Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. The forward-looking statements are contained principally in this section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors.” Words such as “expect,” “anticipate,” “target,” “goal,” “project,” “hope,” “intend,” “plan,” “believe,” “seek,” “estimate,” “continue,” “may,” “could,” “should,” “might,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements other than statements of historical fact are forward-looking statements, including statements regarding overall trends, operating cost and revenue trends, liquidity and capital needs, collaboration and licensing arrangements, ongoing litigation and investigation matters, statements regarding the anticipated future impact on our business of the ongoing coronavirus disease 2019 (“COVID-19”) and related public health measures and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions. We have based these forward-looking statements on our current expectations about future events. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Our actual results may differ materially from those suggested by these forward-looking statements for various reasons, including those identified below under Risk Factors. Given these risks and uncertainties, you are cautioned not to place undue reliance on forward-looking statements. The forward-looking statements included in this report are made only as of the date hereof unless otherwise specified. Except as required under federal securities laws and the rules and regulations of the Securities and Exchange Commission, we do not undertake and specifically decline any obligation to update any of these statements or to publicly announce the results of any revisions to any forward-looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions or otherwise. In evaluating our business, you should carefully consider the risks described in the section entitled Risk Factors under Part II, Item 1A of this Quarterly Report in addition to the other information in this Quarterly Report on Form 10-Q. Any of the risks contained herein could materially and adversely affect our business, results of operations and financial condition.

You should read the following management’s discussion and analysis of our financial condition and results of operations in conjunction with our audited Consolidated Financial Statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2020 and our unaudited Condensed Consolidated Financial Statements for the nine months ended September 30, 2021 and other disclosures (including the disclosures under Part II, Item 1A, “Risk Factors”) included in this Quarterly Report on Form 10-Q. Our Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles and are presented in U.S. dollars.

MANAGEMENT OVERVIEW

Gilead Sciences, Inc. (“Gilead,” “we,” “our” or “us”) is a biopharmaceutical company that has pursued and achieved breakthroughs in medicine for more than three decades, with the goal of creating a healthier world for all people. We are committed to advancing innovative medicines to prevent and treat life-threatening diseases, including HIV, viral hepatitis and cancer. We operate in more than 35 countries worldwide, with headquarters in Foster City, California.

Our portfolio of marketed products includes AmBisome®, Atripla®, Biktarvy®, Cayston®, Complera®/Eviplera®, Descovy®, Descovy for PrEP®, Emtriva®, Epclusa®, Genvoya®, Harvoni®, Hepcludex® (bulevirtide), Hepsera®, Jyseleca®, Letairis®, Odefsey®, Ranexa®, Sovaldi®, Stribild®, Tecartus®, Trodelvy®, Truvada®, Truvada for PrEP®, Tybost®, Veklury®, Vemlidy®, Viread®, Vosevi®, Yescarta® and Zydelig®. The approval status of Hepcludex and Jyseleca vary worldwide, and Hepcludex and Jyseleca are not approved in the United States. We also sell and distribute authorized generic versions of Epclusa and Harvoni in the United States through our separate subsidiary, Asegua Therapeutics, LLC. In addition, we sell and distribute certain products through our corporate partners under collaborative agreements.

Business Highlights(1)

Oncology

In October 2021, we entered into a clinical trial collaboration and supply agreement with Merck & Co., Inc. (“Merck”) to evaluate the efficacy of Trodelvy in combination with Merck’s anti-PD-1 therapy, Keytruda, as a first-line treatment for patients with locally advanced or metastatic triple-negative breast cancer (“TNBC”).
In October 2021, U.S. Food and Drug Administration (“FDA”) approved Tecartus for the treatment of adult patients with relapsed or refractory B-cell precursor acute lymphoblastic leukemia (“ALL”). Tecartus is the first and only CAR T cell therapy approved for adults with ALL.
In September 2021, Kite Pharma Inc. (“Kite”), a Gilead Company, submitted a supplemental Biologics License Application to FDA for Yescarta to expand its current indication to include the treatment of adults with relapsed or refractory large B-cell lymphoma in the second-line setting.
In September 2021, Health Canada approved Trodelvy for the treatment of adult patients with unresectable TNBC who have received two or more therapies, at least one of them for metastatic disease. Canada joins Australia, Great Britain, Switzerland and the United States among the countries that have approved Trodelvy for use under Project Orbis, a global collaborative review program for high impact oncology marketing applications across participating countries.
In August 2021, Kite and Appia Bio, Inc. entered into a collaboration and license agreement to research and develop hematopoietic stem cell derived cell therapies directed toward hematological malignancies.

Viral Diseases

In October 2021, FDA approved a new low-dose tablet dosage form of Biktarvy for pediatric patients weighing at least 14 kg to less than 25 kg who are virologically suppressed or new to antiretroviral therapy.
In August 2021, our Marketing Authorization Application for lenacapavir, an investigational, long-acting HIV-1 capsid inhibitor, was fully validated and is now under evaluation with the European Medicines Agency.

(1) We announced and discussed these updates, subsequent to the issuance of our Quarterly Report on Form 10-Q for the second quarter of 2021, in further detail in press releases available on our website at www.gilead.com. Readers are also encouraged to review all other press releases available on our website mentioned above. The content on the referenced websites does not constitute a part of and is not incorporated by reference into this Quarterly Report on Form 10-Q.

Quarterly Financial Highlights


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions, except percentages and per share amounts)	2021		2020		Change		2021		2020		Change
Total revenues	$	7,421	$	6,577	13	%	$	20,061	$	17,268	16	%
Net income (loss) attributable to Gilead	$	2,592	$	360	NM		$	5,843	$	(1,428)	NM
Diluted earnings (loss) per share	$	2.05	$	0.29	NM		$	4.63	$	(1.14)	NM

NM - Not Meaningful

Total revenues increased by 13% to $7.4 billion for the three months ended September 30, 2021, compared to $6.6 billion for the same period in 2020, primarily due to increased sales of Veklury, our FDA-approved treatment for hospitalized patients with the coronavirus disease 2019 (“COVID-19”).

Net income attributable to Gilead was $2.6 billion, or $2.05 diluted earnings per share, for the three months ended September 30, 2021, compared to $360 million, or $0.29 for the same period in 2020. The change was primarily due to lower acquired in-process research and development (“IPR&D”) charges, revenue growth and a decrease in unrealized losses from our equity investments primarily in Galapagos NV (“Galapagos”). Our IPR&D expenses for the three months ended September 30, 2020 were $1.2 billion and related to our collaborations and other investments with Arcus Biosciences, Inc. (“Arcus”), Pionyr Immunotherapeutics, Inc. (“Pionyr”), Tango Therapeutics (“Tango”) and Tizona Therapeutics, Inc. (“Tizona”). Our IPR&D expenses for the three months ended September 30, 2021 were not material.

RESULTS OF OPERATIONS

Total Revenues

The following table summarizes the period-over-period changes in our revenues:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions, except percentages)	2021		2020		Change		2021		2020		Change
Product sales:
HIV	$	4,189	$	4,547	(8)	%	$	11,777	$	12,681	(7)	%
HCV	429		464		(8)	%	1,488		1,641		(9)	%
HBV/HDV	247		211		17	%	704		616		14	%
Veklury	1,923		873		NM		4,208		873		NM
Cell Therapy	222		147		51	%	632		444		42	%
Trodelvy	101		—		NM		262		—		NM
Other	245		251		(2)	%	777		772		1	%
Total product sales	7,356		6,493		13	%	19,848		17,027		17	%
Royalty, contract and other revenues	65		84		(23)	%	213		241		(12)	%
Total revenues	$	7,421	$	6,577	13	%	$	20,061	$	17,268	16	%

NM - Not Meaningful

For the three months ended September 30, 2021 compared to the three months ended September 30, 2020

Total Product Sales

Total product sales increased by 13% to $7.4 billion for the three months ended September 30, 2021, compared to $6.5 billion for the same period in 2020, primarily due to increased sales of Veklury. The three months ended September 30, 2021 also reflects the continued growth of Biktarvy and the continued uptake of Trodelvy in the United States and Cell Therapy products in the United States and Europe. We obtained Trodelvy through the fourth quarter 2020 acquisition of Immunomedics, Inc. (“Immunomedics”). The increases were partially offset by lower HIV product sales, as expected, primarily due to the continued generic competition following the October 2020 loss of exclusivity of Truvada and Atripla in the United States.

HIV

HIV product sales decreased by 8% to $4.2 billion for the three months ended September 30, 2021, compared to $4.5 billion for the same period in 2020. The decline was primarily due to the anticipated decline in sales volume of our Truvada (emtricitabine (“FTC”) and tenofovir disoproxil fumarate (“TDF”))-based products driven by the continued generic competition following the October 2020 loss of exclusivity of Truvada and Atripla in the United States. Truvada and Atripla product sales were $528 million lower for the three months ended September 30, 2021, compared to the same period in 2020. The decrease was also impacted by lower channel inventory, primarily driven by pandemic-related stocking as compared to the same period in 2020 as well as lower sales of Descovy driven by lower average net selling price and lower sales of Genvoya driven by volume. The decline was partially offset by an increase in Biktarvy product sales driven by higher demand and higher average net selling price. We expect Truvada sales to continue to decline for the remainder of 2021 and beyond as multiple generics are expected to enter the market.

The COVID-19 pandemic continues to impact our HIV business. In the United States, as anticipated, we continued to see a modest recovery in the HIV treatment market volume in the third quarter of 2021; however, it may take several quarters for the U.S. treatment market to return to pre-pandemic levels.

HCV

HCV product sales decreased by 8% to $429 million for the three months ended September 30, 2021, compared to $464 million for the same period in 2020, primarily driven by fewer patient starts due to the impact of the COVID-19 pandemic and lower average net selling price.

Hepatitis B Virus (“HBV”) / Hepatitis Delta Virus (“HDV”)

HBV and HDV product sales increased by 17% to $247 million for the three months ended September 30, 2021, compared to $211 million for the same period in 2020, primarily due to higher Vemlidy sales volume driven by increased demand primarily in geographies outside the United States. Hepcludex sales were $12 million as launch activities continued across Europe following our first quarter 2021 acquisition of MYR GmbH (“MYR”).

Veklury

Veklury product sales were $1.9 billion for the three months ended September 30, 2021, compared to $873 million for the same period in 2020. The increase was primarily due to higher hospital demand consistent with the recent surge in COVID-19 cases. While sales of Veklury are generally affected by, among other things, COVID-19 related rates of infections, hospitalizations and vaccinations, and will continue to be subject to significant volatility and uncertainty, we expect Veklury sales to reduce significantly in the fourth quarter of 2021 as hospitalization rates decline.

Cell Therapy

Cell Therapy product sales increased by 51% to $222 million for the three months ended September 30, 2021, compared to $147 million for the same period in 2020, primarily due to the continued demand of Yescarta for the treatment of relapsed or refractory large B-cell lymphoma and strong uptake in relapsed or refractory indolent follicular lymphoma in the United States and Europe. The increase was also driven by higher Tecartus sales volume for the treatment of mantle cell lymphoma in the United States and Europe.

Trodelvy

Trodelvy product sales were $101 million in the United States and Europe for the three months ended September 30, 2021, following the full FDA approval for second-line metastatic TNBC and accelerated approval for metastatic urothelial cancer both in April 2021.

Other Product Sales

Other product sales, which include AmBisome, Cayston, Jyseleca, Letairis, Ranexa and Zydelig, decreased by 2% to $245 million for the three months ended September 30, 2021, compared to $251 million for the same period in 2020, primarily due to lower Letairis sales, as anticipated, due to continued generic competition following the loss of exclusivity in 2019, partially offset by higher AmBisome sales volume driven by higher demand in geographies outside the United States.

Product Sales by Geographic Area

Of our total product sales, 26% and 22% were generated outside the United States for the three months ended September 30, 2021 and 2020, respectively. We generally face exposure to movements in foreign currency exchange rates, primarily in the Euro. We use foreign currency exchange contracts to hedge a portion of our foreign currency exposures. Foreign currency exchange, net of hedges, had an immaterial impact on our product sales for the three months ended September 30, 2021, based on a comparison using foreign currency exchange rates from the three months ended September 30, 2020.

Product sales in the United States increased by 8% to $5.5 billion for the three months ended September 30, 2021, compared to $5.1 billion for the same period in 2020, primarily due to increased sales of Veklury as well as the continued growth of Biktarvy, and the continued uptake of Trodelvy and Cell Therapy products. The increases were partially offset by the loss of exclusivity in 2020 of Truvada and Atripla, as expected, and lower sales of Letairis, as anticipated, due to the loss of exclusivity in 2019.

Product sales in Europe increased by 14% to $997 million for the three months ended September 30, 2021, compared to $877 million for the same period in 2020, primarily due to the continued growth of Biktarvy, increased sales of Veklury and higher Cell Therapy sales driven by continued growth of Yescarta and Tecartus.

Product sales in other locations increased by 63% to $880 million for the three months ended September 30, 2021, compared to $540 million for the same period in 2020, primarily due to higher sales volumes of Veklury, AmBisome, Biktarvy and Vemlidy.

For the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020

Total Product Sales

Total product sales increased by 17% to $19.8 billion for the nine months ended September 30, 2021, compared to $17.0 billion for the same period in 2020, primarily due to increased sales of Veklury. The nine months ended September 30, 2021 also reflects the continued growth of Biktarvy in all geographies and the continued uptake of Trodelvy and Cell Therapy and HBV/HDV products. The increases were partially offset by a decline in HIV product sales, as well as lower HCV product sales driven by fewer patient starts. The decrease in HIV product sales, as expected, was primarily due to the continued generic competition following the October 2020 loss of exclusivity of Truvada and Atripla in the United States.

HIV

HIV product sales decreased by 7% to $11.8 billion for the nine months ended September 30, 2021, compared to $12.7 billion for the same period in 2020, primarily due to the anticipated decline in sales volume of our Truvada (FTC/TDF)-based products driven by the continued generic competition following the October 2020 loss of exclusivity of Truvada and Atripla in the United States. Truvada and Atripla product sales were $1.2 billion lower for the nine months ended September 30, 2021, compared to the same period in 2020. The decrease was also impacted by lower sales of Descovy driven by lower average net selling price and lower sales of Genvoya driven by volume. The decline was partially offset by an increase in Biktarvy product sales driven by higher demand.

HCV

HCV product sales decreased by 9% to $1.5 billion for the nine months ended September 30, 2021, compared to $1.6 billion for the same period in 2020, primarily due to fewer patient starts.

HBV/HDV

HBV and HDV product sales increased by 14% to $704 million for the nine months ended September 30, 2021, compared to $616 million for the same period in 2020, primarily due to higher Vemlidy sales volume. The nine months ended September 30, 2021 also reflects $25 million of Hepcludex sales following the completion of our first quarter 2021 acquisition of MYR.

Veklury

Veklury product sales were $4.2 billion for the nine months ended September 30, 2021, compared to $873 million for the same period in 2020. The increase was primarily due to higher hospital demand. Veklury became commercially available in the third quarter of 2020 resulting in partial year sales for the nine months ended September 30, 2020.

Cell Therapy

Cell Therapy product sales increased by 42% to $632 million for the nine months ended September 30, 2021, compared to $444 million for the same period in 2020, primarily due to higher sales volume of Yescarta and Tecartus in the United States and Europe.

Trodelvy

Trodelvy product sales were $262 million in the United States and Europe for the nine months ended September 30, 2021, following the completion of our fourth quarter 2020 acquisition of Immunomedics.

Other Product Sales

Other product sales, which include AmBisome, Cayston, Jyseleca, Letairis, Ranexa and Zydelig, increased by 1% to $777 million for the nine months ended September 30, 2021, compared to $772 million for the same period in 2020. The increase was primarily due to higher AmBisome sales volume driven by higher demand in geographies outside the United States, partially offset by lower Letairis sales, as anticipated, due to continued generic competition following the loss of exclusivity in 2019.

Product Sales by Geographic Area

Of our total product sales, 30% and 25% were generated outside the United States for the nine months ended September 30, 2021 and 2020, respectively. We generally face exposure to movements in foreign currency exchange rates, primarily in the Euro. We use foreign currency exchange contracts to hedge a portion of our foreign currency exposures. Foreign currency exchange, net of hedges, had a favorable impact on our product sales of $160 million for the nine months ended September 30, 2021, based on a comparison using foreign currency exchange rates from the nine months ended September 30, 2020.

Product sales in the United States increased by 9% to $13.9 billion for the nine months ended September 30, 2021, compared to $12.8 billion for the same period in 2020, primarily due to increased sales of Veklury, the growth of Biktarvy, the continued uptake of Trodelvy, and the continued growth of Cell Therapy products. The increases were partially offset by the loss of exclusivity of Truvada and Atripla, as expected, the anticipated decline in sales volume of Letairis following the loss of exclusivity in 2019 and lower HCV sales driven by lower demand.

Product sales in Europe increased by 35% to $3.4 billion for the nine months ended September 30, 2021, compared to $2.5 billion for the same period in 2020, primarily due to increased sales of Veklury, the continued growth of Biktarvy, higher AmBisome sales driven by higher demand, and the continued growth of Cell Therapy products. HCV sales volume decreased due to the impact of the COVID-19 pandemic, partially offset by a favorable government rebate adjustment. Foreign currency exchange, net of hedges, had a favorable impact on our Europe product sales of $101 million for the nine months ended September 30, 2021, based on a comparison using foreign currency exchange rates from the nine months ended September 30, 2020.

Product sales in other locations increased by 50% to $2.5 billion for the nine months ended September 30, 2021, compared to $1.7 billion for the same period in 2020, primarily due to higher sales volumes of Veklury, Biktarvy, Vemlidy and AmBisome, partially offset by lower HCV sales volume.

The following table summarizes the period-over-period changes in our product sales:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions, except percentages)	2021		2020		Change		2021		2020		Change
HIV Products
Descovy (FTC/TAF) Based Products
Biktarvy – U.S.	$	1,875	$	1,584	18	%	$	4,926	$	4,346	13	%
Biktarvy – Europe	254		194		31	%	707		528		34	%
Biktarvy – Other International	147		113		30	%	461		314		47	%
	2,276		1,891		20	%	6,094		5,188		17	%

Descovy – U.S.	355		424		(16)	%	994		1,124		(12)	%
Descovy – Europe	42		49		(14)	%	128		156		(18)	%
Descovy – Other International	36		35		3	%	105		103		2	%
	433		508		(15)	%	1,227		1,383		(11)	%

Genvoya – U.S.	576		669		(14)	%	1,633		1,927		(15)	%
Genvoya – Europe	100		116		(14)	%	306		376		(19)	%
Genvoya – Other International	68		61		11	%	184		183		1	%
	744		846		(12)	%	2,123		2,486		(15)	%

Odefsey – U.S.	275		309		(11)	%	773		851		(9)	%
Odefsey – Europe	112		116		(3)	%	336		341		(1)	%
Odefsey – Other International	12		12		—	%	39		36		8	%
	399		437		(9)	%	1,148		1,228		(7)	%

Revenue share – Symtuza(1) – U.S.	86		82		5	%	261		244		7	%
Revenue share – Symtuza(1) – Europe	41		34		21	%	125		112		12	%
Revenue share – Symtuza(1) – Other International	3		2		50	%	8		6		33	%
	130		118		10	%	394		362		9	%

Total Descovy (FTC/TAF) Based Products – U.S.	3,167		3,068		3	%	8,587		8,492		1	%
Total Descovy (FTC/TAF) Based Products – Europe	549		509		8	%	1,602		1,513		6	%
Total Descovy (FTC/TAF) Based Products – Other International	266		223		19	%	797		642		24	%
	3,982		3,800		5	%	10,986		10,647		3	%
Truvada (FTC/TDF) Based Products
Atripla – U.S.	21		99		(79)	%	96		275		(65)	%
Atripla – Europe	2		5		(60)	%	10		17		(41)	%
Atripla – Other International	4		9		(56)	%	12		19		(37)	%
	27		113		(76)	%	118		311		(62)	%

Complera / Eviplera – U.S.	28		26		8	%	73		77		(5)	%
Complera / Eviplera – Europe	31		35		(11)	%	104		124		(16)	%
Complera / Eviplera – Other International	5		9		(44)	%	12		17		(29)	%
	64		70		(9)	%	189		218		(13)	%

Stribild – U.S.	28		27		4	%	94		100		(6)	%
Stribild – Europe	11		13		(15)	%	33		42		(21)	%
Stribild – Other International	3		2		50	%	12		12		—	%
	42		42		—	%	139		154		(10)	%

Truvada – U.S.	55		492		(89)	%	268		1,245		(78)	%
Truvada – Europe	5		6		(17)	%	18		20		(10)	%
Truvada – Other International	7		11		(36)	%	24		37		(35)	%
	67		509		(87)	%	310		1,302		(76)	%


Total Truvada (FTC/TDF) Based Products – U.S.	132	644	(80)	%	531	1,697	(69)	%
Total Truvada (FTC/TDF) Based Products – Europe	49	59	(17)	%	165	203	(19)	%
Total Truvada (FTC/TDF) Based Products – Other International	19	31	(39)	%	60	85	(29)	%
	200	734	(73)	%	756	1,985	(62)	%

Other HIV(2) – U.S.	3	10	(70)	%	14	24	(42)	%
Other HIV(2) – Europe	4	1	NM		9	4	NM
Other HIV(2) – Other International	—	2	(100)	%	12	21	(43)	%
	7	13	(46)	%	35	49	(29)	%

Total HIV – U.S.	3,302	3,722	(11)	%	9,132	10,213	(11)	%
Total HIV – Europe	602	569	6	%	1,776	1,720	3	%
Total HIV – Other International	285	256	11	%	869	748	16	%
	4,189	4,547	(8)	%	11,777	12,681	(7)	%
HCV Products
Ledipasvir / Sofosbuvir(3) – U.S.	14	36	(61)	%	63	113	(44)	%
Ledipasvir / Sofosbuvir(3) – Europe	5	11	(55)	%	24	26	(8)	%
Ledipasvir / Sofosbuvir(3) – Other International	26	37	(30)	%	76	124	(39)	%
	45	84	(46)	%	163	263	(38)	%

Sofosbuvir / Velpatasvir(4) – U.S.	173	170	2	%	649	646	—	%
Sofosbuvir / Velpatasvir(4) – Europe	77	74	4	%	234	253	(8)	%
Sofosbuvir / Velpatasvir(4) – Other International	82	86	(5)	%	272	330	(18)	%
	332	330	1	%	1,155	1,229	(6)	%

Other HCV(5) – U.S.	37	35	6	%	97	100	(3)	%
Other HCV(5) – Europe	12	13	(8)	%	64	37	73	%
Other HCV(5) – Other International	3	2	50	%	9	12	(25)	%
	52	50	4	%	170	149	14	%

Total HCV – U.S.	224	241	(7)	%	809	859	(6)	%
Total HCV – Europe	94	98	(4)	%	322	316	2	%
Total HCV – Other International	111	125	(11)	%	357	466	(23)	%
	429	464	(8)	%	1,488	1,641	(9)	%
HBV/HDV Products
Vemlidy – U.S.	103	99	4	%	266	248	7	%
Vemlidy – Europe	9	8	13	%	25	22	14	%
Vemlidy – Other International	96	70	37	%	298	194	54	%
	208	177	18	%	589	464	27	%

Viread – U.S.	1	3	(67)	%	8	10	(20)	%
Viread – Europe	7	8	(13)	%	22	27	(19)	%
Viread – Other International	18	21	(14)	%	55	100	(45)	%
	26	32	(19)	%	85	137	(38)	%

Other HBV/HDV(6) – U.S.	—	—	NM		1	9	(89)	%
Other HBV/HDV(6) – Europe	13	2	NM		29	6	NM
	13	2	NM		30	15	NM

Total HBV/HDV – U.S.	104	102	2	%	275	267	3	%
Total HBV/HDV – Europe	29	18	61	%	76	55	38	%
Total HBV/HDV – Other International	114	91	25	%	353	294	20	%
	247	211	17	%	704	616	14	%
Veklury
Veklury – U.S.	1,527	785	95	%	2,763	785	NM
Veklury – Europe	109	60	82	%	761	60	NM
Veklury – Other International	287	28	NM		684	28	NM
	1,923	873	NM		4,208	873	NM


Cell Therapy Products
Tecartus – U.S.	35		5		NM		94		5		NM
Tecartus – Europe	12		4		NM		25		5		NM
	47		9		NM		119		10		NM

Yescarta – U.S.	100		85		18	%	300		283		6	%
Yescarta – Europe	66		51		29	%	188		144		31	%
Yescarta – Other International	9		2		NM		25		7		NM
	175		138		27	%	513		434		18	%

Total Cell Therapy – U.S.	135		90		50	%	394		288		37	%
Total Cell Therapy – Europe	78		55		42	%	213		149		43	%
Total Cell Therapy – Other International	9		2		NM		25		7		NM
	222		147		51	%	632		444		42	%

Trodelvy
Trodelvy – U.S.	100		—		NM		261		—		NM
Trodelvy– Europe	1		—		NM		1		—		NM
	101		—		NM		262		—		NM
Other Products
AmBisome – U.S.	7		18		(61)	%	32		46		(30)	%
AmBisome – Europe	67		58		16	%	202		166		22	%
AmBisome – Other International	69		35		97	%	186		113		65	%
	143		111		29	%	420		325		29	%

Letairis – U.S.	46		78		(41)	%	157		241		(35)	%

Ranexa – U.S.	—		—		NM		5		9		(44)	%

Zydelig – U.S.	6		8		(25)	%	22		24		(8)	%
Zydelig – Europe	7		9		(22)	%	27		30		(10)	%
Zydelig – Other International	—		—		NM		1		1		—	%
	13		17		(24)	%	50		55		(9)	%

Other(7) – U.S.	28		32		(13)	%	82		103		(20)	%
Other(7) – Europe	10		10		—	%	41		32		28	%
Other(7) – Other International	5		3		67	%	22		7		NM
	43		45		(4)	%	145		142		2	%

Total Other – U.S.	87		136		(36)	%	298		423		(30)	%
Total Other – Europe	84		77		9	%	270		228		18	%
Total Other – Other International	74		38		95	%	209		121		73	%
	245		251		(2)	%	777		772		1	%

Total product sales – U.S.	5,479		5,076		8	%	13,932		12,835		9	%
Total product sales – Europe	997		877		14	%	3,419		2,528		35	%
Total product sales – Other International	880		540		63	%	2,497		1,664		50	%
	$	7,356	$	6,493	13	%	$	19,848	$	17,027	17	%

NM - Not Meaningful

(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.

Costs and Expenses

The following table summarizes the period-over-period changes in our costs and expenses:


	Three Months Ended								Nine Months Ended
	September 30,								September 30,
(in millions, except percentages)	2021			2020			Change		2021			2020			Change
Cost of goods sold	$	1,223		$	1,141		7	%	$	3,974		$	3,174		25	%
Product gross margin	83.4		%	82.4		%	100 bps		80.0		%	81.4		%	-140 bps
Research and development (“R&D”) expenses	$	1,147		$	1,158		(1)	%	$	3,336		$	3,461		(4)	%
Acquired IPR&D expenses	$	19		$	1,171		(98)	%	$	177		$	5,792		(97)	%
Selling, general and administrative (“SG&A”) expenses	$	1,190		$	1,106		8	%	$	3,596		$	3,421		5	%

Cost of Goods Sold and Product Gross Margin

Cost of goods sold for the three and nine months ended September 30, 2021 increased by $82 million and $800 million, or 7% and 25%, respectively, compared to the same periods in 2020, primarily due to higher acquisition-related expenses from amortization of finite-lived intangible assets and inventory step-up charges driven by our acquisitions of Immunomedics and MYR, as well as higher product sales and inventory reserves. The increases were partially offset by the reversal of a previously recorded $175 million litigation reserve following a favorable court decision and a decrease in royalty expenses primarily due to lower sales of products containing emtricitabine and elvitegravir.

Product gross margin for the three months ended September 30, 2021, compared to the same period in 2020, increased primarily due to the reversal of the aforementioned previously recorded litigation reserve following a favorable court decision, lower royalty expenses and change in product mix, partially offset by higher amortization expense of finite-lived intangible assets.

Product gross margin for the nine months ended September 30, 2021, compared to the same period in 2020, decreased primarily due to higher amortization expense of finite-lived intangible assets, partially offset by lower royalty expenses.

Research and Development Expenses

R&D expenses consist primarily of clinical studies performed by contract research organizations, materials and supplies, payments related to collaborative and other arrangements including milestone payments, licenses and fees, expense reimbursements to the collaboration partners, personnel costs including salaries, benefits and stock-based compensation expense, and overhead allocations including various support and infrastructure costs.

We do not track total R&D expenses by product candidate, therapeutic area or development phase. However, we manage our R&D expenses by identifying the R&D activities we anticipate will be performed during a given period and then prioritizing efforts based on scientific data, probability of technical and regulatory successful development, market potential, available human and capital resources and other considerations. We continually review our R&D projects based on unmet medical need and, as necessary, reallocate resources among our internal R&D portfolio and external opportunities that we believe will best support the long-term growth of our business.

The following table provides a period-over-period breakout of our R&D expenses by major cost type:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions, except percentages)	2021		2020		Change		2021		2020		Change
Clinical studies and outside services	$	538	$	532	1	%	$	1,241	$	1,517	(18)	%
Personnel, infrastructure and other expenses	533		547		(3)	%	1,880		1,615		16	%
Stock-based compensation expenses	76		79		(4)	%	215		329		(35)	%
Total	$	1,147	$	1,158	(1)	%	$	3,336	$	3,461	(4)	%

R&D expenses for the three and nine months ended September 30, 2021 decreased by 1% and 4%, respectively, compared to the same periods in 2020, primarily due to lower expenses largely driven by wind-down or completion of certain remdesivir and inflammation related clinical programs, partially offset by higher investments in Trodelvy and magrolimab clinical activities. R&D expenses for the nine months ended September 30, 2020 included stock-based compensation expense related to our second quarter 2020 acquisition of Forty Seven, Inc. (“Forty Seven”).

Acquired In-Process Research and Development Expenses

Acquired IPR&D expenses reflect IPR&D impairments as well as the initial costs of externally developed IPR&D projects, acquired directly in a transaction other than a business combination, that do not have an alternative future use, including upfront and other payments related to various collaborations and the initial costs of rights to IPR&D projects. IPR&D assets capitalized are tested for impairment in the fourth quarter of each year, or earlier if impairment indicators exist. No IPR&D impairment charges were recorded during the three and nine months ended September 30, 2021 and 2020.

Acquired IPR&D expenses of $19 million and $177 million for the three and nine months ended September 30, 2021, respectively, were related to licensing, collaboration, investment and other arrangements we entered into during the periods. Acquired IPR&D expenses of $1.2 billion for the three months ended September 30, 2020 included charges related to our collaborations and other investments we entered into during the quarter with Arcus, Pionyr, Tango and Tizona. Acquired IPR&D expenses of $5.8 billion for the nine months ended September 30, 2020 also included a $4.5 billion charge recorded in connection with the second quarter 2020 acquisition of Forty Seven.

Selling, General and Administrative Expenses

SG&A expenses relate to sales and marketing, finance, human resources, legal and other administrative activities, including information technology investments. Expenses consist primarily of personnel costs, facilities and overhead costs, outside marketing, advertising and legal expenses and other general and administrative costs. SG&A expenses also include the branded prescription drug fee.

SG&A expenses for the three months ended September 30, 2021 increased by $84 million or 8%, compared to the same period in 2020, primarily due to higher promotional and marketing activities across all geographies, partially offset by lower commercial activities in inflammation.

SG&A expenses for the nine months ended September 30, 2021, increased by $175 million or 5%, compared to the same period in 2020, primarily due to an expense of $212 million related to the donation of certain equity securities at fair value to the Gilead Foundation, a California nonprofit organization (the “Foundation”), during the second quarter of 2021. SG&A expenses for nine months ended September 30, 2020 included a second quarter 2020 charge of $97 million related to a Department of Justice investigation, which settled in the third quarter of 2020.

Other Income (Expense), Net and Interest Expense

The following table summarizes the period-over-period changes in our Other income (expense), net and Interest expense:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions, except percentages)	2021		2020		Change		2021		2020		Change
Other income (expense), net	$	(154)	$	(940)	(84)	%	$	(696)	$	(848)	(18)	%
Interest expense	$	(250)	$	(236)	6	%	$	(763)	$	(717)	6	%

The changes in Other income (expense), net for the three and nine months ended September 30, 2021, compared to the same periods in 2020, primarily reflect a decrease in unrealized losses from fair value adjustments of our investments in equity securities largely driven by our investment in Galapagos, partially offset by lower interest income.

Interest expense for the three and nine months ended September 30, 2021 increased by $14 million and $46 million, or 6% and 6%, respectively, compared to the same periods in 2020, primarily due to an increase in borrowing related to the fourth quarter 2020 acquisition of Immunomedics, partially offset by favorable effects from debt maturities and repayments.

Income Taxes

The following table summarizes the period-over-period changes in our Income tax expense:


	Three Months Ended								Nine Months Ended
	September 30,								September 30,
(in millions, except percentages)	2021			2020			Change		2021			2020			Change
Income (loss) before income taxes	$	3,438		$	825		$	2,613	$	7,519		$	(145)		$	7,664
Income tax expense	$	(852)		$	(472)		$	380	$	(1,694)		$	(1,310)		$	384
Effective tax rate	24.8		%	57.2		%	NM		22.5		%	(903.4)		%	NM

NM - Not Meaningful

Our effective tax rate and provision differed for the three months ended September 30, 2021, compared to the same period in 2020, 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, recorded in the three months ended September 30, 2020.

Our effective tax rate and provision differed for the nine months ended September 30, 2021, compared to the same period in 2020, 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.

LIQUIDITY AND CAPITAL RESOURCES

We believe that our existing capital resources, supplemented by our cash flows generated from operating activities, will be adequate to satisfy our capital needs for the foreseeable future.

The following table summarizes our cash, cash equivalents and marketable debt securities and working capital:


(in millions)	September 30, 2021		December 31, 2020
Cash, cash equivalents and marketable debt securities	$	6,837	$	7,910
Working capital	$	3,746	$	4,599

Cash, Cash Equivalents and Marketable Debt Securities

Cash, cash equivalents and marketable debt securities as of September 30, 2021 decreased by $1.1 billion, or 14%, compared to December 31, 2020. During the nine months ended September 30, 2021, we generated $8.2 billion in operating cash flow, made debt repayments of $3.75 billion, utilized $1.2 billion for our first quarter 2021 acquisition of MYR, paid cash dividends of $2.7 billion, utilized $497 million on open market repurchases of our common stock and had additional investing cash outlays of approximately $1.1 billion.

Working Capital

Working capital, which is current assets less current liabilities, decreased by $853 million, or 19%, compared to December 31, 2020, primarily due to the utilization of cash, cash equivalents and marketable debt securities and other activities as noted above.

Accounts receivable decreased by $326 million, compared to December 31, 2020, primarily due to collections of Veklury receivables during the nine months ended September 30, 2021.

Accrued and other current liabilities decreased by $555 million compared to December 31, 2020, primarily reflecting the timing of accruals and payments, as well as estimated and transition tax payments made to taxing authorities during the nine months ended September 30, 2021.

Cash Flows

The following table summarizes our cash flow activities:


	Nine Months Ended
	September 30,
(in millions)	2021		2020
Cash provided by (used in):
Operating activities	$	8,179	$	6,252
Investing activities	$	(2,853)	$	(5,638)
Financing activities	$	(6,935)	$	639

Operating Activities

Cash provided by operating activities represents the cash receipts and disbursements related to all activities other than investing and financing activities. Operating cash flow is derived by adjusting our net income for non-cash items and changes in operating assets and liabilities. Cash provided by operating activities increased by $1.9 billion to $8.2 billion for the nine months ended September 30, 2021, compared to the same period in 2020. The increase was primarily due to revenue growth from sales of Veklury as well as higher collections of receivables during the nine months ended September 30, 2021.

Investing Activities

Cash used in investing activities primarily consists of purchases, sales and maturities of our marketable debt securities, capital expenditures, acquisitions, including IPR&D, net of cash acquired, purchases of equity securities and other investments. Cash used in investing activities decreased by $2.8 billion to $2.9 billion for the nine months ended September 30, 2021, compared to the same period in 2020. The change in cash used in investing activities was primarily due to $1.2 billion of payments made for our first quarter 2021 acquisition of MYR, compared to $4.7 billion of payments made for our second quarter 2020 acquisition of Forty Seven.

Financing Activities

Cash used in financing activities for the nine months ended September 30, 2021 was $6.9 billion, compared to cash provided by financing activities of $639 million for the same period in 2020. During the nine months ended September 30, 2021, we utilized cash for $3.8 billion debt repayments, $2.7 billion dividend payments and $497 million common stock repurchases. During the nine months ended September 30, 2020, we obtained $7.2 billion in proceeds from the September 2020 senior unsecured notes offering, net of issuance costs, in anticipation of our fourth quarter 2020 Immunomedics acquisition, partially offset by cash utilized for $2.6 billion dividend payments, $2.5 billion debt repayments and $1.6 billion common stock repurchases. In October 2021, the Board of Directors declared a quarterly dividend of $0.71 per share of common stock, which is payable in December 2021. Future dividends will be subject to Board approval.

Debt and Credit Facilities

A summary of our borrowings under various financing arrangements is included in Note 10. Debt and Credit Facilities of the Notes to Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report on Form 10-Q. We may choose to repay certain of our long-term debt obligations prior to maturity dates based on our assessment of current and long-term liquidity and capital requirements.

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.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

The preparation of our Condensed Consolidated Financial Statements in accordance with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts in the financial statements 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 ongoing COVID-19 pandemic could have on our significant accounting estimates. Actual results may differ significantly from these estimates. A summary of our critical accounting policies and estimates is presented in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020. There were no material changes to our critical accounting policies and estimates during the nine months ended September 30, 2021.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

RECENT ACCOUNTING PRONOUNCEMENTS

There have been no new accounting pronouncements issued nor adopted during the nine months ended September 30, 2021 that are of significance to us.

ACQUISITIONS, COLLABORATIONS AND OTHER ARRANGEMENTS

See Note 6. Acquisitions and Note 9. Collaborations and Other Arrangements of the Notes to Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report on Form 10-Q for additional information.

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