What changed in this filing

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Item 2. Management’s Discussion and Analysis

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The following MD&A is intended to assist the reader in understanding Amgen’s business.

MD&A is provided as a supplement to and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021, and our Quarterly Report on Form 10-Q for the period ended March 31, 2022.

MD&A is provided as a supplement to and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021, and our Quarterly Reports on Form 10-Q for the periods ended March 31, 2022 and June 30, 2022.

Our results of operations discussed in MD&A are presented in conformity with GAAP.

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Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2021, and in Part II, Item 1A.

Risk Factors of our Quarterly Report on Form 10-Q for the period ended March 31, 2022.

Risk Factors of our Quarterly Reports on Form 10-Q for the periods ended March 31, 2022 and June 30, 2022.

We have based our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made.

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A biotechnology pioneer since 1980, Amgen has grown to be one of the world’s leading independent biotechnology companies, has reached millions of patients around the world and is developing a pipeline of medicines with breakaway potential.

Our principal products are ENBREL, Prolia, Otezla, XGEVA, Aranesp, Neulasta, Repatha, KYPROLIS and Nplate.

We also market a number of other products, including MVASI, Vectibix, EVENITY, BLINCYTO, EPOGEN, AMGEVITA, Aimovig, Parsabiv, KANJINTI, LUMAKRAS/LUMYKRAS, NEUPOGEN, Sensipar/Mimpara and TEZSPIRE.

Our principal products are ENBREL, Prolia, Otezla, XGEVA, Aranesp, Repatha, KYPROLIS, Neulasta and Nplate.

We also market a number of other products, including MVASI, Vectibix, EVENITY, BLINCYTO, EPOGEN, AMGEVITA, Aimovig, Parsabiv, KANJINTI, LUMAKRAS/LUMYKRAS, NEUPOGEN, TEZSPIRE and Sensipar/Mimpara.

COVID-19 pandemic

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Despite the ongoing pandemic and business impacts noted above, we believe that existing funds, cash generated from operations and existing sources of and access to financing are adequate to satisfy our needs for working capital, capital expenditures and debt service requirements as well as to engage in capital-return and other business initiatives that we plan to pursue.

For a discussion of risks the COVID-19 pandemic presents to our results, see Risk Factors in Part I, Item 1A.

Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2021, and in Part II, Item 1A.

For a discussion of risks the COVID-19 pandemic presents to our results, see Part I, Item 1A.

Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2021, and Part II, Item 1A.

Risk Factors of our Quarterly Report on Form 10-Q for the period ended March 31, 2022.

Significant developments

Following is a summary of selected significant developments affecting our business that occurred since the filing of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.

For additional developments or for a more comprehensive discussion of certain developments discussed below, see our Annual Report on Form 10-K for the year ended December 31, 2021, and our Quarterly Report on Form 10-Q for the period ended March 31, 2022.

Following is a summary of selected significant developments affecting our business that occurred since the filing of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022.

ChemoCentryx, Inc.

• On October 20, 2022, Amgen completed its acquisition of ChemoCentryx for $52.00 per share in cash, for an aggregate merger consideration of approximately $3.7 billion.

Products/Pipeline

General Medicine

• In May 2022, we announced positive topline data from the Phase 2 OCEAN(a)-DOSE clinical study, evaluating olpasiran (formerly AMG 890) in adult patients with lipoprotein(a), or Lp(a), levels over 150 nmol/L and evidence of atherosclerotic cardiovascular disease (ASCVD).

Olpasiran is a small interfering RNA (siRNA) designed to lower the body’s production of apolipoprotein(a), a key component of Lp(a) that has been associated with an increased risk of cardiovascular events.

In the double-blind placebo-controlled treatment period, olpasiran was administered up to 225 mg subcutaneously every 12 weeks to patients with a median baseline Lp(a) of approximately 260 nmol/L.

These data demonstrated a significant reduction from baseline in Lp(a) of up to or greater than 90 percent at week 36 (primary endpoint) and week 48 (end of treatment period) for the majority of doses.

No new safety concerns were identified during this treatment period.

• In July 2022, our partner AstraZeneca plc announced that the Committee for Medicinal Products for Human Use of the EMA has recommended TEZSPIRE for marketing authorization in the European Union as an add-on therapy in patients 12 years and older with severe asthma who are inadequately controlled with high dose inhaled corticosteroids plus another medicinal product for maintenance treatment.

Business development

Proposed acquisition of ChemoCentryx, Inc.

• On August 4, 2022, Amgen announced its proposed acquisition of ChemoCentryx for $52.00 per share in cash, for a total transaction price of approximately $4.0 billion.

ChemoCentryx is a biopharmaceutical company focused on orally-administered therapeutics to treat autoimmune diseases, inflammatory disorders and cancer.

In the United States, ChemoCentryx markets TAVNEOS ® , the first approved orally administered inhibitor of the complement 5a receptor as an adjunctive treatment for adult patients with severe active anti-neutrophil cytoplasmic autoantibody-associated vasculitis (ANCA vasculitis) .

The transaction is expected to close in the fourth quarter of 2022.

Oncology/Hematology

LUMAKRAS/LUMYKRAS

• In September 2022, we announced results from the global Phase 3 CodeBreaK 200 trial, which showed once-daily oral LUMAKRAS/LUMYKRAS led to significantly superior progression-free survival (PFS;

primary endpoint) and a significantly higher objective response rate (ORR;

a key secondary endpoint) in patients with KRAS G12C-mutated non-small cell lung cancer (NSCLC), compared with intravenous chemotherapy, docetaxel.

LUMAKRAS/LUMYKRAS significantly improved PFS compared to docetaxel in heavily pre-treated patients.

The proportion of patients with PFS at one year was 25% for LUMAKRAS/LUMYKRAS versus 10% for docetaxel.

LUMAKRAS/LUMYKRAS demonstrated a significantly higher ORR than docetaxel with double the response rates in the LUMAKRAS/LUMYKRAS arm (28% versus 13%, respectively).

• In August 2022, we announced positive top-line results from the DAHLIA study, a randomized, double-blind, active-controlled, two-period crossover Phase 3 study evaluating the efficacy and safety of ABP 959, a biosimilar candidate to SOLIRIS ® (eculizumab), compared with SOLIRIS ® in adult patients with paroxysmal nocturnal hemoglobinuria (PNH).

The study met its primary endpoints, demonstrating no clinically meaningful differences between ABP 959 and SOLIRIS ® .

The safety and immunogenicity profile of ABP 959 was comparable to that of SOLIRIS ® .

Selected financial information

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Diluted shares 538 570 (6) % 542 576 (6) %

* Change in excess of 100%

In the following discussion of changes in product sales, any reference to unit demand growth or decline refers to changes in purchases of our products by healthcare providers (such as physicians or their clinics), dialysis centers, hospitals and pharmacies.

In addition, any reference to increases or decreases in inventory refers to changes in inventory held by wholesaler customers and end users (such as pharmacies).

Total product sales increased for the three months ended June 30, 2022, primarily driven by higher unit demand for certain brands including Repatha, Prolia, EVENITY, LUMAKRAS/LUMYKRAS and KYPROLIS, partially offset by declines in the net selling prices of certain products and unfavorable changes in foreign currency exchange rates.

Total product sales increased for the six months ended June 30, 2022, primarily driven by higher unit demand for certain brands, including Repatha, Prolia, EVENITY, LUMAKRAS/LUMYKRAS and KYPROLIS, and by favorable changes to estimated sales deductions, partially offset by declines in the net selling prices of certain products and unfavorable changes in foreign currency exchange rates.

Total product sales decreased for the three months ended September 30, 2022, primarily driven by declines in the net selling prices of certain products and unfavorable changes to foreign currency exchange rates, inventory and estimated sales deductions, partially offset by higher unit demand for certain brands, including Repatha, Prolia, EVENITY, Otezla, TEZSPIRE and Vectibix.

Total product sales increased for the nine months ended September 30, 2022, primarily driven by higher unit demand for certain brands, including Repatha, Prolia, EVENITY, LUMAKRAS/LUMYKRAS, KYPROLIS and Otezla, partially offset by declines in the net selling prices of certain products and unfavorable changes to foreign currency exchange rates and inventory.

For the remainder of 2022, we expect that net selling prices will continue to decline at a portfolio level, driven by increased competition.

Further, we expect international product sales to continue to be unfavorably impacted by foreign currency exchange rates for the remainder of the year.

The impact of such changes to foreign currency exchange rates will be partially offset by corresponding decreases in our international operating expenses.

While not designed to completely address foreign currency changes, our hedging activities also seek to offset, in part, such effects on our net income by hedging our net foreign currency exposure, primarily with respect to product sales denominated in euros.

Over the course of the COVID-19 pandemic we experienced changes in demand for some of our products as fluctuations in the frequency of patient visits to doctors’ offices have impacted the provision of treatments to existing patients and reduced diagnoses in new patients.

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This led to diminished capacity in the healthcare sector and reduced working days for our own sales force.

For the second quarter 2022, we have seen the impact of these variants recede in most markets, with the exception of some markets in the Asia Pacific region, which has allowed us to engage in increased field-facing activities.

As of the second quarter of 2022, we have seen the impact of these variants recede in most markets, with the exception of some markets in the Asia Pacific region, which has allowed us to engage in increased field-facing activities.

Provider and patient activity has also increased, leading to improvements in demand for our products to pre-pandemic levels.

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See Part I, Item 1A.

Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2021, and in Part II, Item 1A.

Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2021, and Part II, Item 1A.

Risk Factors of our Quarterly Report on Form 10-Q for the period ended March 31,

Other revenues decreased for the three months ended June 30, 2022, driven by lower revenue from COVID-19 antibody material and increased for the six months ended June 30, 2022, primarily driven by higher revenue from COVID-19 antibody material.

Operating expenses decreased for the three and six months ended June 30, 2022, primarily due to the Acquired IPR&D expense related to the Five Prime acquisition in 2021, partially offset by a loss on a nonstrategic divestiture in 2022.

Other revenues increased for the three months ended September 30, 2022, due to higher licensing-related revenues.

Other revenues increased for the nine months ended September 30, 2022, due to higher revenue from COVID-19 antibody material.

Operating expenses decreased for the three months ended September 30, 2022, primarily due to a licensing-related upfront payment to KKC in 2021.

Operating expenses decreased for the nine months ended September 30, 2022, primarily due to the Acquired IPR&D expense related to the Five Prime acquisition and a licensing-related upfront payment to KKC in 2021, partially offset by a loss on a nonstrategic divestiture in 2022.

See Note 2, Acquisitions and divestitures.

Although changes in foreign currency exchange rates result in increases or decreases in our reported international product sales, the benefit or detriment that such movements have on our international product sales is partially offset by corresponding increases or decreases in our international operating expenses and our related foreign currency hedging activities.

Further, while not designed to completely address foreign currency changes, our hedging activities seek to offset, in part, the effects of foreign currency exchange rate changes, both favorable and unfavorable, on our net income by hedging our net foreign currency exposure, primarily with respect to product sales denominated in euros.

The net impact from changes in foreign currency exchange rates was not material for the three and six months ended June 30, 2022 and 2021.

Results of operations

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Aranesp 358 396 (10) % 1,073 1,118 (4) %

Neulasta 310 486 (36) % 658 968 (32) %

Repatha 309 272 14 % 963 844 14 %

KYPROLIS 318 293 9 % 922 824 12 %

Neulasta 247 415 (40) % 905 1,383 (35) %

Nplate 288 273 5 % 838 745 12 %

Other products (1)

1,627 1,453 12 % 4,691 4,288 9 %

Total product sales $ 6,237 $ 6,320 (1) % $ 18,249 $ 18,026 1 %

Future sales of our products will depend in part on the factors discussed below and in the following sections of this report:

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

Future sales of our products, including the potential impact of the IRA, will depend in part on the factors discussed below and in the following sections of this report:

(i) Part I, Item 2.

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and (iii) Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview, and Results of Operations—Product Sales, as well as in our Quarterly Report on Form 10-Q for the period ended March 31, 2022:

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview, and Results of operations—Product sales, as well as in our Quarterly Reports on Form 10-Q for the periods ended March 31, 2022 and June 30, 2022:

(i) Part I, Item 2.

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Total ENBREL $ 1,106 $ 1,289 (14) % $ 3,019 $ 3,357 (10) %

The decrease in ENBREL sales for the three and six months ended June 30, 2022, was primarily driven by lower net selling price and lower unit demand.

The decrease in ENBREL sales for the three months ended September 30, 2022, was driven by lower net selling price, unfavorable changes to estimated sales deductions and lower unit demand.

The decrease in ENBREL sales for the nine months ended September 30, 2022, was driven by unfavorable changes to estimated sales deductions, lower unit demand and lower net selling price.

For the remainder of 2022, we expect that net selling price will continue to decline driven by increased competition.

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Total Prolia $ 862 $ 803 7 % $ 2,636 $ 2,375 11 %

The increase in global Prolia sales for the three and six months ended June 30, 2022, was primarily driven by higher unit demand.

The increase in global Prolia sales for the three and nine months ended September 30, 2022, was driven by higher unit demand.

Total Otezla sales by geographic region were as follows (dollar amounts in millions):

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Total Otezla $ 627 $ 609 3 % $ 1,672 $ 1,619 3 %

The increase in global Otezla sales for the three months ended June 30, 2022, was driven by higher unit demand and favorable changes to estimated sales deductions, partially offset by lower net selling price.

The increase in global Otezla sales for the six months ended June 30, 2022, was primarily driven by higher unit demand and favorable changes to estimated sales deductions, partially offset by lower net selling price and unfavorable changes to inventory.

For a discussion of litigation related to Otezla, see Part IV—Note 19, Contingencies and commitments, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021, and Note 13, Contingencies and commitments, to the condensed consolidated financial statements in this Quarterly Report.

The increase in global Otezla sales for the three months ended September 30, 2022, was driven by higher unit demand, partially offset by unfavorable changes to inventory and foreign currency exchange rates.

The increase in global Otezla sales for the nine months ended September 30, 2022, was driven by higher unit demand, partially offset by lower net selling price.

For a discussion of litigation related to Otezla, see Part IV—Note 19, Contingencies and commitments, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021, and Part I—Note 13, Contingencies and commitments, to the condensed consolidated financial statements in our Quarterly Reports on Form 10-Q for the periods ended June 30, 2022 and September 30, 2022.

Total XGEVA sales by geographic region were as follows (dollar amounts in millions):

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Total XGEVA $ 495 $ 517 (4) % $ 1,530 $ 1,473 4 %

The increase in global XGEVA sales for the three and six months ended June 30, 2022, was primarily driven by higher net selling price and favorable changes to estimated sales deductions.

The decrease in global XGEVA sales for the three months ended September 30, 2022, was driven by lower unit demand and unfavorable changes to inventory and foreign currency exchange rates, partially offset by higher net selling price.

The increase in global XGEVA sales for the nine months ended September 30, 2022, was primarily driven by higher net selling price.

Total Aranesp sales by geographic region were as follows (dollar amounts in millions):

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Total Aranesp $ 358 $ 396 (10) % $ 1,073 $ 1,118 (4) %

The decrease in global Aranesp sales for the three months ended June 30, 2022, was primarily driven by lower net selling price.

The decrease in global Aranesp sales for the six months ended June 30, 2022, was driven by lower net selling price and unfavorable changes in foreign currency exchange rates, partially offset by favorable changes to estimated sales deductions and higher unit demand.

The decrease in global Aranesp sales for the three months ended September 30, 2022, was primarily driven by lower net selling price and unfavorable changes to foreign currency exchange rates.

The decrease in global Aranesp sales for the nine months ended September 30, 2022, was primarily driven by lower net selling price and unfavorable changes to foreign currency exchange rates, partially offset by favorable changes to estimated sales deductions.

Aranesp continues to face competition from a long-acting erythropoiesis-stimulating agent (ESA) and also faces competition from biosimilar versions of EPOGEN, which will continue to impact sales in the future.

Total Neulasta sales by geographic region were as follows (dollar amounts in millions):

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Neulasta — U.S.

$ 263 $ 434 (39) % $ 567 $ 855 (34) %

Neulasta — ROW

47 52 (10) % 91 113 (19) %

Total Neulasta $ 310 $ 486 (36) % $ 658 $ 968 (32) %

The decrease in global Neulasta sales for the three and six months ended June 30, 2022, was primarily driven by lower net selling price and unit demand.

Increased competition as a result of biosimilar versions of Neulasta has had and will continue to have a significant adverse impact on brand sales, including accelerating net price erosion and lower unit demand.

We also expect other biosimilar versions, including biosimilars that will use an on-body injector that would compete with our Onpro injector, to be approved in the future.

For a discussion of ongoing patent litigations related to these and other biosimilars, see Part IV—Note 19, Contingencies and commitments, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021, and Part I—Note 13, Contingencies and commitments, to the condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the period ended March 31, 2022.

Total Repatha sales by geographic region were as follows (dollar amounts in millions):

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Total Repatha $ 309 $ 272 14 % $ 963 $ 844 14 %

The increase in global Repatha sales for the three and six months ended June 30, 2022, was driven by higher unit demand, partially offset by lower net selling price.

Contracting changes to support and expand Medicare Part D and commercial patient access and the inclusion of Repatha on China’s National Reimbursement Drug List as of January 1, 2022, resulted in the decrease to net selling price in 2022.

Part I—Note 13, Contingencies and commitments, to the condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the period ended March 31, 2022;

and Part I—Note 13, Contingencies and commitments, to the condensed consolidated financial statements in this Quarterly Report.

The increase in global Repatha sales for the three and nine months ended September 30, 2022, was driven by higher unit demand, partially offset by lower net selling price and unfavorable changes to foreign currency exchange rates.

Higher unit demand benefited from contracting changes to support and expand Medicare Part D and commercial patient access and the inclusion of Repatha on China’s National Reimbursement Drug List as of January 1, 2022, both of which resulted in decreases to the net selling price in 2022.

For a discussion of ongoing litigation related to Repatha, see Part IV—Note 19, Contingencies and commitments, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021, and Part I—Note 13, Contingencies and commitments, to the condensed consolidated financial statements in our Quarterly Reports on Form 10-Q for the periods ended March 31, 2022, June 30, 2022 and September 30, 2022.

Total KYPROLIS sales by geographic region were as follows (dollar amounts in millions):

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Total KYPROLIS $ 318 $ 293 9 % $ 922 $ 824 12 %

The increase in global KYPROLIS sales for the three and six months ended June 30, 2022, was driven by higher unit demand, partially offset by lower net selling price.

The increase in global KYPROLIS sales for the three and nine months ended September 30, 2022, was driven by higher unit demand, partially offset by unfavorable changes to foreign currency exchange rates.

The FDA has reported that it has granted tentative or final approval of ANDAs for generic carfilzomib products filed by a number of companies.

The date of approval of those ANDAs for generic carfilzomib products is governed by the Hatch–Waxman Act and any applicable settlement agreements between us and certain companies that seek to develop generic carfilzomib products.

Total Neulasta sales by geographic region were as follows (dollar amounts in millions):

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Neulasta — U.S.

$ 205 $ 360 (43) % $ 772 $ 1,215 (36) %

Neulasta — ROW

42 55 (24) % 133 168 (21) %

Total Neulasta $ 247 $ 415 (40) % $ 905 $ 1,383 (35) %

The decrease in global Neulasta sales for the three and nine months ended September 30, 2022, was primarily driven by lower net selling price and unit demand.

We also expect other biosimilar versions, including biosimilars that will use an on-body injector that would compete with our Onpro injector, to be approved in the future.

Total Nplate sales by geographic region were as follows (dollar amounts in millions):

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Total Nplate $ 288 $ 273 5 % $ 838 $ 745 12 %

The increase in global Nplate sales for the three and six months ended June 30, 2022, was primarily driven by higher unit demand and net selling price.

The increase in global Nplate sales for the three months ended September 30, 2022, was driven by higher unit demand and net selling price, partially offset by unfavorable changes to estimated sales deductions and foreign currency exchange rates.

The increase in global Nplate sales for the nine months ended September 30, 2022, was driven by higher unit demand, higher net selling price and favorable changes to estimated sales deductions, partially offset by unfavorable changes to foreign currency exchange rates.

Other products

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103 77 34 % 289 225 28 %

Aimovig — ROW 4 — NM 7 — NM

Aimovig — ROW 4 2 100 % 11 2 *

Parsabiv — U.S.

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LUMYKRAS — ROW

26 — NM 40 — NM

14 3 * 54 3 *

NEUPOGEN — U.S.

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14 20 (30) % 45 51 (12) %

TEZSPIRE — U.S.

55 — NM 91 — NM

Sensipar — U.S.

5 4 25 % 9 4 *

4 — NM 13 4 *

Sensipar/Mimpara — ROW

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* Change in excess of 100%

(1) Other products include Corlanor, AVSOLA, TEZSPIRE, IMLYGIC and RIABNI as well as sales by Gensenta and Bergamo subsidiaries.

(1) Consists of Corlanor, AVSOLA, IMLYGIC and RIABNI, as well as sales by our Gensenta and Bergamo subsidiaries.

Operating expenses

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Cost of sales

Cost of sales decreased to 22.9% and 23.9% of total revenues for the three and six months ended June 30, 2022, respectively, driven by lower COVID-19 antibody shipments, lower manufacturing costs and lower amortization expense from acquisition-related assets, partially offset by unfavorable product mix.

Cost of sales was essentially flat, at 23.9% of total revenues for the three months ended September 30, 2022, driven by lower costs associated with COVID-19 antibody shipments and lower manufacturing costs, offset by changes in product mix.

Cost of sales decreased to 23.9% of total revenues for the nine months ended September 30, 2022, driven by lower costs associated with COVID-19 antibody shipments, manufacturing costs and amortization expense from acquisition-related assets, partially offset by changes in product mix.

Research and development

The decrease in R&D expense for the three months ended June 30, 2022, was driven by lower marketed product support and lower expense resulting from acquisition-related activity, partially offset by higher spend in research and early pipeline.

The decrease in R&D expense for the six months ended June 30, 2022, was driven by lower marketed product support and lower expense resulting from acquisition-related activity, partially offset by higher late-stage development program spend and research and early pipeline spend.

The decrease in R&D expense for the three and nine months ended September 30, 2022, was driven by a licensing-related upfront payment to KKC in 2021 and lower marketed product support, partially offset by higher spend in late-stage development and research and early pipeline programs.

Acquired in-process research and development

The decrease in Acquired IPR&D expense for the three and six months ended June 30, 2022, was due to the bemarituzumab program, which was acquired as part of the Five Prime acquisition in 2021.

The decrease in Acquired IPR&D expense for the nine months ended September 30, 2022, was due to the bemarituzumab program, which was acquired as part of the Five Prime acquisition in 2021.

See Note 2, Acquisitions and divestitures.

Selling, general and administrative

The decrease in SG&A expense for the three and six months ended June 30, 2022, was primarily driven by lower spend for marketed products and lower expense resulting from acquisition-related activity.

Other operating expenses for the three and six months ended June 30, 2022, consisted primarily of a loss on a nonstrategic divestiture.

The decrease in SG&A expense for the three and nine months ended September 30, 2022, was primarily driven by lower marketed product support.

Other operating expenses for the three months ended September 30, 2022, consisted primarily of an impairment-related charge associated with an intangible asset acquired in a business combination.

Other operating expenses for the nine months ended September 30, 2022, consisted primarily of a loss on a nonstrategic divestiture.

See Note 2, Acquisitions and divestitures.

Other operating expenses for the three and six months ended June 30, 2021, consisted primarily of expenses related to cost saving initiatives.

Other operating expenses for the three months ended September 30, 2021, consisted primarily of changes in the fair values of contingent consideration liabilities.

Other operating expenses for the nine months ended September 30, 2021, consisted primarily of expenses related to cost savings initiatives.

Nonoperating expense/income and income taxes

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2022 2021 2022 2021

Interest expense, net $ (368) $ (296) $ (991) $ (862)

Other (expense) income, net $ (317) $ 11 $ (847) $ 24

Other income (expense), net $ 100 $ 73 $ (747) $ 97

Provision for income taxes $ 249 $ 271 $ 662 $ 576

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Interest expense, net

The increase in Interest expense, net, for the three and six months ended June 30, 2022, was primarily due to higher overall debt outstanding and higher LIBOR rates on debt for which we effectively pay a variable rate of interest through the use of interest rate swaps.

Other (expense) income, net

The change in Other (expense) income, net, for the three and six months ended June 30, 2022, was primarily due to net losses recognized on our strategic equity investments in the current year compared with net gains recognized in the prior year and higher current year losses in connection with our BeiGene investment.

The decrease in our effective tax rate for the three months ended June 30, 2022, was primarily due to the prior year nondeductible IPR&D expense arising from the acquisition of Five Prime, partially offset by current year unfavorable items, including a loss on a nonstrategic divestiture.

The increase in our effective tax rate for the six months ended June 30, 2022, was primarily due to current year unfavorable items compared to last year including a loss on a nonstrategic divestiture, partially offset by the prior year nondeductible IPR&D expense arising from the acquisition of Five Prime and changes in earnings mix.

The increase in Interest expense, net, for the three and nine months ended September 30, 2022, was primarily due to higher overall debt outstanding and higher LIBORs on debt for which we effectively pay a variable rate of interest through the use of interest rate swaps.

Other income (expense), net

The increase in Other income (expense), net, for the three months ended September 30, 2022, was primarily due to the gain recognized on the extinguishment of debt and higher interest income, partially offset by lower current year net gains on our strategic equity investments and higher current year losses in connection with our BeiGene investment.

The decrease in Other income (expense), net, for the nine months ended September 30, 2022, was primarily due to net losses on our strategic equity investments in the current year compared with net gains recognized in the prior year and higher current year net losses in connection with our BeiGene investment, partially offset by the gain recognized on the extinguishment of debt and higher interest income in the current year.

The decrease in our effective tax rate for the three months ended September 30, 2022, was primarily due to the prior year nondeductible IPR&D expense arising from the acquisition of Five Prime and net favorable items, partially offset by a nondeductible loss from a nonstrategic divestiture.

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

See Note 2, Acquisitions and divestitures.

The Administration proposed and Congress is considering a variety of potentially significant changes to existing tax law.

These changes, or others, could substantially increase taxes we pay to the U.S.

The Administration and Congress continue to discuss changes to existing tax law that could substantially increase the taxes we pay to the U.S.

Further, the OECD recently reached an agreement to align countries on a minimum corporate tax rate and an expansion of the taxing rights of market countries.

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However, the U.S.

territory of Puerto Rico recently enacted Act 52-2022, which provides for an alternate fixed tax rate on industrial development income that is expected to be creditable under U.S.

territory of Puerto Rico recently enacted Act 52-2022, which provides for an alternate fixed tax rate on industrial development income that the U.S.

Treasury recently confirmed will be creditable under U.S.

As part of this new law, eligible businesses would be subject to incremental income and withholding taxes in lieu of payment of the Puerto Rico Excise Tax.

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Once we qualify for this alternative fixed tax rate, which we expect to occur as of January 1, 2023, our tax expense will increase.

While we expect these taxes to be partially offset by U.S.

foreign tax credits, the U.S.

Treasury has not yet issued guidance on whether the alternative fixed tax rate will be creditable under U.S.

In 2017, we received an RAR and a modified RAR from the IRS for the years 2010–2012, proposing significant adjustments that primarily relate to the allocation of profits between certain of our entities in the United States and the U.S.

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We firmly believe that the IRS positions set forth in the 2010–2012 and 2013–2015 Notices are without merit.

We are contesting the 2010–2012 and 2013–2015 Notices through the judicial process, and we will seek consolidation of the two periods into one case in the U.S.

We are contesting the 2010–2012 and 2013–2015 Notices through the judicial process, and we filed a motion to consolidate the two periods into one case in the U.S.

We are currently under examination by the IRS for the years 2016–2018 with respect to issues similar to those for the 2010 through 2015 period.

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federal income tax examinations for years ended on or before December 31, 2009.

See Part II, Item 1A, Risk Factors— The adoption and interpretation of new tax legislation or exposure to additional tax liabilities could affect our profitability, and Note 4, Income taxes, to the condensed consolidated financial statements for further discussion.

See Part II, Item 1A, Risk Factors— The adoption and interpretation of new tax legislation or exposure to additional tax liabilities could affect our profitability in our Quarterly Report on Form 10-Q for the period ended June 30, 2022 , and Note 4, Income taxes, to the condensed consolidated financial statements for further discussion.

Financial condition, liquidity and capital resources

Selected financial data were as follows (in millions):

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Cash, cash equivalents and marketable securities $ 11,478 $ 8,037

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Cash, cash equivalents and marketable securities

Our balance of cash, cash equivalents and marketable securities was $7.2 billion as of June 30, 2022.

Our balance of cash, cash equivalents and marketable securities was $11.5 billion as of September 30, 2022.

The primary objective of our investment portfolio is to maintain safety of principal, prudent levels of liquidity and acceptable levels of risk.

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We intend to continue to invest in our business while returning capital to stockholders through the payment of cash dividends and stock repurchases, thereby reflecting our confidence in the future cash flows of our business and our desire to optimize our cost of capital.

periodic determination by our Board of Directors that cash dividends and/or stock repurchases are in the best interests of stockholders and are in compliance with applicable laws and the Company’s agreements.

The timing and amount of future dividends and stock repurchases will vary based on a number of factors, including future capital requirements for strategic transactions, availability of financing on acceptable terms, debt service requirements, our credit rating, changes to applicable tax laws or corporate laws, changes to our business model and periodic determination by our Board of Directors that cash dividends and/or stock repurchases are in the best interests of stockholders and are in compliance with applicable laws and the Company’s agreements.

In addition, the timing and amount of stock repurchases may also be affected by our overall level of cash, stock price and blackout periods, during which we are restricted from repurchasing stock.

The manner of stock repurchases may include block purchases, tender offers, ASRs and market transactions.

In March 2022 and December 2021, the Board of Directors declared a quarterly cash dividend of $1.94 per share of common stock, which were paid on June 8, 2022 and March 8, 2022, respectively, an increase of 10% over quarterly cash dividend paid in each quarter in 2021.

In August 2022, the Board of Directors declared a quarterly cash dividend of $1.94 per share of common stock, which will be paid on September 8, 2022 to all stockholders of record as of the close of business on August 18, 2022.

In August 2022, March 2022 and December 2021, the Board of Directors declared quarterly cash dividends of $1.94 per share of common stock, which were paid in September 2022, June 2022 and March 2022, respectively, an increase of 10% over the quarterly cash dividend paid each quarter in 2021.

In October 2022, the Board of Directors declared a quarterly cash dividend of $1.94 per share of common stock, which will be paid in December 2022.

We also returned capital to stockholders through our stock repurchase program.

During the six months ended June 30, 2022, we executed trades to repurchase $5.4 billion of common stock, including $5.1 billion of an initial purchase under the ASR agreements described below.

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

During the nine months ended September 30, 2022, we executed trades to repurchase $6.3 billion of common stock, including $6.0 billion related to our ASR agreements described below.

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

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

In February 2022, we entered into ASR agreements under which we paid an aggregate amount of $6.0 billion to the Dealers and retired an initial 23.3 million shares of common stock.

Approximately $0.9 billion of stock remains to be delivered by the Dealers pending final settlement, which will be based on the daily volume-weighted average stock price of our common stock during the terms of the ASR agreements, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR agreements.

At settlement, which is scheduled to occur in the third quarter of 2022, the Dealers may be required to deliver additional shares of common stock to us, or under certain circumstances, we may be required to deliver shares of common stock or to make a cash payment, at our election, to the Dealers.

As a result of stock repurchases and quarterly dividend payments, we have an accumulated deficit as of June 30, 2022 and December 31, 2021.

Approximately $0.9 billion in value of stock remained to be delivered by the Dealers upon final settlement.

Final settlement under the ASR agreements occurred in September 2022 resulting in an additional 1.5 million shares received from the Dealers.

In total, 24.8 million shares of common stock were repurchased under the ASR agreements.

As a result of stock repurchases and quarterly dividend payments, we have an accumulated deficit as of September 30, 2022 and December 31, 2021.

Our accumulated deficit is not anticipated to affect our future ability to operate, repurchase stock, pay dividends or repay our debt given our continuing profitability and strong financial position.

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In addition, our revolving credit agreement includes a financial covenant that requires us to maintain a specified minimum interest coverage ratio of (i) the sum of consolidated net income, interest expense, provision for income taxes, depreciation expense, amortization expense, unusual or nonrecurring charges and other noncash items (consolidated earnings before interest, taxes, depreciation and amortization) to (ii) consolidated interest expense, each as defined and described in the credit agreement.

We were in compliance with all applicable covenants under these arrangements as of June 30, 2022.

We were in compliance with all applicable covenants under these arrangements as of September 30, 2022.

Our summarized cash flow activity was as follows (in millions):

Six months ended

Nine months ended

September 30,

Net cash provided by operating activities $ 7,072 $ 6,453

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Cash provided by operating activities has been and is expected to continue to be our primary recurring source of funds.

Cash provided by operating activities during the six months ended June 30, 2022, increased primarily due to higher net income, after adjustments for noncash items, partially offset by the impact of working capital items.

Cash used in investing activities during the six months ended June 30, 2022, was primarily due to net cash outflows related to marketable securities activity of $1.9 billion and capital expenditures of $436 million.

Cash provided by investing activities during the six months ended June 30, 2021, was primarily due to net cash inflows related to marketable securities activity of $2.9 billion, partially offset by the acquisition of Five Prime for $1.6 billion and capital expenditures of $351 million.

Cash provided by operating activities during the nine months ended September 30, 2022, increased primarily due to higher net income, after adjustments for noncash items, and the impact of working capital items.

Cash used in investing activities during the nine months ended September 30, 2022, was primarily due to net cash outflows related to marketable securities activity of $1.9 billion and capital expenditures of $596 million.

Cash provided by investing activities during the nine months ended September 30, 2021, was primarily due to net cash inflows related to marketable securities activity of $3.4 billion, partially offset by the acquisition of Five Prime for $1.6 billion, net of cash acquired, and capital expenditures of $593 million.

We currently estimate 2022 spending on capital projects to be approximately $950 million.

Cash used in financing activities during the six months ended June 30, 2022, was primarily due to payments to repurchase our common stock of $6.4 billion, including amounts paid under the ASR agreements discussed above, and the payment of dividends of $2.1 billion, partially offset by proceeds from the issuance of debt of $4.0 billion.

Cash used in financing activities during the six months ended June 30, 2021, was primarily due to payments to repurchase our common stock of $2.5 billion and the payment of dividends of $2.0 billion.

Cash used in financing activities during the nine months ended September 30, 2022, was primarily due to payments to repurchase our common stock of $6.4 billion, including amounts paid under the ASR agreements discussed above, the payment of dividends of $3.2 billion and the extinguishment of debt of $297 million, partially offset by proceeds from the issuance of debt of $6.9 billion.

Cash used in financing activities during the nine months ended September 30, 2021, was primarily due to payments to repurchase our common stock of $3.5 billion and the payment of dividends of $3.0 billion, partially offset by proceeds from the issuance of debt of $4.9 billion.

See Note 9, Financing arrangements, and Note 10, Stockholders’ equity, to the condensed consolidated financial statements for further discussion.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis