Gilead Sciences 10-Q 2023-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2023

or

For the transition period from ________ to ________

Commission File No. 0-19731

GILEAD SCIENCES, INC.

(Exact Name of Registrant as Specified in Its Charter)

333 Lakeside Drive, Foster City, California 94404

(Address of principal executive offices) (Zip Code)

650-574-3000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨

Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No x

Number of shares outstanding of the issuer’s common stock, par value $0.001 per share, as of October 31, 2023: 1,246,041,895

GILEAD SCIENCES, INC.

INDEX

We own or have rights to various trademarks, copyrights and trade names used in our business, including the following: GILEAD®, GILEAD SCIENCES®, KITE™, AMBISOME®, ATRIPLA®, BIKTARVY®, CAYSTON®, COMPLERA®, DESCOVY®, DESCOVY FOR PREP®, EMTRIVA®, EPCLUSA®, EVIPLERA®, GENVOYA®, HARVONI®, HEPCLUDEX®, HEPSERA®, JYSELECA®, LETAIRIS®, ODEFSEY®, RANEXA®, SOVALDI®, STRIBILD®, SUNLENCA®, TECARTUS®, TRODELVY®, TRUVADA®, TRUVADA FOR PREP®, TYBOST®, VEKLURY®, VEMLIDY®, VIREAD®, VOSEVI®, YESCARTA® and ZYDELIG®. Other trademarks are the property of their respective owners.

Certain amounts and percentages in this Quarterly Report on Form 10-Q may not sum or recalculate due to rounding.

This Quarterly Report on Form 10-Q, including Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Part II, Item 1A. Risk Factors, 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. Words such as “expect,” “anticipate,” “target,” “goal,” “project,” “hope,” “intend,” “plan,” “believe,” “seek,” “estimate,” “continue,” “may,” “could,” “should,” “might,” “forecast” 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; plans and expectations with respect to products, product candidates, corporate strategy, business and operations, financial projections and the use of capital; collaboration and licensing arrangements; patent protection and estimated loss of exclusivity for our products and product candidates*;* ongoing litigation and investigation matters; 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 in Part II, Item 1A. 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 U.S. 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 Part II, Item 1A. Risk Factors of 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.

PART I. FINANCIAL INFORMATION

GILEAD SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

See accompanying notes.

GILEAD SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

See accompanying notes.

GILEAD SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

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The following discussion and analysis is intended to provide material information around events and uncertainties known to management relevant to an assessment of the financial condition and results of operations of Gilead and should therefore be read in conjunction with our audited Consolidated Financial Statements and the related notes thereto and other disclosures included as part of our Annual Report on Form 10-K for the year ended December 31, 2022 and our unaudited Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2023 and the related notes thereto and other disclosures (including the disclosures under Part II, Item 1A. Risk Factors) included in this Quarterly Report on Form 10-Q where other material events and uncertainties not otherwise discussed below are disclosed.

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, coronavirus disease 2019 (“COVID-19”), and cancer. We operate in more than 35 countries worldwide, with headquarters in Foster City, California.

Key Business Updates

The following updates are based on press releases recently issued since our last quarterly report. Readers are encouraged to review all press releases available on our website at www.gilead.com. The content on the referenced website does not constitute a part of and is not incorporated by reference into this Quarterly Report on Form 10-Q.

Virology

• We received U.S. Food and Drug Administration (“FDA”) and European Commission approval to extend the use of Veklury to treat COVID-19 in appropriate patients with mild to severe hepatic impairment.

• We announced a collaboration with Assembly Biosciences, Inc. to advance the research and development of novel antiviral therapies, including for herpesviruses, chronic hepatitis B virus (“HBV”) and chronic hepatitis delta virus (“HDV”).

Oncology

• We discontinued the Phase 3 ENHANCE-2 study of magrolimab in first-line TP53m acute myeloid leukemia (“AML”) with TP53 mutations based on an ad hoc analysis and following review by an independent data monitoring committee. Additionally, we announced that FDA placed a partial clinical hold on magrolimab studies in AML that paused enrollment, though previously enrolled patients may continue to receive the study medicine.

• We announced a collaboration with Tentarix Biotherapeutics Inc. (“Tentarix”) to discover and develop novel therapies across oncology and inflammation, using Tentarix’s proprietary Tentacles platform.

Other

• We issued $2.0 billion aggregate principal amount of senior unsecured notes in a registered offering, comprised of $1.0 billion principal amount of 5.25% senior notes due in 2033 and $1.0 billion principal amount of 5.55% senior notes due in 2053, and repaid debt of $2.25 billion.

Key Financial Results

Total revenues were $7.1 billion and $20.0 billion for the three and nine months ended September 30, 2023, respectively, and remained relatively flat compared to the same periods in 2022, primarily due to higher product sales in Oncology and HIV, partially offset by lower Veklury and Liver Disease product sales.

Net income attributable to Gilead was $2.2 billion, or $1.73 diluted earnings per share, for the three months ended September 30, 2023, compared to $1.8 billion, or $1.42 diluted earnings per share, for the same period in 2022. The increase was primarily due to lower tax expense and higher interest income, partially offset by net higher total costs and expenses.

Net income attributable to Gilead was $4.2 billion, or $3.37 diluted earnings per share, for the nine months ended September 30, 2023, compared to $3.0 billion, or $2.34 diluted earnings per share, for the same period in 2022. The increase was primarily due to a $2.7 billion IPR&D impairment recorded in the first quarter of 2022, which did not repeat in 2023, lower unrealized losses on equity investments and higher interest income, partially offset by higher operating costs, including the $525 million litigation expense for settlements with certain plaintiffs in the HIV antitrust litigation.

Results of Operations

Revenues

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

(1) Chronic hepatitis C virus (“HCV”)

See Note 2. Revenues of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further disaggregation of revenue by product.

HIV

HIV product sales increased by 4% to $4.7 billion for the three months ended September 30, 2023 compared to the same period in 2022, primarily due to higher demand for Biktarvy and channel inventory dynamics, partially offset by lower average realized price due to a shift in channel mix.

HIV product sales increased by 9% to $13.5 billion for the nine months ended September 30, 2023 compared to the same period in 2022, primarily due to favorable pricing dynamics, higher demand and channel inventory dynamics, partially offset by unfavorable foreign currency exchange impact.

Oncology

Cell Therapy

Cell Therapy product sales increased by 22% and 35% to $486 million and $1.4 billion for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022, primarily due to increased Yescarta demand for the treatment of relapsed or refractory (“R/R”) large B-cell lymphoma and increased Tecartus demand for the treatment of R/R mantle cell lymphoma and R/R adult acute lymphoblastic leukemia.

Trodelvy

Trodelvy product sales increased by 58% to $283 million and $764 million for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022, primarily due to higher demand in both the U.S. and Europe.

Liver Disease

Liver Disease product sales decreased by 10% and 1% to $706 million and $2.1 billion for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022, as higher HCV patient starts were more than offset by unfavorable pricing dynamics, primarily due to the resolution of a rebate claim in HCV in the third quarter of 2022.

Veklury

Veklury product sales decreased by 31% and 50% to $636 million and $1.5 billion for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022, primarily due to lower demand driven by reduced hospitalizations rates in all regions. Sales of Veklury generally reflect COVID-19 related rates and severity of infections and hospitalizations as well as the availability, uptake and effectiveness of vaccinations and alternative treatments for COVID-19.

Royalty, Contract and Other Revenues

Royalty, contract and other revenues decreased by 13% and 43% to $56 million and $138 million for the three and nine months ended September 30, 2023, respectively, compared to the same period in 2022, primarily due to lower royalty revenues in 2023 due to the impact of generic launches. The decrease for the nine months ended September 30, 2023 was also due to higher milestone payments received in 2022.

Foreign Currency Exchange Impact

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.

Of our total product sales, 29% and 30% were generated outside the U.S. for the three months ended September 30, 2023 and 2022, respectively. Foreign currency exchange, net of hedges, had a relatively flat impact on our total product sales for the three months ended September 30, 2023, based on a comparison using foreign currency exchange rates from the three months ended September 30, 2022.

Of our total product sales, 29% and 31% were generated outside the U.S. for the nine months ended September 30, 2023 and 2022, respectively. Foreign currency exchange, net of hedges, had an unfavorable impact on our total product sales of $191 million for the nine months ended September 30, 2023, based on a comparison using foreign currency exchange rates from the nine months ended September 30, 2022.

Costs and Expenses

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

NM - Not Meaningful

Product Gross Margin

Product gross margin decreased to 77.6% for the three months ended September 30, 2023 compared to the same period in 2022, primarily driven by intangible asset amortization expenses related to the pretreated hormone receptor-positive, human epidermal growth factor receptor 2-negative (“HR+/HER2-”) metastatic breast cancer indication for Trodelvy following its approval in February 2023, as well as product mix.

Product gross margin decreased to 77.8% for the nine months ended September 30, 2023 compared to the same period in 2022, primarily driven by intangible asset amortization expenses related to the pretreated HR+/HER2- metastatic breast cancer indication for Trodelvy following its approval in February 2023, partially offset by higher amortization of inventory step-up charges in 2022.

Research and Development Expenses

Research and development (“R&D”) expenses consist primarily of personnel costs including salaries, benefits and stock-based compensation expense, infrastructure, materials and supplies and other support costs, research and clinical studies performed by contract research organizations and our collaboration partners and other outside services.

We manage our R&D expenses by identifying the R&D activities we expect to be performed during a given period and then prioritizing efforts based on scientific data, probability of successful technical development and regulatory approval, market potential, available human and capital resources and other considerations. We regularly review our R&D activities 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. We do not track total R&D expenses by product candidate, therapeutic area or development phase.

The following table provides a breakout of expenses by major cost type:

Research and development expenses increased by 27% and 26% to $1.5 billion and $4.3 billion for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. Personnel, infrastructure and other support costs as well as Clinical studies and other costs both increased due to clinical activities primarily related to oncology, including progression and acceleration of trials, as well as new study launches and costs associated with the discontinuation of two Phase 3 magrolimab studies.

Acquired In-Process Research and Development Expenses

Acquired in-process research and development expenses are recorded when incurred and reflect costs of externally-developed IPR&D projects, acquired directly in a transaction other than a business combination, that do not have an alternative future use, including upfront and milestone payments related to various collaborations and the costs of rights to IPR&D projects.

Acquired in-process research and development expenses were $91 million and $808 million for the three and nine months ended September 30, 2023, respectively, primarily related to a $56 million upfront payment associated with our collaboration with Tentarix entered into in August 2023, a $170 million charge associated with our acquisition of XinThera in May 2023, a $244 million charge associated with our acquisition of Tmunity Therapeutics, Inc. (“Tmunity”) in February 2023 and a $212 million upfront payment associated with our collaboration with Arcellx, Inc. entered into in January 2023. Acquired in-process research and development expenses were $448 million and $786 million for the three and nine months ended September 30, 2022, respectively, primarily related to a $389 million charge associated with our acquisition of MiroBio in September 2022 and a $300 million upfront payment associated with our collaboration with Dragonfly Therapeutics, Inc. entered into in April 2022. See Note 6. Acquisitions, Collaborations and Other Arrangements of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

In-Process Research and Development Impairment

In-process research and development impairment was $2.7 billion for the nine months ended September 30, 2022 related to a partial impairment charge on our HR+/HER2- IPR&D intangible asset. No IPR&D impairment charges were recorded during the three and nine months ended September 30, 2023.

Selling, General and Administrative Expenses

Selling, general and administrative expenses are recorded when incurred and consist primarily of personnel costs, facilities and overhead costs, outside marketing, advertising and legal expenses, and other general and administrative costs related to sales and marketing, finance, human resources, legal and other administrative activities.

Selling, general and administrative expenses increased by 8% to $1.3 billion for the three months ended September 30, 2023 compared to the same period in 2022, primarily due to increased commercial activities in oncology and HIV, as well as higher corporate activities.

Selling, general and administrative expenses increased by 23% to $4.5 billion for the nine months ended September 30, 2023 compared to the same period in 2022, primarily due to a $525 million litigation expense for settlements with certain plaintiffs in the HIV antitrust litigation in the second quarter of 2023, increased commercial activities in oncology and HIV, as well as higher corporate activities, partially offset by a reduction in donations to the Gilead Foundation.

Interest Expense and Other Income (Expense), Net

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

NM - Not Meaningful

Interest expense was $232 million and $692 million for the three and nine months ended September 30, 2023, respectively, and remained relatively flat compared to the same periods in 2022. See Note 9. Debt and Credit Facilities of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

The changes in Other income (expense), net for the three and nine months ended September 30, 2023 compared to the same periods in 2022 primarily reflect higher interest income due to rising interest rates, as well as fewer net unrealized losses on equity investments.

Income Taxes

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

Our effective tax rate decreased for the three and nine months ended September 30, 2023 compared to the same periods in 2022, primarily due to a decrease in unrecognized tax benefits as a result of reaching agreement with a tax authority on certain tax positions in the three months ended September 30, 2023 and a non-deductible acquired IPR&D charge recorded associated with our acquisition of MiroBio in September 2022. The decrease in our effective tax rate for the nine months ended September 30, 2023 was partially offset by remeasurement of certain deferred tax liabilities related to acquired intangible assets and non-deductible acquired IPR&D expenses recorded associated with our acquisitions of XinThera and Tmunity in 2023.

Liquidity and Capital Resources

We continually evaluate our liquidity and capital resources, including our access to external capital, so that we can adequately and efficiently finance our operations.

Liquidity

Cash, cash equivalents and marketable debt securities were $8.0 billion and $7.6 billion as of September 30, 2023 and December 31, 2022, respectively. Cash and cash equivalents increased by $293 million from December 31, 2022 to September 30, 2023. The following table summarizes our cash flow activities:

Operating Activities

Net cash provided by operating activities is derived by adjusting our net income for non-cash items and changes in operating assets and liabilities. Net cash provided by operating activities was $5.8 billion for the nine months ended September 30, 2023 compared to $6.5 billion for the same period in 2022. The change was primarily due to higher inventory and operating spend, which includes HIV antitrust litigation payments, in 2023, reduced by the effect of a non-recurring payment of a $1.25 billion settlement related to bictegravir litigation in 2022.

Investing Activities

Net cash used in investing activities was $1.5 billion for the nine months ended September 30, 2023 compared to $2.1 billion for the same period in 2022. The change was primarily due to a decrease in acquisition spend, including acquired IPR&D, and capital expenditures, partially offset by higher net purchases of marketable debt and equity securities.

Financing Activities

Net cash used in financing activities was $4.0 billion for the nine months ended September 30, 2023 compared to $4.9 billion for the same period in 2022. During the nine months ended September 30, 2023, we utilized cash of $2.25 billion for debt repayments, $2.9 billion for dividend payments and $850 million for common stock repurchases. These were partially offset by $2.0 billion in proceeds from the issuance of senior unsecured notes in September 2023, net of issuance costs. During the nine months ended September 30, 2022, we utilized cash of $1.5 billion for debt repayments, $2.8 billion for dividend payments and $604 million for common stock repurchases.

Capital Resources and Material Cash Requirements

A summary of our capital resources and material cash requirements is presented in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022. Other than as disclosed in Notes 6. Acquisitions, Collaborations and Other Arrangements, 9. Debt and Credit Facilities, 10. Commitments and Contingencies and 12. Income Taxes of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, there were no material changes to our capital resources and material cash requirements during the nine months ended September 30, 2023.

Critical Accounting Estimates

A summary of our critical accounting estimates is presented in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022. Other than as disclosed in Notes 2. Revenues, 7. Intangible Assets, 10. Commitments and Contingencies and 12. Income Taxes of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, there were no material changes to our critical accounting estimates during the nine months ended September 30, 2023.

Information about our market risk is presented in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2022. Other than as disclosed in Notes 3. Fair Value Measurements, 4. Available-For-Sale Debt Securities and Equity Securities and 5. Derivative Financial Instruments of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, there were no material changes to these disclosures.

Evaluation of Disclosure Controls and Procedures

An evaluation as of September 30, 2023 was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our “disclosure controls and procedures,” which are defined in Rule 13a-15(e) under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), as controls and other procedures of a company that are designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2023.

Changes in Internal Control over Financial Reporting

Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated any changes in our internal control over financial reporting during the quarter ended September 30, 2023, to identify any change that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. In August 2023, we began deploying a new enterprise resource planning system (“ERP”) as well as other related systems. We have made changes to our internal control over financial reporting to address the related processes and systems. We will continue to evaluate any further changes in our internal control over financial reporting over the course of the implementation of the new ERP and other related systems, which is scheduled to occur in phases over the next few years.

Limitations on the Effectiveness of Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were effective to provide reasonable assurance that the objectives of our disclosure control system were met.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

For a description of our significant pending legal proceedings, please see Note 10. Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

In evaluating our business, you should carefully consider the following discussion of material risks, events and uncertainties that make an investment in us speculative or risky in addition to the other information in this Quarterly Report on Form 10-Q. A manifestation of any of the following risks and uncertainties could, in circumstances we may or may not be able to accurately predict, materially and adversely affect our business and operations, growth, reputation (including the commercial or scientific reputation of our products), prospects, product pipeline and sales, operating and financial results, financial condition, cash flows, liquidity and stock price. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. It is not possible to predict or identify all such factors; our operations could also be affected by factors, events or uncertainties that are not presently known to us or that we currently do not consider to present significant risks to our operations. Therefore, you should not consider the following risks to be a complete statement of all the potential risks or uncertainties that we face.

Product and Commercialization Risks

Certain of our products subject us to additional or heightened risks.

HIV

We receive a substantial portion of our revenue from sales of our products for the treatment and prevention of HIV infection. During the nine months ended September 30, 2023, sales of our HIV products accounted for approximately 68% of our total product sales. We may be unable to sustain or increase sales of our HIV products for any number of reasons, including market share gains by competitive products, including generics, or the inability to introduce new HIV medications necessary to remain competitive. In such case, we may need to scale back our operations, including our future drug development and spending on research and development (“R&D”) efforts. For example, many of our HIV products contain tenofovir alafenamide (“TAF”), which belongs to the nucleoside class of antiviral therapeutics. If there are any changes to the treatment or prevention paradigm for HIV that cause nucleoside-based therapeutics to fall out of favor, our HIV product sales would be adversely impacted.

Veklury

We face risks related to our supply and sale of Veklury, which was approved by U.S. Food and Drug Administration (“FDA”) as a treatment for patients with coronavirus disease 2019 (“COVID-19”). Veklury sales generally reflect COVID-19 related rates and severity of infections and hospitalizations, as well as the availability, uptake and effectiveness of vaccines and alternative treatments for COVID-19. In May 2023, the World Health Organization declared the end of COVID-19 as a public health emergency of international concern. Future sales of Veklury in the short- and long-term remain uncertain. If we do not accurately forecast demand or manufacture Veklury at levels to align with actual demand, then we may experience product shortages or build excess inventory that may need to be written off.

Cell Therapy

Advancing a novel and personalized therapy such as Yescarta or Tecartus, which are chimeric antigen receptor (“CAR”) T-cell therapies, creates significant challenges, including:

• educating and certifying medical personnel regarding the procedures and the potential side effects, such as cytokine release syndrome and neurologic toxicities, in compliance with the Risk Evaluation and Mitigation Strategy program required by FDA;

• securing sufficient supply of other medications to manage side effects, such as tocilizumab and corticosteroids, which may not be available in sufficient quantities, may not adequately control the side effects and/or may have detrimental impacts on the efficacy of cell therapy;

• developing and maintaining a robust and reliable process for engineering a patient’s T cells in our facilities and infusing them back into the patient; and

• conditioning patients with chemotherapy in advance of administering our therapy, which may increase the risk of adverse side effects.

The use of engineered T cells as a potential cancer treatment is a recent development and may not be broadly accepted by physicians, patients, hospitals, cancer treatment centers, payers and others in the medical community. While FDA has approved some cell therapies, including Yescarta and Tecartus, we must continue to demonstrate to the medical community the potential advantages of cell therapy compared to existing and future therapeutics. For challenges related to the reimbursement of Yescarta and Tecartus, see also “Our existing products are subject to reimbursement pressures from government agencies and other third parties, required rebates and other discounts on our products and other pricing pressures.”

We rely on third-party sites to collect patients’ white blood cells, known as apheresis centers, as well as shippers, couriers, and hospitals for the logistical collection of patients’ white blood cells and ultimate delivery of Yescarta and Tecartus to patients. These vendors may encounter disruptions or difficulties that could result in product loss and regulatory action. Apheresis centers may also choose not to participate in our quality certification process, or we may be unable to complete such certification in a timely manner or at all, which could delay or constrain our manufacturing and commercialization efforts.

We operate an automated CAR T-cell therapy manufacturing facility in Frederick, Maryland. We have not previously manufactured our products in an automated facility on a commercial scale, and as a result, we may require additional time and resources in order to effectively increase manufacturing capacity. We also operate a retroviral vector manufacturing facility in Oceanside, California, which received FDA approval for commercial production in October 2022. We also have not previously manufactured viral vectors on a commercial scale, and as a result, we may require additional time and resources in order to effectively increase manufacturing capacity. In addition, we may not be able to produce or otherwise obtain an amount of viral vector supply sufficient to satisfy demand for our finished products. If we are unable to meet product demand, we will have difficulty meeting sales forecasts for our finished products.

Our success depends on developing and commercializing new products or expanding the indications for existing products.

If we are unable to launch commercially successful new products or new indications for existing products, our business will be adversely impacted. The launch of commercially successful products is necessary to grow our business, cover our substantial R&D expenses, and offset revenue losses when existing products lose market share due to factors such as competition and loss of patent exclusivity. There are many difficulties and uncertainties inherent in drug development and the introduction of new products. The product development cycle is characterized by significant investments of resources, long lead times and unpredictable outcomes due to the nature of developing medicines for human use. We expend significant time and resources on our product pipeline without any assurance that we will recoup our investments or that our efforts will be commercially successful. A high rate of failure is inherent in the discovery and development of new products, and failure can occur at any point in the process, including late in the process after substantial investment.

We face challenges in accurately forecasting sales because of the difficulties in predicting demand for our products and fluctuations in purchasing patterns or wholesaler inventories.

We may be unable to accurately predict demand for our products, including the uptake of new products, as demand depends on a number of factors. For example, product demand may be adversely affected if physicians

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None of our directors or officers adopted, modified or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarter ended September 30, 2023, as such terms are defined under Item 408(a) of Regulation S-K.

Reference is made to the Exhibit Index included herein.

Exhibit Index