Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

155K characters. Original on sec.gov · Markdown

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

GILEAD SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)


(in millions, except per share amounts)	September 30, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	4,362	$	5,997
Short-term marketable securities	1,376		1,411
Accounts receivable, net	4,566		4,892
Inventories	1,676		1,683
Prepaid and other current assets	2,011		2,013
Total current assets	13,991		15,996
Property, plant and equipment, net	5,037		4,967
Long-term marketable securities	1,099		502
Intangible assets, net	33,900		33,126
Goodwill	8,332		8,108
Other long-term assets	4,739		5,708
Total assets	$	67,098	$	68,407
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	585	$	844
Accrued government and other rebates	3,368		3,460
Accrued and other current liabilities	3,781		4,336
Current portion of long-term debt and other obligations, net	2,511		2,757
Total current liabilities	10,245		11,397
Long-term debt, net	25,175		28,645
Long-term income taxes payable	4,642		5,016
Deferred tax liability	4,603		3,914
Other long-term obligations	962		1,214
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, par value $0.001 per share; 5 shares authorized; none outstanding	—		—
Common stock, par value $0.001 per share; 5,600 shares authorized; 1,255 and 1,254 shares issued and outstanding, respectively	1		1
Additional paid-in capital	4,492		3,880
Accumulated other comprehensive income (loss)	74		(60)
Retained earnings	16,903		14,381
Total Gilead stockholders’ equity	21,470		18,202
Noncontrolling interest	1		19
Total stockholders’ equity	21,471		18,221
Total liabilities and stockholders’ equity	$	67,098	$	68,407

See accompanying notes.

GILEAD SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions, except per share amounts)	2021		2020		2021		2020
Revenues:
Product sales	$	7,356	$	6,493	$	19,848	$	17,027
Royalty, contract and other revenues	65		84		213		241
Total revenues	7,421		6,577		20,061		17,268
Costs and expenses:
Cost of goods sold	1,223		1,141		3,974		3,174
Research and development expenses	1,147		1,158		3,336		3,461
Acquired in-process research and development expenses	19		1,171		177		5,792
Selling, general and administrative expenses	1,190		1,106		3,596		3,421
Total costs and expenses	3,579		4,576		11,083		15,848
Income from operations	3,842		2,001		8,978		1,420
Interest expense	(250)		(236)		(763)		(717)
Other income (expense), net	(154)		(940)		(696)		(848)
Income (loss) before income taxes	3,438		825		7,519		(145)
Income tax expense	(852)		(472)		(1,694)		(1,310)
Net income (loss)	2,586		353		5,825		(1,455)
Net loss attributable to noncontrolling interest	6		7		18		27
Net income (loss) attributable to Gilead	$	2,592	$	360	$	5,843	$	(1,428)
Net income (loss) per share attributable to Gilead common stockholders - basic	$	2.06	$	0.29	$	4.65	$	(1.14)
Shares used in per share calculation - basic	1,256		1,255		1,256		1,257
Net income (loss) per share attributable to Gilead common stockholders - diluted	$	2.05	$	0.29	$	4.63	$	(1.14)
Shares used in per share calculation - diluted	1,262		1,261		1,262		1,257

See accompanying notes.

GILEAD SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2021		2020		2021		2020
Net income (loss)	$	2,586	$	353	$	5,825	$	(1,455)
Other comprehensive income (loss):
Net foreign currency translation gain (loss), net of tax	(20)		23		(15)		(12)
Available-for-sale debt securities:
Net unrealized gain (loss), net of tax	—		(9)		(3)		42
Reclassifications to net income (loss), net of tax	—		(4)		—		(17)
Net change	—		(13)		(3)		25
Cash flow hedges:
Net unrealized gain (loss), net of tax	37		(46)		92		(25)
Reclassifications to net income (loss), net of tax	18		(11)		60		(50)
Net change	55		(57)		152		(75)
Other comprehensive income (loss)	35		(47)		134		(62)
Comprehensive income (loss)	2,621		306		5,959		(1,517)
Comprehensive loss attributable to noncontrolling interest	6		7		18		27
Comprehensive income (loss) attributable to Gilead	$	2,627	$	313	$	5,977	$	(1,490)

See accompanying notes.

GILEAD SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)


		Three Months Ended September 30, 2021
(in millions, except per share amounts)		Gilead Stockholders’ Equity													Noncontrolling Interest		Total Stockholders’ Equity
	Common Stock					Additional Paid-In Capital			Accumulated Other Comprehensive Income			Retained Earnings
	Shares		Amount
Balance at June 30, 2021		1,254		$	1		$	4,271		$	39		$	15,392	$	7	$	19,710
Net income (loss)		—		—			—			—			2,592		(6)		2,586
Other comprehensive income, net of tax		—		—			—			35			—		—		35
Issuances under employee stock purchase plan		1		—			35			—			—		—		35
Issuances under equity incentive plans		3		—			22			—			—		—		22
Stock-based compensation		—		—			171			—			—		—		171
Repurchases of common stock		(3)		—			(7)			—			(176)		—		(183)
Dividends declared ($0.71 per share)		—		—			—			—			(905)		—		(905)
Balance at September 30, 2021		1,255		$	1		$	4,492		$	74		$	16,903	$	1	$	21,471


		Nine Months Ended September 30, 2021
(in millions, except per share amounts)		Gilead Stockholders’ Equity													Noncontrolling Interest		Total Stockholders’ Equity
	Common Stock					Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings
	Shares		Amount
Balance at December 31, 2020		1,254		$	1		$	3,880		$	(60)		$	14,381	$	19	$	18,221
Net income (loss)		—		—			—			—			5,843		(18)		5,825
Other comprehensive income, net of tax		—		—			—			134			—		—		134
Issuances under employee stock purchase plan		2		—			111			—			—		—		111
Issuances under equity incentive plans		9		—			46			—			—		—		46
Stock-based compensation		—		—			479			—			—		—		479
Repurchases of common stock		(10)		—			(24)			—			(607)		—		(631)
Dividends declared ($2.13 per share)		—		—			—			—			(2,714)		—		(2,714)
Balance at September 30, 2021		1,255		$	1		$	4,492		$	74		$	16,903	$	1	$	21,471

See accompanying notes.

GILEAD SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)


		Three Months Ended September 30, 2020
(in millions, except per share amounts)		Gilead Stockholders’ Equity													Noncontrolling Interest		Total Stockholders’ Equity
	Common Stock					Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings
	Shares		Amount
Balance at June 30, 2020		1,254		$	1		$	3,511		$	70		$	14,445	$	115	$	18,142
Change in noncontrolling interest		—		—			—			—			—		(82)		(82)
Net income (loss)		—		—			—			—			360		(7)		353
Other comprehensive income (loss), net of tax		—		—			1			(47)			(1)		—		(47)
Issuances under employee stock purchase plan		1		—			34			—			—		—		34
Issuances under equity incentive plans		2		—			2			—			—		—		2
Stock-based compensation		—		—			173			—			—		—		173
Repurchases of common stock		(4)		—			(9)			—			(229)		—		(238)
Dividends declared ($0.68 per share)		—		—			—			—			(866)		—		(866)
Balance at September 30, 2020		1,253		$	1		$	3,712		$	23		$	13,709	$	26	$	17,471


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

See accompanying notes.

GILEAD SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Nine Months Ended
	September 30,
(in millions)	2021		2020
Operating Activities:
Net income (loss)	$	5,825	$	(1,455)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation expense	239		209
Amortization expense	1,276		844
Stock-based compensation expense	476		482
Acquired in-process research and development expenses	177		5,792
Deferred income taxes	243		(12)
Net loss from equity securities	667		1,046
Other	601		210
Changes in operating assets and liabilities:
Accounts receivable, net	272		(334)
Inventories	(24)		(48)
Prepaid expenses and other	(17)		22
Accounts payable	(242)		(134)
Income taxes payable	(463)		(428)
Accrued and other liabilities	(851)		58
Net cash provided by operating activities	8,179		6,252
Investing Activities:
Purchases of marketable debt securities	(2,891)		(19,809)
Proceeds from sales of marketable debt securities	506		12,367
Proceeds from maturities of marketable debt securities	1,808		8,528
Acquisitions, including in-process research and development, net of cash acquired	(1,401)		(5,804)
Purchases of equity securities	(332)		(388)
Capital expenditures	(423)		(469)
Other	(120)		(63)
Net cash used in investing activities	(2,853)		(5,638)
Financing Activities:
Proceeds from debt financing, net of issuance costs	—		7,189
Proceeds from issuances of common stock	157		248
Repurchases of common stock	(497)		(1,583)
Repayments of debt and other obligations	(3,750)		(2,500)
Payments of dividends	(2,711)		(2,591)
Other	(134)		(124)
Net cash provided by (used in) financing activities	(6,935)		639
Effect of exchange rate changes on cash and cash equivalents	(26)		2
Net change in cash and cash equivalents	(1,635)		1,255
Cash and cash equivalents at beginning of period	5,997		11,631
Cash and cash equivalents at end of period	$	4,362	$	12,886

See accompanying notes.

GILEAD SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. The financial statements include all adjustments consisting of normal recurring adjustments that the management of Gilead Sciences, Inc. (“Gilead,” “we,” “our” or “us”) believes are necessary for a fair presentation of the periods presented. These interim financial results are not necessarily indicative of results expected for the full fiscal year or for any subsequent interim period.

The accompanying Condensed Consolidated Financial Statements include the accounts of Gilead, our wholly-owned subsidiaries and a variable interest entity (“VIE”) for which we are the primary beneficiary. All intercompany transactions have been eliminated. For consolidated entities where we own or are exposed to less than 100% of the economics, we record net income (loss) attributable to noncontrolling interests in our Condensed Consolidated Statements of Operations equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties.

We assess whether we are the primary beneficiary of a VIE at the inception of the arrangement and at each reporting date. This assessment is based on our power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and our obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. We did not have any material VIEs as of September 30, 2021.

The accompanying Condensed Consolidated Financial Statements and related Notes to Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the related notes thereto for the year ended December 31, 2020, included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission.

Segment Information

We have one operating segment, which focuses on the discovery, development and commercialization of innovative medicines in areas of unmet medical need. Our Chief Executive Officer, as the chief operating decision-maker (“CODM”), manages and allocates resources to the operations of the company on an entity-wide basis. Managing and allocating resources on an entity-wide basis enables our CODM to assess the overall level of resources available and how to best deploy these resources across functions and research and development (“R&D”) projects based on unmet medical need and, as necessary, reallocate resources among our internal R&D portfolio and external opportunities to best support the long-term growth of our business. See Note 2. Revenues for a summary of disaggregated revenues by product and geographic region.

Significant Accounting Policies, Estimates and Judgments

The preparation of these Condensed Consolidated Financial Statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. On an ongoing basis, we evaluate our significant accounting policies and estimates. We base our estimates on historical experience and on various market-specific and other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates are assessed each period and updated to reflect current information, such as the economic considerations related to the impact that the coronavirus disease 2019 (“COVID-19”) could have on our significant accounting estimates. Actual results may differ significantly from these estimates.

Concentrations of Risk

We are subject to credit risk from our portfolio of cash equivalents and marketable securities. Under our investment policy, we limit amounts invested in such securities by credit rating, maturity, industry group, investment type and issuer, except for securities issued by the U.S. government. We are not exposed to any significant concentrations of credit risk from these financial instruments. The goals of our investment policy, in order of priority, are as follows: safety and preservation of principal and diversification of risk; liquidity of investments sufficient to meet cash flow requirements; and a competitive after-tax rate of return.

We are also subject to credit risk from our accounts receivable related to our product sales. Trade accounts receivable are recorded net of allowances for wholesaler chargebacks related to government and other programs, cash discounts for prompt payment and credit losses. Estimates of our allowance for credit losses consider a number of factors, including existing contractual payment terms, individual customer circumstances, historical payment patterns of our customers, a review of the local economic environment and its potential impact on expected future customer payment patterns and government funding and reimbursement practices. The majority of our trade accounts receivable arises from product sales in the United States and Europe. There were no material write-offs charged against the allowance for the three and nine months ended September 30, 2021 and 2020.

2. REVENUES

Disaggregation of Revenues

Revenues were as follows:


	Three Months Ended September 30, 2021								Three Months Ended September 30, 2020
(in millions)	U.S.		Europe		Other International		Total		U.S.		Europe		Other International		Total
Product Sales:
HIV
Atripla	$	21	$	2	$	4	$	27	$	99	$	5	$	9	$	113
Biktarvy	1,875		254		147		2,276		1,584		194		113		1,891
Complera/Eviplera	28		31		5		64		26		35		9		70
Descovy	355		42		36		433		424		49		35		508
Genvoya	576		100		68		744		669		116		61		846
Odefsey	275		112		12		399		309		116		12		437
Stribild	28		11		3		42		27		13		2		42
Truvada	55		5		7		67		492		6		11		509
Revenue share - Symtuza(1)	86		41		3		130		82		34		2		118
Other HIV(2)	3		4		—		7		10		1		2		13
Total HIV	3,302		602		285		4,189		3,722		569		256		4,547
Hepatitis C virus (“HCV”)
Ledipasvir/Sofosbuvir(3)	14		5		26		45		36		11		37		84
Sofosbuvir/Velpatasvir(4)	173		77		82		332		170		74		86		330
Other HCV(5)	37		12		3		52		35		13		2		50
Total HCV	224		94		111		429		241		98		125		464
Hepatitis B virus (“HBV”) / Hepatitis Delta virus (“HDV”)
Vemlidy	103		9		96		208		99		8		70		177
Viread	1		7		18		26		3		8		21		32
Other HBV/HDV(6)	—		13		—		13		—		2		—		2
Total HBV/HDV	104		29		114		247		102		18		91		211

Veklury	1,527		109		287		1,923		785		60		28		873

Cell Therapy
Tecartus	35		12		—		47		5		4		—		9
Yescarta	100		66		9		175		85		51		2		138
Total Cell Therapy	135		78		9		222		90		55		2		147

Trodelvy	100		1		—		101		—		—		—		—

Other
AmBisome	7		67		69		143		18		58		35		111
Letairis	46		—		—		46		78		—		—		78
Zydelig	6		7		—		13		8		9		—		17
Other(7)	28		10		5		43		32		10		3		45
Total Other	87		84		74		245		136		77		38		251
Total product sales	5,479		997		880		7,356		5,076		877		540		6,493
Royalty, contract and other revenues	30		34		1		65		24		60		—		84
Total revenues	$	5,509	$	1,031	$	881	$	7,421	$	5,100	$	937	$	540	$	6,577


	Nine Months Ended September 30, 2021								Nine Months Ended September 30, 2020
(in millions)	U.S.		Europe		Other International		Total		U.S.		Europe		Other International		Total
Product Sales:
HIV
Atripla	$	96	$	10	$	12	$	118	$	275	$	17	$	19	$	311
Biktarvy	4,926		707		461		6,094		4,346		528		314		5,188
Complera/Eviplera	73		104		12		189		77		124		17		218
Descovy	994		128		105		1,227		1,124		156		103		1,383
Genvoya	1,633		306		184		2,123		1,927		376		183		2,486
Odefsey	773		336		39		1,148		851		341		36		1,228
Stribild	94		33		12		139		100		42		12		154
Truvada	268		18		24		310		1,245		20		37		1,302
Revenue share - Symtuza(1)	261		125		8		394		244		112		6		362
Other HIV(2)	14		9		12		35		24		4		21		49
Total HIV	9,132		1,776		869		11,777		10,213		1,720		748		12,681
HCV
Ledipasvir/Sofosbuvir(3)	63		24		76		163		113		26		124		263
Sofosbuvir/Velpatasvir(4)	649		234		272		1,155		646		253		330		1,229
Other HCV(5)	97		64		9		170		100		37		12		149
Total HCV	809		322		357		1,488		859		316		466		1,641
HBV / HDV
Vemlidy	266		25		298		589		248		22		194		464
Viread	8		22		55		85		10		27		100		137
Other HBV/HDV(6)	1		29		—		30		9		6		—		15
Total HBV/HDV	275		76		353		704		267		55		294		616

Veklury	2,763		761		684		4,208		785		60		28		873

Cell Therapy
Tecartus	94		25		—		119		5		5		—		10
Yescarta	300		188		25		513		283		144		7		434
Total Cell Therapy	394		213		25		632		288		149		7		444

Trodelvy	261		1		—		262		—		—		—		—
Other
AmBisome	32		202		186		420		46		166		113		325
Letairis	157		—		—		157		241		—		—		241
Ranexa	5		—		—		5		9		—		—		9
Zydelig	22		27		1		50		24		30		1		55
Other(7)	82		41		22		145		103		32		7		142
Total Other	298		270		209		777		423		228		121		772
Total product sales	13,932		3,419		2,497		19,848		12,835		2,528		1,664		17,027
Royalty, contract and other revenues	70		140		3		213		55		170		16		241
Total revenues	$	14,002	$	3,559	$	2,500	$	20,061	$	12,890	$	2,698	$	1,680	$	17,268

(1) Represents our revenue from cobicistat (“C”), emtricitabine (“FTC”) and tenofovir alafenamide (“TAF”) in Symtuza (darunavir/C/FTC/TAF), a fixed dose combination product commercialized by Janssen Sciences Ireland Unlimited Company.

(2) Includes Emtriva and Tybost.

(3) Amounts consist of sales of Harvoni and the authorized generic version of Harvoni sold by our separate subsidiary, Asegua Therapeutics LLC.

(4) Amounts consist of sales of Epclusa and the authorized generic version of Epclusa sold by our separate subsidiary, Asegua Therapeutics LLC.

(5) Includes Vosevi and Sovaldi.

(6) Includes Hepcludex and Hepsera.

(7) Includes Cayston and Jyseleca.

Revenues from Major Customers

The following table summarizes revenues from each of our customers who individually accounted for 10% or more of our total revenues:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(as a percentage of total revenues)	2021		2020		2021		2020
AmerisourceBergen Corporation	25	%	30	%	24	%	25	%
Cardinal Health, Inc.	22	%	19	%	21	%	22	%
McKesson Corporation	21	%	22	%	18	%	22	%

Revenues Recognized from Performance Obligations Satisfied in Prior Periods

Revenues recognized from performance obligations satisfied in prior years related to royalties for licenses of our intellectual property were $190 million and $625 million for the three and nine months ended September 30, 2021, respectively, and $206 million and $618 million for the three and nine months ended September 30, 2020, respectively.

Variable consideration is included in the net sales price only to the extent a significant reversal in the amount of cumulative revenue recognized is not probable of occurring when the uncertainty associated with the variable consideration is subsequently resolved. Estimates are assessed each period and updated to reflect current information. Changes in estimates for variable consideration related to sales made in prior years resulted in a $188 million and $661 million increase in revenues for the three and nine months ended September 30, 2021, respectively, and $13 million and $94 million increase in revenues for the three and nine months ended September 30, 2020, respectively.

Contract Balances

Our contract assets, which consist of unbilled amounts primarily from arrangements where the licensing of intellectual property is the only or predominant performance obligation, totaled $167 million and $198 million as of September 30, 2021 and December 31, 2020, respectively. Contract liabilities, which generally result from receipt of advance payment before our performance under the contract, were $85 million and $97 million as of September 30, 2021 and December 31, 2020, respectively. During the three and nine months ended September 30, 2021 and 2020, revenue recognized that was included in the contract liability balance as of the beginning of the respective years was not material. Revenue expected to be recognized in the future from contract liabilities as the related performance obligations are satisfied is not expected to be material in any one year.

3. FAIR VALUE MEASUREMENTS

We determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value, as follows:

Level 1 inputs include quoted prices in active markets for identical assets or liabilities;
Level 2 inputs include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability; and
Level 3 inputs include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Our Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation.

Our financial instruments consist primarily of cash and cash equivalents, marketable debt securities, accounts receivable, foreign currency exchange contracts, equity securities, accounts payable and short-term and long-term debt. Cash and cash equivalents, marketable debt securities, certain equity securities and foreign currency exchange contracts are reported at their respective fair values on our Condensed Consolidated Balance Sheets. Equity securities without readily determinable fair values are recorded using the measurement alternative of cost less impairment, if any, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer. Short-term and long-term debt are reported at their amortized costs on our Condensed Consolidated Balance Sheets. The remaining financial instruments are reported on our Condensed Consolidated Balance Sheets at amounts that approximate current fair values. There were no transfers between Level 1, Level 2 and Level 3 in the periods presented.

The following table summarizes the types of assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy:


	September 30, 2021								December 31, 2020
(in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Available-for-sale debt securities:
U.S. treasury securities	$	360	$	—	$	—	$	360	$	309	$	—	$	—	$	309
U.S. government agencies securities	—		5		—		5		—		—		—		—
Non-U.S. government securities	—		44		—		44		—		43		—		43
Certificates of deposit	—		361		—		361		—		216		—		216
Corporate debt securities	—		1,272		—		1,272		—		1,142		—		1,142
Residential mortgage and asset-backed securities	—		447		—		447		—		316		—		316
Equity securities:
Money market funds	2,768		—		—		2,768		4,361		—		—		4,361
Equity investment in Galapagos	881		—		—		881		1,648		—		—		1,648
Other publicly traded equity securities(1)	876		—		—		876		743		—		—		743
Deferred compensation plan	249		—		—		249		218		—		—		218
Foreign currency derivative contracts	—		55		—		55		—		12		—		12
Total	$	5,134	$	2,184	$	—	$	7,318	$	7,279	$	1,729	$	—	$	9,008
Liabilities:
Liability for MYR GmbH (“MYR”) contingent consideration	$	—	$	—	$	328	$	328	$	—	$	—	$	—	$	—
Deferred compensation plan	249		—		—		249		218		—		—		218
Foreign currency derivative contracts	—		8		—		8		—		121		—		121
Total	$	249	$	8	$	328	$	585	$	218	$	121	$	—	$	339

(1) Includes our equity investment in Arcus Biosciences, Inc. (“Arcus”) of $482 million as of September 30, 2021 recorded in Prepaid and other current assets and $212 million as of December 31, 2020 recorded in Other long-term assets on our Condensed Consolidated Balance Sheets. See Note 9. Collaborations and Other Arrangements for further information.

Equity Securities

The following table summarizes the classification of our equity securities measured at fair value on a recurring basis on our Condensed Consolidated Balance Sheets:


(in millions)	September 30, 2021		December 31, 2020
Cash and cash equivalents	$	2,768	$	4,361
Prepaid and other current assets(1)	871		853
Other long-term assets(1)	1,135		1,756
Total	$	4,774	$	6,970

(1) See the table under the Equity Investment in Galapagos NV (“Galapagos”) for more information.

Changes in the fair value of equity securities resulted in net unrealized loss of $142 million and $667 million for the three and nine months ended September 30, 2021, respectively, and $964 million and $1.0 billion for the three and nine months ended September 30, 2020, respectively, which were included in Other income (expense), net on our Condensed Consolidated Statements of Operations.

Our available-for-sale debt securities are classified as cash equivalents, short-term marketable securities and long-term marketable securities in our Condensed Consolidated Balance Sheets. See Note 4. Available-For-Sale Debt Securities for additional information.

Equity Investment in Galapagos

The following table summarizes the classification of our equity investment in Galapagos in our Condensed Consolidated Balance Sheets:


(in millions)	September 30, 2021		December 31, 2020
Prepaid and other current assets	$	—	$	351
Other long-term assets	881		1,297
Total	$	881	$	1,648

We elected and applied the fair value option to account for our equity investment in Galapagos whereby the investment is marked to market through earnings each reporting period based on the market price of Galapagos shares. We believe the fair value option best reflects the underlying economics of the investment. The portion of the investment subject to long-term contractual lock-up provisions is classified within Other long-term assets and the remainder is classified as Prepaid and other current assets on our Condensed Consolidated Balance Sheets. In April 2021, we amended the Galapagos subscription agreement to extend the initial lock-up provision for certain Galapagos shares from August 2021 to August 2024. As of September 30, 2021, all of our equity investment in Galapagos was classified as Other long-term assets on our Condensed Consolidated Balance Sheets.

Other Equity Securities

Equity investments not measured at fair value and excluded from the above tables were limited partnerships and other equity method investments of $96 million and $58 million at September 30, 2021 and December 31, 2020, respectively, and other equity investments without readily determinable fair values of $211 million and $204 million at September 30, 2021 and December 31, 2020, respectively. These amounts were included in Other long-term assets on our Condensed Consolidated Balance Sheets.

Related Party Transaction

During the second quarter of 2021, Gilead donated certain equity securities at fair value to the Gilead Foundation, a California nonprofit organization (the “Foundation”). The Foundation is a related party as certain officers of the Company also serve as directors of the Foundation. The donation expense of $212 million was recorded within Selling, general and administrative expenses on our Condensed Consolidated Statements of Operations during the nine months ended September 30, 2021.

Level 2 Inputs

We estimate the fair values of Level 2 financial instruments by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income-based and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate the fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities, prepayment/default projections based on historical data and other observable inputs.

For our marketable securities, we review trading activity and pricing as of the measurement date. When sufficient quoted pricing for identical securities is not available, we use market pricing and other observable market inputs for similar securities obtained from various third-party data providers. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data.

Substantially all of our foreign currency derivative contracts have maturities within an 18-month time horizon and all are with counterparties that have a minimum credit rating of A- or equivalent by S&P Global Ratings, Moody’s Investors Service, Inc. or Fitch Ratings, Inc. We estimate the fair values of these contracts by taking into consideration the valuations obtained from a third-party valuation service that utilizes an income-based industry standard valuation model for which all significant inputs are observable, either directly or indirectly. These inputs include foreign currency exchange rates, London Interbank Offered Rates (“LIBOR”) and swap rates. These inputs, where applicable, are observable at commonly quoted intervals.

The total estimated fair values of our aggregate short-term and long-term debt, determined using Level 2 inputs based on their quoted market values, were approximately $29.6 billion and $34.6 billion as of September 30, 2021 and December 31, 2020, respectively, and the carrying values were $26.6 billion and $30.3 billion as of September 30, 2021 and December 31, 2020, respectively.

Level 3 Inputs

We measured assets acquired and liabilities assumed at fair value as of the acquisition on a nonrecurring basis, in connection with our first quarter 2021 acquisition of MYR. The liability for contingent consideration of $341 million as of the acquisition date is remeasured on a recurring basis. The estimated fair value of this contingent liability was $328 million as of September 30, 2021. The change in estimated fair value from the acquisition date was primarily due to the effect of foreign exchange remeasurement. The contingent consideration was estimated using probability-weighted scenarios for U.S. Food and Drug Administration (“FDA”) approval of Hepcludex. See Note 6. Acquisitions for additional information.

We measured assets acquired and liabilities assumed at fair value as of the acquisition on a nonrecurring basis, in connection with our fourth quarter 2020 acquisition of Immunomedics, Inc. (“Immunomedics”). The liability related to future royalties assumed is recorded at amortized cost, which approximated fair value as of September 30, 2021 and December 31, 2020. See Note 6. Acquisitions and Note 10. Debt and Credit Facilities for additional information.

4. AVAILABLE-FOR-SALE DEBT SECURITIES

The following table summarizes our available-for-sale debt securities:


	September 30, 2021								December 31, 2020
(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. treasury securities	$	360	$	—	$	—	$	360	$	308	$	1	$	—	$	309
U.S. government agencies securities	5		—		—		5		—		—		—		—
Non-U.S. government securities	44		—		—		44		43		—		—		43
Certificates of deposit	361		—		—		361		216		—		—		216
Corporate debt securities	1,272		1		(1)		1,272		1,140		2		—		1,142
Residential mortgage and asset-backed securities	447		—		—		447		316		—		—		316
Total	$	2,489	$	1	$	(1)	$	2,489	$	2,023	$	3	$	—	$	2,026

The following table summarizes the classification of our available-for-sale debt securities in our Condensed Consolidated Balance Sheets:


(in millions)	September 30, 2021		December 31, 2020
Cash and cash equivalents	$	14	$	113
Short-term marketable securities	1,376		1,411
Long-term marketable securities	1,099		502
Total	$	2,489	$	2,026

The following table summarizes our available-for-sale debt securities by contractual maturity:


	September 30, 2021
(in millions)	Amortized Cost		Fair Value
Within one year	$	1,390	$	1,390
After one year through five years	1,075		1,075
After five years	24		24
Total	$	2,489	$	2,489

We held a total of 214 and 208 positions which were in unrealized loss positions as of September 30, 2021 and 2020, respectively. The unrealized losses were largely due to changes in interest rates. Aggregated gross unrealized losses on available-for-sale debt securities were not material for the three and nine months ended September 30, 2021 and 2020. No impairment was recognized for the three and nine months ended September 30, 2021 and 2020.

5. DERIVATIVE FINANCIAL INSTRUMENTS

Our operations in foreign countries expose us to market risk associated with foreign currency exchange rate fluctuations between the U.S. dollar and various foreign currencies, primarily the Euro. To manage this risk, we may hedge a portion of our foreign currency exposure related to outstanding monetary assets and liabilities as well as forecasted product sales using foreign currency exchange forward or option contracts. In general, the market risk related to these contracts is offset by corresponding gains and losses on the hedged transactions. The credit risk associated with these contracts is driven by changes in interest and currency exchange rates and, as a result, varies over time. By working only with major banks and closely monitoring current market conditions, we seek to limit the risk that counterparties to these contracts may be unable to perform. We also seek to limit our risk of loss by entering into contracts that permit net settlement at maturity. Therefore, our overall risk of loss in the event of a counterparty default is limited to the amount of any unrealized gains on outstanding contracts (i.e., those contracts that have a positive fair value) at the date of default. We do not enter into derivative contracts for trading purposes.

We hedge our exposure to foreign currency exchange rate fluctuations for certain monetary assets and liabilities that are denominated in a non-functional currency. The derivative instruments we use to hedge this exposure are not designated as hedges and, as a result, changes in their fair value are recorded in Other income (expense), net on our Condensed Consolidated Statements of Operations.

We hedge our exposure to foreign currency exchange rate fluctuations for forecasted product sales that are denominated in a non-functional currency. The derivative instruments we use to hedge this exposure are designated as cash flow hedges and have maturities of 18 months or less. Upon executing a hedging contract and quarterly thereafter, we assess hedge effectiveness using regression analysis. The unrealized gains or losses in Accumulated other comprehensive income (“AOCI”) are reclassified into product sales when the respective hedged transactions affect earnings. The majority of gains and losses related to the hedged forecasted transactions reported in AOCI as of September 30, 2021 are expected to be reclassified to product sales within 12 months.

The cash flow effects of our derivative contracts for the nine months ended September 30, 2021 and 2020 were included within Net cash provided by operating activities on our Condensed Consolidated Statements of Cash Flows.

We had notional amounts on foreign currency exchange contracts outstanding of $3.0 billion and $2.4 billion as of September 30, 2021 and December 31, 2020, respectively.

While all our derivative contracts allow us the right to offset assets and liabilities, we have presented amounts on a gross basis. The following table summarizes the classification and fair values of derivative instruments on our Condensed Consolidated Balance Sheets:


	September 30, 2021
	Derivative Assets			Derivative Liabilities
(in millions)	Classification	Fair Value		Classification	Fair Value
Derivatives designated as hedges:
Foreign currency exchange contracts	Prepaid and other current assets	$	50	Accrued and other current liabilities	$	(8)
Foreign currency exchange contracts	Other long-term assets	5		Other long-term obligations	—
Total derivatives designated as hedges		55			(8)
Derivatives not designated as hedges:
Foreign currency exchange contracts	Prepaid and other current assets	—		Accrued and other current liabilities	—
Total derivatives not designated as hedges		—			—
Total derivatives		$	55		$	(8)


	December 31, 2020
	Derivative Assets			Derivative Liabilities
(in millions)	Classification	Fair Value		Classification	Fair Value
Derivatives designated as hedges:
Foreign currency exchange contracts	Prepaid and other current assets	$	—	Accrued and other current liabilities	$	(113)
Foreign currency exchange contracts	Other long-term assets	—		Other long-term obligations	(7)
Total derivatives designated as hedges		—			(120)
Derivatives not designated as hedges:
Foreign currency exchange contracts	Prepaid and other current assets	12		Accrued and other current liabilities	(1)
Total derivatives not designated as hedges		12			(1)
Total derivatives		$	12		$	(121)

The following table summarizes the effect of our foreign currency exchange contracts on our Condensed Consolidated Financial Statements:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2021		2020		2021		2020
Derivatives designated as hedges:
Gains (losses) recognized in AOCI	$	42	$	(52)	$	104	$	(28)
Gains (losses) reclassified from AOCI into product sales	$	(21)	$	12	$	(69)	$	57
Derivatives not designated as hedges:
Gains (losses) recognized in Other income (expense), net	$	5	$	(13)	$	24	$	(10)

From time to time, we may discontinue cash flow hedges and, as a result, record related amounts in Other income (expense), net on our Condensed Consolidated Statements of Operations. There were no discontinuances of cash flow hedges for the three and nine months ended September 30, 2021 and 2020.

As of September 30, 2021 and December 31, 2020, we only held foreign currency exchange contracts. The following table summarizes the potential effect of offsetting our foreign currency exchange contracts on our Condensed Consolidated Balance Sheets:



							Gross Amounts Not Offset on our Condensed Consolidated Balance Sheets
(in millions)	Gross Amounts of Recognized Assets/Liabilities		Gross Amounts Offset on our Condensed Consolidated Balance Sheets		Amounts of Assets/Liabilities Presented on our Condensed Consolidated Balance Sheets		Derivative Financial Instruments		Cash Collateral Received/ Pledged		Net Amount (Legal Offset)
As of September 30, 2021
Derivative assets	$	55	$	—	$	55	$	(7)	$	—	$	48
Derivative liabilities	$	(8)	$	—	$	(8)	$	7	$	—	$	(1)
As of December 31, 2020
Derivative assets	$	12	$	—	$	12	$	(12)	$	—	$	—
Derivative liabilities	$	(121)	$	—	$	(121)	$	12	$	—	$	(109)

6. ACQUISITIONS

We account for business combinations using the acquisition method of accounting, which generally requires that assets acquired, including in-process research and development (“IPR&D”) projects, and liabilities assumed be recorded at their fair values as of the acquisition date on our Condensed Consolidated Balance Sheets. Any excess of consideration over the fair value of net assets acquired is recorded as goodwill. Transaction costs associated with business combinations are expensed as they are incurred. The first quarter 2021 acquisition of MYR and the fourth quarter 2020 acquisition of Immunomedics were accounted for as business combinations.

When the net assets acquired do not meet the definition of a business combination under the acquisition method of accounting, the transaction is accounted for as an acquisition of assets. For an asset acquisition, no goodwill is recorded and contingent consideration, such as payments upon achievement of various development, regulatory and commercial milestones, generally is not recognized as of the acquisition date. In an asset acquisition, upfront payments allocated to IPR&D projects at the acquisition date and subsequent milestone payments are expensed unless there is an alternative future use. The second quarter 2020 acquisition of Forty Seven, Inc. (“Forty Seven”) was accounted for as an asset acquisition.

MYR

In the first quarter of 2021, we completed the acquisition of MYR, a German biotechnology company. MYR focuses on the development and commercialization of therapeutics for the treatment of HDV. The acquisition provided Gilead with Hepcludex, which was conditionally approved by the European Medicines Agency (“EMA”) in July 2020 for the treatment of chronic HDV infection in adults with compensated liver disease. Upon closing, MYR became a wholly-owned subsidiary of Gilead. The financial results of MYR were included in our Condensed Consolidated Financial Statements from the date of the acquisition. Acquisition-related expenses were not material for the three and nine months ended September 30, 2021.

The aggregate consideration for this acquisition of €1.3 billion (or $1.6 billion) primarily consists of €1.0 billion (or $1.2 billion) paid upon closing and contingent consideration of up to €300 million, subject to customary adjustments, representing a potential future milestone payment upon FDA approval of Hepcludex. The fair value of this contingent liability, estimated using probability-weighted scenarios for FDA approval, was $341 million as of the acquisition date and was initially recorded in Other long-term obligations on our Condensed Consolidated Balance Sheets. In the second quarter of 2021, the balance was reclassified to Accrued and other current liabilities on our Condensed Consolidated Balance Sheets. The estimated fair value of the contingent liability was $328 million as of September 30, 2021. The change in estimated fair value from the acquisition date was primarily due to the effect of foreign exchange remeasurement.

The fair value estimates for the assets acquired and liabilities assumed were based upon valuations using information known and knowable as of the date of this filing. Changes to these assumptions and estimates could cause an impact to the valuation of assets acquired, including intangible assets, goodwill and the related tax impacts of the acquisition, as well as legal and other contingencies. The amounts recognized will be finalized as the information necessary to complete the analysis is obtained, but no later than one year after the acquisition date.

The following table summarizes estimated fair values of assets acquired and liabilities assumed as of the acquisition date:


(in millions)	Amount
Intangible assets:
Finite-lived intangible asset	$	845
Acquired IPR&D	1,190
Deferred income taxes, net	(513)
Other assets (and liabilities), net	(187)
Total identifiable net assets	1,335
Goodwill	226
Total consideration	$	1,561

Intangible Assets

The finite-lived intangible asset of $845 million represents the estimated fair value of Hepcludex for HDV in Europe as of the acquisition date. The fair value was determined by applying the income approach using unobservable inputs to estimate probability-weighted net cash flows attributable to Hepcludex for HDV in Europe and a discount rate of 12%. The discount rate used represents the estimated rate that market participants would use to value this intangible asset. This intangible asset is being amortized over an estimated useful life of 10 years.

Acquired intangible assets related to IPR&D consist of Hepcludex for HDV in all other regions without regulatory approval, including the United States. The estimated aggregate fair value of $1.2 billion as of the acquisition date was determined by applying the income approach using unobservable inputs to estimate probability-weighted net cash flows attributable to this asset and a discount rate of 12%. The discount rate used represents the estimated rate that market participants would use to value this intangible asset.

Some of the more significant assumptions inherent in the development of intangible asset fair values include: estimates of projected future cash flows including revenues and operating profits; probability of success; the discount rate selected; the life of the potential commercialized products and the risks related to the viability of and potential alternative treatments in any future target markets, among other factors.

Intangible assets related to IPR&D projects are considered to be indefinite-lived assets until the completion or abandonment of the associated R&D efforts.

The inputs used for valuing these identifiable intangibles are unobservable and considered Level 3 under the fair value measurement and disclosure guidance. See Note 3. Fair Value Measurements for additional information.

Deferred Income Taxes

The net deferred tax liability was based upon the difference between the estimated book basis and tax basis of net assets acquired and an estimate for the final pre-acquisition net operating losses of MYR.

Goodwill

The excess of the consideration transferred over the fair values of assets acquired and liabilities assumed of $226 million was recorded as goodwill, which primarily reflects the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill recognized for MYR is not expected to be deductible for income tax purposes.

There were no material measurement period adjustments recorded to the fair values of assets acquired and liabilities assumed during the three and nine months ended September 30, 2021.

Immunomedics

In the fourth quarter of 2020, we completed the acquisition of Immunomedics, a company focused on the development of antibody-drug conjugate technology, for cash consideration of $20.6 billion. Upon closing, Immunomedics became a wholly-owned subsidiary of Gilead. The acquisition was financed with the majority of the proceeds from the September 2020 senior unsecured notes offering, an additional $1.0 billion borrowing under a new senior unsecured term loan facility and cash on hand. During the nine months ended September 30, 2021, we repaid the borrowing under the senior unsecured term loan facility. See Note 10. Debt and Credit Facilities for further information.

The following table summarizes estimated fair values of assets acquired and liabilities assumed as of the acquisition date:


(in millions)	Amount
Cash and cash equivalents	$	726
Inventories	946
Intangible assets:
Finite-lived intangible asset	4,600
Acquired IPR&D	15,760
Outlicense contract	175
Deferred tax liabilities	(4,565)
Liability related to future royalties	(1,100)
Other assets (and liabilities), net	64
Total identifiable net assets	16,606
Goodwill	3,991
Total consideration transferred	$	20,597

There were no material measurement period adjustments recorded to the fair values of assets acquired and liabilities assumed during the three and nine months ended September 30, 2021.

Forty Seven

In the second quarter of 2020, we completed the acquisition of Forty Seven, a clinical-stage immuno-oncology company focused on developing therapies targeting cancer immune evasion pathways and specific cell targeting approaches, for total consideration of $4.7 billion, net of acquired cash. Upon closing, Forty Seven became a wholly-owned subsidiary of Gilead. During the nine months ended September 30, 2020, we recorded a $4.5 billion charge representing an acquired IPR&D asset with no alternative future use in Acquired in-process research and development expenses, and stock-based compensation expense of $144 million primarily in Research and development expenses on our Condensed Consolidated Statements of Operations.

7. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following table summarizes the changes in the carrying amount of goodwill:


(in millions)	Amount
Balance at December 31, 2020	$	8,108
Goodwill resulting from the acquisition of MYR	226
Measurement period adjustments	(2)
Balance at September 30, 2021	$	8,332

Intangible Assets

The following table summarizes our Intangible assets, net:


	September 30, 2021								December 31, 2020
(in millions)	Gross Carrying Amount		Accumulated Amortization		Foreign Currency Translation Adjustment		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Foreign Currency Translation Adjustment		Net Carrying Amount
Finite-lived assets:
Intangible asset - sofosbuvir	$	10,720	$	(5,477)	$	—	$	5,243	$	10,720	$	(4,952)	$	—	$	5,768
Intangible asset - axicabtagene ciloleucel(1)	7,110		(1,400)		—		5,710		6,200		(1,105)		—		5,095
Intangible asset - Trodelvy(2)	5,630		(390)		—		5,240		4,600		(63)		—		4,537
Intangible asset - Hepcludex	845		(50)		—		795		—		—		—		—
Other	1,410		(619)		1		792		1,377		(540)		(1)		836
Total finite-lived assets	25,715		(7,936)		1		17,780		22,897		(6,660)		(1)		16,236
Indefinite-lived assets - IPR&D(1)(2)(3)(4)	16,120		—		—		16,120		16,890		—		—		16,890
Total intangible assets	$	41,835	$	(7,936)	$	1	$	33,900	$	39,787	$	(6,660)	$	(1)	$	33,126

(1) Gross carrying amount as of September 30, 2021 includes $910 million reclassified from indefinite-lived assets - IPR&D following the March 2021 FDA approval of Yescarta for the treatment of adult patients with relapsed or refractory follicular lymphoma.

(2) Gross carrying amount as of September 30, 2021 includes Trodelvy for metastatic triple-negative breast cancer which was granted approval by FDA in April 2021 and Trodelvy for use in adult patients with locally advanced or metastatic urothelial cancer (“UC”) which was granted accelerated approval by FDA in April 2021. The amount related to UC of $1.0 billion was reclassified to finite-lived assets from indefinite-lived assets - IPR&D.

(3) Gross carrying amount as of September 30, 2021 includes $1.2 billion recognized from the first quarter 2021 acquisition of MYR. See Note 6. Acquisitions for additional information.

(4) In October 2021, FDA granted approval of Tecartus for the treatment of adult patients with relapsed or refractory B-cell precursor acute lymphoblastic leukemia. Accordingly, the related amount of $200 million will be reclassified to finite-lived assets in the fourth quarter of 2021.

Aggregate amortization expense related to finite-lived intangible assets was $441 million and $1.3 billion for the three and nine months ended September 30, 2021 and $281 million and $844 million for the three and nine months ended September 30, 2020, respectively, and was primarily included in Cost of goods sold on our Condensed Consolidated Statements of Operations.

The following table summarizes the estimated future amortization expense associated with our finite-lived intangible assets as of September 30, 2021:


(in millions)	Amount
2021 (remaining three months)	$	441
2022	1,764
2023	1,764
2024	1,764
2025	1,759
Thereafter	10,288
Total	$	17,780

8. OTHER FINANCIAL INFORMATION

Accounts receivable, net

The following table summarizes our Accounts receivable, net:


(in millions)	September 30, 2021		December 31, 2020
Accounts receivable	$	5,284	$	5,560
Less: chargebacks	591		552
Less: cash discounts and other	70		72
Less: allowances for credit losses	57		44
Accounts receivable, net	$	4,566	$	4,892

Inventories

The following table summarizes our Inventories:


(in millions)	September 30, 2021		December 31, 2020
Raw materials	$	1,067	$	1,080
Work in process	727		976
Finished goods	1,003		958
Total	$	2,797	$	3,014

Reported as:
Inventories	$	1,676	$	1,683
Other long-term assets(1)	1,121		1,331
Total	$	2,797	$	3,014

(1) Amounts primarily consist of raw materials.

Accrued and other current liabilities

The following table summarizes the components of Accrued and other current liabilities:


(in millions)	September 30, 2021		December 31, 2020
Compensation and employee benefits	$	691	$	864
Income taxes payable	447		598
Allowance for sales returns	530		587
Other accrued liabilities	2,113		2,287
Total	$	3,781	$	4,336

9. COLLABORATIONS AND OTHER ARRANGEMENTS

We continue to pursue licensing and strategic collaborations and other similar arrangements with third parties for the development and commercialization of certain products and product candidates. These arrangements may involve two or more parties who are active participants in the operating activities of the collaboration and are exposed to significant risks and rewards depending on the commercial success of the activities. These arrangements may include non-refundable upfront payments, expense reimbursements or payments by us for options to acquire certain rights, contingent obligations by us for potential development and regulatory milestone payments and/or sales-based milestone payments, royalty payments, revenue or profit-sharing arrangements and cost-sharing arrangements. We also continue to pursue equity investments in third parties focused on the development and commercialization of products and product candidates.

Merck Sharp & Dohme Corp. (“Merck”)

On March 13, 2021, we entered into a license and collaboration agreement with Merck, a subsidiary of Merck & Co., Inc. to jointly develop and commercialize long-acting investigational treatments in HIV that combine Gilead’s investigational capsid inhibitor, lenacapavir, and Merck’s investigational nucleoside reverse transcriptase translocation inhibitor, islatravir. The collaboration will initially focus on long-acting oral and injectable formulations.

Under the terms of the agreement, Gilead and Merck will share global development and commercialization costs at 60% and 40%, respectively, across the oral and injectable formulation programs. For long-acting oral products, Gilead will lead commercialization in the United States, and Merck will lead commercialization in the European Union (“EU”) and rest of the world. For long-acting injectable products, Merck will lead commercialization in the United States and Gilead will lead commercialization in the EU and rest of the world. Gilead and Merck will jointly promote the combination products in the United States and certain other major markets. We will share global product revenues with Merck equally until product revenues surpass certain pre-determined per formulation revenue tiers. Upon passing $2.0 billion in net product sales for the oral combination in a given calendar year, our share of revenue will increase to 65% for any revenues above the threshold for such calendar year. Upon passing $3.5 billion in net product sales for the injectable combination in a given calendar year, our share of revenue will increase to 65% for any revenues above the threshold for such calendar year. Reimbursements of research and development costs to or from Merck are recorded within Research and development expenses on our Condensed Consolidated Statements of Operations. Expenses recognized under the agreement were not material for the three and nine months ended September 30, 2021. No revenues have been recognized under the agreement for the three and nine months ended September 30, 2021.

We will also have the option to license certain of Merck’s investigational oral integrase inhibitors to develop in combination with lenacapavir. Reciprocally, Merck will have the option to license certain of Gilead’s investigational oral integrase inhibitors to develop in combination with islatravir. Each company may exercise its option for such investigational oral integrase inhibitor of the other company within the first five years after execution of the agreement, following completion of the first Phase 1 clinical trial of that integrase inhibitor. Upon exercise of an option, the companies will split development costs and revenues, unless the non-exercising company decides to opt-out, in which case the non-exercising company will be paid a royalty.

Arcus

On May 27, 2020, we entered into a transaction with Arcus, which included entry into an option, license and collaboration agreement (the “Collaboration Agreement”) and a common stock purchase agreement and an investor rights agreement (together, and as subsequently amended the “Stock Purchase Agreements”). Under the Stock Purchase Agreements, we have the right to purchase additional shares of Arcus from Arcus over the five-year period beginning on the closing of the Stock Purchase Agreements, up to a maximum of 35% of the outstanding voting stock. We are subject to a three-year standstill, which period began on the date the parties entered into the Stock Purchase Agreements, restricting our ability to acquire voting stock of Arcus exceeding more than 35% of the then issued and outstanding voting stock of Arcus, subject to certain exceptions. Additionally, we agreed not to dispose of any equity securities of Arcus prior to the second anniversary of the closing of the Stock Purchase Agreements without the prior consent of Arcus, subject to certain exceptions.

Pursuant to the Collaboration Agreement and Stock Purchase Agreements which closed on July 13, 2020, and a separate secondary equity offering which closed on May 29, 2020, we acquired approximately 8.2 million shares of Arcus common stock for approximately $261 million. In the first quarter of 2021, we amended and restated the common stock purchase agreement and acquired approximately 5.7 million additional shares of Arcus common stock for $220 million. As a result, we currently own a total of 13.8 million shares of Arcus, which represented approximately 19.5% of the issued and outstanding voting stock of Arcus immediately following the closing of the first quarter 2021 transaction. The amendment and restatement of the common stock purchase agreement in the first quarter of 2021 did not modify any of the terms above. We elected and applied the fair value option to account for our equity investment in Arcus whereby the investment is marked to market each reporting period based on the market price of Arcus shares. We believe the fair value option best reflects the underlying economics of the investment. Changes in fair value of the investment are recognized in Other income (expense), net on our Condensed Consolidated Statements of Operations. We initially recorded our equity investments in Arcus in Other long-term assets on our Condensed Consolidated Balance Sheets as the investments are subject to contractual lock-up provisions, subject to certain conditions. In the third quarter of 2021, we reclassified our equity investments in Arcus to Prepaid and other current assets on our Condensed Consolidated Balance Sheets as the contractual lock-up provisions will expire in July 2022.

Other Arrangements

During the three and nine months ended September 30, 2021 and 2020, we entered into several collaborations, equity investments and licensing arrangements as well as other similar arrangements that we do not consider to be individually material. We recorded upfront collaboration expenses related to these arrangements within Acquired in-process research and development expenses on our Condensed Consolidated Statements of Operations. Upfront collaboration expenses and cash payments made related to our equity investments were not material for the three and nine months ended September 30, 2021 and 2020.

Under the financial terms of these arrangements, we may be required to make payments upon achievement of developmental, regulatory and commercial milestones, which could be significant. Future milestone payments, if any, will be reflected in our Condensed Consolidated Statements of Operations when the corresponding events become probable. In addition, we may be required to pay significant royalties on future sales if products related to these arrangements are commercialized. The payment of these amounts, however, is contingent upon the occurrence of various future events, which have a high degree of uncertainty of occurrence.

10. DEBT AND CREDIT FACILITIES

The following table summarizes the carrying amount of our borrowings under various financing arrangements:


(in millions)				Carrying Amount
Type of Borrowing	Issue Date	Maturity Date	Interest Rate	September 30, 2021		December 31, 2020
Senior Unsecured	March 2011	April 2021	4.50%	$	—	$	1,000
Senior Unsecured	September 2020	September 2021	3-month LIBOR + 0.15%	—		499
Senior Unsecured	December 2011	December 2021	4.40%	—		1,249
Senior Unsecured	September 2016	March 2022	1.95%	500		499
Senior Unsecured	September 2015	September 2022	3.25%	999		998
Senior Unsecured	September 2016	September 2023	2.50%	748		748
Senior Unsecured	September 2020	September 2023	3-month LIBOR + 0.52%	499		498
Senior Unsecured	September 2020	September 2023	0.75%	1,994		1,992
Term Loan	October 2020	October 2023	variable	—		998
Senior Unsecured	March 2014	April 2024	3.70%	1,747		1,746
Senior Unsecured	November 2014	February 2025	3.50%	1,747		1,746
Senior Unsecured	September 2015	March 2026	3.65%	2,738		2,737
Senior Unsecured	September 2016	March 2027	2.95%	1,246		1,246
Senior Unsecured	September 2020	October 2027	1.20%	746		745
Senior Unsecured	September 2020	October 2030	1.65%	992		992
Senior Unsecured	September 2015	September 2035	4.60%	992		991
Senior Unsecured	September 2016	September 2036	4.00%	742		741
Senior Unsecured	September 2020	October 2040	2.60%	987		986
Senior Unsecured	December 2011	December 2041	5.65%	996		996
Senior Unsecured	March 2014	April 2044	4.80%	1,736		1,735
Senior Unsecured	November 2014	February 2045	4.50%	1,733		1,732
Senior Unsecured	September 2015	March 2046	4.75%	2,220		2,219
Senior Unsecured	September 2016	March 2047	4.15%	1,727		1,726
Senior Unsecured	September 2020	October 2050	2.80%	1,476		1,476
Total senior unsecured notes and term loan facility				26,565		30,295
Liability related to future royalties				1,121		1,107
Total debt, net				27,686		31,402
Less: current portion of long-term debt and other obligations, net				2,511		2,757
Total long-term debt, net				$	25,175	$	28,645

Debt

During the nine months ended September 30, 2021, we repaid $3.75 billion of debt. We repaid $1.0 billion of senior unsecured notes due April 2021 in the first quarter of 2021 and $1.25 billion of senior unsecured notes due December 2021 in the third quarter of 2021. Additionally, we repaid $1.0 billion principal amount outstanding under our three-year $1.0 billion senior unsecured term loan facility due October 2023 and $500 million of our senior unsecured floating rate notes due September 2021 upon maturity. In October 2021, we exercised our option to call $500 million of our floating rate senior unsecured notes and $500 million of our 0.75% senior unsecured notes, both having a final maturity of September 2023. The notes will be repaid in November 2021.

No new debt was issued during the three and nine months ended September 30, 2021. We are required to comply with certain covenants under our note indentures governing our senior unsecured notes. As of September 30, 2021, we were in compliance with all covenants.

Credit Facility

As of September 30, 2021 and December 31, 2020, there were no amounts outstanding under our $2.5 billion revolving credit facility maturing in June 2025, and we were in compliance with all covenants.

11. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

We are a party to various legal actions. The most significant of these are described below. We recognize accruals for such actions to the extent that we conclude that a loss is both probable and reasonably estimable. We accrue for the best estimate of a loss within a range; however, if no estimate in the range is better than any other, then we accrue the minimum amount in the range. If we determine that a material loss is reasonably possible and the loss or range of loss can be estimated, we disclose the possible loss. Unless otherwise noted, it is not possible to determine the outcome of these matters or the outcome (including in excess of any accrual) is not expected to be material, and we cannot reasonably estimate the maximum potential exposure or the range of possible loss. In the third quarter of 2021, we reversed a $175 million previously recorded litigation accrual following a favorable court decision.

We did not have any material accruals for the matters described below on our Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020.

Litigation Related to Sofosbuvir

In 2012, we acquired Pharmasset, Inc. Through the acquisition, we acquired sofosbuvir, a nucleotide analog that acts to inhibit the replication of the HCV. In 2013, we received approval from FDA for sofosbuvir, now known commercially as Sovaldi. Sofosbuvir is also included in all of our marketed HCV products. We have received a number of litigation claims regarding sofosbuvir. While we have carefully considered these claims both prior to and following the acquisition and believe they are without merit, we cannot predict the ultimate outcome of such claims or range of loss.

We are aware of patents and patent applications owned by third parties that have been or may in the future be alleged by such parties to cover the use of our HCV products. If third parties obtain valid and enforceable patents, and successfully prove infringement of those patents by our HCV products, we could be required to pay significant monetary damages. We cannot predict the ultimate outcome of intellectual property claims related to our HCV products. We have spent, and will continue to spend, significant resources defending against these claims.

Litigation with the University of Minnesota

The University of Minnesota (the “University”) has obtained U.S. Patent No. 8,815,830 (the “’830 patent”), which purports to broadly cover nucleosides with antiviral and anticancer activity. In 2016, the University filed a lawsuit against us in the U.S. District Court for the District of Minnesota, alleging that the commercialization of sofosbuvir-containing products infringes the ’830 patent. We believe the ’830 patent is invalid and will not be infringed by the continued commercialization of sofosbuvir. In 2017, the court granted our motion to transfer the case to California. We have also filed petitions for inter partes review with the U.S. Patent and Trademark Office Patent Trial and Appeal Board (“PTAB”) alleging that all asserted claims are invalid for anticipation and obviousness. The PTAB instituted one of these petitions and a merits hearing was held in February 2021. In 2018, the U.S. District Court for the Northern District of California stayed the litigation until after the PTAB concludes the inter partes review that it has initiated. In May 2021, the PTAB issued a written decision finding the asserted claims of the University’s patent invalid. In July 2021, the University appealed this decision. The litigation in the U.S. District Court will remain stayed through the appeal proceedings.

Litigation with NuCana plc. (“NuCana”)

NuCana has obtained European Patent No. 2,955,190 (the “EP ’190 patent”) that allegedly covers sofosbuvir. In Opposition proceedings before the European Patent Office (“EPO”) held in February 2021, the EPO Opposition Division upheld the validity of the EP ’190 patent in amended form. We believe that the amended EP ’190 patent claims are invalid. Subsequently, we initiated proceedings to invalidate the UK counterpart of the EP ’190 patent in the High Court of England & Wales. In March 2021, NuCana filed a counterclaim against us in the High Court of England & Wales alleging patent infringement of the UK counterpart and seeking damages and other relief. In April 2021, NuCana also filed a lawsuit against us in Germany at the Landgericht Düsseldorf alleging patent infringement of the German counterpart of the EP ’190 patent and seeking damages and other relief. The hearing date for the German NuCana case has been scheduled for May 2022.

Litigation Related to Axicabtagene Ciloleucel

In October 2017, Juno Therapeutics, Inc. and Sloan Kettering Cancer Center (collectively, “Juno”) filed a lawsuit against us in the U.S. District Court for the Central District of California, alleging that the commercialization of axicabtagene ciloleucel, sold commercially as Yescarta, infringes on U.S. Patent No. 7,446,190 (the “’190 patent”). A jury trial was held on the ’190 patent, and in December 2019, the jury found that the asserted claims of the ’190 patent were valid, and that we willfully infringed the asserted claims of the ’190 patent. The jury also awarded Juno damages in amounts of $585 million in an up-front payment and a 27.6% running royalty from October 2017 through the date of the jury’s verdict. The parties filed post-trial motions in the first quarter of 2020, and the trial judge entered a judgment in April 2020. The trial judge affirmed the jury’s verdict, enhanced the past damages by 50% and maintained the royalties on future Yescarta sales at 27.6%. In April 2020, we filed an appeal seeking to reverse the judgment or obtain a new trial due to errors made by the trial judge, and in July 2021, the appeals court heard oral arguments. In August 2021, the Court of Appeals for the Federal Circuit (the “CAFC”) reversed the jury verdict finding the asserted claims of Juno’s patent invalid. In October 2021, Juno filed a petition for rehearing with the CAFC. We believe that the likelihood of a material adverse outcome in this matter is remote.

Litigation Related to Bictegravir

In 2018, ViiV Healthcare Company (“ViiV”) filed a lawsuit against us in the U.S. District Court of Delaware, alleging that the commercialization of bictegravir, sold commercially in combination with tenofovir alafenamide and emtricitabine as Biktarvy, infringes ViiV’s U.S. Patent No. 8,129,385 (the “’385 patent”) covering ViiV’s dolutegravir. Bictegravir is structurally different from dolutegravir, and we believe that bictegravir does not infringe the claims of the ’385 patent. The court has set a trial date of January 2022 for this lawsuit. ViiV is seeking billions of dollars for alleged damages comprised of ViiV’s lost profits and a royalty on sales of bictegravir from launch through the trial. ViiV calculates these damages based on the cumulative U.S. revenues from Biktarvy since launch, which have totaled $16.4 billion through September 30, 2021. In addition, should a court find that we are liable for infringement, we expect ViiV will seek a royalty on sales after the trial. Although we cannot predict with certainty the ultimate outcome of this litigation, an adverse judgment could result in substantial monetary damages, including ViiV’s lost profits and royalties through trial, and a going-forward royalty stream on future sales.

In 2018, ViiV also filed a lawsuit against us in the Federal Court of Canada, alleging that our activities relating to our bictegravir compound have infringed ViiV’s Canadian Patent No. 2,606,282 (the “’282 patent”), which was issued to Shionogi & Co. Ltd. and ViiV. The ’282 patent is the compound patent covering ViiV’s dolutegravir. We believe that bictegravir does not infringe the claims of the ’282 patent. In January 2020, the court held a summary trial to assess ViiV’s infringement allegations. In April 2020, the court determined that bictegravir does not infringe the claims of the ’282 patent and dismissed the case. ViiV appealed this decision, and in June 2021, the Canadian Federal Court of Appeal upheld the Federal Court of Canada’s decision. ViiV has sought leave to appeal to the Canadian Supreme Court.

In November and December 2019, ViiV filed lawsuits in France, Germany, Ireland and the UK asserting the relevant national designations of European Patent No. 3 045 206 (“EP ’206”); in Australia asserting Australian Patent No. 2006239177; in Japan asserting Japanese Patent No. 4295353; and in Korea asserting Korean Patent Nos. 1848819 (“KR ’819”) and 1363875. These patents all relate to molecules that ViiV claims would act as integrase inhibitors. We believe that bictegravir does not infringe the claims of any of ViiV’s patents. In 2019, we filed an opposition in the EPO requesting revocation of EP ’206. The EPO hearing took place in January 2021, and the patent claims, which do not cover bictegravir, were maintained in amended form. Both parties have appealed this decision. Additionally, in 2020, we filed a petition in the Korean Intellectual Property Office requesting invalidation of KR ’819. Following a trial, a tribunal of the Korean Intellectual Property Trial and Appeal Board found KR ’819 to be invalid. In March 2021, ViiV appealed this decision. In April 2021, the court in Germany held a hearing on the issue of infringement, and in September 2021, determined that Gilead does not infringe ViiV’s EP ’206 patent both in its original form and as amended by the EPO. ViiV has appealed this decision.

In all jurisdictions, to the extent that the claims of ViiV’s patents are interpreted to cover bictegravir, we believe that those claims are invalid. We cannot predict the ultimate outcome of intellectual property claims related to bictegravir.

Litigation Relating to Pre-Exposure Prophylaxis

In August 2019, we filed petitions requesting inter partes review of U.S. Patent Nos. 9,044,509, 9,579,333, 9,937,191 and 10,335,423 (collectively, “HHS Patents”) by PTAB. The HHS Patents are assigned to the U.S. Department of Health and Human Services (“HHS”) and purport to claim a process of protecting a primate host from infection by an immunodeficiency retrovirus by administering a combination of emtricitabine and tenofovir or TDF prior to exposure of the host to the immunodeficiency retrovirus, a process commonly known as pre-exposure prophylaxis (“PrEP”). In November 2019, the U.S. Department of Justice filed a lawsuit against us in the U.S. District Court of Delaware, alleging that the sale of Truvada and Descovy for use as PrEP infringes the HHS Patents. In February 2020, PTAB declined to institute our petitions for inter partes review of the HHS Patents. In April 2020, we filed a breach of contract lawsuit against the U.S. federal government in the Court of Federal Claims, alleging violations of four material transfer agreements (“MTAs”) related to the research underlying the HHS Patents and a clinical trial agreement (“CTA”) by the U.S. Centers for Disease Control and Prevention related to PrEP research. Although we cannot predict with certainty the ultimate outcome of these litigation matters, we believe that the U.S. federal government breached the MTAs and CTA, that Truvada and Descovy do not infringe the HHS Patents and that the HHS Patents are invalid over prior art descriptions of Truvada’s use for PrEP and post-exposure prophylaxis as well because physicians and patients were using the claimed methods years before HHS filed the applications for the patents. A trial date for the lawsuit in the Court of Federal Claims has been set for June 2022, and a trial date for the lawsuit in the District Court of Delaware has been set for May 2023.

Litigation with Generic Manufacturers

As part of the approval process for some of our products, FDA granted us a New Chemical Entity (“NCE”) exclusivity period during which other manufacturers’ applications for approval of generic versions of our product will not be approved. Generic manufacturers may challenge the patents protecting products that have been granted NCE exclusivity one year prior to the end of the NCE exclusivity period. Generic manufacturers have sought and may continue to seek FDA approval for a similar or identical drug through an abbreviated new drug application (“ANDA”), the application form typically used by manufacturers seeking approval of a generic drug. The sale of generic versions of our products earlier than their patent expiration would have a significant negative effect on our revenues and results of operations. To seek approval for a generic version of a product having NCE status, a generic company may submit its ANDA to FDA four years after the branded product’s approval.

Starting in December 2019, we received letters from Lupin Ltd., Apotex Inc., Shilpa Medicare Ltd., Sunshine Lake Pharma Co. Ltd., Laurus Labs, Natco Pharma Ltd., Macleods Pharma Ltd., Hetero Labs Ltd. and Cipla Ltd. (collectively, “generic manufacturers”) indicating that they have submitted ANDAs to FDA requesting permission to market and manufacture generic versions of certain of our tenofovir alafenamide (“TAF”)-containing products. Between them, these generic manufacturers seek to market generic versions of Odefsey, Descovy and Vemlidy. Some generic manufacturers have challenged the validity of four patents listed on the Orange Book and associated with TAF, while others have challenged the validity of two of our Orange Book-listed patents associated with TAF. We filed lawsuits against the generic manufacturers, and we intend to enforce and defend our intellectual property.

In October 2021, we received a letter from Lupin Ltd. indicating that it has submitted an ANDA to the FDA requesting permission to market and manufacture a generic version of Symtuza. We are evaluating the letter and intend to enforce and defend our intellectual property.

European Patent Claims

In 2015, several parties filed oppositions in the EPO requesting revocation of one of our granted European patents covering sofosbuvir that expires in 2028. In 2016, the EPO upheld the validity of certain claims of our sofosbuvir patent. We have appealed this decision, seeking to restore all of the original claims, and several of the original opposing parties have also appealed, requesting full revocation. An appeal hearing originally scheduled for July 2021 has been canceled and a new date has not yet been set by the EPO.

In 2017, several parties filed oppositions in the EPO requesting revocation of our granted European patent relating to sofosbuvir that expires in 2024. The EPO conducted an oral hearing for this opposition in 2018 and upheld the claims. Two of the original opposing parties have appealed, requesting full revocation.

In 2016, several parties filed oppositions in the EPO requesting revocation of our granted European patent covering TAF that expires in 2026. In 2017, the EPO upheld the validity of the claims of our TAF patent. Three parties have appealed this decision. The appeal hearing was held in March 2021, and the validity of all claims were upheld.

In 2017, several parties filed oppositions in the EPO requesting revocation of our granted European patent relating to TAF hemifumarate that expires in 2032. In 2019, the EPO upheld the validity of the claims of our TAF hemifumarate patent. Three parties have appealed this decision.

In 2016, three parties filed oppositions in the EPO requesting revocation of our granted European patent covering cobicistat that expires in 2027. In 2017, the EPO upheld the validity of the claims of our cobicistat patent. Two parties have appealed this decision.

The appeal process may take several years for all EPO opposition proceedings. While we are confident in the strength of our patents, we cannot predict the ultimate outcome of these oppositions. If we are unsuccessful in defending these oppositions, some or all of our patent claims may be narrowed or revoked and the patent protection for sofosbuvir, TAF, TAF hemifumarate and cobicistat in the European Union could be substantially shortened or eliminated entirely. If our patents are revoked, and no other European patents are granted covering these compounds, our exclusivity may be based entirely on regulatory exclusivity granted by EMA. If we lose patent protection for any of these compounds, our revenues and results of operations could be negatively impacted for the years including and succeeding the year in which such exclusivity is lost.

Antitrust and Consumer Protection

We (along with Japan Tobacco, Inc. (“Japan Tobacco”), Bristol-Myers Squibb Company (“BMS”) and Johnson & Johnson, Inc.) have been named as defendants in class action lawsuits filed in 2019 and 2020 related to various drugs used to treat HIV, including drugs used in combination antiretroviral therapy. Japan Tobacco was dismissed from the lawsuit after a favorable court ruling on the defendants’ motion to dismiss. Plaintiffs allege that we (and the other remaining defendants) engaged in various conduct to restrain competition in violation of federal and state antitrust laws and state consumer protection laws. The lawsuits, which have been consolidated, are pending in the U.S. District Court for the Northern District of California. The lawsuits seek to bring claims on behalf of two nationwide classes - one of direct purchasers consisting largely of wholesalers, and another of end-payor purchasers, including health insurers and individual patients. Plaintiffs seek damages, permanent injunctive relief and other relief. In September 2021, we, along with BMS and generic manufacturer Teva Pharmaceuticals USA (“Teva”), were named as defendants in similar lawsuits filed by CVS, Rite Aid, Walgreens, Safeway, Kroger, Albertsons and HEB (the “Retailers”) in the U.S. District Court for the Northern District of California. The Retailers are opting out of the proposed direct purchaser class and, based on assignments by their wholesalers, seek to bring claims substantially the same as the putative class.

In September 2020, we, along with generic manufacturers Cipla Ltd. and Cipla USA Inc. (together, “Cipla”), were named as defendants in a class action lawsuit filed in the U.S. District Court for the Northern District of California by Jacksonville Police Officers and Fire Fighters Health Insurance Trust (“Jacksonville Trust”) on behalf of end-payor purchasers. Jacksonville Trust claims that the 2014 settlement agreement between us and Cipla, which settled a patent dispute relating to patents covering our Emtriva, Truvada, and Atripla products and permitted generic entry prior to patent expiry, violates certain federal and state antitrust and consumer protection laws. The Plaintiff seeks damages, permanent injunctive relief and other relief.

In February 2021, we along with BMS and Teva were named as defendants in a lawsuit filed in the First Judicial District Court for the State of New Mexico, County of Santa Fe by the New Mexico Attorney General. The New Mexico Attorney General alleges that we (and the other defendants) restrained competition in violation of New Mexico antitrust and consumer protection laws. The New Mexico Attorney General seeks damages and other relief.

While we believe these cases are without merit, we cannot predict the ultimate outcome. If plaintiffs are successful in their claims, we could be required to pay significant monetary damages or could be subject to permanent injunctive relief awarded in favor of plaintiffs.

Product Liability

We have been named as a defendant in one class action lawsuit and various product liability lawsuits related to Viread, Truvada, Atripla, Complera and Stribild. Plaintiffs allege that Viread, Truvada, Atripla, Complera and/or Stribild caused them to experience kidney, bone and/or tooth injuries. The lawsuits, which are pending in state or federal court in California, Delaware, Missouri and New Jersey, involve more than 24,000 plaintiffs. Plaintiffs in these cases seek damages and other relief on various grounds for alleged personal injury and economic loss. We intend to vigorously defend ourselves in these actions. While we believe these cases are without merit, we cannot predict the ultimate outcome. If plaintiffs are successful in their claims, we could be required to pay significant monetary damages.

Government Investigation

In 2017, we received a subpoena from the U.S. Attorney’s Office for the Southern District of New York requesting documents related to our promotional speaker programs for HIV. We are cooperating with this inquiry.

Qui Tam Litigation

A former sales employee filed a qui tam lawsuit against Gilead in March 2017 in U.S. District Court for the Eastern District of Pennsylvania. Following the government’s decision not to intervene in the suit, the relator served us with a Second Amended Complaint in January 2021. The lawsuit alleges that Gilead’s HCV patient access programs, clinical educator programs, speaker programs, and other sales and marketing programs violated the federal False Claims Act and various state false claims acts. In July 2021, the relator filed a Third Amended Complaint, removing allegations against us regarding our patient access programs, clinical educator programs and relationships with specialty pharmacies. The relator seeks all available relief under these statutes.

Two former employees filed a qui tam lawsuit against Gilead in April 2020 in California state court. These same former employees had previously filed a qui tam lawsuit in federal court in California, and the U.S. Department of Justice declined intervention and moved to dismiss relators’ federal False Claims Act claims. Relators subsequently voluntarily dismissed their federal lawsuit and refiled their lawsuit in California state court. Following the California Attorney General’s Office’s decision not to intervene, relators served Gilead with their complaint in August 2020. The complaint alleges violations of the California False Claims Act (“CFCA”) and employment law claims. Relators seek all available relief under the CFCA.

Health Choice Advocates, LLC (“Health Choice”) filed a qui tam lawsuit against Gilead in April 2020 in New Jersey state court. Following the New Jersey Attorney General’s Office’s decision not to intervene in the suit, Health Choice served us with their original complaint in August 2020. The lawsuit alleges that Gilead violated the New Jersey False Claims Act through our clinical educator programs for Sovaldi and Harvoni and our HCV and HIV patient access programs. The lawsuit seeks all available relief under the New Jersey False Claims Act. In April 2021, the trial court granted our motion to dismiss with prejudice. Health Choice has appealed the trial court’s dismissal.

Health Choice filed another qui tam lawsuit against Gilead in May 2020 making similar allegations in Texas state court. Following the Texas Attorney General’s Office’s decision not to intervene in the suit, Health Choice served us with their original complaint in October 2020. The lawsuit alleges that Gilead violated the Texas Medicare Fraud Prevention Act (“TMFPA”) through our clinical educator programs for Sovaldi and Harvoni and our HCV and HIV patient access programs. The lawsuit seeks all available relief under the TMFPA. In September 2021, the Texas Court of Appeals for the Sixth Court Appeals District granted our request to stay the Texas litigation. The case is stayed pending final judgment in the Eastern District of Pennsylvania lawsuit filed in March 2017, as discussed above.

We intend to vigorously defend ourselves in these actions. While we believe these cases are without merit, we cannot predict the ultimate outcomes. If any of these plaintiffs are successful in their claims, we could be required to pay significant monetary damages.

Securities Litigation

Immunomedics and several of its former officers and directors have been named as defendants in putative class actions filed in 2018 and 2019, which were consolidated in September 2019. Plaintiffs filed a consolidated complaint in November 2019 and an amended complaint in July 2021. Plaintiffs allege that Immunomedics and the individual defendants violated the federal securities laws in connection with Immunomedics’ Biologics License Application for Trodelvy, and seek certification of a class of shareholders, damages and other relief. The consolidated lawsuit is pending in the U.S. District Court for the District of New Jersey. While we believe this case is without merit, we cannot predict the ultimate outcome. If plaintiffs are successful in their claims, we could be required to pay significant monetary damages.

Other Matters

We are a party to various legal actions that arose in the ordinary course of our business. We do not believe that these other legal actions will have a material adverse impact on our consolidated business, financial position or results of operations.

12. STOCKHOLDERS’ EQUITY

Stock Repurchase Programs

In the first quarter of 2016, our Board of Directors authorized a $12.0 billion stock repurchase program (“2016 Program”) under which repurchases may be made in the open market or in privately negotiated transactions. We started repurchases under the 2016 Program in April 2016.

In the first quarter of 2020, our Board of Directors authorized a new $5.0 billion stock repurchase program (“2020 Program”), which will commence upon the completion of the 2016 Program. Purchases under the 2020 Program may be made in the open market or in privately negotiated transactions.

During the three and nine months ended September 30, 2021, we repurchased and retired 2.1 million and 7.5 million shares of our common stock for $145 million and $497 million, respectively, through open market transactions under the 2016 Program. During the three and nine months ended September 30, 2020, we repurchased and retired 3.0 million and 22.4 million shares of our common stock for $201 million and $1.6 billion, respectively, through open market transactions under the 2016 Program.

As of September 30, 2021, the remaining authorized repurchase amount under both programs was $6.3 billion.

Accumulated Other Comprehensive Income

The following table summarizes the changes in AOCI by component, net of tax:


(in millions)	Foreign Currency Translation, Net of Tax		Unrealized Gains and Losses on Available-for-Sale Debt Securities, Net of Tax		Unrealized Gains and Losses on Cash Flow Hedges, Net of Tax		Total
Balance at December 31, 2020	$	51	$	2	$	(113)	$	(60)
Net unrealized gain (loss)	(15)		(3)		92		74
Reclassifications to net income (loss)	—		—		60		60
Net current period other comprehensive income (loss)	(15)		(3)		152		134
Balance at September 30, 2021	$	36	$	(1)	$	39	$	74


(in millions)	Foreign Currency Translation, Net of Tax		Unrealized Gains and Losses on Available-for-Sale Debt Securities, Net of Tax		Unrealized Gains and Losses on Cash Flow Hedges, Net of Tax		Total
Balance at December 31, 2019	$	53	$	1	$	31	$	85
Net unrealized gain (loss)	(12)		42		(25)		5
Reclassifications to net income (loss)	—		(17)		(50)		(67)
Net current period other comprehensive income (loss)	(12)		25		(75)		(62)
Balance at September 30, 2020	$	41	$	26	$	(44)	$	23

The amounts reclassified to net income (loss) for gains and losses on cash flow hedges are recorded as part of Product sales on our Condensed Consolidated Statements of Operations. See Note 5. Derivative Financial Instruments for additional information. The amounts reclassified to net income (loss) for gains and losses on available-for-sale debt securities are recorded as part of Other income (expense), net on our Condensed Consolidated Statements of Operations. Gross realized gains and losses on available-for-sale debt securities were not material for the nine months ended September 30, 2021 and 2020. The income tax impact allocated to each component of other comprehensive income (loss) was not material for the periods presented.

13. NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO GILEAD COMMON STOCKHOLDERS

Basic net income (loss) per share attributable to Gilead common stockholders is calculated based on the weighted average number of shares of our common stock outstanding during the period. Diluted net income (loss) per share attributable to Gilead common stockholders is calculated based on the weighted average number of shares of our common stock and other dilutive securities outstanding during the period. The potentially dilutive shares of our common stock resulting from the assumed exercise of outstanding stock options and equivalents were determined under the treasury stock method.

Potential shares of common stock excluded from the computation of diluted net income (loss) per share attributable to Gilead common stockholders because their effect would have been antidilutive were 14 million and 15 million for the three and nine months ended September 30, 2021, respectively, and 13 million and 38 million for the three and nine months ended September 30, 2020, respectively.

The following table summarizes the calculation of basic and diluted net income (loss) per share attributable to Gilead common stockholders:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions, except per share amounts)	2021		2020		2021		2020
Net income (loss) attributable to Gilead	$	2,592	$	360	$	5,843	$	(1,428)
Shares used in per share calculation - basic	1,256		1,255		1,256		1,257
Dilutive effect of stock options and equivalents	6		6		6		—
Shares used in per share calculation - diluted	1,262		1,261		1,262		1,257

Net income (loss) per share attributable to Gilead common stockholders - basic	$	2.06	$	0.29	$	4.65	$	(1.14)
Net income (loss) per share attributable to Gilead common stockholders - diluted	$	2.05	$	0.29	$	4.63	$	(1.14)

14. INCOME TAXES

The following table summarizes our income tax expense:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions, except percentages)	2021			2020			2021			2020
Income (loss) before income taxes	$	3,438		$	825		$	7,519		$	(145)
Income tax expense	$	(852)		$	(472)		$	(1,694)		$	(1,310)
Effective tax rate	24.8		%	57.2		%	22.5		%	(903.4)		%

Our effective income tax rate of 24.8% for the three months ended September 30, 2021 is higher than the U.S. federal statutory rate of 21% primarily due to remeasurement of certain deferred tax liabilities related to acquired intangible assets, partially offset by provision to return adjustments.

Our effective income tax rate of 22.5% for the nine months ended September 30, 2021 is higher than the U.S. federal statutory rate of 21% primarily due to remeasurement of certain deferred tax liabilities related to acquired intangible assets and unfavorable changes in the fair value of our equity investment in Galapagos that are non-deductible for income tax purposes, partially offset by provision to return adjustments.

Our effective income tax rate of 57.2% for the three months ended September 30, 2020 differed from the U.S. federal statutory rate of 21% primarily due to certain acquired IPR&D charges and unfavorable changes in the fair value of our equity investment in Galapagos that are non-deductible for income tax purposes, partially offset by a net discrete tax benefit related to a settlement with a taxing authority.

Our effective income tax rate of (903.4)% for the nine months ended September 30, 2020 differed from the U.S. federal statutory rate of 21% primarily due to a non-deductible $4.5 billion IPR&D charge recorded in connection with our second quarter 2020 acquisition of Forty Seven, in addition to the above mentioned amounts for the three months ended September 30, 2020.

We are currently under examination by the U.S. Internal Revenue Service for the tax years from 2016 to 2018 and by various state and foreign jurisdictions. There are differing interpretations of tax laws and regulations, and as a result, significant disputes may arise with these tax authorities involving issues of the timing and amount of deductions and allocations of income among various tax jurisdictions. We regularly evaluate our exposures associated with our tax filing positions to determine our assessment of unrecognized tax benefits in accordance with the income tax guidance which clarifies the accounting for uncertainty in income taxes.

Previous: Cover and table of contents · Next: Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS