not offset on the Consolidated Balance Sheets: | | | | | | | | |
Derivative financial instruments | | | | (36) | | | | | (36) | |
Cash collateral received / pledged | | | | — | | | | | — | |
Net amount (legal offset) | | | | $ | 25 | | | | | $ | 7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Derivative Assets | | Derivative Liabilities |
(in millions) | | Classification | | Fair Value | | Classification | | Fair Value |
Derivatives designated as hedges: | | | | | | | | |
Foreign currency exchange contracts | | Prepaid and other current assets | | $ | 75 | | | Other current liabilities | | $ | 4 | |
Foreign currency exchange contracts | | Other long-term assets | | 5 | | | Other long-term obligations | | 1 | |
Total derivatives designated as hedges | | | | 80 | | | | | 5 | |
Derivatives not designated as hedges: | | | | | | | | |
Foreign currency exchange contracts | | Prepaid and other current assets | | — | | | Other current liabilities | | — | |
Total derivatives not designated as hedges | | | | — | | | | | — | |
Total derivatives presented gross on the Consolidated Balance Sheets | | | | $ | 80 | | | | | $ | 5 | |
| | | | | | | | |
Gross amounts not offset on the Consolidated Balance Sheets: | | | | | | | | |
Derivative financial instruments | | | | (4) | | | | | (4) | |
Cash collateral received / pledged | | | | — | | | | | — | |
Net amount (legal offset) | | | | $ | 76 | | | | | $ | 1 | |
The following table summarizes the effect of our derivative contracts on our Consolidated Financial Statements:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
(in millions) | | 2022 | | 2021 | | 2020 |
Derivatives designated as hedges: | | | | | | |
Gain (loss) recognized in Accumulated other comprehensive income | | $ | 150 | | | $ | 147 | | | $ | (118) | |
Gain (loss) reclassified from Accumulated other comprehensive income to Product sales | | $ | 196 | | | $ | (67) | | | $ | 47 | |
Derivatives not designated as hedges: | | | | | | |
Gain (loss) recognized in Other income (expense), net | | $ | 67 | | | $ | 21 | | | $ | (51) | |
The majority of gains and losses related to the hedged forecasted transactions reported in Accumulated other comprehensive income as of December 31, 2022 are expected to be reclassified to Product sales within 12 months. There were no discontinuances of cash flow hedges for the years presented.
The cash flow effects of our derivative contracts for the years ended December 31, 2022, 2021 and 2020 were included within Net cash provided by operating activities on our Consolidated Statements of Cash Flows.
6. ACQUISITIONS
MiroBio
On September 20, 2022, we acquired all of the outstanding share capital of MiroBio Ltd. (“MiroBio”), a privately-held U.K.-based biotechnology company focused on restoring immune balance with agonists targeting immune inhibitory receptors, for $414 million in cash. As a result, MiroBio became our wholly-owned subsidiary.
We accounted for the transaction as an asset acquisition and recorded a $389 million charge to Acquired in-process research and development expenses on our Consolidated Statements of Income during 2022. The remaining purchase price relates to various other assets acquired and liabilities assumed.
MYR
In the first quarter of 2021, we completed the acquisition of MYR, a German biotechnology company. MYR focuses on the development and commercialization of therapeutics for the treatment of HDV. The acquisition provided Gilead with Hepcludex, which was conditionally approved by European Medicines Agency (“EMA”) in July 2020 for the treatment of chronic HDV infection in adults with compensated liver disease. Upon closing, MYR became a wholly-owned subsidiary of Gilead. The financial results of MYR were included in our Consolidated Financial Statements from the date of the acquisition.
The aggregate consideration for this acquisition of €1.3 billion (or $1.6 billion) primarily consisted of €1.0 billion (or $1.2 billion) paid upon closing and contingent consideration of up to €300 million, subject to customary adjustments, representing a potential future milestone payment upon FDA approval of Hepcludex. The fair value of this contingent liability, estimated using probability-weighted scenarios for FDA approval, was $341 million as of the acquisition date. As of December 31, 2021, the fair value of the liability was $317 million and was included in Other current liabilities on our Consolidated Balance Sheets. As of December 31, 2022, the fair value of the liability was $275 million and was included in Other long-term obligations. See Note 3. Fair Value Measurements for additional information.
The acquisition of MYR was accounted for as a business combination using the acquisition method of accounting. The following table summarizes estimated fair values of assets acquired and liabilities assumed as of the acquisition date:
| | | | | | | | |
(in millions) | | Amount |
Intangible assets: | | |
Finite-lived intangible asset | | $ | 845 | |
Acquired IPR&D | | 1,190 | |
Deferred income taxes, net | | (513) | |
Other assets (and liabilities), net | | (187) | |
Total identifiable net assets | | 1,335 | |
Goodwill | | 226 | |
Total consideration | | $ | 1,561 | |
Intangible Assets
The finite-lived intangible asset of $845 million represents the estimated fair value of Hepcludex for HDV in Europe as of the acquisition date. The fair value was determined by applying the income approach using unobservable inputs to estimate probability-weighted net cash flows attributable to Hepcludex for HDV in Europe and a discount rate of 12%. The discount rate used represents the estimated rate that market participants would use to value this intangible asset. This intangible asset is being amortized over an estimated useful life of 10 years.
Acquired IPR&D consists of Hepcludex for HDV in all other regions without regulatory approval, including the United States. The estimated aggregate fair value of $1.19 billion as of the acquisition date was determined by applying the income approach using unobservable inputs (Level 3 under the fair value measurement and disclosure guidance) to estimate probability-weighted net cash flows attributable to this asset and a discount rate of 12%. The discount rate used represents the estimated rate that market participants would use to value this intangible asset.
Deferred Income Taxes
The net deferred tax liability was based upon the difference between the estimated financial statement basis and tax basis of net assets acquired and an estimate for the final pre-acquisition net operating losses of MYR.
Goodwill
The excess of the consideration transferred over the fair values of assets acquired and liabilities assumed of $226 million was recorded as goodwill, which primarily reflects the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill recognized for MYR is not expected to be deductible for income tax purposes.
The one-year measurement period was completed in the first quarter of 2022, with adjustments recorded to the fair values of assets acquired and liabilities assumed of $18 million. See Note 8. Goodwill and Intangible Assets for additional information.
Immunomedics
In the fourth quarter of 2020, we completed the acquisition of Immunomedics, a company focused on the development of antibody-drug conjugate technology, for cash consideration of $20.6 billion. Upon closing, Immunomedics became a wholly-owned subsidiary of Gilead. The acquisition was financed with the majority of the proceeds from the September 2020 senior unsecured notes offering, an additional $1.0 billion borrowing under a new senior unsecured term loan facility and cash on hand. In 2021, we repaid the borrowing under the senior unsecured term loan facility.
We recorded share-based compensation expense of $289 million related to the cash settlement of the accelerated share-based compensation expense attributable to the post-combination period, which was primarily recorded in Selling, general and administrative expenses and Research and development expenses on our Consolidated Statements of Income for the year ended December 31, 2020. We also recorded other acquisition-related expenses of $39 million, primarily representing closing costs and related fees, in Selling, general and administrative expenses on our Consolidated Statements of Income for the year ended December 31, 2020.
The acquisition of Immunomedics was accounted for as a business combination using the acquisition method of accounting. The following table summarizes fair values of assets acquired and liabilities assumed as of the acquisition date:
| | | | | | | | |
(in millions) | | Amount |
Cash and cash equivalents | | $ | 726 | |
Inventories | | 946 | |
Intangible assets: | | |
Finite-lived intangible asset | | 4,600 | |
Acquired IPR&D | | 15,760 | |
Outlicense contract | | 175 | |
Deferred tax liabilities | | (4,565) | |
Liability related to future royalties | | (1,100) | |
Other assets (and liabilities), net | | 64 | |
Total identifiable net assets | | 16,606 | |
Goodwill | | 3,991 | |
Total consideration transferred | | $ | 20,597 | |
Inventories
The fair value step-up adjustment of $881 million, included in inventories of $946 million as of the acquisition date, was primarily determined by the estimated selling price of finished inventory less the cost to complete the manufacturing process and selling effort. The step-up adjustment was recorded in Cost of goods sold on our Consolidated Statements of Income as the inventory was sold to customers and in Research and development expenses on our Consolidated Statements of Income for inventory used for clinical purposes.
Intangible Assets
The finite-lived intangible asset of $4.6 billion represents the estimated fair value of Trodelvy for metastatic triple-negative breast cancer (“TNBC”) as of the acquisition date. The fair value was determined by applying the income approach using unobservable inputs to estimate probability-weighted net cash flows attributable to Trodelvy for metastatic TNBC and a discount rate of 7.0%. The discount rate used represents the estimated rate that market participants would use to value this intangible asset. This intangible asset is being amortized over an estimated useful life of 12 years.
Acquired IPR&D assets consist of Trodelvy for hormone receptor-positive, human epidermal growth factor receptor 2-negative (“HR+/HER2-”) breast cancer, Trodelvy for non-small cell lung cancer and Trodelvy for urothelial cancer (“UC”). The estimated aggregate fair value of $15.8 billion as of the acquisition date was determined by applying the income approach using unobservable inputs (Level 3 under the fair value measurement and disclosure guidance) to estimate probability-weighted net cash flows attributable to these assets and a discount rate of 7.0%. The discount rate used represents the estimated rate that market participants would use to value these intangible assets. Trodelvy for UC was granted accelerated approval by FDA in April 2021 and $1.0 billion was reclassified to finite-lived intangibles from IPR&D. Trodelvy for HR+/HER2- breast cancer was partially impaired in the first quarter of 2022, but was subsequently granted approval by FDA in February 2023 and $6.1 billion will be reclassified to finite-lived intangibles from IPR&D in the first quarter of 2023. See Note 8. Goodwill and Intangible Assets for additional information.
We also recorded an intangible asset related to a license and supply agreement with Everest Medicines (“Everest”), which was entered into by Immunomedics prior to the acquisition. Under the agreement, Everest was granted an exclusive license to develop and commercialize Trodelvy in certain territories in Asia and make certain sales milestones and royalty payments to us. The acquisition date fair value of $175 million was determined by estimating the probability-weighted net cash flows attributable to the outlicense and a discount rate of 7.0%. The discount rate represents the estimated rate that market participants would use to value this intangible asset. This intangible asset was being amortized over an estimated useful life of 15 years on a straight-line basis up until we reacquired the rights from Everest in the fourth quarter of 2022. See Note 10. Collaborations and Other Arrangements for additional information.
Deferred Income Taxes
The net deferred tax liability was based upon the difference between the estimated financial statement basis and tax basis of net assets acquired and an estimate for the final pre-acquisition net operating losses of Immunomedics.
Liability Related to Future Royalties
We assumed a liability related to a funding arrangement, which was originally entered into by Immunomedics and RPI Finance Trust (“RPI”), prior to our acquisition of Immunomedics. Under the funding agreement, RPI has the right to receive certain royalty amounts, subject to certain reductions, based on the net sales of Trodelvy for each calendar quarter during the term of the agreement through approximately 2036. The acquisition date fair value of the liability was estimated as $1.1 billion, which was primarily determined based on current estimates of future royalty payments to RPI over the life of the arrangement using the real options method and an effective annual interest rate of 2.5%. The inputs used for valuation of this liability are unobservable and are considered Level 3 under the fair value measurement and disclosure guidance. The liability related to future royalties was categorized as debt and primarily included in Long-term debt, net on our Consolidated Balance Sheets. See Notes 3. Fair Value Measurements and 11. Debt and Credit Facilities for additional information.
Goodwill
The excess of the consideration transferred over the fair values of assets acquired and liabilities assumed of $4.0 billion was recorded as goodwill, which primarily reflects the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill recognized for Immunomedics is not expected to be deductible for income tax purposes.
Forty Seven, Inc. (“Forty Seven”)
In the second quarter of 2020, we completed the acquisition of Forty Seven, a clinical-stage immuno-oncology company focused on developing therapies targeting cancer immune evasion pathways and specific cell targeting approaches, for total consideration of $4.7 billion, net of acquired cash. Upon closing, Forty Seven became a wholly-owned subsidiary of Gilead. 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. During the year ended December 31, 2020, 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, and stock-based compensation expense of $144 million primarily in Research and development expenses on our Consolidated Statements of Income.
7. PROPERTY, PLANT AND EQUIPMENT
The following table summarizes our Property, plant and equipment, net:
| | | | | | | | | | | | | | |
| | December 31, |
(in millions) | | 2022 | | 2021 |
Land and land improvements | | $ | 562 | | | $ | 404 | |
Buildings and improvements (including leasehold improvements) | | 4,390 | | | 3,794 | |
Laboratory and manufacturing equipment | | 1,110 | | | 952 | |
Office, computer equipment and other(1) | | 880 | | | 807 | |
Construction in progress | | 719 | | | 1,057 | |
Subtotal | | 7,661 | | | 7,014 | |
Less: accumulated depreciation and amortization | | 2,186 | | | 1,893 | |
Total | | $ | 5,475 | | | $ | 5,121 | |
________________________________
(1) Includes $104 million and $131 million of unamortized capitalized software costs as of December 31, 2022 and 2021, respectively.
The net book value of our property, plant and equipment in the U.S. was $4.5 billion and $4.1 billion as of December 31, 2022 and 2021, respectively. The corresponding amount in international locations was $973 million and $963 million as of December 31, 2022 and 2021, respectively. All individual international locations accounted for less than 10% of the total balances.
8. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table summarizes the changes in the carrying amount of Goodwill:
| | | | | | | | | | | | | | |
| | December 31, |
(in millions) | | 2022 | | 2021 |
Beginning balance | | $ | 8,332 | | | $ | 8,108 | |
Goodwill resulting from acquisitions | | — | | | 226 | |
Measurement period adjustments | | (18) | | | (2) | |
Ending balance | | $ | 8,314 | | | $ | 8,332 | |
In 2022, goodwill decreased by $18 million as a result of finalizing the amount of acquired net operating losses of MYR, which resulted in a decrease to the net deferred tax liability acquired. As of December 31, 2022, there were no accumulated goodwill impairment losses.
Intangible Assets
The following table summarizes our Intangible assets, net:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 |
(in millions) | | Gross Carrying Amount | | Accumulated Amortization | | Foreign Currency Translation Adjustment | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Foreign Currency Translation Adjustment | | Net Carrying Amount |
Finite-lived assets: | | | | | | | | | | | | | | | | |
Intangible asset – sofosbuvir | | $ | 10,720 | | | $ | (6,350) | | | $ | — | | | $ | 4,370 | | | $ | 10,720 | | | $ | (5,651) | | | $ | — | | | $ | 5,069 | |
Intangible asset – axicabtagene ciloleucel | | 7,110 | | | (1,908) | | | — | | | 5,202 | | | 7,110 | | | (1,501) | | | — | | | 5,609 | |
Intangible asset – Trodelvy | | 5,630 | | | (973) | | | — | | | 4,657 | | | 5,630 | | | (507) | | | — | | | 5,123 | |
Intangible asset – Hepcludex | | 845 | | | (158) | | | — | | | 687 | | | 845 | | | (72) | | | — | | | 773 | |
Other | | 1,489 | | | (733) | | | 1 | | | 758 | | | 1,610 | | | (650) | | | 1 | | | 961 | |
Total finite-lived assets | | 25,794 | | | (10,121) | | | 1 | | | 15,674 | | | 25,915 | | | (8,381) | | | 1 | | | 17,535 | |
Indefinite-lived assets – IPR&D(1) | | 13,220 | | | — | | | — | | | 13,220 | | | 15,920 | | | — | | | — | | | 15,920 | |
Total intangible assets | | $ | 39,014 | | | $ | (10,121) | | | $ | 1 | | | $ | 28,894 | | | $ | 41,835 | | | $ | (8,381) | | | $ | 1 | | | $ | 33,455 | |
_______________________________
(1) In February 2023, FDA granted approval of Trodelvy for use in adult patients with unresectable locally advanced or metastatic HR+/HER2- breast cancer who have received endocrine-based therapy and at least two additional systemic therapies in the metastatic setting. Accordingly, the related IPR&D intangible asset of $6.1 billion will be reclassified to finite-lived assets in the first quarter of 2023.
Amortization Expense
Aggregate amortization expense related to finite-lived intangible assets was $1.8 billion, $1.7 billion and $1.2 billion for the years ended December 31, 2022, 2021 and 2020, respectively, and is primarily included in Cost of goods sold on our Consolidated Statements of Income.
The following table summarizes the estimated future amortization expense associated with our finite-lived intangible assets as of December 31, 2022:
| | | | | | | | |
(in millions) | | Amount |
2023 | | $ | 1,777 | |
2024 | | 1,777 | |
2025 | | 1,771 | |
2026 | | 1,763 | |
2027 | | 1,763 | |
Thereafter | | 6,824 | |
Total | | $ | 15,674 | |
Impairment Assessments
No indicators of impairment were noted for the years ended December 31, 2022, 2021 and 2020, except as described under “2022 IPR&D Impairment” below. The weighted-average discount rates used in our quantitative assessments for IPR&D intangible assets during those years, other than for the assessment described below, were 7.5%, 6.5% and 8.0%, respectively.
2022 IPR&D Impairment
In connection with our acquisition of Immunomedics in 2020, we allocated a portion of the purchase price to acquired IPR&D intangible assets. Approximately $8.8 billion was assigned to IPR&D intangible assets related to Trodelvy for treatment of patients with HR+/HER2- breast cancer. In March 2022, we received data from the Phase 3 TROPiCS-02 study evaluating Trodelvy in patients with HR+/HER2- metastatic breast cancer who have received prior endocrine therapy, cyclin-dependent kinase 4/6 inhibitors and two to four lines of chemotherapy (“third-line plus patients”). Based on our evaluation of the study results, and in connection with the preparation of the financial statements for the first quarter, we updated our estimate of the fair value of our HR+/HER2- IPR&D intangible asset to $6.1 billion as of March 31, 2022. Our estimate of fair value used a probability-weighted income approach that discounts expected future cash flows to the present value, which requires the use of Level 3 fair value measurements and inputs, including estimated revenues, costs, and probability of technical and regulatory success. The expected cash flows included cash flows from HR+/HER2- metastatic breast cancer for third-line plus patients and patients in earlier lines of therapy which are the subject of separate clinical studies. Our revised discounted cash flows were lower primarily due to a delay in launch timing for third-line plus patients which caused a decrease in our market share assumptions based on the expected competitive environment. As of March 2022, there were no changes in our plans or assumptions related to our estimated cash flows for patients in the earlier lines of therapy. We used a discount rate of 6.75% which is based on the estimated weighted-average cost of capital for companies with profiles similar to ours and represents the rate that market participants would use to value the intangible assets. We determined the revised estimated fair value was below the carrying value of the asset and, as a result, we recognized a partial impairment charge of $2.7 billion in In-process research and development impairment on our Consolidated Statements of Income during the three months ended March 31, 2022.
9. OTHER FINANCIAL INFORMATION
Accounts receivable, net
The following table summarizes our Accounts receivable, net: | | | | | | | | | | | | | | |
| | December 31, |
(in millions) | | 2022 | | 2021 |
Accounts receivable | | $ | 5,464 | | | $ | 5,278 | |
Less: allowances for chargebacks | | 549 | | | 671 | |
Less: allowances for cash discounts and other | | 83 | | | 67 | |
Less: allowances for credit losses | | 55 | | | 47 | |
Accounts receivable, net | | $ | 4,777 | | | $ | 4,493 | |
The majority of our trade accounts receivable arises from product sales in the U.S. and Europe.
Inventories
The following table summarizes our Inventories: | | | | | | | | | | | | | | |
| | December 31, |
(in millions) | | 2022 | | 2021 |
Raw materials | | $ | 1,177 | | | $ | 1,112 | |
Work in process | | 577 | | | 590 | |
Finished goods | | 1,066 | | | 1,032 | |
Total | | $ | 2,820 | | | $ | 2,734 | |
| | | | |
Reported as: | | | | |
Inventories | | $ | 1,507 | | | $ | 1,618 | |
Other long-term assets(1) | | 1,313 | | | 1,116 | |
Total | | $ | 2,820 | | | $ | 2,734 | |
_______________________________ (1) Amounts primarily consist of raw materials.
Total inventories as of December 31, 2021 included $294 million of fair value adjustments resulting from the Immunomedics acquisition. There were no fair value adjustments in total inventories as of December 31, 2022.
Other current liabilities
The following table summarizes the components of Other current liabilities:
| | | | | | | | | | | | | | |
| | December 31, |
(in millions) | | 2022 | | 2021 |
Compensation and employee benefits | | $ | 1,018 | | | $ | 927 | |
Income taxes payable | | 959 | | | 539 | |
Allowance for sales returns | | 422 | | | 499 | |
Accrual for settlement related to bictegravir litigation(1) | | — | | | 1,250 | |
Other accrued liabilities | | 2,182 | | | 2,930 | |
Other current liabilities | | $ | 4,580 | | | $ | 6,145 | |
_______________________________
(1) See Note 13. Commitments and Contingencies for additional information.
10. COLLABORATIONS AND OTHER ARRANGEMENTS
We enter into licensing and strategic collaborations and other similar arrangements with third parties for the development and commercialization of certain products and product candidates. These arrangements may involve two or more parties who are active participants in the operating activities of the collaboration and are exposed to significant risks and rewards depending on the commercial success of the activities. These arrangements may include non-refundable upfront payments, expense reimbursements or payments by us for options to acquire certain rights, contingent obligations by us for potential development and regulatory milestone payments and/or sales-based milestone payments, royalty payments, revenue or profit-sharing arrangements, cost-sharing arrangements and equity investments.
Under the financial terms of these arrangements, we may be required to make payments upon achievement of various developmental, regulatory and commercial milestones, which could be significant. Future milestone payments, if any, will be reflected in our Consolidated Statements of Income when the corresponding events become probable. In connection with the regulatory approvals, milestone payments made will be capitalized as intangible assets and will be amortized to Cost of goods sold through the terms of these collaboration arrangements. In addition, we may be required to pay significant royalties on future sales if products related to these arrangements are commercialized. The payment of these amounts, however, is contingent upon the occurrence of various future events, which have a high degree of uncertainty.
Dragonfly
In April 2022, we entered into a strategic research collaboration agreement (the “Dragonfly Collaboration Agreement”) with Dragonfly Therapeutics, Inc. (“Dragonfly”) to develop natural killer (“NK”) cell engager-based immunotherapies for oncology and inflammation indications. Under the terms of the Dragonfly Collaboration Agreement, we received an exclusive, worldwide license from Dragonfly for the 5T4-targeting investigational immunotherapy program, DF7001, as well as options, after the completion of certain preclinical activities, to license exclusive, worldwide rights to develop and commercialize additional NK cell engager programs using the Dragonfly Tri-specific NK Engager platform. Upon the closing of the Dragonfly Collaboration Agreement, we made a $300 million upfront payment to Dragonfly, and we made an additional $15 million payment related to a target selection in connection with an August 2022 amendment to the agreement, which were recorded in Acquired in-process research and development expenses on our Consolidated Statements of Income during the year ended December 31, 2022. These payments were classified as Acquisitions, including in-process research and development, net of cash acquired in Investing Activities on our Consolidated Statements of Cash Flows for the year ended December 31, 2022. In addition, Dragonfly is eligible to receive performance-based development and regulatory milestone payments of up to $630 million related to the DF7001 program with further commercial milestone payments and royalties on worldwide net sales if successful. If we exercise our options on additional NK cell engager programs, Dragonfly would be eligible to receive opt-in payments and performance-based development, regulatory and commercial milestone payments and royalties on worldwide net sales on these optioned programs as well.
Merck & Co, Inc. (“Merck”)
On March 13, 2021, we entered into a license and collaboration agreement with Merck Sharp & Dohme Corp., a subsidiary of Merck to jointly develop and commercialize long-acting investigational treatments in HIV that combine Gilead’s investigational capsid inhibitor, lenacapavir, and Merck’s investigational nucleoside reverse transcriptase translocation inhibitor, islatravir. The collaboration is initially focused on long-acting oral and injectable formulations.
Under the terms of the agreement, Gilead and Merck share global development and commercialization costs at 60% and 40%, respectively, across the oral and injectable formulation programs. For long-acting oral products, if approved, Gilead would lead commercialization in the U.S., and Merck would lead commercialization in the European Union (“EU”) and rest of the world. For long-acting injectable products, if approved, Merck would lead commercialization in the U.S. and Gilead would lead commercialization in the EU and rest of the world. Under the terms of the agreement, Gilead and Merck would jointly promote the combination products in the U.S. and certain other major markets. If successful, we would share global product revenues with Merck equally until product revenues surpass certain pre-determined per formulation revenue tiers. Upon passing $2.0 billion in net product sales for the oral combination in a given calendar year, our share of revenue would increase to 65% for any revenues above the threshold for such calendar year. Upon passing $3.5 billion in net product sales for the injectable combination in a given calendar year, our share of revenue will increase to 65% for any revenues above the threshold for such calendar year. Reimbursements of R&D costs to or from Merck are recorded within Research and development expenses on our Consolidated Statements of Income. Expenses recognized under the agreement were not material for the years ended December 31, 2022 and 2021. No revenues have been recognized under the agreement for the years ended December 31, 2022 and 2021.
We will also have the option to license certain of Merck’s investigational oral integrase inhibitors to develop in combination with lenacapavir. Reciprocally, Merck will have the option to license certain of Gilead’s investigational oral integrase inhibitors to develop in combination with islatravir. Each company may exercise its option for such investigational oral integrase inhibitor of the other company within the first five years after execution of the agreement, following completion of the first Phase 1 clinical trial of that integrase inhibitor. Upon exercise of an option, the companies will split development costs and revenues, unless the non-exercising company decides to opt out, in which case the non-exercising company will be paid a royalty.
In December 2021, Merck announced the decision of the parties to stop all dosing of participants in the Phase 2 clinical study evaluating an oral-weekly combination treatment regimen of lenacapavir and islatravir following the decision of FDA to place clinical holds on the Investigational New Drug applications for certain formulations of islatravir. In September 2022, Merck announced that the study would resume under an amended protocol with a lower dose of islatravir.
Arcus
On May 27, 2020, we entered into a transaction with Arcus, a publicly traded oncology-focused biopharmaceutical company, 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, and as subsequently amended the “Stock Purchase Agreements”). In accordance with the terms of the Collaboration Agreement and Stock Purchase Agreements, which closed on July 13, 2020, we made an upfront payment of $175 million and acquired approximately 6.0 million shares of Arcus common stock for approximately $200 million. Of the total $391 million initial cash payments, including transactional costs, made under the agreements, we recorded $135 million as an equity investment which was calculated based on Arcus’ closing stock price on the closing date of the transaction. The remaining $256 million was attributed to (i) the acquired license and option rights of $175 million representing IPR&D assets with no alternative future use, (ii) $65 million of an issuance premium for the equity purchase and (iii) $16 million of direct transactional costs. These amounts were expensed as Acquired in-process research and development expenses during the year ended December 31, 2020 on our Consolidated Statements of Income.
Under the Stock Purchase Agreements, we have the right to purchase from Arcus additional shares up to a maximum of 35% of the outstanding voting stock of Arcus over a five-year period ending in the third quarter of 2025. We are also subject to a three-year standstill ending in the second quarter of 2023, restricting certain other activity on our part. On May 29, 2020, in a separate secondary equity offering, we acquired 2.2 million shares of common stock of Arcus for approximately $61 million. In the first quarter of 2021, we also acquired approximately 5.7 million additional shares of Arcus common stock for $220 million. As a result, we currently own a total of 13.8 million shares of Arcus, which represented approximately 19.5% of the issued and outstanding voting stock of Arcus immediately following the closing of the first quarter 2021 transaction.
Pursuant to the Collaboration Agreement, Gilead had the right to opt in to all current and future clinical-stage product candidates for up to ten years following the closing of the transaction. In November 2021, we exercised our options to three of Arcus’ clinical stage programs and amended the Collaboration Agreement. The option exercise and amendment transaction closed in December 2021, triggering collaboration opt-in payments of $725 million and waiving the $100 million option continuation payment which would have been due to Arcus in the third quarter of 2022. The net option charge of $625 million is included within Acquired in-process research and development expenses on our Consolidated Statements of Income for the year ended December 31, 2021. The collaboration opt-in payments of $725 million were recorded in Other current liabilities on our Consolidated Balance Sheets as of December 31, 2021 and paid to Arcus in January 2022. Our payments to Arcus were included within Net cash used in investing activities on our Consolidated Statements of Cash Flows in the first quarter of 2022. Under the amended Collaboration Agreement, the companies co-develop and share the global costs related to these clinical programs. We recorded $187 million of such costs in Research and development expenses on our Consolidated Statements of Income for the year ended December 31, 2022. If the optioned molecules achieve regulatory approval, the companies will co-commercialize and equally share profits in the U.S. Gilead will hold exclusive commercialization rights outside the U.S., subject to any rights of Arcus’s existing collaboration partners, and will pay to Arcus tiered royalties as a percentage of net sales ranging from the mid teens to low twenties. Under the Collaboration Agreement, we may also pay an additional $100 million at our option on each of the fourth, sixth and eighth anniversaries of the agreement, unless terminated early, to maintain the rights to opt in to future Arcus programs for the duration of the contact term.
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 a 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 R&D service agreement.
On July 13, 2020, we closed the transaction and made cash payments of $269 million. We account for our investment in Pionyr using the equity method of accounting because our equity interest provides us with the ability to exercise significant influence over Pionyr. Our investment in Pionyr, consisting of the transaction price noted above and transaction costs, exceeded our pro-rata portion of Pionyr's net assets at transaction closing. We determined that the resulting basis difference primarily relates to Pionyr’s IPR&D which has no alternative future use and that Pionyr is not a business as defined in accounting standards. As a result, we immediately recorded a charge for this basis difference of $215 million in Acquired in-process research and development expenses on our Consolidated Statements of Income during the year ended December 31, 2020. The carrying value of our equity method investment in Pionyr was zero as of December 31, 2022 and 2021.
The estimated fair value of our exclusive option to acquire the remaining outstanding capital stock of Pionyr is approximately $70 million based on a probability-weighted option pricing model using unobservable inputs, which are considered Level 3 under the fair value measurement and disclosure guidance. The estimated amount is recorded in Other long-term assets on our Consolidated Balance Sheets. 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. 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 R&D service agreement, we made an initial cash funding of $80 million and recorded a charge in Acquired in-process research and development expenses on our Consolidated Statements of Income during the year ended December 31, 2020. In addition, we committed to provide additional payments of up to $115 million to Pionyr upon achievement of certain development milestones. We accrued $70 million in milestone payments, related to the initiation of two Phase 1 studies, with a charge to Acquired in-process research and development expenses on our Consolidated Statements of Income during the year ended December 31, 2020, and the payment was made in the first quarter of 2021.
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 made cash payments of $302 million to Tizona’s shareholders in accordance with the terms of the Tizona Merger and Option Agreements. We account for our investment in Tizona using the equity method of accounting because our equity interest provides us with the ability to exercise significant influence over Tizona. Our investment in Tizona, consisting of the transaction price noted above and transaction costs, exceeded our pro-rata portion of Tizona’s net assets at transaction closing. We determined that the resulting basis difference primarily relates to Tizona’s IPR&D with no alternative future use and that Tizona is not a business as defined in accounting standards. As a result, during the year ended December 31, 2020, we immediately recorded a charge for this basis difference of $272 million in Acquired in-process research and development expenses on our Consolidated Statements of Income. The carrying value of our equity method investment in Tizona was zero as of December 31, 2022 and 2021.
The estimated fair value of our exclusive option to acquire the remaining outstanding capital stock of Tizona is approximately $41 million based on a probability-weighted option pricing model using unobservable inputs, which are considered Level 3 under the fair value measurement and disclosure guidance. The estimated amount is recorded in Other long-term assets on our Consolidated Balance Sheets. We may choose to exercise our exclusive option to purchase the remaining equity interest from Tizona’s current shareholders for a $100 million option exercise fee and up to $1.2 billion in potential future milestone payments upon achievement of certain development and regulatory milestones. Such option to purchase will expire following the earliest occurrence of specified events, including the delivery of data following completion of certain Phase 1b trials by Tizona.
Under the development agreement, we committed to provide funding to Tizona of $115 million, which was recorded in Acquired in-process research and development expenses on our Consolidated Statements of Income during the year ended December 31, 2020.
Tango Therapeutics, Inc. (“Tango”)
On August 17, 2020, we entered into a transaction with Tango, a privately held company pursuing innovative targeted immune evasion therapies for patients with cancer through its proprietary, CRISPR-enabled functional genomics target discovery platform, which included entry into an amended and restated research collaboration and license agreement and a stock purchase agreement (together, the “Tango Collaboration and Stock Purchase Agreements”).
Upon entering into this transaction, we made an upfront payment of $125 million and a $20 million equity investment in Tango. During the year ended December 31, 2020, we recorded the $125 million upfront expense in Acquired in-process research and development expenses on our Consolidated Statements of Income. In the third quarter of 2021, we made an additional $13 million equity investment. Tango became a publicly traded company in 2021, and accordingly our equity investment has since been recorded in Prepaid and other current assets on our Consolidated Balance Sheets at fair market value.
Under the Tango Collaboration and Stock Purchase Agreements, Gilead has the right to option up to 15 programs over the seven-year collaboration for up to $410 million per program in opt-in, extension and milestone payments. For the products that Tango opts to co-develop and co-promote, the parties will equally split profits and losses, as well as development costs in the U.S. For products that Tango does not opt to co-develop and co-promote, we will pay Tango up to low double-digit tiered royalties on net sales. We will provide Tango milestone payments and royalties on sales outside of the U.S.
Jounce Therapeutics, Inc. (“Jounce”)
On September 1, 2020, we entered into a transaction with Jounce, a publicly traded company developing novel cancer immunotherapies, which included entry into license, registration rights and stock purchase agreements (together, “Jounce License and Stock Purchase Agreement”). In October 2020, we closed this transaction and made a total payment of $120 million. We recorded $64 million upfront expense in Acquired in-process research and development expenses on our Consolidated Statements of Income and $56 million as an equity investment in Other long-term assets on our Consolidated Balance Sheets, representing approximately 14% of the issued and outstanding voting stock of Jounce immediately following the transaction, which was calculated based on Jounce’s closing stock price on the closing date of the transaction. In December 2022, we amended our existing license agreement with Jounce enabling us to buy out the remaining contingent payments potentially due under the license agreement for $67 million, which was expensed to Acquired in-process research and development expenses on our Consolidated Statements of Income and was paid in 2022. Going forward, we will be solely responsible for all further research, development and commercialization of the immunotherapy specified in the license agreement.
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”). Under the terms of the filgotinib agreement, as amended in 2019 (the “2019 Agreement”), we obtained an exclusive, worldwide, royalty-bearing, sublicensable license for filgotinib and products containing filgotinib.
In December 2020, Gilead and Galapagos amended their agreement to allow Galapagos to assume development, manufacturing, commercialization and certain other rights for filgotinib in Europe. In connection with the amendments to the 2019 Agreement, Gilead agreed to irrevocably pay Galapagos €160 million (or approximately $190 million). Of this total amount, Gilead paid €35 million (or approximately $43 million) in January 2021, an additional €75 million (or approximately $88 million) in April 2021, and €50 million (or approximately $60 million) in 2022. We accrued the full amount of this liability with a charge to Research and development expenses on our Consolidated Statements of Income for the year ended December 31, 2020. In addition, Galapagos will no longer be eligible to receive any future milestone payments relating to filgotinib in Europe.
Global Collaboration
In August 2019, we closed an option, license and collaboration agreement (the “Galapagos Collaboration Agreement”) and a subscription agreement (the “Galapagos Subscription Agreement”), each with Galapagos, pursuant to which the parties entered into a global collaboration that covers Galapagos’ current and future product portfolio (other than filgotinib).
Pursuant to the Galapagos Subscription Agreement, we purchased 6.8 million new ordinary shares of Galapagos and 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. We currently own 16.7 million shares or approximately 25.8% of the shares issued and outstanding at the time of last purchase in 2019. We are subject to a 10-year standstill restricting our ability to acquire voting securities of Galapagos exceeding more than 29.9% of the then-issued and outstanding voting securities of Galapagos. We agreed not to, without the prior consent of Galapagos, dispose of any equity securities of Galapagos prior to the second anniversary of the closing of the Galapagos Subscription Agreement or dispose of any equity securities of Galapagos thereafter until the fifth anniversary of the closing of the Galapagos Subscription Agreement, if after such disposal we would own less than 20.1% of the then-issued and outstanding voting securities of Galapagos, subject to certain exceptions and termination events. In April 2021, we amended the Galapagos Subscription Agreement to extend the initial lock-up provision for certain Galapagos shares from August 2021 to August 2024.
With respect to 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. 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. 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. We have two designees appointed to Galapagos’ board of directors.
Janssen
Complera/Eviplera and Odefsey
In 2009, we entered into a license and collaboration agreement with Janssen, formerly Tibotec Pharmaceuticals, to develop and commercialize a fixed-dose combination of our Truvada and Janssen’s non-nucleoside reverse transcriptase inhibitor, rilpivirine, This combination was approved in the U.S. and EU in 2011, and is sold under the brand name Complera in the U.S. and Eviplera in the EU. The agreement was amended in 2014 to expand the collaboration to include another product containing Janssen’s rilpivirine and our emtricitabine and tenofovir alafenamide (“Odefsey”).
Under the amended agreement, Janssen granted us an exclusive license to Complera/Eviplera and Odefsey worldwide, but retained rights to distribute both combination products in certain countries outside of the U.S. Neither party is restricted from combining its drugs with any other drug products except those which are similar to the components of Complera/Eviplera and Odefsey.
We are responsible for manufacturing Complera/Eviplera and Odefsey and have the lead role in registration, distribution and commercialization of both products except in the countries where Janssen distributes. Janssen has exercised a right to co-detail the combination product in some of the countries where we are the selling party.
Under the financial provisions of the 2014 amendment, the selling party sets the price of the combined products and the parties share revenues based on the ratio of the net selling prices of the party’s component(s), subject to certain restrictions and adjustments. We retain a specified percentage of Janssen’s share of revenues, including up to 30% in major markets. Sales of these products are included in Product sales and Janssen’s share of revenues is included in Cost of goods sold on our Consolidated Statements of Income. Cost of goods sold relating to Janssen’s share was $483 million, $530 million and $570 million for the years ended December 31, 2022, 2021 and 2020, 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 the 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 (“Gilead Compounds”). This combination was approved in the U.S. and EU 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 the 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.
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 the revenue share payment term. Janssen may terminate the agreement without cause on a country-by-country basis, in which case Gilead has the right to become the selling party for such country(ies) if the product has launched but has been on the market for fewer than 10 years. Janssen may also terminate the entire agreement without cause.
Japan Tobacco, Inc. (“Japan Tobacco”)
In 2005, Japan Tobacco granted us exclusive rights to develop and commercialize elvitegravir, a novel HIV integrase inhibitor, in all countries of the world, excluding Japan, where Japan Tobacco retained such rights. Effective 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.
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. Our sales of these products are included in Product sales on our Consolidated Statements of Income. Royalties due to Japan Tobacco are included in Cost of goods sold on our Consolidated Statements of Income. Royalty expenses recognized were $198 million, $250 million and $291 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Under the terms of the 2018 agreement, we paid Japan Tobacco $559 million in cash and recognized an intangible asset of $550 million reflecting the estimated fair value of the marketing-related rights acquired from Japan Tobacco. 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.
Everest
In April 2019, Everest and Immunomedics entered into an agreement granting Everest an exclusive license to develop and commercialize Trodelvy in Greater China, South Korea, Singapore, Indonesia, Philippines, Vietnam, Thailand, Malaysia and Mongolia (the “Territories”). Gilead subsequently acquired Immunomedics in October 2020 and assumed the Everest license and supply agreement, which provided for certain sales milestones and royalties payments to be made to Gilead and was recorded as a $175 million finite-lived asset as part of the purchase accounting. In the fourth quarter of 2022, we reacquired all development and commercialization rights for Trodelvy from Everest and terminated the previous agreement. Under the terms of the new agreement, Gilead will make $280 million in upfront termination payments to Everest, of which $84 million was made in 2022, with the remaining amounts included in Other current liabilities on our Consolidated Balance Sheets as of December 31, 2022. In addition, Everest is eligible to receive up to $175 million in potential additional payments upon achievement of certain regulatory and commercial milestones. We accounted for the new agreement as a contract termination, which includes the reacquisition of commercial rights and the settlement of our pre-existing relationship with Everest. As a result, we recorded an expense of $406 million in Selling, general and administrative expenses on our Consolidated Statements of Income, which primarily represents the upfront costs and write-off of the remaining value of the pre-existing asset related to the prior agreement. In addition, we recorded an acquired finite-lived asset with a fair value of $50 million for the commercial rights reacquired for products approved in the Territories.
Other Collaboration Arrangements That Are Not Individually Significant
During 2022, 2021 and 2020, we entered into several collaborations, 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 $86 million, $177 million and $129 million for the years ended December 31, 2022, 2021 and 2020, respectively, within Acquired in-process research and development expenses on our Consolidated Statements of Income.
11. DEBT AND CREDIT FACILITIES
The following table summarizes the carrying amount of our borrowings under various financing arrangements:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | Carrying Amount |
Type of Borrowing | | Issue Date | | Maturity Date | | Interest Rate | | December 31, 2022 | | December 31, 2021 |
Senior Unsecured | | September 2016 | | March 2022 | | 1.95% | | $ | — | | | $ | 500 | |
Senior Unsecured | | September 2015 | | September 2022 | | 3.25% | | — | | | 999 | |
Senior Unsecured | | September 2016 | | September 2023 | | 2.50% | | 749 | | | 748 | |
Senior Unsecured | | September 2020 | | September 2023 | | 0.75% | | 1,498 | | | 1,496 | |
Senior Unsecured | | March 2014 | | April 2024 | | 3.70% | | 1,748 | | | 1,747 | |
Senior Unsecured | | November 2014 | | February 2025 | | 3.50% | | 1,748 | | | 1,747 | |
Senior Unsecured | | September 2015 | | March 2026 | | 3.65% | | 2,742 | | | 2,739 | |
Senior Unsecured | | September 2016 | | March 2027 | | 2.95% | | 1,247 | | | 1,247 | |
Senior Unsecured | | September 2020 | | October 2027 | | 1.20% | | 747 | | | 746 | |
Senior Unsecured | | September 2020 | | October 2030 | | 1.65% | | 993 | | | 993 | |
Senior Unsecured | | September 2015 | | September 2035 | | 4.60% | | 993 | | | 992 | |
Senior Unsecured | | September 2016 | | September 2036 | | 4.00% | | 742 | | | 742 | |
Senior Unsecured | | September 2020 | | October 2040 | | 2.60% | | 988 | | | 987 | |
Senior Unsecured | | December 2011 | | December 2041 | | 5.65% | | 996 | | | 996 | |
Senior Unsecured | | March 2014 | | April 2044 | | 4.80% | | 1,736 | | | 1,736 | |
Senior Unsecured | | November 2014 | | February 2045 | | 4.50% | | 1,733 | | | 1,733 | |
Senior Unsecured | | September 2015 | | March 2046 | | 4.75% | | 2,221 | | | 2,220 | |
Senior Unsecured | | September 2016 | | March 2047 | | 4.15% | | 1,728 | | | 1,727 | |
Senior Unsecured | | September 2020 | | October 2050 | | 2.80% | | 1,477 | | | 1,476 | |
Total senior unsecured notes | | 24,088 | | | 25,571 | |
Liability related to future royalties | | 1,141 | | | 1,124 | |
Total debt, net | | 25,229 | | | 26,695 | |
Less: Current portion of long-term debt and other obligations, net | | 2,273 | | | 1,516 | |
Total Long-term debt, net | | $ | 22,957 | | | $ | 25,179 | |
Senior Unsecured Notes
In February 2022, we repaid $500 million of senior unsecured notes prior to the March 2022 maturity by exercising a par call option. Additionally, in July 2022, we repaid $1.0 billion of senior unsecured notes prior to the September 2022 maturity by exercising a par call option. No new debt was issued in 2022.
Our senior unsecured fixed rate notes may be redeemed at our option at a redemption price equal to the greater of (i) 100% of the principal amount of the notes to be redeemed and (ii) the sum, as determined by an independent investment banker, of the present values of the remaining scheduled payments of principal and interest on the notes to be redeemed (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semiannual basis at the Treasury Rate, plus a make-whole premium, which are defined in the terms of the notes. The senior unsecured fixed rate notes also have a par call feature, exercisable at our option, to redeem the notes at par in whole, or in part, on dates ranging from two to six months prior to maturity. In each case, accrued and unpaid interest is also required to be redeemed to the date of redemption. The $1.5 billion of 0.75% senior unsecured notes due September 2023 also have a different call feature, exercisable at our option, to redeem the notes at par, in whole or in part, at any time until maturity.
In the event of a change in control and a downgrade in the rating of our senior unsecured notes below investment grade by Moody’s Investors Service, Inc. and S&P Global Ratings, the holders may require us to purchase all or a portion of their notes at a price equal to 101% of the aggregate principal amount of the notes repurchased, plus accrued and unpaid interest to the date of repurchase. We are required to comply with certain covenants under our note indentures governing our senior unsecured notes. As of December 31, 2022 and 2021, we were not in violation of any covenants.
Liability Related to Future Royalties
In connection with our acquisition of Immunomedics, we assumed a liability related to a funding arrangement, which was originally entered into by Immunomedics and RPI Finance Trust (“RPI”), prior to our acquisition of Immunomedics. Under the funding agreement, RPI has the right to receive certain royalty amounts, subject to certain reductions, based on the net sales of Trodelvy for each calendar quarter during the term of the agreement through approximately 2036. The liability is amortized using the effective interest rate method, resulting in recognition of interest expense over 16 years. The estimated timing and amount of future expected royalty payments over the estimated term will be re-assessed each reporting period. The impact from changes in estimates will be recognized in the liability and the related interest expense prospectively. The liability related to future royalties was primarily included in Long-term debt, net on our Consolidated Balance Sheets.
Revolving Credit Facilities
In June 2020, we entered into a new $2.5 billion five-year revolving credit facility maturing in June 2025 (the “2020 Revolving Credit Facility”). The 2020 Revolving Credit Facility can be used for working capital requirements and for general corporate purposes, including, without limitation, acquisitions. As of December 31, 2022 and 2021, there were no amounts outstanding under the 2020 Revolving Credit Facility.
The 2020 Revolving Credit Facility contains customary representations, warranties, affirmative and negative covenants and events of default. As of December 31, 2022, we were in compliance with all covenants. Loans under the 2020 Revolving Credit Facility bear interest at either (i) the Term Secured Overnight Financing Rate (“SOFR”) plus the Applicable Percentage, or (ii) the Base Rate plus the Applicable Percentage, each as defined in the 2020 Revolving Credit Facility agreement. We may terminate or reduce the commitments, and may prepay any loans under the credit facility in whole or in part at any time without premium or penalty.
Contractual Maturities of Financing Obligations
The following table summarizes the aggregate future principal maturities of our senior unsecured notes as of December 31, 2022:
| | | | | | | | |
(in millions) | | Amount |
2023 | | $ | 2,250 | |
2024 | | 1,750 | |
2025 | | 1,750 | |
2026 | | 2,750 | |
2027 | | 2,000 | |
Thereafter | | 13,750 | |
Total | | $ | 24,250 | |
Interest Expense
Interest expense on our debt and credit facilities related to the contractual coupon rates and amortization of the debt discount and issuance costs was $940 million in 2022 and $1.0 billion in 2021 and 2020.
12. LEASES
Our operating leases consist primarily of properties and equipment for our administrative, manufacturing and R&D activities. Some of our leases include options to extend the terms for up to 15 years and some include options to terminate the lease within one year after the lease commencement date. As of December 31, 2022 and 2021, we did not have material finance leases. Operating lease expense, including variable costs and short-term leases, was $162 million, $156 million and $171 million in 2022, 2021 and 2020, respectively.
The following table summarizes balance sheet and other information related to our operating leases:
| | | | | | | | | | | | | | | | | | | | |
| | | | December 31, |
(in millions, except weighted average amounts) | | Classification | | 2022 | | 2021 |
Right-of-use assets, net | | Other long-term assets | | $ | 505 | | | $ | 542 | |
Lease liabilities – current | | Other accrued liabilities | | $ | 111 | | | $ | 101 | |
Lease liabilities – noncurrent | | Other long-term obligations | | $ | 467 | | | $ | 489 | |
Weighted average remaining lease term | | | | 8.1 years | | 8.5 years |
Weighted average discount rate | | | | 2.80 | % | | 3.00 | % |
The following table summarizes other supplemental information related to our operating leases:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
(in millions) | | 2022 | | 2021 |
Cash paid for amounts included in the measurement of lease liabilities | | $ | 98 | | | $ | 123 | |
Right-of-use assets obtained in exchange for lease liabilities | | $ | 97 | | | $ | 88 | |
The following table summarizes a maturity analysis of our operating lease liabilities showing the aggregate lease payments as of December 31, 2022:
| | | | | | | | |
(in millions) | | Amount |
2023 | | $ | 117 | |
2024 | | 111 | |
2025 | | 79 | |
2026 | | 56 | |
2027 | | 52 | |
Thereafter | | 236 | |
Total undiscounted lease payments | | 651 | |
Less: imputed interest | | 73 | |
Total discounted lease payments | | $ | 578 | |
13. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We are a party to various legal actions. Certain significant matters are described below. We recognize accruals for such actions to the extent that we conclude that a loss is both probable and reasonably estimable. We accrue for the best estimate of a loss within a range; however, if no estimate in the range is better than any other, then we accrue the minimum amount in the range. If we determine that a material loss is reasonably possible and the loss or range of loss can be estimated, we disclose the possible loss. Unless otherwise noted, the outcome of these matters either is not expected to be material or is not possible to determine such that 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 as of December 31, 2022. As of December 31, 2021, we recorded an accrual of $1.25 billion in Accrued and other current liabilities on our Consolidated Balance Sheets for the previously disclosed legal settlement related to the bictegravir litigation, which we paid in February 2022.
Litigation Related to Sofosbuvir
In 2012, we acquired Pharmasset, Inc. Through the acquisition, we acquired sofosbuvir, a nucleotide analog that acts to inhibit the replication of HCV. In 2013, we received approval from FDA for sofosbuvir, sold under the brand name 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 the University of Minnesota
The University of Minnesota (the “University”) has obtained U.S. Patent No. 8,815,830 (the “’830 patent”), which purports to broadly cover nucleosides with antiviral and anticancer activity. In 2016, the University filed a lawsuit against us in the U.S. District Court for the District of Minnesota, alleging that the commercialization of sofosbuvir-containing products infringes the ’830 patent. We believe the ’830 patent is invalid and will not be infringed by the continued commercialization of sofosbuvir. In 2017, the court granted our motion to transfer the case to California. We have also filed petitions for inter partes review with the U.S. Patent and Trademark Office Patent Trial and Appeal Board (“PTAB”) alleging that all asserted claims are invalid for anticipation and obviousness. The PTAB instituted one of these petitions and a merits hearing was held in February 2021. In 2018, the U.S. District Court for the Northern District of California stayed the litigation until after the PTAB concluded the inter partes review that it had initiated. In May 2021, the PTAB issued a written decision finding the asserted claims of the University’s patent invalid. In July 2021, the University appealed this decision, and oral arguments before the Court of Appeals for the Federal Circuit were held in January 2023. The litigation in the U.S. District Court will remain stayed through the appeal proceedings.
Litigation with NuCana plc. (“NuCana”)
NuCana has obtained European Patent No. 2,955,190 (the “EP ’190 patent”) that allegedly covers sofosbuvir. In opposition proceedings before the European Patent Office (“EPO”) held in February 2021, the EPO Opposition Division upheld the validity of the EP ’190 patent in amended form. The EPO has now scheduled the appeal hearing for March 2023. We continue to believe that the amended EP ’190 patent claims are invalid. Subsequent to the EPO opposition decision, we initiated proceedings to invalidate the U.K. counterparts of the EP ’190 patent and a related patent, European Patent No. 3,904,365 (the EP ‘365 patent) in the High Court of England & Wales. NuCana has also filed counterclaims against us in the High Court of England & Wales alleging patent infringement of the U.K. counterparts and seeking damages and other relief. The U.K. case was heard in January and early February 2023.
In April 2021, NuCana also filed a lawsuit against us in Germany at the Landgericht Düsseldorf alleging patent infringement of the German counterpart of the EP ’190 patent and seeking damages and injunctive relief. In April 2022, we filed an action for grant of a compulsory license before the Federal Patent Court in Germany. In July 2022, the Düsseldorf court determined that NuCana’s German counterpart of the EP ’190 patent is infringed and granted an injunction. In August 2022, Gilead filed a notice of appeal regarding the Düsseldorf court’s decision, and a hearing is scheduled for August 2023.
Litigation Related to Axicabtagene Ciloleucel
In October 2017, Juno Therapeutics, Inc. and Sloan Kettering Cancer Center (collectively, “Juno”) filed a lawsuit against us in the U.S. District Court for the Central District of California, alleging that the commercialization of axicabtagene ciloleucel, sold commercially as Yescarta, infringes 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 upfront payment and a 27.6% running royalty from October 2017 through the date of the jury’s verdict. The parties filed post-trial motions in the first quarter of 2020, and the trial judge entered a judgment in April 2020. The trial judge affirmed the jury’s verdict, enhanced the past damages by 50% and maintained the royalties on future Yescarta sales at 27.6%. In April 2020, we filed an appeal seeking to reverse the judgment or obtain a new trial due to errors made by the trial judge, and in July 2021, the appeals court heard oral arguments. In August 2021, the Court of Appeals for the Federal Circuit (the “CAFC”) reversed the jury verdict, finding the asserted claims of Juno’s patent invalid. In October 2021, Juno filed a petition for rehearing with the CAFC. In January 2022, the CAFC denied Juno’s petition for rehearing. In June 2022, Juno filed a petition for certiorari seeking a review by the Supreme Court. The Supreme Court rejected Juno’s petition in January 2023, making the CAFC judgment final.
Litigation Relating to Pre-Exposure Prophylaxis
In August 2019, we filed petitions requesting inter partes review of U.S. Patent Nos. 9,044,509, 9,579,333, 9,937,191 and 10,335,423 (collectively, “HHS Patents”) by PTAB. The HHS Patents are assigned to the U.S. Department of Health and Human Services (“HHS”) and purport to claim a process of protecting a primate host from infection by an immunodeficiency retrovirus by administering a combination of FTC and tenofovir disoproxil fumarate (“TDF”) or TAF prior to exposure of the host to the immunodeficiency retrovirus, a process commonly known as pre-exposure prophylaxis (“PrEP”). In November 2019, the U.S. Department of Justice filed a lawsuit against us in the U.S. District Court of Delaware, alleging that the sale of Truvada and Descovy for use as PrEP infringes the HHS Patents. In February 2020, PTAB declined to institute our petitions for inter partes review of the HHS Patents. In April 2020, we filed a breach of contract lawsuit against the U.S. federal government in the U.S. Court of Federal Claims, alleging violations of three material transfer agreements (“MTAs”) related to the research underlying the HHS Patents and two clinical trial agreements (“CTAs”) by the U.S. Centers for Disease Control and Prevention related to PrEP research. Although we cannot predict with certainty the ultimate outcome of each of these litigation matters, we believe that the U.S. federal government breached the MTAs and CTA, that Truvada and Descovy do not infringe the HHS Patents and that the HHS Patents are invalid over prior art descriptions of Truvada’s use for PrEP and post-exposure prophylaxis as well because physicians and patients were using the claimed methods years before HHS filed the applications for the patents. A trial for the bifurcated portion of the lawsuit in the Court of Federal Claims was held in June 2022, and in November 2022, the Court determined that the government breached the three MTAs. The Court also made findings of fact relating to the CTAs but declined to issue a decision on breach of the CTAs until after trial in the Delaware District Court. A trial date for the lawsuit in the Delaware District Court has been set for May 2023. A separate trial at the Court of Federal Claims to determine the damages Gilead is owed based on the government’s breach has yet to be set.
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 products 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 prior to 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.
In October 2021, we received a letter from Lupin Ltd. (“Lupin”) indicating that it has submitted an ANDA to FDA requesting permission to market and manufacture a generic version of Symtuza, a product commercialized by Janssen and for which Gilead shares in revenues. In November 2021, we, along with Janssen Products, L.P. and Janssen (“Janssen”), filed a patent infringement lawsuit against Lupin as co-plaintiffs in the U.S. District Court of Delaware. We separately filed an additional lawsuit against Lupin asserting infringement of two additional patents in the same court. This second case has been stayed. Trial has been scheduled for October 2023. In September 2022, we received a letter from Apotex Inc. and Apotex Corp. (“Apotex”) stating that they have submitted an ANDA for a generic version of Symtuza. In October 2022, we, along with Janssen, filed a patent infringement lawsuit against Apotex as co-plaintiffs in the U.S. District Court of Delaware. We separately filed an additional lawsuit against Apotex asserting infringement of two additional patents in the same court.
Starting in March 2022, we received letters from Lupin, Laurus Labs (“Laurus”) and Cipla Ltd. (“Cipla”), indicating that they have submitted ANDAs to FDA requesting permission to market and manufacture generic versions of Biktarvy. Lupin, Laurus, and Cipla have challenged the validity of three of the five patents listed in the Orange Book as associated with Biktarvy. We filed a lawsuit against Lupin, Laurus and Cipla in May 2022 in the U.S. District Court of Delaware, and intend to enforce and defend our intellectual property. Trial has been scheduled for December 2024.
European Patent Claims
In 2015, several parties filed oppositions in the EPO requesting revocation of one of our granted European patents covering sofosbuvir that expires in 2028. In 2016, the EPO upheld the validity of certain claims of our sofosbuvir patent. We have appealed this decision, seeking to restore all of the original claims, and several of the original opposing parties have also appealed, requesting full revocation. The appeal hearing was held in November 2022, but a final decision regarding the validity of the claims has not yet been announced.
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. The original opposing parties have appealed, requesting full revocation. The hearing for the appeal has been scheduled for September 2023.
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. The hearing for the appeal has been scheduled for March 2023.
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 and TAF hemifumarate in the EU could be substantially shortened or eliminated entirely. If our patents are revoked, and no other European patents are granted covering these compounds, our exclusivity may be based entirely on regulatory exclusivity granted by EMA. If we lose patent protection for any of these compounds, our revenues and results of operations could be negatively impacted for the years including and succeeding the year in which such exclusivity is lost.
Antitrust and Consumer Protection
We, along with Bristol-Myers Squibb Company (“BMS”) and Johnson & Johnson, Inc., have been named as defendants in class action lawsuits filed in 2019 and 2020 related to various drugs used to treat HIV, including drugs used in combination antiretroviral therapy. 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 lawsuits, which have been consolidated, are pending in the U.S. District Court for the Northern District of California. The lawsuits seek to bring claims on behalf of direct purchasers consisting largely of wholesalers and indirect or end-payor purchasers, including health insurers and individual patients. Plaintiffs seek damages, permanent injunctive relief and other relief. In the second half of 2021 and first half of 2022, several plaintiffs filed separate lawsuits effectively opting out of the class action cases, asserting claims that are substantively the same as the putative classes. These cases have been coordinated with the class actions. Trial has been set for May 2023.
In January 2022, we, along with BMS and Janssen Products, L.P., were named as defendants in a lawsuit filed in the Superior Court of the State of California, County of San Mateo, by Aetna, Inc. on behalf of itself and its affiliates and subsidiaries that effectively opts the Aetna plaintiffs out of the above class actions. The allegations are substantively the same as those in the class actions. The Aetna plaintiffs seek damages, permanent injunctive relief and other relief.
In September 2020, we, along with generic manufacturers Cipla and Cipla USA Inc. (together, “Cipla Defendants”), were named as defendants in a class action lawsuit filed in the U.S. District Court for the Northern District of California by Jacksonville Police Officers and Fire Fighters Health Insurance Trust (“Jacksonville Trust”) on behalf of end-payor purchasers. Jacksonville Trust claims that the 2014 settlement agreement between us and the Cipla Defendants, which settled a patent dispute relating to patents covering our Emtriva, Truvada and Atripla products and permitted generic entry prior to patent expiry, violates certain federal and state antitrust and consumer protection laws. The Plaintiff seeks damages, permanent injunctive relief and other relief.
In February 2021, we, along with BMS and Teva Pharmaceutical Industries Ltd., were named as defendants in a lawsuit filed in the First Judicial District Court for the State of New Mexico, County of Santa Fe by the New Mexico Attorney General. The New Mexico Attorney General alleges that we (and the other defendants) restrained competition in violation of New Mexico antitrust and consumer protection laws. The New Mexico Attorney General seeks damages, permanent injunctive relief and other relief.
While we believe these cases are without merit, we cannot predict the ultimate outcome. If plaintiffs are successful in their claims, we could be required to pay significant monetary damages or could be subject to permanent injunctive relief awarded in favor of plaintiffs.
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 experience kidney, bone and/or tooth injuries. The lawsuits, which are pending in state or federal court in California, Delaware, Florida, Missouri and New York, involve more than 26,000 plaintiffs. Plaintiffs in these cases seek damages and other relief on various grounds for alleged personal injury and economic loss. The first bellwether trial in California state court was scheduled to begin in October 2022, but is currently stayed while the California First District Court of Appeal considers the merits of plaintiffs’ theories of liability. The first bellwether trial in California federal court is scheduled to begin in January 2024. 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.
Government Investigation
In 2017, we 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.
Qui Tam Litigation
A former sales employee filed a qui tam lawsuit against Gilead in March 2017 in U.S. District Court for the Eastern District of Pennsylvania. Following the government’s decision not to intervene in the suit, the case was unsealed in December 2020. The lawsuit alleges that certain of Gilead’s HCV sales and marketing activities violated the federal False Claims Act and various state false claims acts. The relator seeks all available relief under these statutes.
Health Choice Advocates, LLC (“Health Choice”) filed a qui tam lawsuit against Gilead in April 2020 in New Jersey state court. Following the New Jersey Attorney General’s Office’s decision not to intervene in the suit, Health Choice served us with their original complaint in August 2020. The lawsuit alleges that Gilead violated the New Jersey False Claims Act through our clinical educator programs for Sovaldi and Harvoni and our HCV and HIV patient access programs. The lawsuit seeks all available relief under the New Jersey False Claims Act. In April 2021, the trial court granted our motion to dismiss with prejudice. Health Choice has appealed the trial court’s dismissal.
Health Choice filed another qui tam lawsuit against Gilead in May 2020 making similar allegations in Texas state court. Following the Texas Attorney General’s Office’s decision not to intervene in the suit, Health Choice served us with their original complaint in October 2020. The lawsuit alleges that Gilead violated the Texas Medicare Fraud Prevention Act (“TMFPA”) through our clinical educator programs for Sovaldi and Harvoni and our HCV and HIV patient access programs. The lawsuit seeks all available relief under the TMFPA. In September 2021, the Texas Court of Appeals for the Sixth Court Appeals District granted our request to stay the Texas litigation pending final judgment in the Eastern District of Pennsylvania lawsuit filed in March 2017, as discussed above.
We intend to vigorously defend ourselves in these actions. While we believe these cases are without merit, we cannot predict the ultimate outcomes. If any of these plaintiffs are successful in their claims, we could be required to pay significant monetary damages.
Securities Litigation
Immunomedics and several of its former officers and directors have been named as defendants in putative class actions filed in 2018 and 2019, which were consolidated in September 2019. Plaintiffs filed a consolidated complaint in November 2019 and an amended complaint in July 2021. Plaintiffs allege that Immunomedics and the individual defendants violated the federal securities laws in connection with Immunomedics’ Biologics License Application for Trodelvy, and seek certification of a class of shareholders, damages and other relief. The consolidated lawsuit is pending in the U.S. District Court for the District of New Jersey. In June 2022, plaintiffs filed their Motion for Class Certification, and Immunomedics submitted its Opposition in July 2022. The parties have agreed to settle this litigation. A motion seeking preliminary approval of the settlement was granted in February 2023. The court has not yet entered a final order approving the settlement.
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 financial position, results of operations or cash flows.
14. STOCKHOLDERS’ EQUITY
Stock Repurchase Programs
In the first quarter of 2020, our Board of Directors authorized a $5.0 billion stock repurchase program (“2020 Program”). Purchases under the 2020 Program may be made in the open market or in privately negotiated transactions. The $12.0 billion stock repurchase program authorized by our Board of Directors in the first quarter of 2016 was completed in the fourth quarter of 2022. We started repurchases under the 2020 Program in December 2022. As of December 31, 2022, the remaining authorized repurchase amount under the 2020 Program was $4.9 billion.
The following table summarizes our stock repurchases through open market transactions under these programs:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
(in millions, except per share amounts) | | 2022 | | 2021 | | 2020 |
Shares repurchased and retired | | 19 | | | 8 | | | 22 | |
Amount | | $ | 1,396 | | | $ | 546 | | | $ | 1,583 | |
Average price per share | | $ | 73.77 | | | $ | 66.58 | | | $ | 70.64 | |
In addition to repurchases from the stock repurchase programs, we repurchased shares of common stock withheld by us from employee restricted stock awards to satisfy our applicable tax withholding obligations. These shares are 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 based on an estimated average sales price per issued share with the excess amounts charged to Retained earnings.
Dividends
The following table summarizes cash dividends declared on our common stock:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 |
(in millions, except per share amounts) | | Dividend Per Share | | Amount | | Dividend Per Share | | Amount |
First quarter | | $ | 0.73 | | | $ | 932 | | | $ | 0.71 | | | $ | 906 | |
Second quarter | | 0.73 | | | 932 | | | 0.71 | | | 903 | |
Third quarter | | 0.73 | | | 933 | | | 0.71 | | | 905 | |
Fourth quarter | | 0.73 | | | 928 | | | 0.71 | | | 904 | |
Total | | $ | 2.92 | | | $ | 3,725 | | | $ | 2.84 | | | $ | 3,618 | |
Our RSUs and PSUs have dividend equivalent rights entitling holders to dividend equivalents to be paid upon vesting for each share of the underlying unit.
On February 2, 2023, we announced that our Board of Directors declared a quarterly cash dividend increase of 2.7% from $0.73 to $0.75 per share of our common stock, with a payment date of March 30, 2023 to all stockholders of record as of the close of business on March 15, 2023. Future dividends are subject to declaration by our Board of Directors.
Preferred Stock
We have 5 million shares of authorized preferred stock issuable in series. Our Board is authorized to determine the designation, powers, preferences and rights of any such series. There was no preferred stock outstanding as of December 31, 2022 and 2021.
Accumulated Other Comprehensive Income
The following table summarizes the changes in Accumulated other comprehensive income by component, net of tax:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | Foreign Currency Translation | | Unrealized Gains and Losses on Available-for-Sale Debt Securities, Net of Tax | | Unrealized Gains and Losses on Cash Flow Hedges, Net of Tax | | Total |
Balance as of December 31, 2019 | | $ | 53 | | | $ | 1 | | | $ | 31 | | | $ | 85 | |
Net unrealized gain (loss) | | (2) | | | 43 | | | (103) | | | (62) | |
Reclassifications to net income | | — | | | (42) | | | (41) | | | (83) | |
Net current period other comprehensive income (loss) | | (2) | | | 1 | | | (144) | | | (145) | |
Balance as of December 31, 2020 | | $ | 51 | | | $ | 2 | | | $ | (113) | | | $ | (60) | |
Net unrealized gain (loss) | | (38) | | | (6) | | | 129 | | | 85 | |
Reclassifications to net income | | — | | | — | | | 58 | | | 58 | |
Net current period other comprehensive income (loss) | | (38) | | | (6) | | | 187 | | | 143 | |
Balance as of December 31, 2021 | | $ | 13 | | | $ | (4) | | | $ | 74 | | | $ | 83 | |
Net unrealized gain (loss) | | $ | (11) | | | $ | (30) | | | $ | 130 | | | $ | 88 | |
Reclassifications to net income | | — | | | 1 | | | (171) | | | (170) | |
Net current period other comprehensive income (loss) | | (11) | | | (29) | | | (41) | | | (81) | |
Balance as of December 31, 2022 | | $ | 2 | | | $ | (33) | | | $ | 33 | | | $ | 2 | |
15. EMPLOYEE BENEFITS
Stock-Based Compensation
Equity Incentive Plans Summary
In May 2004, our stockholders approved and we adopted the Gilead Sciences, Inc. 2004 Equity Incentive Plan (as amended, the “2004 Plan”). As part of our acquisition of Forty Seven in 2020, we assumed the Forty Seven, Inc. 2018 Equity Incentive Plan, which we subsequently amended and restated as the Gilead Sciences, Inc. 2018 Equity Incentive Plan (as amended and restated, the “2018 Plan”). As part of the Immunomedics acquisition, we assumed the Immunomedics Amended and Restated 2014 Long-Term Incentive Plan, which we subsequently merged into the 2004 Plan.
In May 2022, our stockholders approved and we adopted the Gilead Sciences, Inc. 2022 Equity Incentive Plan (the “2022 Plan”). The 2022 Plan authorized the issuance of a total of 132 million shares of common stock. No awards may be granted under the 2004 Plan or the 2018 Plan since the approval of the 2022 Plan.
These are broad-based incentive plans that provide for the grant of equity-based awards, including RSUs, PSUs, stock options and other restricted stock and performance awards, to employees, directors and consultants. As of December 31, 2022, a total of 101 million shares remain available for future grant under the 2022 Plan.
RSUs
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.
PSUs
We grant PSUs that 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.
Stock Options
Option grants are designated as either non-statutory or incentive stock options. The exercise price of stock options may not be less than the fair market value of our common stock on the grant date and no stock option may have a term in excess of 10 years. Employee stock options generally vest over three or four years. Stock options may be settled in cash or in shares of our common stock, including a net issuance using shares otherwise purchasable under the option to pay the exercise price.
ESPP Summary
Under our 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. ESPP purchases are settled with common stock from the ESPP’s previously authorized and available pool of shares. A total of 79 million shares of common stock have been authorized for issuance under the ESPP, and there were 3 million shares available for issuance under the ESPP as of December 31, 2022.
Stock-Based Compensation Expense
The following tables summarize total stock-based compensation expense included on our Consolidated Statements of Income as broken down by award type and by expense type:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
(in millions) | | 2022 | | 2021 | | 2020 |
RSUs | | $ | 557 | | | $ | 558 | | | $ | 546 | |
PSUs | | 25 | | | 17 | | | 25 | |
Stock options | | 28 | | | 29 | | | 44 | |
ESPP | | 26 | | | 31 | | | 28 | |
Acquisition-related expense(1) | | 8 | | | — | | | 433 | |
Stock-based compensation expense included in total costs and expenses | | $ | 645 | | | $ | 635 | | | $ | 1,076 | |
________________________________(1) Accelerated post-acquisition stock-based compensation expense of $8 million related to the MiroBio acquisition in 2022, and $289 million and $144 million related to the acquisitions of Immunomedics and Forty Seven, respectively, in 2020.
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
(in millions) | | 2022 | | 2021 | | 2020 |
Cost of goods sold | | $ | 46 | | | $ | 40 | | | $ | 109 | |
Research and development expenses | | 285 | | | 287 | | | 462 | |
Selling, general and administrative expenses | | 313 | | | 308 | | | 505 | |
Stock-based compensation expense included in total costs and expenses | | 645 | | | 635 | | | 1,076 | |
Income tax effect | | (91) | | | (100) | | | (222) | |
Stock-based compensation expense, net of tax | | $ | 553 | | | $ | 535 | | | $ | 854 | |
RSUs
The following tables summarize our RSU activity:
| | | | | | | | | | | | | | |
| | RSUs |
(in millions, except per share amounts) | | Shares | | Weighted- Average Grant Date Fair Value Per Share |
Outstanding as of December 31, 2021 | | 20.9 | | | $ | 67.48 | |
Granted | | 13.7 | | | $ | 60.36 | |
Vested | | (8.9) | | | $ | 67.63 | |
Forfeited | | (2.2) | | | $ | 63.76 | |
Outstanding as of December 31, 2022 | | 23.6 | | | $ | 63.62 | |
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
(in millions, except per share amounts) | | 2022 | | 2021 | | 2020 |
Weighted-average grant date fair value of RSUs granted | | $ | 60.36 | | | $ | 65.42 | | | $ | 70.94 | |
Total fair value of RSUs as of the respective vesting dates | | $ | 554 | | | $ | 463 | | | $ | 444 | |
As of December 31, 2022, there was $948 million of unrecognized compensation cost related to unvested RSUs, which is expected to be recognized over a weighted-average period of 2.3 years.
PSUs
The following tables summarize our PSU activity:
| | | | | | | | | | | | | | |
| | PSUs |
(in millions, except per share amounts) | | Shares | | Weighted- Average Grant Date Fair Value Per Share |
Outstanding as of December 31, 2021 | | 0.7 | | | $ | 79.13 | |
Granted | | 0.6 | | | $ | 60.04 | |
Vested | | (0.2) | | | $ | 68.24 | |
Forfeited | | (0.1) | | | $ | 59.04 | |
Outstanding as of December 31, 2022 | | 1.0 | | | $ | 64.28 | |
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
(in millions, except per share amounts) | | 2022 | | 2021 | | 2020 |
Weighted-average grant date fair value of PSUs granted | | $ | 60.04 | | | $ | 71.31 | | | $ | 83.64 | |
Total fair value of PSUs as of the respective vesting dates | | $ | 14 | | | $ | 8 | | | $ | 15 | |
As of December 31, 2022, there was $29 million of unrecognized compensation cost related to unvested PSUs, which is expected to be recognized over a weighted-average period of 1.4 years.
Stock Options
The following tables summarize activity and other information related to our stock options:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares (in millions) | | Weighted- Average Exercise Price (in dollars) | | Weighted-Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value (in millions)(1) |
Outstanding as of December 31, 2021 | | 16.8 | | | $ | 70.60 | | | | | |
Granted | | 4.1 | | | $ | 58.59 | | | | | |
Forfeited | | (0.6) | | | $ | 62.84 | | | | | |
Expired | | (2.5) | | | $ | 82.37 | | | | | |
Exercised | | (3.5) | | | $ | 61.11 | | | | | |
Outstanding as of December 31, 2022 | | 14.4 | | | $ | 67.69 | | | 6.61 | | $ | 271 | |
Exercisable as of December 31, 2022 | | 7.9 | | | $ | 72.32 | | | 5.00 | | $ | 115 | |
Expected to vest, net of estimated forfeitures as of December 31, 2022 | | 6.2 | | | $ | 62.16 | | | 8.55 | | $ | 146 | |
________________________________
(1) 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.
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
(in millions, except per share amounts) | | 2022 | | 2021 | | 2020 |
Weighted-average grant date fair value of stock options granted | | $ | 9.08 | | | $ | 10.05 | | | $ | 11.69 | |
Total intrinsic value of options exercised | | $ | 59 | | | $ | 48 | | | $ | 179 | |
We used the following weighted-average assumptions in the Black-Scholes model to calculate the estimated fair value of the stock option awards:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
(in millions) | | 2022 | | 2021 | | 2020 |
Expected volatility | | 27 | % | | 29 | % | | 29 | % |
Expected terms in years | | 5 | | 5 | | 5 |
Risk-free interest rate | | 1.9 | % | | 0.8 | % | | 0.8 | % |
Expected dividend yield | | 4.3 | % | | 4.4 | % | | 4.0 | % |
As of December 31, 2022, there was $48 million of unrecognized compensation cost related to stock options, which is expected to be recognized over an estimated weighted-average period of 2.4 years.
ESPP
The following table summarizes our ESPP activity:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
(in millions, except per share amounts) | | 2022 | | 2021 | | 2020 |
Shares issued | | 2 | | | 2 | | | 2 | |
Amount paid by employees for shares | | $ | 103 | | | $ | 111 | | | $ | 100 | |
Weighted-average grant date fair value of ESPP shares granted | | $ | 13.40 | | | $ | 14.58 | | | $ | 15.09 | |
Total fair value of ESPP shares as of the respective vesting dates | | $ | 21 | | | $ | 23 | | | $ | 24 | |
We used the following weighted-average assumptions in the Black-Scholes model to calculate the estimated fair value of the ESPP awards:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
Expected volatility | | 23 | % | | 25 | % | | 28 | % |
Expected terms in years | | 0.5 | | 0.5 | | 0.5 |
Risk-free interest rate | | 1.8 | % | | 0.1 | % | | 0.6 | % |
Expected dividend yield | | 4.5 | % | | 4.4 | % | | 4.0 | % |
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 $176 million, $166 million and $144 million during 2022, 2021 and 2020, respectively.
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 $220 million and $261 million as of December 31, 2022 and 2021, respectively.
16. EARNINGS PER SHARE
The following table shows the calculation of basic and diluted earnings per share attributable to Gilead:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
(in millions, except per share amounts) | | 2022 | | 2021 | | 2020 |
Net income attributable to Gilead | | $ | 4,592 | | | $ | 6,225 | | | $ | 123 | |
Shares used in basic earnings per share attributable to Gilead calculation | | 1,255 | | | 1,256 | | | 1,257 | |
Dilutive effect of stock options and equivalents | | 7 | | | 6 | | | 6 | |
Shares used in diluted earnings per share attributable to Gilead calculation | | 1,262 | | | 1,262 | | | 1,263 | |
Basic earnings per share attributable to Gilead | | $ | 3.66 | | | $ | 4.96 | | | $ | 0.10 | |
Diluted earnings per share attributable to Gilead | | $ | 3.64 | | | $ | 4.93 | | | $ | 0.10 | |
Potential shares of common stock excluded from the computation of Diluted earnings per share attributable to Gilead because their effect would have been antidilutive were 12 million, 15 million and 13 million during 2022, 2021 and 2020, respectively.
17. INCOME TAXES
Income before income taxes consists of the following:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
(in millions) | | 2022 | | 2021 | | 2020 |
Domestic | | $ | 4,439 | | | $ | 8,587 | | | $ | 2,505 | |
Foreign | | 1,375 | | | (309) | | | (836) | |
Income before income taxes | | $ | 5,814 | | | $ | 8,278 | | | $ | 1,669 | |
Income tax expense consists of the following:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
(in millions) | | 2022 | | 2021 | | 2020 |
Federal: | | | | | | |
Current | | $ | (2,539) | | | $ | (1,776) | | | $ | (1,450) | |
Deferred | | 1,502 | | | 250 | | | 164 | |
| | (1,037) | | | (1,526) | | | (1,286) | |
State: | | | | | | |
Current | | (32) | | | (228) | | | (198) | |
Deferred | | 154 | | | (185) | | | 97 | |
| | 122 | | | (413) | | | (101) | |
Foreign: | | | | | | |
Current | | (232) | | | (185) | | | (155) | |
Deferred | | (101) | | | 47 | | | (38) | |
| | (333) | | | (138) | | | (193) | |
Income tax expense | | $ | (1,248) | | | $ | (2,077) | | | $ | (1,580) | |
The reconciliation between the federal statutory tax rate applied to Income before income taxes and our effective tax rate is summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
Federal statutory rate | | 21.0 | % | | 21.0 | % | | 21.0 | % |
State taxes, net of federal benefit | | (2.0) | % | | 2.5 | % | | 4.2 | % |
Foreign earnings at different rates | | (0.6) | % | | (0.3) | % | | (10.0) | % |
Research and other credits | | (2.7) | % | | (1.6) | % | | (6.9) | % |
US tax on foreign earnings | | 2.7 | % | | 1.1 | % | | 7.2 | % |
Foreign-derived intangible income deduction | | (3.8) | % | | (1.6) | % | | (8.0) | % |
Settlement of tax examinations | | (0.2) | % | | (0.7) | % | | (10.2) | % |
Acquired IPR&D & related charges | | 1.4 | % | | — | % | | 56.2 | % |
Changes in valuation allowance | | 1.2 | % | | 1.5 | % | | 6.7 | % |
Non-taxable unrealized loss on investment | | 0.7 | % | | 1.8 | % | | 23.0 | % |
Other | | 3.8 | % | | 1.4 | % | | 11.5 | % |
Effective tax rate | | 21.5 | % | | 25.1 | % | | 94.7 | % |
Significant components of our deferred tax assets and liabilities are as follows:
| | | | | | | | | | | | | | |
| | December 31, |
(in millions) | | 2022 | | 2021 |
Deferred tax assets: | | | | |
Net operating loss carryforwards | | $ | 430 | | | $ | 413 | |
Stock-based compensation | | 95 | | | 117 | |
Reserves and accruals not currently deductible | | 645 | | | 700 | |
Excess of tax basis over book basis of intangible assets | | 1,067 | | | 1,157 | |
Upfront and milestone payments | | 1,298 | | | 1,310 | |
Research and other credit carryforwards | | 233 | | | 249 | |
Equity investments | | 196 | | | 129 | |
Liability related to sale of future royalties | | 278 | | | 274 | |
Capitalized R&D expenditures | | 784 | | | — | |
Other, net | | 263 | | | 292 | |
Total deferred tax assets before valuation allowance | | 5,289 | | | 4,641 | |
Valuation allowance | | (599) | | | (520) | |
Total deferred tax assets | | 4,690 | | | 4,121 | |
Deferred tax liabilities: | | | | |
Property, plant and equipment | | (234) | | | (227) | |
Excess of book basis over tax basis of intangible assets | | (5,728) | | | (6,719) | |
Other | | (160) | | | (192) | |
Total deferred tax liabilities | | (6,122) | | | (7,138) | |
Net deferred tax assets (liabilities) | | $ | (1,432) | | | $ | (3,017) | |
The valuation allowance increased from $520 million as of December 31, 2021 to $599 million as of December 31, 2022, primarily due to unrealized losses on our equity investments which are subject to a full valuation allowance, and increased from $398 million as of December 31, 2020 to $520 million as of December 31, 2021, primarily due to California research and development tax credits.
As of December 31, 2022, we had U.S. federal net operating loss and tax credit carryforwards of approximately $199 million and $7 million, respectively, which will start to expire in 2023, if not utilized. In addition, we had state net operating loss and tax credit carryforwards of approximately $2.7 billion and $879 million, respectively, which will start to expire in 2024 and 2023, respectively, if not utilized. Utilization of net operating losses and tax credits may be subject to an annual limitation due to ownership change limitations provided in the Internal Revenue Code of 1986, as amended, and similar state provisions. This annual limitation may result in the expiration of the net operating losses and credits before utilization.
We file federal, state and foreign income tax returns in the U.S. and in many foreign jurisdictions. For federal income tax purposes, the statute of limitations is open for 2016 and onwards and 2013 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 Internal Revenue Service and Irish tax authorities for our 2016 to 2018 tax years. 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, $946 million and $800 million as of December 31, 2022 and 2021, respectively, if recognized, would reduce our effective tax rate in the period of recognition. Interest and penalties related to unrecognized tax benefits included income tax benefit of $3 million, income tax expense of $41 million and income tax benefit of $82 million on our Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020 respectively. Accrued interest and penalties related to unrecognized tax benefits were $215 million and $218 million as of December 31, 2022 and 2021, respectively. As of December 31, 2022, we do not believe that it is reasonably possible that our unrecognized tax benefits will significantly change in the next 12 months.
The following is a rollforward of our total gross unrecognized tax benefits:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
(in millions) | | 2022 | | 2021 | | 2020 |
Beginning balance | | $ | 1,713 | | | $ | 1,614 | | | $ | 2,031 | |
Tax positions related to current year: | | | | | | |
Additions | | 129 | | | 147 | | | 121 | |
Reductions | | — | | | — | | | — | |
Tax positions related to prior years: | | | | | | |
Additions | | 225 | | | 161 | | | 398 | |
Reductions | | (31) | | | (179) | | | (481) | |
Settlements | | (10) | | | (28) | | | (454) | |
Lapse of statute of limitations | | (68) | | | (2) | | | (1) | |
Ending balance | | $ | 1,959 | | | $ | 1,713 | | | $ | 1,614 | |
In connection with the Tax Cuts and Jobs Act, we recorded a federal income tax payable for transition tax on the mandatory deemed repatriation of foreign earnings that is payable over an eight-year period. Federal income tax payable for transition tax was $3.5 billion and $4.0 billion as of December 31, 2022 and 2021, respectively.
The following table summarizes the anticipated timing of payments associated with this transition tax as of December 31, 2022:
| | | | | | | | |
(in millions) | | Amount |
2023 | | $ | 886 | |
2024 | | 1,182 | |
2025 | | 1,477 | |
Total | | $ | 3,546 | |
18. SUBSEQUENT EVENTS
Arcellx
In January 2023, we closed an agreement to enter into a global strategic collaboration with Arcellx, Inc. (“Arcellx”) to co-develop and co-commercialize Arcellx’s lead late-stage product candidate, CART-ddBCMA, for the treatment of patients with relapsed or refractory multiple myeloma. Under the terms of the agreement, Arcellx will receive an upfront cash payment of $225 million and $100 million equity investment as well as other potential contingent payments. The companies will share development, clinical trial, and commercialization costs for CART-ddBCMA and will jointly commercialize the product and split U.S. profits 50/50. Outside the U.S., we will commercialize the product and Arcellx will receive royalties on sales.
Tmunity
In February 2023, we closed an agreement to acquire Tmunity Therapeutics (“Tmunity”), a clinical-stage, private biotech company focused on next-generation CAR T-therapies and technologies. Under the terms of the agreement, we acquired all outstanding shares of Tmunity other than those already owned by Gilead for approximately $300 million in cash consideration.