Item 1. FINANCIAL STATEMENTS

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Item 1. FINANCIAL STATEMENTS

AMGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per-share data)

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Revenues:
Product sales	$	6,320	$	6,104	$	18,026	$	17,906
Other revenues	386		319		1,107		884
Total revenues	6,706		6,423		19,133		18,790

Operating expenses:
Cost of sales	1,609		1,561		4,736		4,562
Research and development	1,422		1,062		3,471		2,978
Acquired in-process research and development	—		—		1,505		—
Selling, general and administrative	1,305		1,346		3,943		3,957
Other	(8)		1		143		162
Total operating expenses	4,328		3,970		13,798		11,659

Operating income	2,378		2,453		5,335		7,131

Other income (expense):
Interest expense, net	(296)		(302)		(862)		(944)
Other income, net	73		55		97		69

Income before income taxes	2,155		2,206		4,570		6,256

Provision for income taxes	271		185		576		607

Net income	$	1,884	$	2,021	$	3,994	$	5,649

Earnings per share:
Basic	$	3.32	$	3.45	$	6.98	$	9.61
Diluted	$	3.31	$	3.43	$	6.93	$	9.54

Shares used in calculation of earnings per share:
Basic	567		585		572		588
Diluted	570		589		576		592

See accompanying notes.

AMGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Net income	$	1,884	$	2,021	$	3,994	$	5,649
Other comprehensive income (loss), net of reclassification adjustments and taxes:
(Losses) gains on foreign currency translation	(35)		14		(60)		(41)
Gains (losses) on cash flow hedges	99		(128)		241		(305)
(Losses) gains on available-for-sale securities	(1)		1		(1)		(20)
Other	(3)		(7)		(3)		(9)
Other comprehensive income (loss), net of taxes	60		(120)		177		(375)
Comprehensive income	$	1,944	$	1,901	$	4,171	$	5,274

See accompanying notes.

AMGEN INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except per-share data)


	September 30, 2021		December 31, 2020
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	11,969	$	6,266
Marketable securities	952		4,381
Trade receivables, net	4,765		4,525
Inventories	4,152		3,893
Other current assets	2,542		2,079
Total current assets	24,380		21,144

Property, plant and equipment, net	4,982		4,889
Intangible assets, net	14,659		16,587
Goodwill	14,665		14,689
Other noncurrent assets	6,307		5,639
Total assets	$	64,993	$	62,948

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,171	$	1,421
Accrued liabilities	9,383		10,141
Current portion of long-term debt	4,288		91
Total current liabilities	14,842		11,653

Long-term debt	33,291		32,895
Long-term tax liabilities	6,483		6,968
Other noncurrent liabilities	2,160		2,023

Contingencies and commitments

Stockholders’ equity:
Common stock and additional paid-in capital; $0.0001 par value; 2,750.0 shares authorized; outstanding—565.0 shares in 2021 and 578.3 shares in 2020	31,989		31,802
Accumulated deficit	(22,964)		(21,408)
Accumulated other comprehensive loss	(808)		(985)
Total stockholders’ equity	8,217		9,409
Total liabilities and stockholders’ equity	$	64,993	$	62,948

See accompanying notes.

AMGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions, except per-share data)

(Unaudited)


	Number of shares of common stock	Common stock and additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Total
Balance as of December 31, 2020	578.3	$	31,802	$	(21,408)	$	(985)	$	9,409

Net income	—	—		1,646		—		1,646
Other comprehensive income, net of taxes	—	—		—		152		152
Dividends declared on common stock ($1.76 per share)	—	—		(1,012)		—		(1,012)
Issuance of common stock in connection with the Company’s equity award programs	0.7	6		—		—		6
Stock-based compensation expense	—	57		—		—		57
Tax impact related to employee stock-based compensation expense	—	(59)		—		—		(59)
Repurchases of common stock	(3.7)	—		(865)		—		(865)
Balance as of March 31, 2021	575.3	31,806		(21,639)		(833)		9,334

Net income	—	—		464		—		464
Other comprehensive loss, net of taxes	—	—		—		(35)		(35)
Issuance of common stock in connection with the Company’s equity award programs	0.8	47		—		—		47
Stock-based compensation expense	—	100		—		—		100
Tax impact related to employee stock-based compensation expense	—	(76)		—		—		(76)
Repurchases of common stock	(6.5)	—		(1,592)		—		(1,592)
Other	—	—		5		—		5
Balance as of June 30, 2021	569.6	31,877		(22,762)		(868)		8,247

Net income	—	—		1,884		—		1,884
Other comprehensive income, net of taxes	—	—		—		60		60
Dividends declared on common stock ($1.76 per share)	—	—		(1,017)		—		(1,017)
Issuance of common stock in connection with the Company’s equity award programs	—	9		—		—		9
Stock-based compensation expense	—	111		—		—		111
Tax impact related to employee stock-based compensation expense	—	(8)		—		—		(8)
Repurchases of common stock	(4.6)	—		(1,069)		—		(1,069)

Balance as of September 30, 2021	565.0	$	31,989	$	(22,964)	$	(808)	$	8,217

AMGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

(In millions, except per-share data)

(Unaudited)


	Number of shares of common stock	Common stock and additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Total
Balance as of December 31, 2019	591.4	$	31,531	$	(21,330)	$	(528)	$	9,673
Cumulative effect of changes in accounting principles, net of taxes	—	—		(2)		—		(2)
Net income	—	—		1,825		—		1,825
Other comprehensive loss, net of taxes	—	—		—		(134)		(134)
Dividends declared on common stock ($1.60 per share)	—	—		(938)		—		(938)
Issuance of common stock in connection with the Company’s equity award programs	0.9	10		—		—		10
Stock-based compensation expense	—	52		—		—		52
Tax impact related to employee stock-based compensation expense	—	(68)		—		—		(68)
Repurchases of common stock	(4.3)	—		(933)		—		(933)
Balance as of March 31, 2020	588.0	31,525		(21,378)		(662)		9,485

Net income	—	—		1,803		—		1,803
Other comprehensive loss, net of taxes	—	—		—		(121)		(121)

Issuance of common stock in connection with the Company’s equity award programs	1.0	65		—		—		65
Stock-based compensation expense	—	101		—		—		101
Tax impact related to employee stock-based compensation expense	—	(81)		—		—		(81)
Repurchases of common stock	(2.6)	—		(591)		—		(591)
Other	—	—		(2)		—		(2)
Balance as of June 30, 2020	586.4	31,610		(20,168)		(783)		10,659
Net income	—	—		2,021		—		2,021
Other comprehensive loss, net of taxes	—	—		—		(120)		(120)
Dividends declared on common stock ($1.60 per share)	—	—		(952)		—		(952)
Issuance of common stock in connection with the Company’s equity award programs	0.1	5		—		—		5
Stock-based compensation expense	—	109		—		—		109
Tax impact related to employee stock-based compensation expense	—	(11)		—		—		(11)
Repurchases of common stock	(3.0)	—		(752)		—		(752)
Balance as of September 30, 2020	583.5	$	31,713	$	(19,851)	$	(903)	$	10,959

See accompanying notes.

AMGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


	Nine months ended September 30,
	2021		2020
Cash flows from operating activities:
Net income	$	3,994	$	5,649
Depreciation, amortization and other	2,546		2,728
Deferred income taxes	(264)		(339)
Acquired in-process research and development	1,505		—
Other items, net	187		270
Changes in operating assets and liabilities, net of acquisitions:
Trade receivables, net	(269)		(31)
Inventories	(215)		(316)
Other assets	(373)		64
Accounts payable	(260)		(202)
Accrued income taxes, net	(719)		(301)
Long-term tax liabilities	102		110
Other liabilities	219		712
Net cash provided by operating activities	6,453		8,344
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired	(1,639)		—
Purchases of marketable securities	(8,901)		(5,329)
Proceeds from sales of marketable securities	4,403		2,597
Proceeds from maturities of marketable securities	7,927		2,338

Purchases of property, plant and equipment	(593)		(435)
Purchases of equity method investments	(154)		(3,154)
Other	(80)		(34)
Net cash provided by (used in) investing activities	963		(4,017)
Cash flows from financing activities:
Net proceeds from issuance of debt	4,946		8,914
Repayment of debt	—		(5,000)

Repurchases of common stock	(3,532)		(2,281)
Dividends paid	(3,023)		(2,823)

Other	(104)		(87)
Net cash used in financing activities	(1,713)		(1,277)
Increase in cash and cash equivalents	5,703		3,050
Cash and cash equivalents at beginning of period	6,266		6,037
Cash and cash equivalents at end of period	$	11,969	$	9,087

See accompanying notes.

AMGEN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

(Unaudited)

1. Summary of significant accounting policies

Business

Amgen Inc. (including its subsidiaries, referred to as “Amgen,” “the Company,” “we,” “our” or “us”) is a global biotechnology pioneer that discovers, develops, manufactures and delivers innovative human therapeutics. We operate in one business segment: human therapeutics.

Basis of presentation

The financial information for the three and nine months ended September 30, 2021 and 2020, is unaudited but includes all adjustments (consisting of only normal, recurring adjustments unless otherwise indicated), which Amgen considers necessary for a fair presentation of its condensed consolidated results of operations for those periods. Interim results are not necessarily indicative of results for the full fiscal year.

The condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2020, and with our condensed consolidated financial statements and the notes thereto contained in our Quarterly Reports on Form 10-Q for the periods ended March 31, 2021 and June 30, 2021.

Principles of consolidation

The condensed consolidated financial statements include the accounts of Amgen as well as its majority-owned subsidiaries. We do not have any significant interests in any variable interest entities. All material intercompany transactions and balances have been eliminated in consolidation.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ from those estimates.

Property, plant and equipment, net

Property, plant and equipment is recorded at historical cost, net of accumulated depreciation and amortization of $9.2 billion and $9.0 billion as of September 30, 2021 and December 31, 2020, respectively.

Recent accounting pronouncements

In March 2020, the Financial Accounting Standards Board (FASB) issued a new accounting standard to ease the financial reporting burdens caused by the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates, commonly referred to as reference rate reform. The new standard provides temporary optional expedients and exceptions to current GAAP guidance on contract modifications and hedge accounting. Specifically, a modification to transition to an alternative reference rate is treated as an event that does not require contract remeasurement or reassessment of a previous accounting treatment. Moreover, for all types of hedging relationships, an entity is permitted to change the reference rate without having to dedesignate the hedging relationship. The standard is generally effective for all contract modifications made and hedging relationships evaluated through December 31, 2022. In January 2021, the FASB issued a new accounting standard to expand on the scope of the original March 2020 standard to include derivative instruments on discounting transactions. We are currently evaluating the impacts that the two standards will have on our condensed consolidated financial statements.

2. Acquisitions

On April 16, 2021, Amgen completed its acquisition of Five Prime Therapeutics, Inc. (Five Prime) for total consideration of $1.6 billion, net of cash acquired. The purchase price was funded with cash on hand. This transaction was accounted for as an asset acquisition because substantially all the value of the assets acquired was concentrated in the intellectual property rights of bemarituzumab, a phase 3 trial-ready, first-in-class program for gastric cancer. Five Prime’s operations have been included in our condensed consolidated financial statements commencing after the acquisition date.

We allocated the consideration to acquire Five Prime to: the bemarituzumab in-process research and development (IPR&D) program of $1.5 billion, which was expensed immediately in Acquired IPR&D expense in the Condensed Consolidated Statements of Income; deferred tax assets of $177 million; and other net liabilities of $47 million. The acquired IPR&D expense was not tax deductible.

3. Revenues

We operate in one business segment: human therapeutics. Therefore, results of our operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting. Revenues by product and by geographic area, based on customers’ locations, are presented below. The majority of rest-of-world (ROW) revenues relates to products sold in Europe.

Revenues were as follows (in millions):


	Three months ended September 30,
	2021						2020
	U.S.		ROW		Total		U.S.		ROW		Total
Enbrel® (etanercept)	$	1,263	$	26	$	1,289	$	1,289	$	36	$	1,325
Prolia® (denosumab)	530		273		803		478		223		701
Otezla® (apremilast)	495		114		609		439		99		538
XGEVA® (denosumab)	372		145		517		363		118		481
Neulasta® (pegfilgrastim)	360		55		415		484		71		555
Aranesp® (darbepoetin alfa)	149		247		396		158		226		384
Repatha® (evolocumab)	139		133		272		92		113		205
KYPROLIS® (carfilzomib)	198		95		293		173		87		260
Other products	1,052		674		1,726		1,142		513		1,655
Total product sales(1)	$	4,558	$	1,762	6,320		$	4,618	$	1,486	6,104
Other revenues					386						319
Total revenues					$	6,706					$	6,423

	Nine months ended September 30,
	2021						2020
	U.S.		ROW		Total		U.S.		ROW		Total
ENBREL	$	3,270	$	87	$	3,357	$	3,619	$	105	$	3,724
Prolia®	1,569		806		2,375		1,341		673		2,014
Otezla®	1,284		335		1,619		1,280		298		1,578
XGEVA®	1,061		412		1,473		1,036		361		1,397
Neulasta®	1,215		168		1,383		1,538		219		1,757
Aranesp®	409		709		1,118		489		704		1,193
Repatha®	421		423		844		331		303		634
KYPROLIS®	547		277		824		527		266		793
Other products	3,059		1,974		5,033		3,164		1,652		4,816
Total product sales(1)	$	12,835	$	5,191	18,026		$	13,325	$	4,581	17,906
Other revenues					1,107						884
Total revenues					$	19,133					$	18,790

(1) Hedging gains and losses, which are included in product sales, were not material for the three and nine months ended September 30, 2021 and 2020.

4. Income taxes

The effective tax rate for the three and nine months ended September 30, 2021, was 12.6% for both periods, compared with rates of 8.4% and 9.7%, respectively, for the corresponding periods of the prior year.

The increase in our effective tax rate for the three and nine months ended September 30, 2021, was primarily due to the non-deductible IPR&D expense arising from the acquisition of Five Prime and prior year favorable items partially offset by a change in earnings mix. The effective tax rates differ from the federal statutory rate primarily as a result of foreign earnings from the Company’s operations conducted in Puerto Rico, a territory of the United States treated as a foreign jurisdiction for U.S. tax purposes, that are subject to a tax incentive grant through 2035. In addition, the Company’s operations conducted in Singapore are subject to a tax incentive grant through 2034. These foreign earnings are also subject to U.S. tax at a reduced rate of 10.5%.

The U.S. territory of Puerto Rico imposes an excise tax on the gross intercompany purchase price of goods and services from our manufacturer in Puerto Rico. The rate of 4% is effective through December 31, 2027. We account for the excise tax as a manufacturing cost that is capitalized in inventory and expensed in cost of sales when the related products are sold. For U.S. income tax purposes, the excise tax results in foreign tax credits that are generally recognized in our provision for income taxes when the excise tax is incurred.

One or more of our legal entities file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and certain foreign jurisdictions. Our income tax returns are routinely examined by tax authorities in those jurisdictions. Significant disputes may arise with tax authorities involving issues regarding the timing and amount of deductions, the use of tax credits and allocations of income and expenses among various tax jurisdictions because of differing interpretations of tax laws, regulations and relevant facts. In 2017, we received a Revenue Agent Report (RAR) and a modified RAR from the Internal Revenue Service (IRS) for the years 2010, 2011 and 2012 proposing significant adjustments that primarily relate to the allocation of profits between certain of our entities in the United States and the U.S. territory of Puerto Rico. We disagreed with the proposed adjustments and calculations and pursued a resolution with the IRS administrative appeals office. As previously reported, we were unable to reach resolution with the IRS appeals office. In July 2021, we filed a petition in the U.S. Tax Court to contest two duplicate Statutory Notices of Deficiency (Notices) for 2010, 2011 and 2012 that we received in May and July 2021. The duplicate Notices seek to increase our U.S. taxable income by an amount that would result in additional federal tax of approximately $3.6 billion, plus interest. Any additional tax that could be imposed would be reduced by up to approximately $900 million of repatriation tax previously accrued on our foreign earnings. In any event, we firmly believe that the IRS’s positions in the Notices are without merit, and we will vigorously contest the Notices through the judicial process.

In addition, in 2020, we received an RAR and a modified RAR from the IRS for the years 2013, 2014 and 2015 also proposing significant adjustments that primarily relate to the allocation of profits between certain of our entities in the United States and the U.S. territory of Puerto Rico, similar to those proposed for the years 2010, 2011 and 2012. We disagree with the proposed adjustments and calculations and have been pursuing resolution with the IRS administrative appeals office. As a consequence of the Tax Court litigation for the 2010-2012 period, the IRS administrative appeals office recently informed us that it does not plan to engage in discussions at this time regarding the allocation of profits between our entities in the United States and the U.S. territory of Puerto Rico for the 2013-2015 period. We are currently under examination by the IRS for the years 2016, 2017 and 2018. We are also currently under examination by a number of other state and foreign tax jurisdictions.

Final resolution of these complex matters is not likely within the next 12 months. We believe our accrual for income tax liabilities is appropriate based on past experience, interpretations of tax law, application of the tax law to our facts and judgments about potential actions by tax authorities; however, due to the complexity of the provision for income taxes and uncertain resolution of these matters, the ultimate outcome of any tax matters may result in payments substantially greater than amounts accrued and could have a material adverse impact on our condensed consolidated financial statements. We are no longer subject to U.S. federal income tax examinations for the years ended on or before December 31, 2009.

During the three and nine months ended September 30, 2021, the gross amounts of our unrecognized tax benefits (UTBs) increased $70 million and $180 million, respectively, as a result of tax positions taken during the current year. Substantially all of the UTBs as of September 30, 2021, if recognized, would affect our effective tax rate.

5. Earnings per share

The computation of basic earnings per share (EPS) is based on the weighted-average number of our common shares outstanding. The computation of diluted EPS is based on the weighted-average number of our common shares outstanding and dilutive potential common shares, which primarily include shares that may be issued under our stock option, restricted stock and performance unit award programs (collectively, dilutive securities), as determined by using the treasury stock method.

The computations for basic and diluted EPS were as follows (in millions, except per-share data):


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Income (Numerator):
Net income for basic and diluted EPS	$	1,884	$	2,021	$	3,994	$	5,649

Shares (Denominator):
Weighted-average shares for basic EPS	567		585		572		588
Effect of dilutive securities	3		4		4		4
Weighted-average shares for diluted EPS	570		589		576		592

Basic EPS	$	3.32	$	3.45	$	6.98	$	9.61
Diluted EPS	$	3.31	$	3.43	$	6.93	$	9.54

For the three and nine months ended September 30, 2021 and 2020, the number of antidilutive employee stock-based awards excluded from the computation of diluted EPS was not significant.

6. Collaborations

On July 30, 2021, we closed our collaboration and licensing agreement with Kyowa Kirin Co., Ltd. (KKC) to jointly develop and commercialize an anti-OX40 fully human monoclonal antibody (AMG 451) worldwide, except in Japan. AMG 451 is for the treatment of atopic dermatitis, with potential in other autoimmune diseases.

Under the terms of the agreement, we will lead the global development, manufacturing and commercialization of AMG 451, except in Japan. KKC will co-promote AMG 451 with Amgen in the United States and have opt-in rights to co-promote AMG 451 in various other markets outside the United States, including in Europe and Asia.

We made an upfront payment of $400 million to KKC that was recognized in Research and development (R&D) expense in the third quarter of 2021. Amgen and KKC will share equally the global development costs, except in Japan, and the U.S. commercialization costs. Outside of the United States and Japan, any commercialization costs incurred by KKC will be reimbursed by Amgen. We may also be required to make milestone payments of up to $850 million contingent upon the achievement of certain regulatory events and commercial thresholds. We will also pay KKC significant double-digit royalties on global sales, except in Japan.

7. Investments

Available-for-sale investments

The amortized cost, gross unrealized gains, gross unrealized losses and fair values of interest-bearing securities, which are considered available-for-sale, by type of security were as follows (in millions):


Types of securities as of September 30, 2021	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair values
U.S. Treasury notes	$	51	$	—	$	—	$	51
U.S. Treasury bills	3,900		—		—		3,900









Money market mutual funds	8,323		—		—		8,323
Other short-term interest-bearing securities	1		—		—		1


Total interest-bearing securities	$	12,275	$	—	$	—	$	12,275


Types of securities as of December 31, 2020	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair values
U.S. Treasury notes	$	129	$	1	$	—	$	130
U.S. Treasury bills	4,948		—		—		4,948









Money market mutual funds	4,765		—		—		4,765
Other short-term interest-bearing securities	2		—		—		2
Total interest-bearing securities	$	9,844	$	1	$	—	$	9,845

The fair values of interest-bearing securities by location in the Condensed Consolidated Balance Sheets were as follows (in millions):


Condensed Consolidated Balance Sheets locations	September 30, 2021		December 31, 2020
Cash and cash equivalents	$	11,323	$	5,464
Marketable securities	952		4,381
Total interest-bearing securities	$	12,275	$	9,845

Cash and cash equivalents in the above table excludes bank account cash of $646 million and $802 million as of September 30, 2021 and December 31, 2020, respectively.

The fair values of available-for-sale investments by contractual maturity were as follows (in millions):


Contractual maturities	September 30, 2021		December 31, 2020
Maturing in one year or less	$	12,275	$	9,795
Maturing after one year through three years	—		50




Total available-for-sale investments	$	12,275	$	9,845

For the three and nine months ended September 30, 2021 and 2020, realized gains and losses on interest-bearing securities were not material. Realized gains and losses on interest-bearing securities are recorded in Other income, net, in the Condensed Consolidated Statements of Income. The cost of securities sold is based on the specific-identification method.

The primary objective of our investment portfolio is to maintain safety of principal, prudent levels of liquidity and acceptable levels of risk. Our investment policy limits interest-bearing security investments to certain types of debt and money market instruments issued by institutions with investment-grade credit ratings, and it places restrictions on maturities and concentration by asset class and issuer.

Equity securities

We held investments in equity securities with readily determinable fair values (publicly traded securities) of $608 million and $477 million as of September 30, 2021 and December 31, 2020, respectively, which are included in Other noncurrent assets in the Condensed Consolidated Balance Sheets. For the three months ended September 30, 2021 and 2020, net unrealized gains on publicly traded securities were $135 million and $60 million, respectively. For the nine months ended September 30, 2021 and 2020, net unrealized gains on publicly traded securities were $104 million and $65 million, respectively. Realized gains and losses on sales of publicly traded securities for the three and nine months ended September 30, 2021 and 2020 were not material.

We held investments of $255 million and $203 million in equity securities without readily determinable fair values as of September 30, 2021 and December 31, 2020, respectively, which are included in Other noncurrent assets in the Condensed Consolidated Balance Sheets. For the three months ended September 30, 2021 and 2020, gains due to upward adjustments on these securities were $94 million and $12 million, respectively. For the nine months ended September 30, 2021 and 2020, gains due to upward adjustments on these securities were $129 million and $20 million, respectively. Downward adjustments on these securities were not material. Adjustments were based on observable price transactions.

Equity method investments

BeiGene, Ltd.

As of September 30, 2021, we had an ownership interest of approximately 20.3% in BeiGene, Ltd. (BeiGene), which is included in Other noncurrent assets in the Condensed Consolidated Balance Sheets and accounted for under the equity method of accounting. We amortize the difference between the fair value of equity securities acquired and our proportionate share of the carrying value of the underlying net assets of BeiGene over the useful lives of the assets that gave rise to this basis difference. This amortization and our share of the results of operations of BeiGene are included in Other income, net, in the Condensed Consolidated Statements of Income one quarter in arrears, which began in the second quarter of 2020.

During the three and nine months ended September 30, 2021, the carrying value of our equity investment was adjusted by our share of BeiGene’s net loss of $98 million and $181 million, respectively, and amortization of the basis difference of $44 million and $128 million, respectively. During the three and nine months ended September 30, 2021, the carrying value increased by $18 million and $56 million, respectively, from the impact of BeiGene ownership transactions. In addition, during the three and nine months ended September 30, 2021, we increased the carrying value by $50 million as a result of our purchase of additional shares directly from BeiGene. As of September 30, 2021, the carrying value and fair value of our investment in BeiGene totaled $2.7 billion and $6.9 billion, respectively. As of September 30, 2021, we believe the carrying value of our equity investment in BeiGene is fully recoverable.

Neumora Therapeutics, Inc.

On September 30, 2021, we acquired approximately 25.9% ownership interest in Neumora Therapeutics, Inc. (Neumora), a privately held company, for $257 million, which is included in Other noncurrent assets in the Condensed Consolidated Balance Sheets, in exchange for a $100 million cash payment and $157 million in noncash consideration primarily related to future services. Although our equity investment provides us with the ability to exercise significant influence over Neumora, we have elected the fair value option to account for our equity investment. Under the fair value option, changes in the fair value of the investment are recognized through earnings each reporting period. We believe the fair value option best reflects the economics of the underlying transaction.

Limited partnerships

We held limited partnership investments of $556 million and $496 million as of September 30, 2021 and December 31, 2020, respectively, which are included in Other noncurrent assets in the Condensed Consolidated Balance Sheets. These investments, primarily investment funds of early-stage biotechnology companies, are accounted for by using the equity method of accounting and are measured by using our proportionate share of the net asset values of the underlying investments held by the limited partnerships as a practical expedient. These investments are typically redeemable only through distributions upon liquidation of the underlying assets. As of September 30, 2021, unfunded additional commitments to be made for these investments during the next several years were not material. For the three months ended September 30, 2021 and 2020, net unrealized gains and losses on our limited partnership investments were a net loss of $43 million and a net gain of $63 million, respectively. For the nine months ended September 30, 2021 and 2020, net unrealized gains from our limited partnership investments were $122 million and $73 million, respectively.

8. Inventories

Inventories consisted of the following (in millions):


	September 30, 2021		December 31, 2020
Raw materials	$	667	$	486
Work in process	2,313		2,437
Finished goods	1,172		970
Total inventories	$	4,152	$	3,893

9. Goodwill and other intangible assets

Goodwill

The change in the carrying amount of goodwill was as follows (in millions):


	Nine months ended September 30, 2021
Beginning balance	$	14,689
Currency translation adjustment	(24)
Ending balance	$	14,665

Other intangible assets

Other intangible assets consisted of the following (in millions):


	September 30, 2021						December 31, 2020
	Gross carrying amounts		Accumulated amortization		Other intangible assets, net		Gross carrying amounts		Accumulated amortization		Other intangible assets, net
Finite-lived intangible assets:
Developed-product-technology rights	$	25,575	$	(12,222)	$	13,353	$	25,591	$	(10,564)	$	15,027
Licensing rights	3,766		(2,931)		835		3,743		(2,791)		952
Marketing-related rights	1,362		(1,099)		263		1,367		(1,041)		326
Research and development technology rights	1,298		(1,120)		178		1,317		(1,065)		252
Total finite-lived intangible assets	32,001		(17,372)		14,629		32,018		(15,461)		16,557
Indefinite-lived intangible assets:
In-process research and development	30		—		30		30		—		30
Total other intangible assets	$	32,031	$	(17,372)	$	14,659	$	32,048	$	(15,461)	$	16,587

Developed-product-technology rights consists of rights related to marketed products. Licensing rights primarily consists of contractual rights to receive future milestone, royalty and profit-sharing payments; capitalized payments to third parties for milestones related to regulatory approvals to commercialize products; and upfront payments associated with royalty obligations for marketed products. Marketing-related rights primarily consists of rights related to the sale and distribution of marketed products. R&D technology rights pertains to technologies used in R&D that have alternative future uses.

IPR&D consists of R&D projects acquired in a business combination that are not complete at the time of acquisition due to remaining technological risks and/or lack of receipt of required regulatory approvals. We review IPR&D projects for impairment annually, whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable and upon the establishment of technological feasibility or regulatory approval.

During the three months ended September 30, 2021 and 2020, we recognized amortization associated with our finite-lived intangible assets of $642 million and $708 million, respectively. During the nine months ended September 30, 2021 and 2020, we recognized amortization associated with our finite-lived intangible assets of $1.9 billion and $2.1 billion, respectively. Amortization of intangible assets is primarily included in Cost of sales in the Condensed Consolidated Statements of Income. The total estimated amortization for our finite-lived intangible assets for the remaining three months ending December 31, 2021, and the years ending December 31, 2022, 2023, 2024, 2025 and 2026, are $0.6 billion, $2.5 billion, $2.4 billion, $2.4 billion, $2.2 billion and $1.8 billion, respectively.

10. Financing arrangements

Our borrowings consisted of the following (in millions):


	September 30, 2021		December 31, 2020
1.25% €1,250 million notes due 2022 (1.25% 2022 euro Notes)	$	1,448	$	1,527
2.70% notes due 2022 (2.70% 2022 Notes)	500		500
2.65% notes due 2022 (2.65% 2022 Notes)	1,500		1,500
3.625% notes due 2022 (3.625% 2022 Notes)	750		750
0.41% CHF700 million bonds due 2023 (0.41% 2023 Swiss franc Bonds)	751		791
2.25% notes due 2023 (2.25% 2023 Notes)	750		750
3.625% notes due 2024 (3.625% 2024 Notes)	1,400		1,400
1.90% notes due 2025 (1.90% 2025 Notes)	500		500
3.125% notes due 2025 (3.125% 2025 Notes)	1,000		1,000
2.00% €750 million notes due 2026 (2.00% 2026 euro Notes)	869		916
2.60% notes due 2026 (2.60% 2026 Notes)	1,250		1,250
5.50% £475 million notes due 2026 (5.50% 2026 pound sterling Notes)	640		649
2.20% notes due 2027 (2.20% 2027 Notes)	1,750		1,750
3.20% notes due 2027 (3.20% 2027 Notes)	1,000		1,000
1.65% note due 2028 (1.65% 2028 Notes)	1,250		—
4.00% £700 million notes due 2029 (4.00% 2029 pound sterling Notes)	943		957
2.45% notes due 2030 (2.45% 2030 Notes)	1,250		1,250
2.30% notes due 2031 (2.30% 2031 Notes)	1,250		1,250
2.00% notes due 2032 (2.00% 2032 Notes)	1,250		—
6.375% notes due 2037 (6.375% 2037 Notes)	478		478
6.90% notes due 2038 (6.90% 2038 Notes)	254		254
6.40% notes due 2039 (6.40% 2039 Notes)	333		333
3.15% notes due 2040 (3.15% 2040 Notes)	2,000		2,000
5.75% notes due 2040 (5.75% 2040 Notes)	373		373
2.80% note due 2041 (2.80% 2041 Notes)	1,150		—
4.95% notes due 2041 (4.95% 2041 Notes)	600		600
5.15% notes due 2041 (5.15% 2041 Notes)	729		729
5.65% notes due 2042 (5.65% 2042 Notes)	415		415
5.375% notes due 2043 (5.375% 2043 Notes)	185		185
4.40% notes due 2045 (4.40% 2045 Notes)	2,250		2,250
4.563% notes due 2048 (4.563% 2048 Notes)	1,415		1,415
3.375% notes due 2050 (3.375% 2050 Notes)	2,250		2,250
4.663% notes due 2051 (4.663% 2051 Notes)	3,541		3,541
3.00% notes due 2052 (3.00% 2052 Notes)	1,350		—
2.77% notes due 2053 (2.77% 2053 Notes)	940		940
Other notes due 2097	100		100
Unamortized bond discounts, premiums and issuance costs, net	(1,221)		(1,188)
Fair value adjustments	371		566
Other	15		5
Total carrying value of debt	37,579		32,986
Less current portion	(4,288)		(91)
Total long-term debt	$	33,291	$	32,895

There are no material differences between the effective interest rates and coupon rates of any of our borrowings, except for the 4.563% 2048 Notes, the 4.663% 2051 Notes and the 2.77% 2053 Notes, which have effective interest rates of 6.3%, 5.6% and 5.2%, respectively.

During the three months ended September 30, 2021, we issued $5.0 billion of debt consisting of $1.25 billion of the 1.65% 2028 Notes, $1.25 billion of the 2.00% 2032 Notes, $1.15 billion of the 2.80% 2041 Notes and $1.35 billion of the 3.00% 2052 Notes. In the event of a change-in-control triggering event, as defined in the terms of the notes, we may be required to purchase all or a portion of these notes at a price equal to 101% of the principal amount of the notes plus accrued and unpaid interest. In addition, these notes may be redeemed at any time at our option, in whole or in part, at the principal amount of the notes being redeemed plus accrued and unpaid interest and a make-whole amount, which are defined by the terms of the notes. The notes may be redeemed without payment of make-whole amounts if redemption occurs during a specified period of time immediately prior to the maturing of the notes. Such time periods range from two months to six months prior to maturity.

During the three months ended June 30, 2021, we entered into the following interest rate swap contracts: (i) $1.0 billion notional amount with respect to the 2.45% 2030 Notes, resulting in an effective interest rate of three-month LIBOR plus 1.0% for that portion of the notes, and (ii) $500 million notional amount with respect to the 2.30% 2031 Notes, resulting in an effective interest rate of three-month LIBOR plus 0.8% for that portion of the notes.

11. Stockholders’ equity

Stock repurchase program

Activity under our stock repurchase program, on a trade date basis, was as follows (in millions):


	2021			2020
	Shares	Dollars		Shares	Dollars
First quarter	3.7	$	865	4.3	$	933
Second quarter	6.5	1,592		2.6	591
Third quarter	4.6	1,069		3.0	752
Total stock repurchases	14.8	$	3,526	9.9	$	2,276

In March 2021, our Board of Directors increased the amount authorized under our stock repurchase program by an additional $3.4 billion. As of September 30, 2021, $2.9 billion of authorization remained available under our stock repurchase program.

In October 2021, the Board of Directors increased the amount authorized under our stock repurchase program by an additional $4.5 billion.

Dividends

In July 2021, March 2021 and December 2020, the Board of Directors declared a quarterly cash dividend of $1.76 per share, which were paid in September 2021, June 2021 and March 2021, respectively. In October 2021, the Board of Directors declared a quarterly cash dividend of $1.76 per share, which will be paid on December 8, 2021.

Accumulated other comprehensive income (loss)

The components of Accumulated other comprehensive income (loss) (AOCI) were as follows (in millions):


	Foreign currency translation		Cash flow hedges		Available-for-sale securities		Other		AOCI
Balance as of December 31, 2020	$	(709)	$	(263)	$	1	$	(14)	$	(985)

Foreign currency translation adjustments	(39)		—		—		—		(39)
Unrealized gains	—		108		—		—		108
Reclassification adjustments to income	—		133		—		—		133
Other	—		—		—		1		1
Income taxes	—		(51)		—		—		(51)
Balance as of March 31, 2021	(748)		(73)		1		(13)		(833)

Foreign currency translation adjustments	14		—		—		—		14
Unrealized losses	—		(31)		—		—		(31)
Reclassification adjustments to income	—		(28)		—		—		(28)
Other	—		—		—		(1)		(1)
Income taxes	—		11		—		—		11
Balance as of June 30, 2021	(734)		(121)		1		(14)		(868)
Foreign currency translation adjustments	(35)		—		—		—		(35)
Unrealized gains (losses)	—		16		(1)		—		15
Reclassification adjustments to income	—		109		—		—		109
Other	—		—		—		(3)		(3)
Income taxes	—		(26)		—		—		(26)
Balance as of September 30, 2021	$	(769)	$	(22)	$	—	$	(17)	$	(808)

Reclassifications out of AOCI and into earnings, including related income tax expenses, were as follows (in millions):


	Three months ended September 30,
Components of AOCI	2021		2020		Condensed Consolidated Statements of Income locations
Cash flow hedges:
Foreign currency contract (losses) gains	$	(5)	$	41	Product sales
Cross-currency swap contract (losses) gains	(104)		183		Other income, net

	(109)		224		Income before income taxes
	23		(49)		Provision for income taxes
	$	(86)	$	175	Net income
Available-for-sale securities:
Net realized gains	$	—	$	—	Other income, net
	—		—		Provision for income taxes
	$	—	$	—	Net income

	Nine months ended September 30,
Components of AOCI	2021		2020		Condensed Consolidated Statements of Income locations
Cash flow hedges:
Foreign currency contract (losses) gains	$	(24)	$	158	Product sales
Cross-currency swap contract (losses) gains	(190)		101		Other income, net

	(214)		259		Income before income taxes
	45		(57)		Provision for income taxes
	$	(169)	$	202	Net income
Available-for-sale securities:
Net realized gains	$	—	$	33	Other income, net
	—		(7)		Provision for income taxes
	$	—	$	26	Net income

12. Fair value measurement

To estimate the fair value of our financial assets and liabilities, we use valuation approaches within a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing an asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing an asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is divided into three levels based on the source of inputs as follows:


Level 1	—	Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access
Level 2	—	Valuations for which all significant inputs are observable either directly or indirectly—other than Level 1 inputs
Level 3	—	Valuations based on inputs that are unobservable and significant to the overall fair value measurement

The availability of observable inputs can vary among different types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used for measuring fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level of input used that is significant to the overall fair value measurement.

The fair values of each major class of the Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows (in millions):


	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)

Fair value measurement as of September 30, 2021, using:					Total
Assets:
Available-for-sale securities:
U.S. Treasury notes	$	51	$	—		$	—	$	51
U.S. Treasury bills	3,900		—			—		3,900









Money market mutual funds	8,323		—			—		8,323
Other short-term interest-bearing securities	—		1			—		1
Equity securities	608		—			257		865
Derivatives:
Foreign currency contracts	—		127			—		127
Cross-currency swap contracts	—		119			—		119
Interest rate swap contracts	—		29			—		29

Total assets	$	12,882	$	276		$	257	$	13,415

Liabilities:
Derivatives:
Foreign currency contracts	$	—	$	54		$	—	$	54
Cross-currency swap contracts	—		360			—		360
Interest rate swap contracts	—		105			—		105
Contingent consideration obligations	—		—			35		35
Total liabilities	$	—	$	519		$	35	$	554


	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)

Fair value measurement as of December 31, 2020, using:					Total
Assets:
Available-for-sale securities:
U.S. Treasury notes	$	130	$	—		$	—	$	130
U.S. Treasury bills	4,948		—			—		4,948









Money market mutual funds	4,765		—			—		4,765
Other short-term interest-bearing securities	—		2			—		2
Equity securities	477		—			—		477
Derivatives:
Foreign currency contracts	—		28			—		28
Cross-currency swap contracts	—		255			—		255
Interest rate swap contracts	—		66			—		66
Total assets	$	10,320	$	351		$	—	$	10,671

Liabilities:
Derivatives:
Foreign currency contracts	$	—	$	237		$	—	$	237
Cross-currency swap contracts	—		318			—		318
Interest rate swap contracts	—		15			—		15
Contingent consideration obligations	—		—			33		33
Total liabilities	$	—	$	570		$	33	$	603

Interest-bearing and equity securities

The fair values of our U.S. Treasury securities, money market mutual funds and equity investments in publicly traded securities are based on quoted market prices in active markets, with no valuation adjustment. The fair value of equity securities without readily determinable fair values are initially valued at the transaction price and subsequently valued based upon a combination of entity-specific financial information and publicly available market information for similar companies that have actively traded equity securities.

Derivatives

All of our foreign currency forward derivative contracts have maturities of three years or less, and all are with counterparties that have minimum credit ratings of A– or equivalent by Standard & Poor’s Financial Services LLC (S&P), Moody’s Investors Service, Inc. (Moody’s) or Fitch Ratings, Inc. (Fitch). We estimate the fair values of these contracts by taking into consideration valuations obtained from a third-party valuation service that uses 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, LIBOR, swap rates and obligor credit default swap rates. In addition, inputs for our foreign currency option contracts include implied volatility measures. These inputs, when applicable, are at commonly quoted intervals. See Note 13, Derivative instruments.

Our cross-currency swap contracts are with counterparties that have minimum credit ratings of A– or equivalent by S&P, Moody’s or Fitch. We estimate the fair values of these contracts by taking into consideration valuations obtained from a third-party valuation service that uses 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, LIBOR, swap rates, obligor credit default swap rates and cross-currency-basis swap spreads. See Note 13, Derivative instruments.

Our interest rate swap contracts are with counterparties that have minimum credit ratings of A– or equivalent by S&P, Moody’s or Fitch. We estimate the fair values of these contracts by using an income-based industry-standard valuation model for which all significant inputs are observable either directly or indirectly. These inputs include LIBOR, swap rates and obligor credit default swap rates. See Note 13, Derivative instruments.

During the three and nine months ended September 30, 2021 and 2020, there were no material remeasurements to the fair values of assets and liabilities that are not measured at fair value on a recurring basis.

Summary of the fair values of other financial instruments

Cash equivalents

The fair values of cash equivalents approximate their carrying values due to the short-term nature of such financial instruments.

Borrowings

We estimated the fair values of our borrowings by using Level 2 inputs. As of September 30, 2021 and December 31, 2020, the aggregate fair values of our borrowings were $42.2 billion and $39.4 billion, respectively, and the carrying values were $37.6 billion and $33.0 billion, respectively.

13. Derivative instruments

The Company is exposed to foreign currency exchange rate and interest rate risks related to its business operations. To reduce our risks related to such exposures, we use or have used certain derivative instruments, including foreign currency forward, cross-currency swap, forward interest rate and interest rate swap contracts. We do not use derivatives for speculative- trading purposes.

Cash flow hedges

We are exposed to possible changes in the values of certain anticipated foreign currency cash flows resulting from changes in foreign currency exchange rates primarily associated with our euro-denominated international product sales. Increases and decreases in the cash flows associated with our international product sales due to movements in foreign currency exchange rates are partially offset by corresponding increases and decreases in the cash flows from our international operating expenses resulting from these foreign currency exchange rate movements. To further reduce our exposure to foreign currency exchange rate fluctuations with regard to our international product sales, we enter into foreign currency forward contracts to hedge a portion of our projected international product sales up to a maximum of three years into the future; and at any given point in time, a higher percentage of nearer-term projected product sales are being hedged than in successive periods.

As of September 30, 2021 and December 31, 2020, we had outstanding foreign currency forward contracts with aggregate notional amounts of $5.7 billion and $5.1 billion, respectively. We have designated these foreign currency forward contracts, which are primarily euro based, as cash flow hedges. Accordingly, we report the unrealized gains and losses on these contracts in AOCI in the Condensed Consolidated Balance Sheets, and we reclassify them to Product sales in the Condensed Consolidated Statements of Income in the same periods during which the hedged transactions affect earnings.

To hedge our exposure to foreign currency exchange rate risk associated with certain of our long-term debt denominated in foreign currencies, we enter into cross-currency swap contracts. Under the terms of such contracts, we paid euros, pounds sterling and Swiss francs and received U.S. dollars for the notional amounts at the inception of the contracts; and based on these notional amounts, we exchange interest payments at fixed rates over the lives of the contracts by paying U.S. dollars and receiving euros, pounds sterling and Swiss francs. In addition, we will pay U.S. dollars to and receive euros, pounds sterling and Swiss francs from the counterparties at the maturities of the contracts for these same notional amounts. The terms of these contracts correspond to the related hedged debt, thereby effectively converting the interest payments and principal repayment on the debt from euros, pounds sterling and Swiss francs to U.S. dollars. We have designated these cross-currency swap contracts as cash flow hedges. Accordingly, the unrealized gains and losses on these contracts are reported in AOCI in the Condensed Consolidated Balance Sheets and reclassified to Other income, net, in the Condensed Consolidated Statements of Income in the same periods during which the hedged debt affects earnings.

The notional amounts and interest rates of our cross-currency swaps as of September 30, 2021, were as follows (notional amounts in millions):


	Foreign currency				U.S. dollars
Hedged notes	Notional amounts		Interest rates		Notional amounts		Interest rates

1.25% 2022 euro Notes	€	1,250	1.3	%	$	1,388	3.2	%
0.41% 2023 Swiss franc Bonds	CHF	700	0.4	%	$	704	3.4	%
2.00% 2026 euro Notes	€	750	2.0	%	$	833	3.9	%
5.50% 2026 pound sterling Notes	£	475	5.5	%	$	747	6.0	%
4.00% 2029 pound sterling Notes	£	700	4.0	%	$	1,111	4.5	%

In connection with the anticipated issuance of long-term fixed-rate debt, we occasionally enter into forward interest rate contracts in order to hedge the variability in cash flows due to changes in the applicable U.S. Treasury rate between the time we enter into these contracts and the time the related debt is issued. Gains and losses on forward interest rate contracts, which are designated as cash flow hedges, are recognized in AOCI in the Condensed Consolidated Balance Sheets and are amortized into Interest expense, net, in the Condensed Consolidated Statements of Income over the lives of the associated debt issuances. Amounts recognized in connection with forward interest rate swaps during the nine months ended September 30, 2021, and amounts expected to be recognized during the subsequent 12 months are not material.

The unrealized gains and losses recognized in AOCI for our derivative instruments designated as cash flow hedges were as follows (in millions):


	Three months ended September 30,				Nine months ended September 30,
Derivatives in cash flow hedging relationships	2021		2020		2021		2020
Foreign currency contracts	$	136	$	(163)	$	273	$	(25)
Cross-currency swap contracts	(120)		223		(180)		(107)

Total unrealized gains (losses)	$	16	$	60	$	93	$	(132)

Fair value hedges

To achieve a desired mix of fixed-rate and floating-rate debt, we entered into interest rate swap contracts that qualified for and were designated as fair value hedges. These interest rate swap contracts effectively convert fixed-rate coupons to floating-rate LIBOR-based coupons over the terms of the related hedge contracts. As of September 30, 2021 and December 31, 2020, we had interest rate swap contracts with aggregate notional amounts of $7.4 billion and $5.9 billion, respectively, that hedge certain portions of our long-term debt issuances. During the three months ended June 30, 2021, we entered into $1.5 billion of interest rate swap contracts to hedge portions of our 2.45% 2030 Notes and 2.30% 2031 Notes (see Note 10, Financing arrangements).

For interest rate swap contracts that qualify for and are designated as fair value hedges, we recognize in Interest expense, net, in the Condensed Consolidated Statements of Income the unrealized gain or loss on the derivative resulting from the change in fair value during the period, as well as the offsetting unrealized loss or gain of the hedged item resulting from the change in fair value during the period attributable to the hedged risk. If a hedging relationship involving an interest rate swap contract is terminated, the gain or loss realized on contract termination is recorded as an adjustment to the carrying value of the debt and amortized into Interest expense, net, over the remaining life of the previously hedged debt.

The hedged liabilities and related cumulative-basis adjustments for fair value hedges of those liabilities were recorded in the Condensed Consolidated Balance Sheets as follows (in millions):


	Carrying amounts of hedged liabilities(1)				Cumulative amounts of fair value hedging adjustments related to the carrying amounts of the hedged liabilities(2)
Condensed Consolidated Balance Sheets locations	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Current portion of long-term debt	$	840	$	89	$	90	$	89
Long-term debt	$	6,809	$	6,258	$	281	$	477

(1) Current portion of long-term debt includes $87 million and $89 million of carrying value with discontinued hedging relationships as of September 30, 2021 and December 31, 2020, respectively. Long-term debt includes $460 million and $525 million of carrying value with discontinued hedging relationships as of September 30, 2021 and December 31, 2020, respectively.

(2) Current portion of long-term debt includes $87 million and $89 million of hedging adjustments on discontinued hedging relationships as of September 30, 2021 and December 31, 2020, respectively. Long-term debt includes $360 million and $425 million of hedging adjustments on discontinued hedging relationships as of September 30, 2021 and December 31, 2020, respectively.

Impact of hedging transactions

The following tables summarize the amounts recorded in income and expense line items and the effects thereon from fair value and cash flow hedging, including discontinued hedging relationships (in millions):



	Three months ended September 30, 2021						Nine months ended September 30, 2021
	Product sales		Other income, net		Interest expense, net		Product sales		Other income, net		Interest expense, net
Total amounts recorded in income and (expense) line items presented in the Condensed Consolidated Statements of Income	$	6,320	$	73	$	(296)	$	18,026	$	97	$	(862)
The effects of cash flow and fair value hedging:
Losses on cash flow hedging relationships reclassified out of AOCI:
Foreign currency contracts	$	(5)	$	—	$	—	$	(24)	$	—	$	—
Cross-currency swap contracts	$	—	$	(104)	$	—	$	—	$	(190)	$	—

Gains (losses) on fair value hedging relationships—interest rate swap agreements:
Hedged items(1)	$	—	$	—	$	54	$	—	$	—	$	195
Derivatives designated as hedging instruments	$	—	$	—	$	(31)	$	—	$	—	$	(128)



	Three months ended September 30, 2020						Nine months ended September 30, 2020
	Product sales		Other income, net		Interest expense, net		Product sales		Other income, net		Interest expense, net
Total amounts recorded in income and (expense) line items presented in the Condensed Consolidated Statements of Income	$	6,104	$	55	$	(302)	$	17,906	$	69	$	(944)
The effects of cash flow and fair value hedging:
Gains on cash flow hedging relationships reclassified out of AOCI:
Foreign currency contracts	$	41	$	—	$	—	$	158	$	—	$	—
Cross-currency swap contracts	$	—	$	183	$	—	$	—	$	101	$	—

Gains (losses) on fair value hedging relationships—interest rate swap agreements:
Hedged items(1)	$	—	$	—	$	35	$	—	$	—	$	215
Derivatives designated as hedging instruments	$	—	$	—	$	(13)	$	—	$	—	$	(150)

(1) Gains on hedged items do not exactly offset losses on the related designated hedging instruments due to amortization of the cumulative amounts of fair value hedging adjustments included in the carrying amount of the hedged debt for discontinued hedging relationships and the recognition of gains on terminated hedges when the corresponding hedged item was paid down in the period.

No portions of our cash flow hedge contracts were excluded from the assessment of hedge effectiveness. As of September 30, 2021, the net gains expected to be reclassified on our foreign currency and cross-currency swap contracts out of AOCI and into earnings during the next 12 months are not material.

Derivatives not designated as hedges

To reduce our exposure to foreign currency fluctuations in certain assets and liabilities denominated in foreign currencies, we enter into foreign currency forward contracts that are not designated as hedging transactions. Most of these exposures are hedged on a month-to-month basis. As of September 30, 2021 and December 31, 2020, the total notional amounts of these foreign currency forward contracts were $0.7 billion and $1.0 billion, respectively. Gains and losses recognized in earnings for our derivative instruments not designated as hedging instruments were not material for the three and nine months ended September 30, 2021 and 2020.

The fair values of derivatives included in the Condensed Consolidated Balance Sheets were as follows (in millions):


	Derivative assets			Derivative liabilities
September 30, 2021	Condensed Consolidated Balance Sheets locations	Fair values		Condensed Consolidated Balance Sheets locations	Fair values
Derivatives designated as hedging instruments:
Foreign currency contracts	Other current assets/ Other noncurrent assets	$	127	Accrued liabilities/ Other noncurrent liabilities	$	54
Cross-currency swap contracts	Other current assets/ Other noncurrent assets	119		Accrued liabilities/ Other noncurrent liabilities	360
Interest rate swap contracts	Other current assets/ Other noncurrent assets	29		Accrued liabilities/ Other noncurrent liabilities	105

Total derivatives designated as hedging instruments		$	275		$	519


	Derivative assets			Derivative liabilities
December 31, 2020	Condensed Consolidated Balance Sheets locations	Fair values		Condensed Consolidated Balance Sheets locations	Fair values
Derivatives designated as hedging instruments:
Foreign currency contracts	Other current assets/ Other noncurrent assets	$	28	Accrued liabilities/ Other noncurrent liabilities	$	237
Cross-currency swap contracts	Other current assets/ Other noncurrent assets	255		Accrued liabilities/ Other noncurrent liabilities	318

Interest rate swap contracts	Other current assets/ Other noncurrent assets	66		Accrued liabilities/ Other noncurrent liabilities	15
Total derivatives designated as hedging instruments		$	349		$	570

Our derivative contracts that were in liability positions as of September 30, 2021, contain certain credit-risk-related contingent provisions that would be triggered if (i) we were to undergo a change in control and (ii) our or the surviving entity’s creditworthiness deteriorates, which is generally defined as having either a credit rating that is below investment grade or a materially weaker creditworthiness after the change in control. If these events were to occur, the counterparties would have the right, but not the obligation, to close the contracts under early-termination provisions. In such circumstances, the counterparties could request immediate settlement of these contracts for amounts that approximate the then current fair values of the contracts. In addition, our derivative contracts are not subject to any type of master netting arrangement, and amounts due either to or from a counterparty under the contracts may be offset against other amounts due either to or from the same counterparty only if an event of default or termination, as defined, were to occur.

The cash flow effects of our derivative contracts in the Condensed Consolidated Statements of Cash Flows are included in Net cash provided by operating activities, except for the settlement of notional amounts of cross-currency swaps, which are included in Net cash used in financing activities.

14. Contingencies and commitments

Contingencies

In the ordinary course of business, we are involved in various legal proceedings, government investigations and other matters that are complex in nature and have outcomes that are difficult to predict. See our Annual Report on Form 10-K for the year ended December 31, 2020, Part I, Item 1A. Risk Factors—Our business may be affected by litigation and government investigations. We describe our legal proceedings and other matters that are significant or that we believe could become significant in this footnote; in Note 19, Contingencies and commitments, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020; in Note 12, Contingencies and commitments, to the condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the period ended March 31, 2021; and in Note 13, Contingencies and commitments, to the condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the period ended June 30, 2021.

We record accruals for loss contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. We evaluate, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that has been accrued previously.

Our legal proceedings involve various aspects of our business and a variety of claims, some of which present novel factual allegations and/or unique legal theories. In each of the matters described in this filing; in Note 19, Contingencies and commitments, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020; in Note 12, Contingencies and commitments, to the condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the period ended March 31, 2021; or in Note 13, Contingencies and commitments, to the condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the period ended June 30, 2021, in which we could incur a liability, our opponents seek an award of a not-yet-quantified amount of damages or an amount that is not material. In addition, a number of the matters pending against us are at very early stages of the legal process, which in complex proceedings of the sort we face often extend for several years. As a result, none of the matters described in this filing; in Note 19, Contingencies and commitments, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020; in Note 12, Contingencies and commitments, to the condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the period ended March 31, 2021; or in Note 13, Contingencies and commitments, to the condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the period ended June 30, 2021, in which we could incur a liability, have progressed sufficiently through discovery and/or the development of important factual information and legal issues to enable us to estimate a range of possible loss, if any, or such amounts are not material. While it is not possible to accurately predict or determine the eventual outcomes of these matters, an adverse determination in one or more of these matters currently pending could have a material adverse effect on our consolidated results of operations, financial position or cash flows.

Certain recent developments concerning our legal proceedings and other matters are discussed below:

Abbreviated New Drug Application (ANDA) Patent Litigation

Otezla*®* ANDA Patent Litigation

Amgen Inc. v. Sandoz Inc., et al.

On September 28, 2021, consistent with its September 20, 2021 opinion and order, the U.S. District Court for the District of New Jersey (the New Jersey District Court) entered final judgment in favor of Amgen and against Zydus Pharmaceuticals (USA) Inc. (Zydus) with respect to claims 3 and 6 of U.S. Patent No. 7,427,638 (the ’638 Patent), claim 6 of U.S. Patent No. 8,455,536 (the ’536 Patent) and claims 2 and 27 of U.S. Patent No. 8,093,283 (the ‘283 Patent); and final judgment in favor of Zydus and against Amgen with respect to claims 1 and 15 of U.S. Patent No. 7,893,101 (the ‘101 Patent) and claims 2, 19 and 21 of U.S. Patent No. 10,092,541 (the ’541 Patent). The final judgment ordered that the effective date of any final approval by the U.S. Food and Drug Administration (FDA) of Zydus’s ANDA must be after expiration of the three infringed patents (the ’638, ’536 and ’283 Patents) and any regulatory exclusivity to which Amgen may become entitled. The final judgment also includes an injunction prohibiting Zydus from making, using, offering to sell, or selling in the United States, or importing into the United States, Zydus’s generic apremilast products during the term of the three infringed patents.

On October 12, 2021, the New Jersey District Court also entered final judgment in favor of Amgen and against Sandoz Inc. (Sandoz) with respect to claims 3 and 6 of the ’638 Patent, claim 6 of the ’536 Patent and claims 1 and 15 of the ’101 Patent; and final judgment in favor of Sandoz and against Amgen with respect to claims 2, 19 and 21 of the ’541 Patent. The final judgment ordered that the effective date of any final approval by the FDA of Sandoz’s ANDA must be after expiration of the three infringed patents (the ’638, ’536 and ’101 Patents) and any regulatory exclusivity to which Amgen may become entitled. The final judgment also includes an injunction prohibiting Sandoz from making, using, offering to sell, or selling in the United States, or importing into the United States, Sandoz’s generic apremilast products during the term of the three infringed patents.

Zydus and Amgen filed notices of appeal to the U.S. Court of Appeals for the Federal Circuit (the Federal Circuit Court) on October 27, 2021 and October 28, 2021, respectively.

Sensipar® (cinacalcet) ANDA Patent Litigation

Amgen Inc. v. Amneal Pharmaceuticals LLC, et al. (formerly, Amgen Inc. v. Aurobindo Pharma Ltd. et al.)

On October 20, 2021, the U.S. District Court for the District of Delaware (the Delaware District Court) issued final judgment in favor of Piramal Healthcare UK Limited and Slate Run Pharmaceuticals LLC.

ENBREL Patent Litigation

Immunex Corporation, et al. v. Samsung Bioepis Co., Ltd.

On November 2, 2021, Amgen and Samsung Bioepis Co., Ltd. (Bioepis), with the consent of Hoffmann-La Roche Inc. (Roche), jointly submitted to the New Jersey District Court a confidential stipulation and a form of final judgment and order of permanent injunction resolving the dispute between the parties and enjoining Bioepis from making, using, offering to sell, or selling within the United States, or importing into the United States, any product containing etanercept until the April 24, 2029 expiry of Roche’s U.S. Patent No. 8,163,522.

Repatha® Patent Litigation

Patent Disputes in the International Region

National litigations in the United Kingdom, France, the Netherlands and Italy have been settled. In Germany, Sanofi-Aventis Deutschland GmbH and Regeneron Pharmaceuticals, Inc. have filed actions claiming they are entitled to damages arising from the provisional enforcement of an injunction against PRALUENT® that was lifted after the European Patent Office Technical Board of Appeal’s October 29, 2020 ruling that certain claims encompassing PRALUENT® in Amgen’s European Patent No. 2,215,124 were invalid.

NEUPOGEN*®* (filgrastim)/Neulasta*®* Patent Litigation

Amgen Inc., et al. v. Pfizer Inc. et al.

On September 8, 2021, pursuant to joint stipulation, the Delaware District Court dismissed the lawsuits regarding U.S. Patent Nos. 9,643,997 and 10,577,392.

Patent Trial and Appeal Board (PTAB) Challenge

Apotex PTAB Challenge

On September 2, 2021, the Federal Circuit Court issued a remand to permit Amgen to request rehearing of the PTAB’s final written decision holding that all claims of U.S. Patent No. 8.952,138 as unpatentable.

Pfizer PTAB Challenge

On February 10, 2021, Hospira, Inc. and Pfizer Inc. (collectively, Pfizer) filed a petition to institute inter partes review (IPR) proceeding at the U.S. Patent and Trademark Office (USPTO) of U.S. Patent No. 8,273,707 (the ’707 Patent), challenging claims of the ’707 Patent as unpatentable. Amgen’s preliminary response was filed on May 18, 2021.

On August 17, 2021, the PTAB of the USPTO granted Pfizer’s petition to institute IPR of the ’707 Patent. On August 23, 2021, the PTAB issued the schedule for the proceeding, including oral argument (if requested) on May 18, 2022.

Breach of Contract Action

Novartis Pharma AG v. Amgen Inc.

On October 26, 2021, the U.S. District Court for the Southern District of New York held a status conference with the parties and set the dates for Novartis Pharma AG’s (Novartis) opening brief for its motion for partial summary judgment on two claims, fraudulent inducement and negligent misrepresentation, to be due on January 14, 2022, Amgen’s opposition to be due on February 14, 2022 and Novartis’ reply to be due on March 10, 2022. This motion, if granted, will not dispose of the entire case as other claims related to breach of contract remain pending.

U.S. Tax Litigation

Amgen Inc. & Subsidiaries v. Commissioner of Internal Revenue

See Note 4, Income taxes, for discussion of the IRS tax dispute and the Company’s petition in the U.S. Tax Court.

15. Subsequent event

On October 19, 2021, Amgen completed its acquisition of Teneobio, Inc. (Teneobio), a privately held, clinical-stage biotechnology company developing a new class of biologics called heavy-chain only antibodies (HCAbs). Amgen acquired all outstanding shares in exchange for a $900 million upfront payment, as well as future contingent milestone payments potentially worth up to an additional $1.6 billion in cash upon the achievement of certain development and regulatory events.

The accounting impact of this acquisition and the results of operations for Teneobio will be included in our consolidated financial statements beginning in the fourth quarter of 2021. The initial accounting for this acquisition is incomplete, pending identification and measurement of the assets acquired and liabilities assumed.

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