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

The following discussion and analysis is intended to provide material information around events and uncertainties known to management that are 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, 2023 and our unaudited Condensed Consolidated Financial Statements for the three months ended March 31, 2024 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.

Management Overview

Gilead Sciences, Inc. (including its consolidated subsidiaries, referred to as “Gilead,” the “company,” “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 select press releases issued since the filing of our Annual Report on Form 10-K for the year ended December 31, 2023. 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

• Received approval from the U.S. Food and Drug Administration (“FDA”) to update Biktarvy’s label with additional data reinforcing the safety and efficacy profile to treat pregnant people with HIV-1 with suppressed viral loads.

• Received approval from FDA to expand Biktarvy’s label to include treatment of people with HIV who have suppressed viral loads with known or suspected M184V/I resistance.

• Received approval from FDA to expand the indication for Vemlidy to include treatment of chronic hepatitis B virus (“HBV”) in children six years and older who weigh at least 25 kg with compensated liver disease.

Oncology

• Announced a research collaboration, option and license agreement with Merus N.V. to discover novel antibody-based trispecific T-cell engagers in oncology.

• Entered into an exclusive license agreement with Xilio Therapeutics, Inc. (“Xilio”) to develop and commercialize Xilio’s tumor-activated IL-12 program, including investigational candidate XTX301 in advanced solid tumors.

Inflammation

• Completed the acquisition of CymaBay Therapeutics, Inc. (“CymaBay”), for $4.3 billion in total equity value, or $3.9 billion net cash paid, adding investigational candidate seladelpar for the treatment of primary biliary cholangitis to Gilead’s Liver Disease portfolio. Seladelpar is an investigational, oral, selective peroxisome proliferator-activated receptor delta (PPARδ) agonist with Orphan Drug Designation in the United States and Europe. PPARδ has been shown to regulate critical metabolic and liver disease pathways. FDA accepted the New Drug Application for seladelpar in February 2024 for priority review, with a Prescription Drug User Fee Act target action date of August 14, 2024.

Key Financial Results

						Three Months Ended
						March 31,
(in millions, except percentages and per share amounts)						2024						2023						Change
Total revenues						$	6,686					$	6,352					5		%
Net (loss) income attributable to Gilead						$	(4,170)					$	1,010					NM
Diluted (loss) earnings per share attributable to Gilead						$	(3.34)					$	0.80					NM

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NM - Not Meaningful

Total revenues increased 5% to $6.7 billion for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to higher HIV, Oncology and Liver Disease sales.

Net loss attributable to Gilead was $4.2 billion and diluted loss per share attributable to Gilead was $3.34 for the three months ended March 31, 2024, compared to net income attributable to Gilead of $1.0 billion and diluted earnings per share attributable to Gilead of $0.80 for the same period in 2023. The decrease was primarily driven by an acquired in-process research and development (“IPR&D”) charge of $3.9 billion related to the acquisition of CymaBay, as well as a pre-tax IPR&D partial impairment charge of $2.4 billion related to assets acquired by Gilead from Immunomedics, Inc. (“Immunomedics”) in 2020.

Results of Operations

Revenues

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

						Three Months Ended March 31, 2024																								Three Months Ended March 31, 2023
(in millions)						U.S.						Europe						Rest of World						Total						U.S.						Europe						Rest of World						Total						Change
Product sales:
HIV
Biktarvy						$	2,315					$	365					$	265					$	2,946					$	2,161					$	304					$	212					$	2,677					10		%
Descovy						371						26						29						426						395						25						29						449						(5)		%
Genvoya						332						49						21						403						417						55						29						501						(20)		%
Odefsey						223						76						11						310						230						76						11						317						(2)		%
Symtuza - Revenue share(1)						104						33						3						141						98						36						4						138						2		%
Other HIV(2)						60						45						12						117						62						32						13						108						9		%
Total HIV						3,405						596						342						4,342						3,364						528						298						4,190						4		%
Liver Disease
Sofosbuvir/Velpatasvir(3)						248						79						78						405						204						90						90						385						5		%
Vemlidy						95						11						119						225						87						9						103						199						13		%
Other Liver Disease(4)						42						47						19						107						27						41						23						91						18		%
Total Liver Disease						385						137						215						737						318						140						217						675						9		%
Veklury						315						70						169						555						252						111						209						573						(3)		%
Oncology
Cell Therapy
Tecartus						55						36						8						100						59						27						3						89						13		%
Yescarta						170						158						52						380						210						121						28						359						6		%
Total Cell Therapy						225						195						60						480						269						148						31						448						7		%
Trodelvy						206						68						36						309						162						54						6						222						39		%
Total Oncology						431						262						96						789						431						202						37						670						18		%
Other
AmBisome						14						70						60						144						6						60						49						116						24		%
Other(5)						59						9						12						80						62						12						9						83						(4)		%
Total Other						73						79						71						224						69						72						58						199						13		%
Total product sales						4,609						1,144						894						6,647						4,434						1,053						819						6,306						5		%
Royalty, contract and other revenues						23						15						1						39						18						26						2						46						(15)		%
Total revenues						$	4,633					$	1,159					$	894					$	6,686					$	4,452					$	1,079					$	821					$	6,352					5		%

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(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 (“Janssen”).

(2) Includes Atripla, Complera/Eviplera, Emtriva, Sunlenca, Stribild, Truvada and Tybost.

(3) Includes Epclusa and the authorized generic version of Epclusa sold by Gilead’s separate subsidiary, Asegua Therapeutics LLC (“Asegua”).

(4) Includes ledipasvir/sofosbuvir (Harvoni and the authorized generic version of Harvoni sold by Asegua), Hepcludex, Hepsera, Sovaldi, Viread and Vosevi.

(5) Includes Cayston, Jyseleca, Letairis, Ranexa and Zydelig.

HIV

HIV product sales increased 4% to $4.3 billion for the three months ended March 31, 2024, compared to the same period in 2023, primarily driven by higher demand. In particular, Biktarvy sales increased primarily reflecting higher demand, including patients switching from Genvoya and other Gilead HIV products. Descovy sales decreased primarily driven by lower average realized price due to channel mix, partially offset by higher demand.

Liver Disease

Liver Disease product sales increased 9% to $737 million for the three months ended March 31, 2024, compared to the same period in 2023, primarily driven by favorable inventory dynamics, the timing of chronic hepatitis C virus (“HCV”) product purchases by the Department of Corrections in the United States, as well as higher demand across HBV, HCV, and in the European Union (“EU”), chronic hepatitis D virus (“HDV”) products.

Veklury

Veklury product sales decreased 3% to $555 million for the three months ended March 31, 2024, compared to the same period in 2023, primarily driven by lower rates of COVID-19 related hospitalizations.

Oncology

Cell Therapy

Cell Therapy product sales increased 7% to $480 million for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to increased Yescarta demand for the treatment of relapsed or refractory (“R/R”) large B-cell lymphoma outside the United States and increased Tecartus demand for the treatment of R/R adult acute lymphoblastic leukemia and R/R mantle cell lymphoma, mostly in Europe.

Trodelvy

Trodelvy product sales increased 39% to $309 million for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to higher demand.

Other

Other product sales increased 13% to $224 million for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to higher demand for AmBisome.

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.

Approximately 28% of our product sales were denominated in foreign currencies during the three months ended March 31, 2024 and 2023. Foreign currency exchange, net of hedges, had an unfavorable impact on our total product sales of $47 million for the three months ended March 31, 2024, based on a comparison using foreign currency exchange rates from the three months ended March 31, 2023.

Costs and Expenses

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

						Three Months Ended
						March 31,
(in millions, except percentages)						2024						2023						Change
Cost of goods sold						$	1,552					$	1,401					11		%
Product gross margin						76.6		%				77.8		%				-114 bps
Research and development expenses						$	1,520					$	1,447					5		%
Acquired in-process research and development expenses						$	4,131					$	481					NM
In-process research and development impairment						$	2,430					$	—					NM
Selling, general and administrative expenses						$	1,375					$	1,319					4		%

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NM - Not Meaningful

Product Gross Margin

Product gross margin decreased to 76.6% for the three months ended March 31, 2024, compared to the same period in 2023, primarily driven by product mix, as well as higher 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.

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:

						Three Months Ended
						March 31,
(in millions)						2024						2023
Personnel, infrastructure and other support costs						$	963					$	817
Clinical studies and other costs						557						629
Total						$	1,520					$	1,447

Research and development expenses increased 5% to $1.5 billion for the three months ended March 31, 2024, compared to the same period in 2023. Personnel, infrastructure and other support costs increased primarily due to stock-based compensation expenses related to the acquisition of CymaBay and restructuring expenses. Clinical studies and other costs decreased primarily due to higher R&D reimbursements and the discontinuation or ramp-down of magrolimab and other 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 $4.1 billion for the three months ended March 31, 2024, primarily comprised of $3.9 billion related to the CymaBay acquisition and $100 million related to the Arcus Biosciences, Inc. collaboration. Acquired in-process research and development expenses were $481 million for the three months ended March 31, 2023, primarily comprised of $244 million related to the Tmunity Therapeutics, Inc. acquisition and $212 million related to the Arcellx, Inc. collaboration. 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

As of December 31, 2023, approximately $5.9 billion was assigned to an indefinite-lived IPR&D intangible asset related to Trodelvy for metastatic non-small cell lung cancer (“NSCLC”). In addition to NSCLC, Trodelvy is being explored for potential investigational use in a range of tumor types where Trop-2 is highly expressed. Gilead’s clinical development program in metastatic NSCLC includes ongoing Phase 2 and registrational Phase 3 studies for Trodelvy as a first- or second-line indication.

In January 2024, we received data from our Phase 3 EVOKE-01 study of Trodelvy evaluating sacituzumab govitecan-hziy (“SG”) indicating that the study did not meet its primary endpoint of overall survival in previously treated metastatic NSCLC, thus triggering a review for potential impairment of the NSCLC IPR&D impairment asset.

Based on our evaluation of the study results and all other data currently available, and in connection with the preparation of the financial statements for the first quarter, we performed an interim impairment test and determined that the revised estimated fair value of the NSCLC IPR&D intangible asset was below its carrying value. As a result, we recognized a partial impairment charge of $2.4 billion in In-process research and development impairment on our Condensed Consolidated Statements of Operations for the three months ended March 31, 2024.

To arrive at the revised estimated fair value, we used a probability-weighted income approach that discounts expected future cash flows to present value, which requires the use of Level 3 fair value measurements and inputs, and requires the use of critical estimated inputs, including: revenues and operating profits related to the planned utilization of SG in NSCLC, which, include inputs such as addressable patient population, projected market share, treatment duration, and the life of the potential commercialized product; the probability of technical and regulatory success; the time and resources needed to complete the development and approval of SG in NSCLC; an appropriate discount rate based on the estimated weighted-average cost of capital for companies with profiles similar to our profile; and risks related to the viability of and potential alternative treatments in any future target markets. Our revised discounted cash flows primarily reflect the smaller addressable market that Trodelvy could serve among metastatic NSCLC patients and a delay in expected launch timing for second-line plus patients. The revised estimated fair value of the NSCLC IPR&D intangible asset was $3.5 billion as of March 31, 2024.

If future events result in adverse changes in the key assumptions used in determining fair value, including the timing of product launches, information on the competitive landscape of treatments in this indication, changes to the probability of technical or regulatory success, failure to obtain anticipated regulatory approval or discount rate, among others, additional impairments may be recorded and could be material to our financial statements.

No IPR&D impairment charges were recorded during the three months ended March 31, 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 4% to $1.4 billion for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to stock-based compensation expenses related to the acquisition of CymaBay and restructuring expenses.

Interest Expense and Other Income (Expense), Net

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

						Three Months Ended
						March 31,
(in millions, except percentages)						2024						2023						Change
Interest expense						$	254					$	230					11		%
Other (income) expense, net						$	(91)					$	174					NM

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NM - Not Meaningful

Interest expense increased 11% to $254 million for the three months ended March 31, 2024, compared to the same period in 2023 due to a higher average interest rate on long-term debt. 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 on our long-term debt and related interest rates.

Other (income) expense, net for the three months ended March 31, 2024 primarily included $108 million of interest income, partially offset by $14 million of net unrealized losses on equity investments. Other (income) expense, net for the three months ended March 31, 2023 primarily included $256 million of net unrealized losses on equity investments, partially offset by $78 million of interest income.

Income Taxes

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

						Three Months Ended
						March 31,
(in millions, except percentages)						2024						2023						Change
(Loss) income before income taxes						$	(4,486)					$	1,300					$	(5,786)
Income tax (benefit) expense						$	(315)					$	316					$	(631)
Effective tax rate						7.0		%				24.3		%				(17.3)		%

Our effective tax rate decreased for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to the non-deductible acquired IPR&D expense recorded in connection with our first quarter 2024 acquisition of CymaBay.

Liquidity and Capital Resources

We regularly 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 $4.7 billion and $8.4 billion as of March 31, 2024 and December 31, 2023, respectively. Cash and cash equivalents decreased by $1.4 billion from December 31, 2023 to March 31, 2024. The following table summarizes our cash flow activities:

						Three Months Ended
						March 31,
(in millions)						2024						2023
Net cash provided by (used in):
Operating activities						$	2,219					$	1,744
Investing activities						$	(2,207)					$	(826)
Financing activities						$	(1,361)					$	(1,406)
Effect of exchange rate changes on cash and cash equivalents						$	(18)					$	13

Operating Activities

Net cash provided by operating activities was $2.2 billion for the three months ended March 31, 2024, compared to $1.7 billion for the same period in 2023. The change was primarily due to lower rebate payments, mostly due to timing, as well as lower inventory spend, partially offset by lower collections.

Investing Activities

Net cash used in investing activities was $2.2 billion for the three months ended March 31, 2024, compared to $826 million for the same period in 2023. The change was primarily due to the $3.9 billion net cash payment for the CymaBay acquisition, partially offset by proceeds from liquidation of marketable debt securities to fund the acquisition.

Financing Activities

Net cash used in financing activities was $1.4 billion for the three months ended March 31, 2024 and 2023. During the three months ended March 31, 2024, we utilized cash of $990 million for dividend payments and $400 million for common stock repurchases. During the three months ended March 31, 2023, we utilized cash of $969 million for dividend payments and $400 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, 2023. Other than as disclosed in Notes 4. Available-For-Sale Debt Securities and Equity Securities, 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 three months ended March 31, 2024.

Subsequently, in April 2024, we repaid $1.75 billion of senior unsecured notes due at maturity and made a scheduled $1.2 billion federal income tax payment for transition tax on the mandatory deemed repatriation of foreign earnings from the Tax Cuts and Jobs Act.

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, 2023. 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 three months ended March 31, 2024.