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,
2022202120222021
Revenues:
Product sales$6,237$6,320$18,249$18,026
Other revenues4153861,2351,107
Total revenues6,6526,70619,48419,133
Operating expenses:
Cost of sales1,5881,6094,6594,736
Research and development1,1121,4223,1103,471
Acquired in-process research and development———1,505
Selling, general and administrative1,2871,3053,8423,943
Other5(8)537143
Total operating expenses3,9924,32812,14813,798
Operating income2,6602,3787,3365,335
Other income (expense):
Interest expense, net(368)(296)(991)(862)
Other income (expense), net10073(747)97
Income before income taxes2,3922,1555,5984,570
Provision for income taxes249271662576
Net income$2,143$1,884$4,936$3,994
Earnings per share:
Basic$4.01$3.32$9.16$6.98
Diluted$3.98$3.31$9.11$6.93
Shares used in calculation of earnings per share:
Basic535567539572
Diluted538570542576

See accompanying notes.

AMGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

Three months ended September 30,Nine months ended September 30,
2022202120222021
Net income$2,143$1,884$4,936$3,994
Other comprehensive income, net of reclassification adjustments and taxes:
Foreign currency translation(109)(35)(225)(60)
Cash flow hedges13899378241
Losses on available-for-sale securities—(1)—(1)
Other(9)(3)(9)(3)
Other comprehensive income, net of reclassification adjustments and taxes2060144177
Comprehensive income$2,163$1,944$5,080$4,171

See accompanying notes.

AMGEN INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except per-share data)

September 30, 2022December 31, 2021
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents$9,502$7,989
Marketable securities1,97648
Trade receivables, net5,3264,895
Inventories4,7574,086
Other current assets2,5012,367
Total current assets24,06219,385
Property, plant and equipment, net5,1885,184
Intangible assets, net13,26615,182
Goodwill14,84514,890
Other noncurrent assets6,3396,524
Total assets$63,700$61,165
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$1,204$1,366
Accrued liabilities11,58410,731
Current portion of long-term debt1,54387
Total current liabilities14,33112,184
Long-term debt37,16133,222
Long-term tax liabilities5,6806,594
Other noncurrent liabilities2,8752,465
Contingencies and commitments
Stockholders’ equity:
Common stock and additional paid-in capital; $0.0001 par value; 2,750.0 shares authorized; outstanding—533.5 shares in 2022 and 558.3 shares in 202132,37132,096
Accumulated deficit(28,066)(24,600)
Accumulated other comprehensive loss(652)(796)
Total stockholders’ equity3,6536,700
Total liabilities and stockholders’ equity$63,700$61,165

See accompanying notes.

AMGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions, except per-share data)

(Unaudited)

Number of shares of common stockCommon stock and additional paid-in capitalAccumulated deficitAccumulated other comprehensive lossTotal
Balance as of December 31, 2021558.3$32,096$(24,600)$(796)$6,700
Net income——1,476—1,476
Other comprehensive income, net of taxes———3333
Dividends declared on common stock ($1.94 per share)——(1,034)—(1,034)
Issuance of common stock in connection with the Company’s equity award programs0.518——18
Stock-based compensation expense—78——78
Tax impact related to employee stock-based compensation expense—(45)——(45)
Repurchases of common stock (Note 10)(24.6)(900)(5,410)—(6,310)
Balance as of March 31, 2022534.231,247(29,568)(763)916
Net income——1,317—1,317
Other comprehensive income, net of taxes———9191
Issuance of common stock in connection with the Company’s equity award programs0.745——45
Stock-based compensation expense—120——120
Tax impact related to employee stock-based compensation expense—(69)——(69)
Other——(1)—(1)
Balance as of June 30, 2022534.931,343(28,252)(672)2,419
Net income——2,143—2,143
Other comprehensive income, net of taxes———2020
Dividends declared on common stock ($1.94 per share)——(1,057)—(1,057)
Issuance of common stock in connection with the Company’s equity award programs0.115——15
Stock-based compensation expense—121——121
Tax impact related to employee stock-based compensation expense—(8)——(8)
Repurchases of common stock (Note 10)(1.5)900(900)——
Balance as of September 30, 2022533.5$32,371$(28,066)$(652)$3,653

See accompanying notes.

AMGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

(In millions, except per-share data)

(Unaudited)

Number of shares of common stockCommon stock and additional paid-in capitalAccumulated deficitAccumulated other comprehensive lossTotal
Balance as of December 31, 2020578.3$31,802$(21,408)$(985)$9,409
Net income——1,646—1,646
Other comprehensive income, net of taxes———152152
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 programs0.76——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, 2021575.331,806(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 programs0.847——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, 2021569.631,877(22,762)(868)8,247
Net income——1,884—1,884
Other comprehensive income, net of taxes———6060
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, 2021565.0$31,989$(22,964)$(808)$8,217

See accompanying notes.

AMGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

Nine months ended September 30,
20222021
Cash flows from operating activities:
Net income$4,936$3,994
Depreciation, amortization and other2,5062,546
Deferred income taxes(847)(264)
Acquired in-process research and development—1,505
Adjustments for equity method investments713130
Loss on divestiture565—
Other items, net23657
Changes in operating assets and liabilities, net of acquisitions:
Trade receivables, net(566)(269)
Inventories(651)(215)
Other assets166(373)
Accounts payable(142)(260)
Accrued income taxes, net(492)(719)
Long-term tax liabilities185102
Other liabilities463219
Net cash provided by operating activities7,0726,453
Cash flows from investing activities:
Purchases of marketable securities(2,363)(8,901)
Proceeds from sales of marketable securities—4,403
Proceeds from maturities of marketable securities4477,927
Purchases of property, plant and equipment(596)(593)
Cash paid for acquisitions, net of cash acquired—(1,639)
Other(59)(234)
Net cash (used in) provided by investing activities(2,571)963
Cash flows from financing activities:
Net proceeds from issuance of debt6,9384,946
Extinguishment of debt(297)—
Repurchases of common stock (Note 10)(6,360)(3,532)
Dividends paid(3,156)(3,023)
Other(113)(104)
Net cash used in financing activities(2,988)(1,713)
Increase in cash and cash equivalents1,5135,703
Cash and cash equivalents at beginning of period7,9896,266
Cash and cash equivalents at end of period$9,502$11,969

See accompanying notes.

AMGEN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(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, 2022 and 2021, 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, 2021, 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, 2022 and June 30, 2022.

Principles of consolidation

The condensed consolidated financial statements include the accounts of Amgen as well as its majority-owned subsidiaries. In determining whether we are the primary beneficiary of a variable interest entity, we consider whether we have both the power to direct activities of the entity that most significantly impact the entity’s economic performance and the obligation to absorb losses of or the right to receive benefits from the entity that could potentially be significant to that entity. We do not have any significant interests in any variable interest entities of which we are the primary beneficiary. All material intercompany transactions and balances have been eliminated in consolidation.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with 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 $8.8 billion as of September 30, 2022 and December 31, 2021, respectively.

Recent accounting pronouncements

In March 2020, the FASB issued a new accounting standard to ease the financial reporting burdens caused by the expected market transition from 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 that expanded the scope of the original March 2020 standard to include derivative instruments on discounting transactions. We do not expect the two standards to have a material impact on our consolidated financial statements.

In November 2021, the FASB issued a new accounting standard around the recognition and measurement of contract assets and contract liabilities from revenue contracts with customers acquired in a business combination. The new standard clarifies that contract assets and contract liabilities acquired in a business combination from an acquiree should initially be recognized by applying revenue recognition principles and not at fair value. The standard is effective for interim and annual periods beginning on January 1, 2023, and early adoption is permitted. The impact of this standard will depend on the facts and circumstances of future transactions.

2. Acquisitions and divestitures

Acquisition of Teneobio, Inc.

On October 19, 2021, we acquired all of the outstanding stock of Teneobio, a privately held, clinical-stage biotechnology company developing a new class of biologics called human heavy-chain antibodies, which are single-chain antibodies composed of the human heavy-chain domain. The transaction, which was accounted for as a business combination, includes Teneobio’s proprietary bispecific and multispecific antibody technologies, which complement Amgen’s existing antibody capabilities and bispecific T-cell engager (BiTE®) platform and will enable significant acceleration and efficiency in the discovery and development of new molecules to treat diseases across Amgen’s core therapeutic areas. Upon its acquisition, Teneobio became a wholly owned subsidiary of Amgen, and its operations have been included in our condensed consolidated financial statements commencing on the acquisition date.

Measurement period adjustments for the nine months ended September 30, 2022, included changes to the purchase price allocation and total consideration, resulting in a net increase of $22 million to goodwill. The measurement period adjustments resulted primarily from valuation inputs pertaining to certain acquired assets based on facts and circumstances that existed as of the acquisition date and did not result from events subsequent to the acquisition date. These adjustments did not have a significant impact on Amgen’s results of operations during the nine months ended September 30, 2022, and would not have had a significant impact on prior-period results if these adjustments had been made as of the acquisition date. The following table summarizes the final total consideration and allocated acquisition date fair values of assets acquired and liabilities assumed, inclusive of measurement period adjustments (in millions):

Amounts
Cash purchase price$993
Contingent consideration299
Total consideration$1,292
Cash and cash equivalents$100
In-process research and development991
Finite-lived intangible asset – research and development technology rights115
Finite-lived intangible assets – licensing rights41
Goodwill273
Other assets, net16
Deferred tax liability(244)
Total assets acquired, net$1,292

Consideration for this transaction comprised of (i) an upfront cash payment of $993 million, which included a working-capital adjustment, and (ii) future contingent milestone payments to Teneobio’s former equity holders of up to $1.6 billion in cash, based on the achievement of various development and regulatory milestones with regard to the lead asset (AMG 340, formerly TNB-585) and to various development milestones for other drug candidates. The estimated fair values of the contingent consideration obligations aggregated $299 million as of the acquisition date and were determined using a probability-weighted expected return methodology. The assumptions in this method include the probability of achieving the milestones and the expected payment dates, with such amounts discounted to present value based on our pretax cost of debt. See Note 11, Fair value measurement, for information regarding the estimated fair value of these obligations as of September 30, 2022.

The estimated fair values of acquired IPR&D assets totaled $991 million, of which $784 million relates to AMG 340, that is in a Phase 1 clinical trial for the treatment of metastatic castration-resistant prostate cancer (mCRPC), and the balance relates to four separate preclinical oncology programs. The R&D technology rights of $115 million relate to Teneobio’s proprietary bispecific and multispecific antibody technologies; the amount is being amortized over 10 years by using the straight-line method. Teneobio has also licensed its technology and certain identified targets to various third parties, representing contractual agreements valued at $41 million. The estimated fair values for these intangible assets were determined using a multi-period excess earnings income approach that discounts expected future cash flows to present value by applying a discount rate that represents the estimated rate that market participants would use to value the intangible assets. The projected cash flows were based on certain assumptions attributable to the respective intangible asset, including estimates of future revenues and expenses, the time and resources needed to complete development and the probabilities of obtaining marketing approval from the FDA and other regulatory agencies.

A deferred tax liability of $244 million was recognized on temporary differences related to the book bases and tax bases of the acquired identifiable assets and assumed liabilities, primarily driven by the intangible assets acquired.

The excess of the acquisition date consideration over the fair values assigned to the assets acquired and the liabilities assumed of $273 million was recorded as goodwill, which is not deductible for tax purposes. The goodwill value represents expected synergies from both AMG 340 and the technologies acquired.

Acquisition of Five Prime Therapeutics, Inc.

On April 16, 2021, Amgen completed its acquisition of Five Prime for a total cash 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 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 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.

Divestiture of Gensenta İlaç Sanayi ve Ticaret A.Ş.

On June 28, 2022, we entered into a share purchase agreement with Eczacıbaşı under which Eczacıbaşı would acquire all of our shares in Gensenta, a subsidiary in Turkey, in exchange for $135 million in cash. Net assets related to Gensenta of $76 million met the criteria to be classified as held-for-sale and did not meet the criteria to be classified as discontinued operations. The transaction closed on November 2, 2022, upon satisfaction of closing conditions, including approval from the Turkish Competition Authority. See Note 14, Subsequent events.

As of September 30, 2022, held-for-sale assets and liabilities of $94 million and $18 million were included in Other current assets and Accrued liabilities, respectively, in the Condensed Consolidated Balance Sheets. During the nine months ended September 30, 2022, we recognized a loss of $565 million recorded in Other operating expenses in the Condensed Consolidated Statements of Income, primarily due to the impact of the cumulative foreign currency translation loss, with valuation allowances to Other current assets and Accrued liabilities in the Condensed Consolidated Balance Sheets.

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 ROW revenues relates to products sold in Europe.

Revenues were as follows (in millions):

Three months ended September 30,
20222021
U.S.ROWTotalU.S.ROWTotal
ENBREL$1,086$20$1,106$1,263$26$1,289
Prolia590272862530273803
Otezla52998627495114609
XGEVA363132495372145517
Aranesp128230358149247396
Repatha142167309139133272
KYPROLIS21710131819895293
Neulasta2054224736055415
Nplate162126288156117273
Other products(1)1,0445831,6278965571,453
Total product sales(2)$4,466$1,7716,237$4,558$1,7626,320
Other revenues415386
Total revenues$6,652$6,706
Nine months ended September 30,
20222021
U.S.ROWTotalU.S.ROWTotal
ENBREL$2,965$54$3,019$3,270$87$3,357
Prolia1,7838532,6361,5698062,375
Otezla1,3663061,6721,2843351,619
XGEVA1,1224081,5301,0614121,473
Aranesp3976761,0734097091,118
Repatha461502963421423844
KYPROLIS626296922547277824
Neulasta7721339051,2151681,383
Nplate474364838404341745
Other products(1)2,9831,7084,6912,6551,6334,288
Total product sales(2)$12,949$5,30018,249$12,835$5,19118,026
Other revenues1,2351,107
Total revenues$19,484$19,133

(1) Consists of product sales of our non-principal products, as well as our Gensenta and Bergamo subsidiaries.

(2) Hedging gains and losses, which are included in product sales, were not material for the three and nine months ended September 30, 2022 and 2021.

4. Income taxes

The effective tax rates for the three and nine months ended September 30, 2022, were 10.4% and 11.8%, respectively, compared with 12.6% for both of the corresponding periods of the prior year.

The decrease in our effective tax rate for the three months ended September 30, 2022, was primarily due to the prior year nondeductible IPR&D expense arising from the acquisition of Five Prime and net favorable items, partially offset by a nondeductible loss from a nonstrategic divestiture. The decrease in our effective tax rate for the nine months ended September 30, 2022, was primarily due to the prior year nondeductible IPR&D expense arising from the acquisition of Five Prime, partially offset by current year net unfavorable items compared to last year and a nondeductible loss from a nonstrategic divestiture. 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 currently 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%. See Note 2, Acquisitions and divestitures.

The U.S. territory of Puerto Rico imposes a 4% excise tax on the gross intercompany purchase price of goods and services from our manufacturer in Puerto Rico. We account for the excise tax as a manufacturing cost that is capitalized in Inventories and expensed in Cost of sales when the related products are sold. For U.S. income tax purposes, in 2022, 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 can and have arisen 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. Tax authorities, including the IRS, are becoming more aggressive and are particularly focused on such matters.

In 2017, we received an RAR and a modified RAR from the IRS for the years 2010–2012, 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 resolution with the IRS appeals office but were unable to reach resolution. In July 2021, we filed a petition in the U.S. Tax Court to contest two duplicate Statutory Notices of Deficiency (Notices) for the years 2010–2012 that we received in May and July 2021, which seek to increase our U.S. taxable income for the years 2010–2012 by an amount that would result in additional federal tax of approximately $3.6 billion plus interest. Any additional tax that could be imposed for the years 2010–2012 would be reduced by up to approximately $900 million of repatriation tax previously accrued on our foreign earnings.

In 2020, we received an RAR and a modified RAR from the IRS for the years 2013–2015, 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 2010–2012. We disagreed with the proposed adjustments and calculations and pursued resolution with the IRS appeals office but were unable to reach resolution. In July 2022, we filed a petition in the U.S. Tax Court to contest a Notice for the years 2013–2015 that we previously reported receiving in April 2022 that seeks to increase our U.S. taxable income for the years 2013–2015 by an amount that would result in additional federal tax of approximately $5.1 billion, plus interest. In addition, the Notice asserts penalties of approximately $2.0 billion. Any additional tax that could be imposed for the years 2013–2015 would be reduced by up to approximately $2.2 billion of repatriation tax previously accrued on our foreign earnings.

We firmly believe that the IRS positions set forth in the 2010–2012 and 2013–2015 Notices are without merit. We are contesting the 2010–2012 and 2013–2015 Notices through the judicial process, and we filed a motion to consolidate the two periods into one case in the U.S. Tax Court.

We are currently under examination by the IRS for the years 2016–2018 with respect to issues similar to those for the 2010 through 2015 period. In addition, we have examinations by a number of 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 years ended on or before December 31, 2009.

See Part II, Item 1A, Risk Factors—The adoption and interpretation of new tax legislation or exposure to additional tax liabilities could affect our profitability in our Quarterly Report on Form 10-Q for the period ended June 30, 2022, for further discussion.

During the three and nine months ended September 30, 2022, the gross amounts of our UTBs increased by $25 million and $120 million, respectively, as a result of tax positions taken during the current year. Substantially all of the UTBs as of September 30, 2022, if recognized, would affect our effective tax rate.

5. Earnings per share

The computation of basic 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,
2022202120222021
Income (Numerator):
Net income for basic and diluted EPS$2,143$1,884$4,936$3,994
Shares (Denominator):
Weighted-average shares for basic EPS535567539572
Effect of dilutive securities3334
Weighted-average shares for diluted EPS538570542576
Basic EPS$4.01$3.32$9.16$6.98
Diluted EPS$3.98$3.31$9.11$6.93

For the three and nine months ended September 30, 2022 and 2021, the number of antidilutive employee stock-based awards excluded from the computation of diluted EPS was not significant.

6. 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, 2022Amortized costGross unrealized gainsGross unrealized lossesFair values
U.S. Treasury notes$—$—$—$—
U.S. Treasury bills1,976——1,976
Money market mutual funds8,945——8,945
Other short-term interest-bearing securities————
Total interest-bearing securities$10,921$—$—$10,921
Types of securities as of December 31, 2021Amortized costGross unrealized gainsGross unrealized lossesFair values
U.S. Treasury notes$47$—$—$47
U.S. Treasury bills1,400——1,400
Money market mutual funds5,856——5,856
Other short-term interest-bearing securities1——1
Total interest-bearing securities$7,304$—$—$7,304

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

Condensed Consolidated Balance Sheets locationsSeptember 30, 2022December 31, 2021
Cash and cash equivalents$8,945$7,256
Marketable securities1,97648
Total interest-bearing securities$10,921$7,304

Cash and cash equivalents in the above table excludes bank account cash of $557 million and $733 million as of September 30, 2022 and December 31, 2021, respectively.

All interest-bearing securities as of September 30, 2022 and December 31, 2021, mature in one year or less.

For the three and nine months ended September 30, 2022 and 2021, realized gains and losses on interest-bearing securities were not material. Realized gains and losses on interest-bearing securities are recorded in Other income (expense), 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 $385 million and $611 million as of September 30, 2022 and December 31, 2021, respectively, which are included in Other noncurrent assets in the Condensed Consolidated Balance Sheets. During the three months ended September 30, 2022 and 2021, net unrealized gains on publicly traded securities were $17 million and $135 million, respectively. During the nine months ended September 30, 2022 and 2021, net unrealized gains and losses on publicly traded securities were a $259 million net loss and a $104 million net gain, respectively. Realized gains and losses on sales of publicly traded securities for the three and nine months ended September 30, 2022 and 2021, were not material.

We held investments of $227 million and $262 million in equity securities without readily determinable fair values as of September 30, 2022 and December 31, 2021, respectively, which are included in Other noncurrent assets in the Condensed Consolidated Balance Sheets. During the three and nine months ended September 30, 2022, downward adjustments on these securities were $55 million and $64 million, respectively, and upward adjustments for these periods were immaterial. During the three and nine months ended September 30, 2021, downward and upward adjustments were immaterial. Adjustments were based on observable price transactions.

Equity method investments

BeiGene, Ltd.

As of September 30, 2022 and December 31, 2021, we had an ownership interest in BeiGene of approximately 18.2% and 18.4%, respectively, 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 (expense), net, in the Condensed Consolidated Statements of Income one quarter in arrears.

During the three months ended September 30, 2022 and 2021, the carrying value of our equity investment was adjusted by our share of BeiGene’s net losses of $104 million and $98 million, respectively, and amortization of the basis difference of $48 million and $44 million, respectively. During the nine months ended September 30, 2022 and 2021, the carrying value of our equity investment was adjusted by our share of BeiGene’s net losses of $292 million and $181 million, respectively, and amortization of the basis difference of $143 million and $128 million, respectively. As of September 30, 2022 and December 31, 2021, the carrying values of our investment in BeiGene totaled $2.3 billion and $2.8 billion, respectively, and the fair values of our investment totaled $2.6 billion and $5.1 billion, respectively. As of September 30, 2022, we believe the carrying value of our equity investment in BeiGene is fully recoverable.

Neumora Therapeutics, Inc.

On September 30, 2021, we acquired an approximately 25.9% ownership interest in 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. During the three months ended September 30, 2022, we made an additional $10 million cash investment via participation in Neumora’s subsequent financing round. As of September 30, 2022 and December 31, 2021, our ownership interest in Neumora was approximately 24.9% and 25.9%, respectively, and the fair values of our investment were $382 million and $220 million, respectively. Accordingly, for the increases in fair value of our investment during the three and nine months ended September 30, 2022, we recognized net gains of $240 million and $152 million, respectively, in Other income (expense), net, in the Condensed Consolidated Statements of Income. For information on determination of fair values, see Note 11, Fair value measurement.

Limited partnerships

We held limited partnership investments of $262 million and $573 million as of September 30, 2022 and December 31, 2021, 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, 2022, unfunded additional commitments to be made for these investments during the next several years were $189 million. For the three months ended September 30, 2022 and 2021, net unrealized losses from our limited partnership investments were $62 million and $43 million, respectively. For the nine months ended September 30, 2022 and 2021, net unrealized gains and losses from our limited partnership investments were a $282 million net loss and a $122 million net gain, respectively.

7. Inventories

Inventories consisted of the following (in millions):

September 30, 2022December 31, 2021
Raw materials$801$647
Work in process2,9292,367
Finished goods1,0271,072
Total inventories$4,757$4,086

8. Goodwill and other intangible assets

Goodwill

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

Nine months ended September 30, 2022
Beginning balance$14,890
Adjustments to goodwill resulting from acquisitions and divestitures, net(1)6
Currency translation adjustment(51)
Ending balance$14,845

(1) Consists of adjustments to goodwill resulting from changes to the acquisition date fair values of net assets acquired in the acquisition of Teneobio and the nonstrategic Gensenta divestiture. See Note 2, Acquisitions and divestitures.

Other intangible assets

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

September 30, 2022December 31, 2021
Gross carrying amountsAccumulated amortizationOther intangible assets, netGross carrying amountsAccumulated amortizationOther intangible assets, net
Finite-lived intangible assets:
Developed-product-technology rights$25,504$(14,396)$11,108$25,561$(12,769)$12,792
Licensing rights3,864(3,087)7773,807(2,973)834
Marketing-related rights1,326(1,146)1801,354(1,112)242
Research and development technology rights1,334(1,142)1921,377(1,133)244
Total finite-lived intangible assets32,028(19,771)12,25732,099(17,987)14,112
Indefinite-lived intangible assets:
In-process research and development1,009—1,0091,070—1,070
Total other intangible assets$33,037$(19,771)$13,266$33,169$(17,987)$15,182

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, 2022 and 2021, we recognized amortization associated with our finite-lived intangible assets of $628 million and $642 million, respectively. During the nine months ended September 30, 2022 and 2021, we recognized amortization associated with our finite-lived intangible assets of $1.9 billion in both periods. 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, 2022, and the years ending December 31, 2023, 2024, 2025, 2026 and 2027, are $0.6 billion, $2.5 billion, $2.4 billion, $2.2 billion, $1.8 billion and $1.8 billion, respectively.

9. Financing arrangements

Our borrowings consisted of the following (in millions):

September 30, 2022December 31, 2021
0.41% CHF700 million bonds due 2023 (0.41% 2023 Swiss franc Bonds)$709$767
2.25% notes due 2023 (2.25% 2023 Notes)750750
3.625% notes due 2024 (3.625% 2024 Notes)1,4001,400
1.90% notes due 2025 (1.90% 2025 Notes)500500
3.125% notes due 2025 (3.125% 2025 Notes)1,0001,000
2.00% €750 million notes due 2026 (2.00% 2026 euro Notes)735853
2.60% notes due 2026 (2.60% 2026 Notes)1,2501,250
5.50% £475 million notes due 2026 (5.50% 2026 pound sterling Notes)531643
2.20% notes due 2027 (2.20% 2027 Notes)1,7241,750
3.20% notes due 2027 (3.20% 2027 Notes)1,0001,000
1.65% notes due 2028 (1.65% 2028 Notes)1,2341,250
3.00% notes due 2029 (3.00% 2029 Notes)750—
4.05% notes due 2029 (4.05% 2029 Notes)1,250—
4.00% £700 million notes due 2029 (4.00% 2029 pound sterling Notes)782947
2.45% notes due 2030 (2.45% 2030 Notes)1,2501,250
2.30% notes due 2031 (2.30% 2031 Notes)1,2501,250
2.00% notes due 2032 (2.00% 2032 Notes)1,0511,250
3.35% notes due 2032 (3.35% 2032 Notes)1,000—
4.20% notes due 2033 (4.20% 2033 Notes)750—
6.375% notes due 2037 (6.375% 2037 Notes)478478
6.90% notes due 2038 (6.90% 2038 Notes)254254
6.40% notes due 2039 (6.40% 2039 Notes)333333
3.15% notes due 2040 (3.15% 2040 Notes)2,0002,000
5.75% notes due 2040 (5.75% 2040 Notes)373373
2.80% notes due 2041 (2.80% 2041 Notes)1,1101,150
4.95% notes due 2041 (4.95% 2041 Notes)600600
5.15% notes due 2041 (5.15% 2041 Notes)729729
5.65% notes due 2042 (5.65% 2042 Notes)415415
5.375% notes due 2043 (5.375% 2043 Notes)185185
4.40% notes due 2045 (4.40% 2045 Notes)2,2502,250
4.563% notes due 2048 (4.563% 2048 Notes)1,4151,415
3.375% notes due 2050 (3.375% 2050 Notes)2,2502,250
4.663% notes due 2051 (4.663% 2051 Notes)3,5413,541
3.00% notes due 2052 (3.00% 2052 Notes)1,2541,350
4.20% notes due 2052 (4.20% 2052 Notes)1,000—
4.875% notes due 2053 (4.875% 2053 Notes)1,000—
2.77% notes due 2053 (2.77% 2053 Notes)940940
4.40% notes due 2062 (4.40% 2062 Notes)1,250—
Other notes due 2097100100
Unamortized bond discounts, premiums and issuance costs, net(1,252)(1,213)
Fair value adjustments(450)284
Other1315
Total carrying value of debt38,70433,309
Less current portion(1,543)(87)
Total long-term debt$37,161$33,222

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.

Debt issuances

During the three months ended March 31, 2022, we issued $4.0 billion of debt consisting of $750 million of the 3.00% 2029 Notes, $1.0 billion of the 3.35% 2032 Notes, $1.0 billion of the 4.20% 2052 Notes and $1.25 billion of the 4.40% 2062 Notes. The 3.00% 2029 Notes were issued to finance eligible projects that meet specified criteria to benefit the environment. 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 September 30, 2022, we issued $3.0 billion of debt consisting of $1.25 billion of the 4.05% 2029 Notes, $750 million of the 4.20% 2033 Notes and $1.0 billion of the 4.875% 2053 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.

Debt extinguishment

During the three months ended September 30, 2022, we repurchased portions of the 2.20% 2027 Notes, the 1.65% 2028 Notes, the 2.00% 2032 Notes, the 2.80% 2041 Notes and the 3.00% 2052 Notes for an aggregate cost of $297 million, which resulted in the recognition of a $78 million gain on extinguishment of debt recorded in Other income (expense), net, in the Condensed Consolidated Statements of Income.

10. Stockholders’ equity

Stock repurchase program

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

20222021
SharesDollarsSharesDollars
First quarter24.6$5,4103.7$865
Second quarter——6.51,592
Third quarter1.59004.61,069
Total stock repurchases26.1$6,31014.8$3,526

On February 24, 2022, the Company entered into ASR agreements with three third-party financial institutions (Dealers). Under the ASR agreements, the Company made payments in an aggregate amount of $6.0 billion on February 25, 2022, to the Dealers and received and retired an initial 23.3 million shares of the Company’s common stock from the Dealers. The payments were recorded as reductions to shareholders’ equity, consisting of a $5.1 billion increase to accumulated deficit, which reflects the value of the initial shares received, and a $0.9 billion decrease in additional paid-in capital, which reflects the value of the stock that remained to be delivered by the Dealers. During the third quarter of 2022, an additional 1.5 million shares of the Company’s common stock were received from the Dealers which constituted final settlement under the ASR agreements, and accordingly, the $0.9 billion decrease in additional paid-in capital recorded in February was reclassified to accumulated deficit. In total, we repurchased 26.1 million shares of common stock during the nine months ended September 30, 2022, consisting primarily of the 24.8 million shares received under the ASR agreements.

As of September 30, 2022, $4.6 billion of authorization remained available under our stock repurchase program.

In October 2022, the Board of Directors increased the amount authorized under our stock repurchase program by an additional $2.4 billion.

Dividends

In August 2022, March 2022 and December 2021, the Board of Directors declared quarterly cash dividends of $1.94 per share, which were paid in September 2022, June 2022 and March 2022, respectively. In October 2022, the Board of Directors declared a quarterly cash dividend of $1.94 per share, which will be paid in December 2022.

Accumulated other comprehensive income (loss)

The components of AOCI were as follows (in millions):

Foreign currency translationCash flow hedgesAvailable-for-sale securitiesOtherAOCI
Balance as of December 31, 2021$(844)$61$—$(13)$(796)
Foreign currency translation adjustments(51)———(51)
Unrealized gains—56——56
Reclassification adjustments to income—51——51
Income taxes—(23)——(23)
Balance as of March 31, 2022(895)145—(13)(763)
Foreign currency translation adjustments(65)———(65)
Unrealized gains—67——67
Reclassification adjustments to income—132——132
Income taxes—(43)——(43)
Balance as of June 30, 2022(960)301—(13)(672)
Foreign currency translation adjustments(109)———(109)
Unrealized gains—45——45
Reclassification adjustments to income—129——129
Other———(9)(9)
Income taxes—(36)——(36)
Balance as of September 30, 2022$(1,069)$439$—$(22)$(652)

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

Three months ended September 30,
Components of AOCI20222021Condensed Consolidated Statements of Income locations
Cash flow hedges:
Foreign currency contract gains (losses)$69$(5)Product sales
Cross-currency swap contract losses(198)(104)Other income (expense), net
(129)(109)Income before income taxes
2823Provision for income taxes
$(101)$(86)Net income
Nine months ended September 30,
Components of AOCI20222021Condensed Consolidated Statements of Income locations
Cash flow hedges:
Foreign currency contract gains (losses)$149$(24)Product sales
Cross-currency swap contract losses(461)(190)Other income (expense), net
(312)(214)Income before income taxes
6745Provision for income taxes
$(245)$(169)Net income

11. 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 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 sources 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, 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, 2022, using:Total
Assets:
Available-for-sale securities:
U.S. Treasury notes$—$—$—$—
U.S. Treasury bills1,976——1,976
Money market mutual funds8,945——8,945
Other short-term interest-bearing securities————
Other investments—135—135
Equity securities385—382767
Derivatives:
Foreign currency contracts—639—639
Cross-currency swap contracts—6—6
Interest rate swap contracts————
Total assets$11,306$780$382$12,468
Liabilities:
Derivatives:
Foreign currency contracts$—$22$—$22
Cross-currency swap contracts—754—754
Interest rate swap contracts—810—810
Contingent consideration obligations——302302
Total liabilities$—$1,586$302$1,888
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, 2021, using:Total
Assets:
Available-for-sale securities:
U.S. Treasury notes$47$—$—$47
U.S. Treasury bills1,400——1,400
Money market mutual funds5,856——5,856
Other short-term interest-bearing securities—1—1
Other investments————
Equity securities611—220831
Derivatives:
Foreign currency contracts—183—183
Cross-currency swap contracts—66—66
Interest rate swap contracts—16—16
Total assets$7,914$266$220$8,400
Liabilities:
Derivatives:
Foreign currency contracts$—$39$—$39
Cross-currency swap contracts—339—339
Interest rate swap contracts—156—156
Contingent consideration obligations——342342
Total liabilities$—$534$342$876

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. Other investments consist of interest-bearing deposits that are valued at amortized cost, which approximates fair value given their near term maturity. The fair value of equity securities without readily determinable fair values are initially valued at the transaction price and subsequently valued based on a combination of observable price transactions, when available, market performance 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 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 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 12, 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 12, 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 12, Derivative instruments.

Contingent consideration obligations

As a result of our business acquisitions, we have incurred contingent consideration obligations as discussed below. The contingent consideration obligations are recorded at their fair values by using probability-adjusted discounted cash flows, and we revalue these obligations each reporting period until the related contingencies have been resolved. The fair value measurements of these obligations are based on significant unobservable inputs related to licensing rights and product candidates acquired in business combinations, and they are reviewed quarterly by management in our R&D and commercial sales organizations. The inputs include, as applicable, estimated probabilities and the timing of achieving specified development, regulatory and commercial milestones as well as estimated annual sales. Significant changes that increase or decrease the probabilities of achieving the related development, regulatory and commercial events or that shorten or lengthen the time required to achieve such events or that increase or decrease estimated annual sales would result in corresponding increases or decreases in the fair values of the obligations, as applicable. Changes in the fair values of contingent consideration obligations are recognized in Other operating expenses in the Condensed Consolidated Statements of Income.

Changes in the carrying amounts of contingent consideration obligations were as follows (in millions):

Three months ended September 30,Nine months ended September 30,
2022202120222021
Beginning balance$310$48$342$33
Payments(2)(2)(5)(5)
Net changes in valuations(6)(11)(35)7
Ending balance$302$35$302$35

As of September 30, 2022 and December 31, 2021, our contingent consideration obligations are primarily the result of our acquisition of Teneobio in October 2021, which obligates us to pay the former shareholders up to $1.6 billion upon achieving separate development and regulatory milestones with regard to various R&D programs. See Note 2, Acquisitions and divestitures.

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, 2022 and December 31, 2021, the aggregate fair values of our borrowings were $34.2 billion and $37.9 billion, respectively, and the carrying values were $38.7 billion and $33.3 billion, respectively.

Investment in BeiGene, Ltd.

We estimated the fair value of our investment in BeiGene by using Level 1 inputs. As of September 30, 2022 and December 31, 2021, the fair values were $2.6 billion and $5.1 billion, and the carrying values were $2.3 billion and $2.8 billion, respectively.

During the three and nine months ended September 30, 2022 and 2021, there were no transfers of assets or liabilities between fair value measurement levels, and there were no material remeasurements to the fair values of assets and liabilities that are not measured at fair value on a recurring basis, except with respect to the impairment of net assets in connection with the nonstrategic Gensenta divestiture. See Note 2, Acquisitions and divestitures.

12. 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 is being hedged than in successive periods.

As of September 30, 2022 and December 31, 2021, we had outstanding foreign currency forward contracts with aggregate notional amounts of $5.5 billion and $5.7 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 (expense), 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, 2022, were as follows (notional amounts in millions):

Foreign currencyU.S. dollars
Hedged notesNotional amountsInterest ratesNotional amountsInterest rates
0.41% 2023 Swiss franc BondsCHF7000.4%$7043.4%
2.00% 2026 euro Notes€7502.0%$8333.9%
5.50% 2026 pound sterling Notes£4755.5%$7476.0%
4.00% 2029 pound sterling Notes£7004.0%$1,1114.6%

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, 2022, 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 relationships2022202120222021
Foreign currency contracts$324$136$654$273
Cross-currency swap contracts(279)(120)(486)(180)
Total unrealized gains$45$16$168$93

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, 2022 and December 31, 2021, we had interest rate swap contracts with aggregate notional amounts of $6.7 billion that hedge certain portions of our long-term debt issuances.

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 locationsSeptember 30, 2022December 31, 2021September 30, 2022December 31, 2021
Current portion of long-term debt$82$85$82$85
Long-term debt$6,002$6,729$(532)$199

(1) Current portion of long-term debt includes $82 million and $85 million of carrying value with discontinued hedging relationships as of September 30, 2022 and December 31, 2021, respectively. Long-term debt includes $378 million and $440 million of carrying value with discontinued hedging relationships as of September 30, 2022 and December 31, 2021, respectively.

(2) Current portion of long-term debt includes $82 million and $85 million of hedging adjustments on discontinued hedging relationships as of September 30, 2022 and December 31, 2021, respectively. Long-term debt includes $278 million and $340 million of hedging adjustments on discontinued hedging relationships as of September 30, 2022 and December 31, 2021, 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, 2022Nine months ended September 30, 2022
Product salesOther income (expense), netInterest expense, netProduct salesOther income (expense), netInterest expense, net
Total amounts recorded in income and (expense) line items presented in the Condensed Consolidated Statements of Income$6,237$100$(368)$18,249$(747)$(991)
The effects of cash flow and fair value hedging:
Gains (losses) on cash flow hedging relationships reclassified out of AOCI:
Foreign currency contracts$69$—$—$149$—$—
Cross-currency swap contracts$—$(198)$—$—$(461)$—
Gains (losses) on fair value hedging relationships—interest rate swap agreements:
Hedged items(1)$—$—$240$—$—$734
Derivatives designated as hedging instruments$—$—$(220)$—$—$(670)
Three months ended September 30, 2021Nine months ended September 30, 2021
Product salesOther income (expense), netInterest expense, netProduct salesOther income (expense), netInterest 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)

(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, 2022, we expected to reclassify $304 million of net gains on our foreign currency and cross-currency swap contracts out of AOCI and into earnings during the next 12 months.

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, 2022 and December 31, 2021, the total notional amounts of these foreign currency forward contracts were $501 million and $680 million, 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, 2022 and 2021.

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

Derivative assetsDerivative liabilities
September 30, 2022Condensed Consolidated Balance Sheets locationsFair valuesCondensed Consolidated Balance Sheets locationsFair values
Derivatives designated as hedging instruments:
Foreign currency contractsOther current assets/ Other noncurrent assets$639Accrued liabilities/ Other noncurrent liabilities$22
Cross-currency swap contractsOther current assets/ Other noncurrent assets6Accrued liabilities/ Other noncurrent liabilities754
Interest rate swap contractsOther current assets/ Other noncurrent assets—Accrued liabilities/ Other noncurrent liabilities810
Total derivatives designated as hedging instruments$645$1,586
Derivative assetsDerivative liabilities
December 31, 2021Condensed Consolidated Balance Sheets locationsFair valuesCondensed Consolidated Balance Sheets locationsFair values
Derivatives designated as hedging instruments:
Foreign currency contractsOther current assets/ Other noncurrent assets$183Accrued liabilities/ Other noncurrent liabilities$39
Cross-currency swap contractsOther current assets/ Other noncurrent assets66Accrued liabilities/ Other noncurrent liabilities339
Interest rate swap contractsOther current assets/ Other noncurrent assets16Accrued liabilities/ Other noncurrent liabilities156
Total derivatives designated as hedging instruments$265$534

Our derivative contracts that were in liability positions as of September 30, 2022, 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.

13. 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, 2021, 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, 2021; and in Note 13, Contingencies and commitments, to the condensed consolidated financial statements in our Quarterly Reports on Form 10-Q for the periods ended March 31, 2022 and June 30, 2022.

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, 2021; and in Note 13, Contingencies and commitments, to the condensed consolidated financial statements in our Quarterly Reports on Form 10-Q for the periods ended March 31, 2022 and June 30, 2022, 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, 2021; and in Note 13, Contingencies and commitments, to the condensed consolidated financial statements in our Quarterly Reports on Form 10-Q for the periods ended March 31, 2022 and June 30, 2022, 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. Although 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:

ANDA Patent Litigation

Otezla ANDA Patent Litigation

Amgen Inc. v. Apotex Inc.

On October 14, 2022, Apotex Inc. (Apotex) filed its answer to Amgen’s complaint in the U.S. District Court for the District of New Jersey (the New Jersey District Court) in a lawsuit filed by Amgen for infringement of U.S. Patent Nos. 7,427,638, 9,872,854 and 10,092,541, which are listed in the Orange Book for Otezla. Apotex’s answer disputed infringement and/or validity of the patents-in-suit. Along with its answer, Apotex also filed declaratory judgment counterclaims asserting that the patents-in-suit are not infringed and/or are invalid. Amgen’s lawsuit is based on Apotex’s submission of an ANDA seeking FDA approval to market a generic version of Otezla and seeks an order of the New Jersey District Court making any FDA approval of Apotex’s ANDA effective no earlier than the expiration of the applicable patents.

Repatha Patent Litigation

Amgen Inc., et al. v. Sanofi, et al.

On November 18, 2021, Amgen filed a petition for writ of certiorari with the U.S. Supreme Court seeking review of the invalidation of claims 19 and 29 of U.S. Patent No. 8,829,165 and claim 7 of U.S. Patent No. 8,859,741 as lacking an enabling disclosure of the invention. On April 18, 2022, the U.S. Supreme Court requested that the Office of the Solicitor General of the United States submit a brief providing the government’s view on the issues raised by Amgen’s petition. On September 21, 2022, the Solicitor General submitted a brief expressing the view that the U.S. Supreme Court should deny Amgen’s petition for writ of certiorari.

Patent Disputes in the International Region

On August 16, 2022, the Opposition Division of the European Patent Office issued a written decision upholding the validity of the European Patent No. 2,756,004 claims at issue, with narrowing amendments. Proceedings before the Technical Board of Appeal commenced on August 17, 2022.

Antitrust Actions

Regeneron Pharmaceuticals, Inc. Antitrust Action

On August 11, 2022, Amgen moved to stay the case pending the ultimate decision on the merits of the ongoing patent litigation between Amgen and Regeneron Pharmaceuticals, Inc. in Amgen Inc., et al. v. Sanofi, et al. The motion to stay is scheduled for oral argument on January 6, 2023, and Amgen’s motion to dismiss that was filed on August 1, 2022 is also set to be heard on that date.

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.

ChemoCentryx, Inc. Securities Matters

On May 5 and June 8 of 2021, ChemoCentryx and its Chief Executive Officer were named as defendants in two putative shareholder class actions filed in the U.S. District Court for the Northern District of California (Northern District Court of California). These cases were consolidated into Homyk v. ChemoCentryx, Inc. in which the plaintiffs allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act in connection with statements regarding the New Drug Application for TAVNEOS® (avacopan) and the underlying Phase 3 clinical trial, seeking an award of damages, interest and attorneys’ fees. On March 28, 2022, the plaintiffs filed their consolidated amended complaint, and on May 19, 2022, ChemoCentryx moved to dismiss these claims.

On January 25, 2022, the Board of Directors and certain of ChemoCentryx’s officers were named as defendants in a putative shareholder derivative action filed in the Northern District Court of California, Napoli v. Schall, and on March 11, 2022, the Northern District Court of California stayed the action until judgment is entered in the Homyk v. ChemoCentryx, Inc. action.

14. Subsequent events

Acquisition of ChemoCentryx, Inc.

On October 20, 2022, Amgen completed its acquisition of ChemoCentryx for $52.00 per share in cash, for an aggregate merger consideration of approximately $3.7 billion. ChemoCentryx is a biopharmaceutical company focused on orally administered therapeutics to treat autoimmune diseases, inflammatory disorders and cancer.

The accounting impact of this acquisition and the results of operations for ChemoCentryx will be included in our consolidated financial statements beginning in the fourth quarter of 2022. The initial accounting for this acquisition is incomplete, pending identification and measurement of the assets acquired and liabilities assumed.

Divestiture of Gensenta İlaç Sanayi ve Ticaret A.Ş.

On November 2, 2022, Amgen completed its divestiture transaction with Eczacıbaşı. The accounting impact upon completion of this divestiture will be included in our consolidated financial statements in the fourth quarter of 2022. See Note 2, Acquisitions and divestitures.

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