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Item 7. Management’s Discussion and Analysis

2023-02-22 compared with 2022-02-23 · 193 added, 382 removed, 97 unchanged (86% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our results of operations and financial condition.

MD&A is provided as a supplement to, and should be read in conjunction with, our audited Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements and other disclosures included in this Annual Report on Form 10-K (including the disclosures under Part I, Item 1A.

Risk Factors).

Additional i nformation related to the comparison of our results of operations between the years 2020 and 2019 is included in Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations of o ur 2020 Form 10-K filed with the U.S.

Securities and Exchange Commission (the “SEC”) .

Our Consolidated Financial Statements have been prepared in accordance with U.S.

generally accepted accounting principles and are presented in U.S.

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 accompanying Notes to Consolidated Financial Statements and other disclosures included in this Annual Report on Form 10-K (including the disclosures under Part I, Item 1A.

Risk Factors) where other material events and uncertainties not otherwise discussed below are disclosed.

Certain amounts and percentages herein may not sum or recalculate due to rounding.

Additional information related to the comparison of our results of operations between the years 2021 and 2020 is included in Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2021 Form 10-K filed with the U.S.

Securities and Exchange Commission (“SEC”) .

Management Overview

Strategy and Outlook

Gilead Sciences, Inc.

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We operate in more than 35 countries worldwide, with headquarters in Foster City, California.

Our portfolio of marketed products includes AmBisome ® , Atripla ® , Biktarvy ® , Cayston ® , Complera ® , Descovy ® , Descovy for PrEP ® , Emtriva ® , Epclusa ® , Eviplera ® , Genvoya ® , Harvoni ® , Hepcludex ® (bulevirtide), Hepsera ® , Jyseleca ® (filgotinib), Letairis ® , Odefsey ® , Ranexa ® , Sovaldi ® , Stribild ® , Tecartus ® , Trodelvy ® , Truvada ® , Truvada for PrEP ® , Tybost ® , Veklury ® , Vemlidy ® , Viread ® , Vosevi ® , Yescarta ® and Zydelig ® .

The approval status of Hepcludex and Jyseleca vary worldwide, and Hepcludex and Jyseleca are not approved in the United States.

We also sell and distribute authorized generic versions of Epclusa and Harvoni in the United States through our separate subsidiary, Asegua Therapeutics, LLC.

In addition, we sell and distribute certain products through our corporate partners under collaborative agreements.

Business Highlights (1)

We delivered strong financial performance in 2021.

Veklury continued to play a critical role in addressing the coronavirus disease 2019 (“COVID-19”) pandemic.

Veklury’s performance helped mitigate the impacts of COVID-19 on other parts of the business, including on our HIV and chronic hepatitis C virus (“HCV”) franchises, and the impacts of the October 2020 loss of exclusivity of Truvada and Atripla in the United States.

Despite these transitory headwinds, underlying demand for our virology portfolio remained strong, led by the continued growth of our Biktarvy franchise.

We also received increased contributions from our oncology franchise, experiencing growth in Trodelvy, as well as our Cell Therapy franchise.

We continued to expand and strengthen both our commercial portfolio and clinical pipeline across therapeutic focus areas to drive future growth potential.

During 2021, we announced an additional six filings for regulatory approval.

In addition to investing in our internal pipeline programs, we also continued to enter into and leverage our existing strategic collaborations and partnerships, including opting into four additional pipeline assets from our collaboration with Arcus Biosciences, Inc.

(“Arcus”) to further develop the foundation for a more sustainable and diversified business.

Viral Diseases

• In October 2021, U.S.

Food and Drug Administration (“FDA”) approved a new low-dose tablet dosage form of Biktarvy for pediatric patients weighing at least 14 kg to less than 25 kg who are virologically suppressed or new to antiretroviral therapy.

• In August 2021, our Marketing Authorization Application for lenacapavir, an investigational, long-acting HIV-1 capsid inhibitor, was fully validated and is now under evaluation with the European Medicines Agency (“EMA”).

• In June 2021, FDA granted approval of a new oral pellet formulation of Epclusa, expanding the pediatric indication to treat children as young as 3 years of age with chronic HCV.

• In June 2021, we submitted a New Drug Application to FDA for lenacapavir, an investigational, long-acting agent in development for the treatment of HIV-1 in people with limited therapy options.

• In March 2021, we entered into an agreement with Merck Sharp & Dohme Corp.

(“Merck”), a subsidiary of Merck & Co., Inc., to jointly develop and commercialize long-acting investigational treatments in HIV that combine Gilead’s investigational capsid inhibitor, lenacapavir, and Merck’s investigational nucleoside reverse transcriptase translocation inhibitor, islatravir.

• In March 2021, we completed the acquisition of MYR GmbH (“MYR”).

The acquisition provides us with Hepcludex, which is conditionally approved by EMA for the treatment of chronic hepatitis delta virus (“HDV”) in adults with compensated liver disease.

• In January 2022, FDA granted expedited approval for Veklury for the treatment of non-hospitalized adult and adolescent patients who are at high risk of progression to severe COVID-19, including hospitalization or death.

• In December 2021, the European Commission granted approval to expand the indication for Veklury for use in the earlier stages of the disease in adult patients who do not require supplemental oxygen and are at increased risk of progressing to severe COVID-19.

• In April 2021, we announced that we will (i) provide assistance and support for expansion of local manufacturing capacity of remdesivir in India and will donate the active pharmaceutical ingredient and (ii) donate a minimum of 450,000 vials of Veklury (remdesivir) to the government of India.

• In January 2022, FDA approved an update to the prescribing information for Yescarta to include the use of prophylactic corticosteroids across all approved indications.

Yescarta is now the first and only chimeric antigen receptor (“CAR”) T-cell therapy with information in the label to help physicians manage, and potentially prevent, treatment side effects.

• In October 2021, FDA approved Tecartus for the treatment of adult patients with relapsed or refractory B-cell precursor acute lymphoblastic leukemia (“ALL”).

Tecartus is the first and only CAR T cell therapy approved for adults with ALL.

• In September 2021, Kite, a Gilead company (“Kite”) submitted a supplemental Biologics License Application to FDA for Yescarta to expand its current indication to include the treatment of adults with relapsed or refractory large B-cell lymphoma (“LBCL”) in the second-line setting.

• In August 2021, Kite and Appia Bio, Inc.

entered into a collaboration and license agreement to research and develop hematopoietic stem cell derived cell therapies directed toward hematological malignancies.

• In June 2021, Kite entered into a research collaboration and license agreement with Shoreline Biosciences, Inc.

to develop novel allogeneic cell therapies across a variety of cancer targets.

• In June 2021, Fosun Kite Biotechnology Co.

Ltd, a joint venture between Kite and Shanghai Fosun Pharmaceutical (Group) Co., Ltd, received approval from the China National Medical Products Administration for axicabtagene ciloleucel for the treatment of adult patients with relapsed or refractory LBCL in China.

• In March 2021, FDA granted accelerated approval of Yescarta for the treatment of adult patients with relapsed or refractory follicular lymphoma (“FL”).

• In January 2022, we entered into a clinical trial collaboration agreement with Merck to evaluate Trodelvy in combination with Merck’s anti-programmed death receptor-1 (“PD-1”) therapy, Keytruda, in a first-line setting for patients with non-small cell lung cancer (“NSCLC”).

• In November 2021, the European Commission granted marketing authorization for Trodelvy for treatment of metastatic triple-negative breast cancer (“TNBC”) in adult patients with unresectable or metastatic TNBC who have received two or more prior systemic therapies, at least one of them for advanced disease.

• In November 2021, we exercised options to three programs in the clinical-stage portfolio of Arcus, including anti-TIGIT molecules domvanalimab and AB308, as well as clinical candidates etrumadenant (dual adenosine A2a/A2b receptor antagonist) and quemliclustat (small molecule CD73 inhibitor).

The transaction closed in December 2021.

• In October 2021, we entered into a clinical trial collaboration and supply agreement with Merck to evaluate the efficacy of Trodelvy in combination with Keytruda as a first-line treatment for patients with locally advanced or metastatic TNBC.

• In September 2021, Health Canada approved Trodelvy for the treatment of adult patients with unresectable locally advanced or metastatic TNBC who have received two or more therapies, at least one of them for metastatic disease.

Canada joined Australia, Great Britain, Switzerland and the United States among the countries that have approved Trodelvy for use under Project Orbis, a global collaborative review program for high impact oncology marketing applications across participating countries.

• In April 2021, FDA granted accelerated approval of Trodelvy for use in adult patients with locally advanced or metastatic urothelial cancer (“UC”), a new indication.

• In April 2021, FDA granted full approval of Trodelvy for adult patients with unresectable locally advanced or metastatic TNBC.

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(1) We announced and discussed these updates in further detail in press releases available on our website at www.gilead.com.

Readers are also encouraged to review all other press releases available on our website mentioned above.

The content on the referenced websites does not constitute a part of and is not incorporated by reference into this Annual Report on Form 10-K.

2021 Financial Highlights

(in millions, except percentages and per share amounts) 2021 2020 Change

Total revenues $ 27,305 $ 24,689 11 %

Net income attributable to Gilead $ 6,225 $ 123 NM

Net income per share attributable to Gilead common stockholders - diluted $ 4.93 $ 0.10 NM

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Total revenues increased by 11% to $27.3 billion in 2021, compared to $24.7 billion in 2020, primarily due to increased sales of Veklury, our FDA-approved treatment for hospitalized patients with COVID-19.

The increase also reflects the continued growth of Biktarvy in all geographies and the continued uptake of Trodelvy, Cell Therapy and chronic hepatitis B virus (“HBV”) and HDV products.

The increases were partially offset by the decrease in Truvada and Atripla sales in the United States, as expected, primarily due to the continued generic competition following the October 2020 loss of exclusivity in the United States.

Net income attributable to Gilead was $6.2 billion or $4.93 diluted earnings per share in 2021, compared to $123 million or $0.10 diluted earnings per share in 2020.

The increase was primarily due to lower acquired in-process research and development (“IPR&D”) charges, revenue growth and lower unrealized losses from our equity investments, partially offset by a $1.25 billion charge for a settlement related to bictegravir litigation, and a charge of $625 million related to the Arcus collaboration opt-in.

Our acquired IPR&D expenses in 2020 were $5.9 billion primarily related to our acquisition of Forty Seven as well as collaborations and other investments that we entered into during the year with Arcus, Pionyr Immunotherapeutics, Inc.

(“Pionyr”), Tango Therapeutics, Inc.

(“Tango”), Tizona Therapeutics, Inc.

(“Tizona”) and Jounce Therapeutics, Inc.

Strategy and Outlook 2022

Our purpose is to deliver life-changing medications to patients in need through scientific breakthroughs, innovation and strong operational execution.

Our strategic ambitions are to (i) bring 10+ transformative therapies to patients by 2030;

Since 2019, our strategic ambitions have been to (i) bring 10+ transformative therapies to patients by 2030;

(ii) be the biotech employer and partner of choice;

and (iii) deliver shareholder value in a sustainable and responsible manner.

Our strategic priorities reflect how we will deliver those ambitions:

(i) expand internal and external innovation;

(ii) strengthen portfolio strategy and decision making;

(iii) increase patient benefit and access;

and (iv) continue to evolve our culture.

In 2022, we will continue to focus on executing our strategy to expand and diversify our commercial portfolio and clinical pipelines across our three therapeutic focus areas:

virology, oncology and inflammation.

Specifically, we plan to significantly increase clinical development studies across our novel oncology portfolio while maintaining our leadership in antiviral medications through our work in HIV, hepatitis, the COVID-19 pandemic and emerging viruses.

Our collaboration with Arcus provides additional opportunities for us to further develop the foundation for a more sustainable and diversified business.

Beyond expanding our products and pipeline, we also continue to focus on our employees, the evolution of our culture and our efforts to promote racial equity and social justice.

Additionally, we expect to maintain a rigorous focus on disciplined expense management.

While, the COVID-19 pandemic continues to impact our business and broader market dynamics, we expect revenue growth of between 2 – 4% in 2022 product sales, excluding Veklury, as compared to 2021.

Our HIV product sales will continue to recover from the COVID-19 pandemic and demonstrate year-over-year growth, as the financial impact of the Truvada and Atripla loss of exclusivity will be largely behind us starting in the second quarter of 2022.

We also expect our oncology businesses, including Cell Therapy and Trodelvy, to contribute to our growth.

Veklury sales are generated in a highly dynamic and complex global environment, which continues to evolve.

As a result, Veklury sales are subject to significant volatility and uncertainty.

Future product demand will depend on the nature of the COVID-19 pandemic, including duration, infection rates, hospitalizations, and availability and adoption of alternative therapies and vaccines.

While we anticipate a year-over-year decline in Veklury product sales, we expect Veklury to continue to play a key role in the pandemic and contribute meaningfully to our revenue in 2022, more heavily weighted towards the beginning of the year.

Our ability to deliver on our strategy is subject to a number of uncertainties, including, but not limited to, the effects of the COVID-19 pandemic, which remains unpredictable;

the uncertainty regarding the amount and timing of future Veklury sales;

the continuation of an uncertain global macroeconomic environment;

our ability to realize the potential benefits of our acquisitions, collaborations or licensing arrangements;

our ability to initiate, progress or complete clinical trials within currently anticipated timeframes, including as a result of any current or future holds on clinical trials;

the possibility of unfavorable results from new and ongoing clinical trials;

our ability to submit new drug applications for new product candidates or expanded indications in the currently anticipated timelines;

our ability to receive regulatory approvals in a timely manner or at all;

market share and price erosion caused by the introduction of generics;

loss of exclusivity of our products;

higher than anticipated effects of the loss of exclusivity from Truvada and Atripla;

slower than anticipated growth in Biktarvy, Trodelvy, Vemlidy and Cell Therapy products;

inaccuracies in our patient start estimates;

additional pricing pressures from payers and competitors;

an increase in discounts, chargebacks and rebates due to ongoing contracts and future negotiations with commercial and government payers;

potential government actions that could have the effect of lowering prices;

a larger-than anticipated shift in payer mix to a more highly discounted payer segment;

and volatility in foreign currency exchange rates.

Our strategic priorities for 2023 and beyond, reflecting how we plan to deliver those ambitions, are:

(i) maximize near-term revenue growth;

(ii) maximize impact of long-active HIV;

(iii) expand and deliver on oncology programs;

(iv) champion an environment of inclusion and employee growth;

and (v) remove barriers to speed in execution.

We plan to provide consistent execution on a portfolio with quality, depth and breadth, including continued growth in our leading HIV portfolio, which is poised to shape the long-acting market following our first lenacapavir approvals, as well as strong commercial performance and clinical momentum for our fast-growing oncology business.

Key Business Updates

During 2022, we continued to advance our portfolio, receiving approvals across various therapeutic areas, indications and geographies.

We ended the year with Sunlenca receiving its first approval in the U.S.

for heavily-treatment experienced individuals, following the first European market approval by the European Commission (“EC”).

This is the first twice-yearly, subcutaneous HIV medicine to be approved.

We also continued to broaden therapies available in oncology, receiving approvals for additional indications of Yescarta and Tecartus, and the 2023 approval of Trodelvy for the treatment of adult patients with unresectable locally advanced or metastatic hormone receptor-positive, human epidermal growth factor receptor 2-negative (“HR+/HER2-”) breast cancer who have received endocrine-based therapy and at least two additional systemic therapies in the metastatic setting.

In terms of capital resources, we continued to invest in our business and research and development (“R&D”) pipeline through acquisitions and collaborations.

We also continued to provide shareholder returns in the form of dividends and share repurchases.

The following highlights are taken from press releases recently issued.

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 Annual Report on Form 10-K.

• In December 2022, we announced U.S.

Food and Drug Administration (“FDA”) approval of Sunlenca, in combination with other antiretroviral(s), for the treatment of HIV-1 infection in heavily treatment-experienced adults with multi-drug resistant HIV-1 infection.

• In November 2022, we announced the EC authorized an extended indication and line extension for a low-dosage tablet form of Biktarvy for the treatment of HIV in virologically suppressed children who are at least 2 years of age and weigh at least 14 kg.

• In November 2022, we announced FDA approval of Vemlidy for the treatment of chronic hepatitis B virus (“HBV”) infection in pediatric patients 12 years and older with compensated liver disease.

• In October 2022, we announced that Merck & Co., Inc.

(“Merck”) and Gilead plan to resume their Phase 2 study under an amended protocol.

The study will evaluate an investigational once-weekly oral combination treatment regimen of Merck’s islatravir at a lower weekly dose and Gilead’s lenacapavir.

• In August 2022, we announced that EC has granted marketing authorization for Sunlenca (lenacapavir) for the treatment of HIV infection, in combination with other antiretroviral(s), in adults with multi-drug resistant HIV infection for whom it is otherwise not possible to construct a suppressive antiviral regimen.

• In July 2022, we received a positive opinion from European Medicines Agency’s (“EMA”) Committee for Medicinal Products for Human Use (“CHMP”) for Veklury to be granted full marketing authorization for the treatment of coronavirus disease 2019 (“COVID-19”) in adults and adolescents with pneumonia requiring supplemental oxygen and adults who do not require supplemental oxygen and are at increased risk of developing severe COVID-19.

• In May 2022, we announced FDA lifted the clinical hold placed on the Investigational New Drug Application to evaluate injectable lenacapavir for HIV treatment and pre-exposure prophylaxis following the agency’s review of the storage and compatibility data of lenacapavir injection with an alternate vial made from aluminosilicate glass.

• In April 2022, FDA approved a supplemental new drug application for Veklury for the treatment of pediatric patients under 12 years of age for the treatment of COVID-19.

• In December 2022, we entered into an agreement to acquire Tmunity Therapeutics Inc.

(“Tmunity”), a clinical stage private biotech company, which will provide us with preclinical and clinical programs, including an “armored” CAR T technology platform that has the potential to be applied to a variety of CAR Ts to enhance anti-tumor activity, as well as rapid manufacturing processes.

The transaction closed in February 2023.

• In December 2022, we entered into a strategic collaboration with Arcellx, Inc.

(“Arcellx”) to co-develop and co-commercialize CART-ddBCMA, a late-stage clinical asset in development for the treatment of multiple myeloma.

The transaction closed in January 2023.

• In December 2022, we announced the transfer of the marketing authorization for Yescarta in Japan from Daiichi Sankyo Co., Ltd.

to Gilead K.K.

• In December 2022, we received approval from the Ministry of Health, Labour and Welfare in Japan for Yescarta for the initial treatment of relapsed or refractory (“R/R”) large B-cell lymphoma (“LBCL”).

• In October 2022, we received European marketing authorization for Yescarta use in adults with second-line diffuse LBCL.

Additionally, EC granted marketing authorization for Tecartus for the treatment of adult R/R B-cell precursor acute lymphoblastic leukemia (“ALL”), and in Canada, we received conditional marketing authorization for Yescarta for R/R follicular lymphoma (“FL”) after two or more lines of systemic therapy.

• In July 2022, we received a positive opinion from EMA’s CHMP for Tecartus for the treatment of adult patients 26 years of age and above with R/R B-cell precursor ALL.

• In June 2022, EC approved Yescarta for the treatment of adult patients with R/R FL after three or more lines of systemic therapy.

• In April 2022, FDA approved commercial production at our new CAR T-cell therapy manufacturing facility in Frederick, Maryland.

• In April 2022, FDA granted approval to Yescarta as initial treatment for adults with LBCL that is refractory to or relapses within 12 months of first-line chemoimmunotherapy.

• In February 2023, we announced that FDA has approved Trodelvy for the treatment of adult patients with unresectable locally advanced or metastatic HR+/HER2- breast cancer who have received endocrine-based therapy and at least two additional systemic therapies in the metastatic setting.

• In January 2023, we announced that EMA has validated a Type II variation of the Marketing Authorization Application for Trodelvy for the treatment of adult patients unresectable or metastatic HR+/HER2- breast cancer who have received endocrine-based therapy and at least two additional systemic therapies in the metastatic setting.

• In December 2022, we acquired the remaining rights to GS-1811, an anti-CCR8 antibody developed by Jounce Therapeutics, Inc.

(“Jounce”) for the treatment of solid tumors.

• In October 2022, we announced a strategic collaboration with MacroGenics, Inc.

(“MacroGenics”) to develop bispecific antibodies to treat various cancers.

The agreement includes an upfront payment by us of $60 million to MacroGenics and an exclusive option granted to us on MGD024, an investigational CD123 and CD3 bispecific.

• In August 2022, we announced an agreement with Everest Medicines (“Everest”) to transfer all development and commercialization rights to Gilead for Trodelvy in Greater China, South Korea, and other Asian markets.

• In April 2022, we entered into a strategic research collaboration agreement with Dragonfly Therapeutics, Inc.

(“Dragonfly”) to develop natural killer cell engager-based immunotherapies for oncology and inflammation indications.

• In March 2022, we announced results from the Phase 3 TROPiCS-02 study evaluating Trodelvy in patients with HR+/HER2- mBC who received prior endocrine therapy, cyclin-dependent kinase (“CDK”) 4/6 inhibitors and two to four lines of chemotherapy.

• In January 2023, we announced a collaboration and licensing agreement with EVOQ Therapeutics, Inc.

(“EVOQ”) to advance EVOQ’s proprietary NanoDisc technology for the treatment of rheumatoid arthritis and lupus.

• In September 2022, we completed the acquisition of MiroBio Ltd.

(“MiroBio”) for $414 million in cash.

MiroBio is a U.K.-based biotechnology company focused on restoring immune balance with agonists targeting immune inhibitory receptors.

Key Financial Results

(in millions, except percentages and per share amounts) 2022 2021 Change

Total revenues $ 27,281 $ 27,305 — %

Net income attributable to Gilead $ 4,592 $ 6,225 (26) %

Diluted earnings per share attributable to Gilead $ 3.64 $ 4.93 (26) %

Total revenues were $27.3 billion in 2022 and remained relatively flat compared to 2021, primarily due to increased sales in HIV, cell therapy and Trodelvy, offset by lower sales of Veklury.

Net income attributable to Gilead was $4.6 billion or $3.64 diluted earnings per share attributable to Gilead in 2022, compared to $6.2 billion or $4.93 diluted earnings per share attributable to Gilead in 2021.

The decrease was primarily due to the following items net of their related tax effect:

a partial in-process research and development (“IPR&D”) impairment charge of $2.7 billion during the three months ended March 31, 2022 related to assets we acquired from Immunomedics, Inc.

(“Immunomedics”) in 2020, a $406 million charge related to the termination of the Trodelvy collaboration agreement with Everest and higher R&D expenses, partially offset by a $1.25 billion charge for a settlement related to bictegravir litigation in the fourth quarter of 2021 that did not repeat in 2022.

Results of Operations

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

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

Year Ended December 31, 2022 Year Ended December 31, 2021

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Cell Therapy 968 430 60 1,459 542 293 36 871 68 %

Trodelvy 370 10 — 380 49 — — 49 NM

Trodelvy 525 143 12 680 370 10 — 380 79 %

Other 388 323 235 946 381 389 257 1,027 (8) %

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Product Sales

HIV product sales decreased by 4% to $16.3 billion in 2021, compared to $16.9 billion in 2020, due to the anticipated decline in sales volume of our Truvada (emtricitabine (“FTC”) and tenofovir disoproxil fumarate (“TDF”))-based products driven by the continued generic competition following the October 2020 loss of exclusivity of Truvada and Atripla in the United States.

Truvada and Atripla product sales were $1.3 billion lower in 2021, compared to 2020.

The decrease was also impacted by lower sales of Genvoya driven by decrease in volume worldwide primarily due to patients switching to Biktarvy.

These declines were partially offset by an increase in Biktarvy product sales worldwide driven by higher demand, higher net average selling price driven by favorable changes in estimates of government rebates and discounts in the United States.

We expect that our HIV business will continue to recover from the COVID-19 pandemic in 2022.

We also expect the impact of the Truvada and Atripla loss of exclusivity will be largely behind us starting in the second quarter of 2022.

Veklury product sales were $5.6 billion in 2021, compared to $2.8 billion in 2020.

Veklury became commercially available in the third quarter of 2020, resulting in a partial year of sales in 2020.

The increase was also attributable to higher hospital demand worldwide.

Sales of Veklury are generally affected by COVID-19 related rates of infections, hospitalizations and vaccinations as well as the availability, uptake and effectiveness of alternative treatments for COVID-19.

As a result, future sales of Veklury are difficult to predict.

HCV product sales decreased by 9% to $1.9 billion in 2021, compared to $2.1 billion in 2020, primarily due to lower demand driven by fewer patient starts worldwide due to the impact of the COVID-19 pandemic.

The slight increase in HCV sales in Europe in 2021 was due to a favorable change in estimate of government rebates, which offset the revenue decrease associated with lower demand.

HBV and HDV product sales increased by 13% to $969 million in 2021, compared to $860 million in 2020, primarily due to higher Vemlidy product sales due to higher demand in all geographies, partially offset by lower Viread product sales in Other international locations.

Hepcludex sales in 2021 were $37 million as launch activities continued across Europe following our first quarter 2021 acquisition of MYR.

Cell Therapy product sales, which include Yescarta and Tecartus, increased by 43% to $871 million in 2021, compared to $607 million in 2020.

The growth was primarily due to the July 2020 launch of Tecartus in the United States for the treatment of adult patients with relapsed or refractory mantle cell lymphoma (“MCL”) and the December 2020 launch of Tecartus for MCL in Europe, resulting in partial year of sales in 2020.

The increase was also driven by continued higher demand for Yescarta worldwide for LBCL and volume growth related to approval of Yescarta for FL in the United States in 2021.

Trodelvy product sales increased to $380 million in 2021, compared to $49 million in 2020.

We obtained Trodelvy through the fourth quarter 2020 acquisition of Immunomedics, resulting in a partial year of sales in 2020.

In addition, 2021 revenues include continued uptake of Trodelvy following the full regulatory approval for metastatic TNBC in the United States and Europe and accelerated approval for metastatic UC in the United States.

Other Product Sales

Other product sales, which include AmBisome, Cayston, Jyseleca, Letairis, Ranexa and Zydelig, were $1.0 billion in 2021 and remained flat as compared to 2020.

AmBisome sales volume increased due to higher demand in geographies outside the United States.

The increase was mostly offset by lower Letairis sales in the United States, as anticipated, due to continued generic competition following the loss of exclusivity in 2019.

Revenues of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further disaggregation of revenue by product.

HIV product sales increased by 5% to $17.2 billion in 2022, compared to 2021, primarily due to continued higher demand for Biktarvy worldwide and favorable pricing dynamics, partially offset by the impact of the loss of exclusivity for Truvada in the U.S., channel inventory dynamics and unfavorable foreign currency exchange impact.

Part of our favorable pricing dynamics resulted from shifts in channel mix, and we expect channel mix to remain similar in 2023.

Veklury product sales decreased by 30% to $3.9 billion in 2022, compared to 2021, primarily due to lower demand driven by reduced hospitalization rates in the U.S.

and Europe, partially offset by higher demand in Other International.

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.

As a result, future sales of Veklury are difficult to predict and may vary significantly from one period to the next.

HCV product sales decreased by 4% to $1.8 billion in 2022, compared to 2021, primarily due to unfavorable foreign currency exchange impact, fewer patient starts and unfavorable pricing dynamics.

HBV and HDV product sales increased by 2% to $988 million in 2022, compared to 2021, primarily due to higher demand for Vemlidy and the continued adoption of Hepcludex in Europe.

Cell therapy product sales, which include Yescarta and Tecartus, increased by 68% to $1.5 billion in 2022, compared to 2021, primarily due to higher demand for Yescarta in R/R LBCL in the U.S.

and Europe, as well as for Tecartus in R/R ALL and mantle cell lymphoma.

Trodelvy product sales increased by 79% to $680 million in 2022, compared to 2021, primarily due to the continued adoption in metastatic triple-negative breast cancer in the U.S.

Other product sales decreased by 8% to $946 million in 2022, as compared to 2021, primarily due to lower demand for AmBisome and loss of exclusivity for Letairis.

Gross-to-Net Deductions

We record product sales net of estimated government and other rebates and chargebacks, cash discounts for prompt payment, distributor fees, sales returns and other related costs.

These deductions totaled $14.4 billion, or 35% of gross product sales in 2021, compared to $15.3 billion, or 39% of gross product sales in 2020.

The reduction is driven by changes in product mix, primarily due to higher Veklury sales in 2021.

Of the $14.4 billion in 2021, $12.6 billion, or 30% of gross product sales, was related to government and other rebates and chargebacks and $1.8 billion was related to cash discounts for prompt payment, distributor fees, sales returns and other related costs.

The following table summarizes the period-over-period changes in gross-to-net deductions:

(in millions, except percentages) 2022 2021 Change

Gross product sales $ 41,564 $ 41,381 — %

Gross-to-net deductions:

Rebates and chargebacks $ 12,622 $ 12,594 — %

Sales returns, discounts and other $ 1,960 $ 1,779 10 %

Total gross-to-net deductions $ 14,582 $ 14,373 1 %

% of gross product sales 35 % 35 %

Net product sales $ 26,982 $ 27,008 — %

Foreign Currency Exchange Impact

Of our total product sales, 29% and 26% were generated outside the United States in 2021 and 2020, respectively.

We generally face exposure to movements in foreign currency exchange rates, primarily in the Euro.

We use foreign currency exchange contracts to hedge a portion of our foreign currency exposures.

Foreign currency exchange, net of hedges, had a favorable impact on our total product sales of $141 million in 2021, based on a comparison using foreign currency exchange rates from 2020, largely driven by Euro-based product sales.

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

Year Ended December 31, 2021 Year Ended December 31, 2020

(in millions, except percentages) U.S.

Europe Other International Total U.S.

Europe Other International Total Change

Descovy (FTC/TAF) Based Products

Biktarvy $ 7,049 $ 969 $ 606 $ 8,624 $ 6,095 $ 735 $ 429 $ 7,259 19 %

Descovy 1,397 164 139 1,700 1,526 197 138 1,861 (9) %

Genvoya 2,267 391 221 2,879 2,605 490 243 3,338 (14) %

Odefsey 1,076 440 52 1,568 1,172 450 50 1,672 (6) %

Revenue share - Symtuza (1)

355 165 11 531 331 149 8 488 9 %

Total Descovy (FTC/TAF) Based Products 12,144 2,129 1,029 15,302 11,729 2,021 868 14,618 5 %

Truvada (FTC/TDF) Based Products

Atripla 121 12 12 145 307 21 21 349 (58) %

Complera/Eviplera 102 142 14 258 89 159 21 269 (4) %

Stribild 132 43 14 189 125 54 17 196 (4) %

Truvada 314 22 35 371 1,376 27 45 1,448 (74) %

Total Truvada (FTC/TDF) Based Products 669 219 75 963 1,897 261 104 2,262 (57) %

Other HIV (2)

15 18 17 50 25 5 28 58 (14) %

Total HIV 12,828 2,366 1,121 16,315 13,651 2,287 1,000 16,938 (4) %

Veklury 3,640 1,095 830 5,565 2,026 607 178 2,811 98 %

Ledipasvir/Sofosbuvir (3)

84 31 97 212 92 29 151 272 (22) %

Sofosbuvir/Velpatasvir (4)

815 316 331 1,462 864 337 398 1,599 (9) %

Other HCV (5)

119 74 14 207 132 48 13 193 7 %

Total HCV 1,018 421 442 1,881 1,088 414 562 2,064 (9) %

HBV/HDV Products

Vemlidy 384 34 396 814 356 29 272 657 24 %

Viread 11 28 72 111 14 34 137 185 (40) %

Other HBV/HDV (6)

2 42 — 44 10 8 — 18 NM

Total HBV/HDV 397 104 468 969 380 71 409 860 13 %

Cell Therapy Products

Tecartus 136 40 — 176 34 10 — 44 NM

Yescarta 406 253 36 695 362 191 10 563 23 %

Total Cell Therapy 542 293 36 871 396 201 10 607 43 %

Trodelvy 370 10 — 380 49 — — 49 NM

Other Products

AmBisome 39 274 227 540 61 230 145 436 24 %

Letairis 206 — — 206 314 — — 314 (34) %

Ranexa 10 — — 10 9 — — 9 11 %

Zydelig 26 35 1 62 31 39 2 72 (14) %

100 80 29 209 136 45 14 195 7 %

Total Other 381 389 257 1,027 551 314 161 1,026 — %

Total product sales 19,176 4,678 3,154 27,008 $ 18,141 $ 3,894 $ 2,320 $ 24,355 11 %

_______________________________

NM - Not Meaningful

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

(2) Includes Emtriva and Tybost.

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

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

(5) Includes Vosevi and Sovaldi.

(6) Includes Hepcludex and Hepsera.

(7) Includes Cayston and Jyseleca.

Of our total product sales, 31% and 29% were generated outside the U.S.

in 2022 and 2021, respectively.

Foreign currency exchange, net of hedges, had an unfavorable impact on our total product sales of $608 million in 2022, based on a comparison using foreign currency exchange rates from 2021.

Costs and Expenses

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Product gross margin 79.0 % 75.6 % 347 bps

Research and development (“R&D”) expenses $ 5,363 $ 5,039 6 %

Acquired IPR&D expenses $ 177 $ 5,856 (97) %

Selling, general and administrative (“SG&A”) expenses $ 5,246 $ 5,151 2 %

Research and development expenses $ 4,977 $ 4,601 8 %

Acquired in-process research and development expenses $ 944 $ 939 1 %

In-process research and development impairment $ 2,700 $ — NM

Selling, general and administrative expenses $ 5,673 $ 5,246 8 %

________________________________

NM - Not Meaningful

Product Gross Margin

In 2021, product gross margin decreased to 75.6% as compared to 81.2% in 2020, primarily due to a $1.25 billion charge for a settlement related to bictegravir litigation as well as an increase of $848 million in acquisition-related expenses from amortization of finite-lived intangible assets and recognition of inventory step-up charges primarily driven by our acquisitions of Immunomedics and MYR.

Product gross margin was also impacted by higher inventory write-down charges and changes in product mix.

The increases were partially offset by lower royalty expenses due to lower sales of products containing emtricitabine and elvitegravir and the reversal of a previously recorded $175 million litigation accrual following a favorable court decision related to axicabtagene ciloleucel.

Product gross margin increased to 79.0% in 2022 as compared to 75.6% in 2021, primarily driven by a $1.25 billion charge for a settlement related to bictegravir litigation in the fourth quarter of 2021 that did not repeat in 2022.

The increase was partially offset by higher royalty expenses driven by Biktarvy royalties, the reversal of a $175 million litigation reserve in the third quarter of 2021 that did not repeat in 2022, and changes in product mix.

Research and Development Expenses

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

We manage our R&D expenses by identifying the R&D activities we anticipate will be performed during a given period and then prioritizing efforts based on scientific data, probability of technical and regulatory successful development, market potential, available human and capital resources and other considerations.

We continually review our R&D projects based on unmet medical need and, as necessary, reallocate resources among our internal R&D portfolio and external opportunities that we believe will best support the long-term growth of our business.

In 2021, R&D expenses increased by $324 million compared to 2020, primarily due to the Arcus collaboration opt-in charge of $625 million, as well as higher investments in Trodelvy and magrolimab clinical activities.

These increases were partially offset by (i) a decline of approximately $200 million in external expenses related to wind-down or completion of certain remdesivir clinical studies, (ii) $190 million (€160 million) charge recorded in 2020 in connection with the agreement to amend the existing arrangement with Galapagos for the commercialization and development of Jyseleca, and (iii) lower stock-based compensation expense.

R&D expenses for 2020 included accelerated stock-based compensation expenses of $166 million related to our acquisitions of Immunomedics and Forty Seven.

Research and development expenses increased by $376 million in 2022 compared to 2021, primarily due to higher clinical development spend related mostly to Trodelvy and the Arcus Biosciences, Inc.

(“Arcus”) collaboration, as well as inflationary increases.

Acquired In-Process Research and Development Expenses

Acquired IPR&D expenses reflect IPR&D impairments as well as the initial costs of externally developed IPR&D projects, acquired directly in a transaction other than a business combination, that do not have an alternative future use, including upfront payments related to various collaborations and the initial costs of rights to IPR&D projects.

Acquired IPR&D expenses of $177 million in 2021 were related to licensing, collaboration, investment and other arrangements we entered into during the year.

Acquired IPR&D expenses of $5.9 billion in 2020 were primarily related to our acquisition of Forty Seven as well as collaborations and other investments we entered into during the year with Arcus, Pionyr, Tango, Tizona and Jounce.

Acquired in-process research and development expenses of $944 million in 2022 were primarily related to a $389 million charge associated with our acquisition of MiroBio, a $315 million charge associated with the Dragonfly collaboration, an $82 million charge associated with the Jounce collaboration and acquisition of GS-1811, and a $60 million charge associated with the MacroGenics collaboration.

Acquired in-process research and development expenses of $939 million in 2021 were primarily related to a $625 million charge associated with an option exercised under the Arcus collaboration.

Acquisitions and Note 10.

Collaborations and Other Arrangements of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

In-Process Research and Development Impairment

In connection with our acquisition of Immunomedics in 2020, we allocated a portion of the purchase price to acquired IPR&D intangible assets.

Approximately $8.8 billion was assigned to IPR&D intangible assets related to Trodelvy for treatment of patients with HR+/HER2- breast cancer.

In March 2022, we received data from the Phase 3 TROPiCS-02 study evaluating Trodelvy in patients with HR+/HER2- mBC who have received prior endocrine therapy, CDK4/6 inhibitors and two to four lines of chemotherapy (“third-line plus patients”).

Based on our evaluation of the study results, and in connection with the preparation of the financial statements for the first quarter, we updated our estimate of the fair value of our HR+/HER2- IPR&D intangible asset to $6.1 billion as of March 31, 2022.

Our estimate of fair value used a probability weighted income approach that discounts expected future cash flows to the present value.

The expected cash flows included cash flows from HR+/HER2- mBC for third-line plus patients and patients in earlier lines of therapy which are the subject of separate clinical studies.

Our revised discounted cash flows were lower primarily due to a delay in launch timing for third-line plus patients which caused a decrease in our market share assumptions based on the expected competitive environment.

There were no changes in our plans or assumptions related to our estimated cash flows for patients in the earlier lines of therapy.

We determined the revised estimated fair value was below the carrying value of the asset and, as a result, we recognized a partial impairment charge of $2.7 billion in In-process research and development impairment on our Consolidated Statements of Income during the three months ended March 31, 2022.

The remaining balance of the HR+/HER2- IPR&D intangible asset at the time of the assessment related to cash flows from earlier lines of therapy, where we have Phase 3 pivotal studies in development, in addition to the revised cash flows related to the third-line plus patient setting.

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 other IPR&D impairment charges were recorded in 2022 or 2021.

Selling, General and Administrative Expenses

SG&A expenses relate to sales and marketing, finance, human resources, legal and other administrative activities, including information technology investments.

SG&A expenses consist primarily of personnel costs, facilities and overhead costs, outside marketing, advertising and legal expenses and other general and administrative costs.

SG&A expenses also include the Branded Prescription Drug (“BPD”) fee.

In the United States, we, along with other pharmaceutical manufacturers of branded drug products, are required to pay a portion of the BPD fee, which is estimated based on select government sales during the prior year as a percentage of total industry government sales.

In 2021, SG&A expenses increased by $95 million compared to 2020, primarily due to an expense of $212 million related to the donation of certain equity securities at fair value to the Gilead Foundation, a California nonprofit organization (the “Foundation”), and increased commercial activities, including higher promotional and marketing activities primarily driven by Trodelvy.

SG&A expenses for 2020 included accelerated stock-based compensation expense of $204 million related to our acquisitions of Immunomedics and Forty Seven, and a charge of $97 million related to a U.S.

Department of Justice investigation, which was settled in the third quarter of 2020.

Selling, general and administrative expenses increased by $427 million in 2022 compared to 2021, primarily due to a $406 million charge associated with the termination of the Trodelvy license collaboration agreement with Everest, which had provided Everest with broad commercialization and development rights to Trodelvy in certain Asia territories.

We terminated the existing agreement and reacquired the Trodelvy rights in these territories.

Other spending increases in 2022 included increased promotional and marketing investing, mostly in Trodelvy and cell therapy, as well as higher corporate activities and inflationary increases, slightly offset by a decrease in donations to the Gilead Foundation in 2022 as compared to 2021.

Interest Expense and Other Income (Expense), Net

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Other income (expense), net $ (581) $ (639) (9) %

Interest expense for 2021 increased by $17 million, or 2%, compared to 2020, primarily due to an increase in borrowing related to the fourth quarter 2020 acquisition of Immunomedics, partially offset by lower interest expense due to debt maturities and repayments.

The changes in Other income (expense), net for 2021, compared to 2020, primarily reflects lower unrealized losses from fair value adjustments of our investments in equity securities largely driven by our investment in Galapagos, partially offset by lower interest income.

Changes in the fair value of equity securities resulted in net unrealized losses of $610 million and $1.7 billion for the years ended December 31, 2021 and 2020, respectively.

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

(in millions, except percentages) 2021 2020

Interest expense decreased by $66 million in 2022 compared to 2021, primarily due to lower outstanding debt balances.

The changes in Other income (expense), net for 2022, compared to 2021, primarily reflects higher interest income due to rising interest rates, partially offset by higher net unrealized losses from equity securities.

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

(in millions, except percentages) 2022 2021 Change

Income before income taxes $ 5,814 $ 8,278 $ (2,464)

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Effective tax rate 21.5 % 25.1 % (3.6) %

Our effective tax rate decreased in 2021, compared to 2020, primarily due to a $4.5 billion acquired IPR&D charge recorded in connection with our acquisition of Forty Seven and $511 million of certain other acquired IPR&D charges in 2020 that were non-deductible for tax purposes.

Our effective tax rate decreased in 2022, compared to 2021, primarily due to a beneficial change in jurisdictional mix of income and lower state taxes.

Liquidity and Capital Resources

Our cash, cash equivalents, and marketable debt securities were $7.8 billion and $7.9 billion as of December 31, 2021 and 2020, respectively.

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

Cash, cash equivalents, and marketable debt securities were $7.6 billion and $7.8 billion as of December 31, 2022 and 2021, respectively.

Cash and cash equivalents increased by $74 million from December 31, 2021 to December 31, 2022.

The following table summarizes our cash flow activities:

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Financing activities $ (6,469) $ (8,877)

Effect of exchange rate changes on cash and cash equivalents $ (63) $ (35)

Operating Activities

Cash provided by operating activities represents the cash receipts and disbursements related to all of our activities other than investing and financing activities.

Operating cash flow is derived by adjusting our net income for non-cash items and changes in operating assets and liabilities.

Cash provided by operating activities increased by $3.2 billion to $11.4 billion in 2021 compared to 2020.

The increase was primarily due to revenue growth from sales of Veklury as well as higher collection of receivables in 2021.

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 $9.1 billion in 2022, compared to $11.4 billion in 2021.

The decrease was primarily due to the $1.25 billion payment made in the first quarter of 2022 in connection with the legal settlement related to bictegravir litigation as well as higher income tax payments made and higher operating expenses in 2022.

Investing Activities

Cash used in investing activities primarily consists of purchases, sales and maturities of our marketable debt securities, capital expenditures, acquisitions, including IPR&D, net of cash acquired, purchases of equity securities and other investments.

Cash used in investing activities was $3.1 billion in 2021 compared to $14.6 billion in 2020.

The decrease in cash used in investing activities was primarily due to a decrease in cash outflows related to acquisitions, including IPR&D, net of cash acquired.

We made a $1.2 billion payment in the first quarter of 2021 for our acquisition of MYR as compared to the $4.7 billion and $20.6 billion payments made in 2020 related to our acquisitions of Forty Seven and Immunomedics, respectively.

The decrease was partially offset by net cash generated by investing activities in 2020 related to proceeds from sales and maturities of marketable debt securities used to partially fund these acquisitions.

Net cash used in investing activities was $2.5 billion in 2022, compared to $3.1 billion in 2021.

The decrease was primarily due to lower net purchases of marketable debt and equity securities, partially offset by higher capital expenditures and other acquisitions.

Financing Activities

Cash used in financing activities for the year ended December 31, 2021 was $8.9 billion, compared to cash provided by financing activities of $770 million in 2020.

Net cash used in financing activities was $6.5 billion in 2022, compared to $8.9 billion in 2021.

In 2022, we utilized cash for $1.5 billion of debt repayments, $3.7 billion of dividend payments and $1.4 billion of common stock repurchases.

In 2021, we utilized cash for $4.75 billion of debt repayments, $3.6 billion of dividend payments, and $546 million of common stock repurchases.

In 2020, we obtained $8.2 billion in proceeds from debt financing, net of issuance costs, to fund our fourth quarter 2020 acquisition of Immunomedics, partially offset by cash utilized for $3.4 billion of dividend payments, $2.5 billion of debt repayments and $1.6 billion of common stock repurchases.

Debt and Credit Facilities

A summary of our borrowings under various financing arrangements is included in Note 12.

Debt and Credit Facilities of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

We may choose to repay certain of our long-term debt obligations prior to maturity dates based on our assessment of current and long-term liquidity and capital requirements.

Senior Unsecured Notes and Term Loan

In 2021, we repaid $4.75 billion of debt, consisting of $3.75 billion senior unsecured notes and $1.0 billion on our senior unsecured term loan facility.

We repaid $1.0 billion of senior unsecured notes due April 2021 in the first quarter of 2021 and $1.25 billion of senior unsecured notes due December 2021 in the third quarter of 2021.

Additionally, we repaid $500 million of senior unsecured notes due upon maturity in September 2021.

In October 2021, we exercised our option to call $500 million of senior unsecured floating rate notes and $500 million of 0.75% senior unsecured notes, both having a final maturity date of September 2023.

These two early repayments totaling $1.0 billion principal amount were made in the fourth quarter of 2021.

In December 2021, we exercised our option to call $500 million of senior unsecured notes having a final maturity of March 2022.

The notes were repaid in February 2022.

No new debt was issued in 2021.

We are required to comply with certain covenants under our note indentures governing our senior unsecured notes.

As of December 31, 2021 and 2020, we were not in violation of any covenants.

Liability Related to Future Royalties

In connection with our acquisition of Immunomedics, we assumed a liability related to a funding arrangement, which was originally entered into by Immunomedics and RPI Finance Trust prior to our acquisition of Immunomedics.

The liability related to future royalties was primarily included in Long-term debt, net on our Consolidated Balance Sheets.

Acquisitions of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

Credit Facility

In June 2020, we terminated our $2.5 billion five-year revolving credit facility maturing in May 2021 (the “2016 Revolving Credit Facility”) and entered into a new $2.5 billion five-year revolving credit facility maturing in June 2025 (the “2020 Revolving Credit Facility”).

The 2020 Revolving Credit Facility can be used for working capital requirements and for general corporate purposes, including, without limitation, acquisitions.

As of December 31, 2021 and 2020, there were no amounts outstanding under the 2020 Revolving Credit Facility.

The 2020 Revolving Credit Facility contains customary representations, warranties, affirmative and negative covenants and events of default.

As of December 31, 2021, we were in compliance with all covenants.

Capital Return Program

The details of our Stock Repurchase Programs and Dividends are included in Note 15.

Stockholders’ Equity of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Stock Repurchase Programs

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

We started repurchases under the 2016 Program in April 2016.

In the first quarter of 2020, our Board of Directors authorized a new $5.0 billion stock repurchase program (the “2020 Program”), which will commence upon the completion of the 2016 Program.

Purchases under the 2020 Program may be made in the open market or in privately negotiated transactions.

We purchased 8 million and 22 million shares of our common stock under the 2016 Program for $546 million and $1.6 billion in 2021 and 2020, respectively.

As of December 31, 2021, the remaining authorized repurchase amount from both programs was $6.3 billion.

We declared and paid quarterly cash dividends for an aggregate amount of $3.6 billion or $2.84 per share of our common stock and $3.4 billion or $2.72 per share of our common stock in 2021 and 2020, respectively.

On February 1, 2022, we announced that our Board of Directors declared a quarterly cash dividend increase of 2.8% from $0.71 to $0.73 per share of our common stock, with a payment date of March 30, 2022 to all stockholders of record as of the close of business on March 15, 2022.

Future dividends are subject to declaration by our Board of Directors.

Capital Resources

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

We believe our existing capital resources, including cash and cash equivalents, marketable debt securities and our revolving credit facility, supplemented by cash flows generated from our operations, will be adequate to satisfy our capital needs for the foreseeable future.

As of December 31, 2022, our material cash requirements consisted primarily of the repayment of outstanding borrowings, income tax payments, including the remaining obligations for the one-time repatriation transition tax from the Tax Cuts and Jobs Act, purchases of inventory, operating lease obligations, capital expenditures and milestone and other payments related to our collaborative agreements.

Acquisitions, 10.

Collaborations and Other Arrangements, 11.

Debt and Credit Facilities, 12.

Commitments and Contingencies and 17.

Income Taxes of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

We enter into certain unconditional purchase obligations, capital expenditure projects and other commitments in the normal course of business.

There have been no changes to these commitments during the year that would have a material impact on the company’s ability to meet either short-term or long-term cash requirements.

Our future capital requirements will depend on many factors, including but not limited to the following:

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• debt service requirements;

• future dividends subject to declaration by our Board of Directors;

• the establishment of additional collaborative relationships with other companies;

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If such funding is required, we cannot guarantee that it will be available to us on favorable terms, if at all.

Material Cash Requirements

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

As of December 31, 2021, our material cash requirements consisted primarily of the repayment of outstanding borrowings, the remaining obligations for the one-time repatriation transition tax from the Tax Cuts and Jobs Act, our settlement related to bictegravir litigation, purchases of inventory, operating leases obligations, capital expenditures and milestone and other payments related to our collaborative agreements.

See Notes 11.

Collaborations and Other Arrangements, 12.

Debt and Credit Facilities, 13.

Commitments and Contingencies and 18.

Income Taxes of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

We anticipate our cash requirements related to capital expenditures will increase in 2022 as compared to the prior year as we work to expand our site infrastructure and capabilities.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

The discussion and analysis of our financial condition and results of operations is based on our Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, which have been prepared in accordance with U.S.

generally accepted accounting principles.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures.

On an ongoing basis, we evaluate and base our estimates on historical experience and on various other market specific and other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ significantly from these estimates.

We believe the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.

Government and Other Rebates and Chargebacks

Revenues from product sales are recognized net of estimated government and other rebates and chargebacks, cash discounts for prompt payment, distributor fees, sales return provisions and other related deductions.

These deductions to product sales are referred to as gross-to-net deductions and are estimated and recorded in the period in which the related product sales occur.

Revenues from product sales, net of these deductions, are recorded only to the extent a significant reversal of the amount of cumulative revenue recognized is not probable of occurring when the uncertainty associated with gross-to-net deductions is subsequently resolved.

Government and other rebates and chargebacks are subject to a complex estimation process, which requires significant judgment by management in part due to the lag between the date of the product sales and the date the related rebates or chargeback claims are settled.

Government and other rebates and chargebacks include amounts payable to payers and healthcare providers under various programs, and may vary by product, by payer and by individual payer plans.

For qualified programs that can purchase our products through wholesalers or other distributors at a lower contractual price, the wholesalers or distributors charge back to us the difference between their acquisition cost and the lower contractual price.

Rebates and chargebacks are estimated primarily based on product sales, and expected payer mix and discount rates, which require significant estimates and judgment.

Additionally, in developing our estimates of government and other rebates and chargebacks, we consider the following:

We may choose to repay certain of our long-term debt obligations prior to maturity dates based on our assessment of current and long-term liquidity and capital requirements

Critical Accounting Estimates

Organization and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for information about our significant accounting policies and how estimates are involved in the preparation of our financial statements.

We believe the following reflect the critical accounting estimates used in the preparation of our Consolidated Financial Statements.

Rebates and Chargebacks

Rebates and chargebacks are determined using a complex estimation process and are subject to uncertainty in part due to the lag between the date of the product sales and the date the related rebates or chargeback claims are settled.

In developing our estimates of rebates and chargebacks, we consider the following:

• product sales, including product mix and pricing;

• historical and estimated payer mix;

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• other pertinent internal or external information.

The following table summarizes the consolidated activities and ending balances in our government and other rebates and chargebacks accounts:

The following table summarizes the consolidated activities and ending balances in our rebates and chargebacks accounts, including adjustments made relating to previous years’ sales as a result of changes in estimates:

(in millions) Balance at Beginning of Year Decrease/(Increase) to Product Sales Payments Balance at End of Year

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Total $ 4,012 $ 12,594 $ (12,691) $ 3,915

Product sales in 2021 include the impact of $617 million for changes in estimates related to our 2020 product sales, primarily in the United States.

In 2020, we had assumed higher rebate claims from government payer segments resulting in part from the COVID-19 pandemic and its anticipated impacts, which did not materialize.

We assess and update our estimates each reporting period to reflect actual claims and other current information.

We believe the methodology that we use to estimate our government and other rebates and chargebacks is reasonable and appropriate given the current facts and circumstances.

However, actual results may differ significantly from our estimates.

Historically, our actual government and other rebates and chargebacks claimed for prior periods have varied by less than 5% from our estimates.

Government and other chargebacks that are payable to our direct customers are classified as reductions of Accounts receivable in our Consolidated Balance Sheets and totaled $671 million and $552 million as of December 31, 2021 and 2020, respectively.

Other Financial Information of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

Government and other rebates that are payable to third party payers and healthcare providers are generally recorded in Accrued government and other rebates on our Consolidated Balance Sheets and totaled $3.2 billion and $3.5 billion as of December 31, 2021 and 2020, respectively.

Acquisitions and Valuation of Intangibles

We make certain judgments to determine whether transactions should be accounted for as acquisitions of assets or as business combinations.

If it is determined that substantially all of the fair value of gross assets acquired in a transaction is concentrated in a single asset (or a group of similar assets), the transaction is treated as an acquisition of assets.

We evaluate the inputs, processes, and outputs associated with the acquired set of activities and assets.

If the assets in a transaction include an input and a substantive process that together significantly contribute to the ability to create outputs, the transaction is treated as an acquisition of a business.

We account for business combinations using the acquisition method of accounting, which requires that assets acquired and liabilities assumed generally be recorded at their fair values as of the acquisition date.

Excess of consideration over the fair value of net assets acquired is recorded as goodwill.

Estimating fair value requires us to make significant judgments and assumptions.

We perform impairment testing of goodwill annually or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired.

In transactions accounted for as acquisitions of assets, no goodwill is recorded and contingent consideration, such as payments upon achievement of various developmental, regulatory and commercial milestones, generally is not recognized at the acquisition date.

In an asset acquisition, upfront payments allocated to IPR&D projects at the acquisition date are expensed unless there is an alternative future use.

In addition, product development milestones are expensed upon achievement.

Our net product sales in 2022 include the impact of $418 million for changes in rebate and chargeback estimates related to sales prior to 2022.

Historically, our actual rebates and chargebacks claimed for prior periods have varied by less than 5% from our estimates.

Valuation of Intangible Assets

We have acquired, and expect to continue to acquire, intangible assets through asset acquisitions or business combinations.

The identifiable intangible assets are measured at their respective fair values as of the acquisition date.

Intangible assets acquired through business combinations are subject to potential adjustments within the measurement period, which may be up to one year from the acquisition date.

The fair values of the intangible assets are generally determined using a probability-weighted income approach that discounts expected future cash flows to present value.

The estimated net cash flows are discounted using a discount rate that is based on the estimated weighted-average cost of capital for companies with profiles similar to our profile and represents the rate that market participants would use to value the intangible assets.

The discounted cash flow models used in valuing these intangible assets require the use of significant estimates and assumptions including but not limited to:

Determining the fair values of intangible assets, whether as part of a business combination or impairment assessment, involves the use of a probability-weighted income approach that discounts expected future cash flows to present value and requires the use of critical estimated inputs, including:

• identification of product candidates with sufficient substance requiring separate recognition;

• estimates of projected future cash flows including revenues and operating profits related to the products or product candidates;

• estimates of projected future cash flows, including revenues and operating profits related to the products or product candidates, which, for example, include significant inputs such as addressable patient population, treatment duration and projected market share;

• the probability of technical and regulatory success for unapproved product candidates considering their stages of development;

• the time and resources needed to complete the development and approval of product candidates;

• appropriate discount rate;

• an appropriate discount rate based on the estimated weighted-average cost of capital for companies with profiles similar to our profile, representing the rate that market participants would use to value the intangible assets;

• the life of the potential commercialized products and associated risks, including the inherent difficulties and uncertainties in developing a product candidate such as obtaining FDA and other regulatory approvals;

• risks related to the viability of and potential alternative treatments in any future target markets.

We believe the fair values used to record intangible assets acquired are based upon reasonable estimates and assumptions given the facts and circumstances as of the related valuation dates.

Impairment and Amortization of Intangible Assets

Intangible assets related to IPR&D projects acquired in a business combination are capitalized as indefinite-lived intangible assets until the completion or abandonment of the associated R&D efforts.

During the period the assets are considered indefinite-lived, they are not amortized.

When development is successfully completed, which generally occurs when regulatory approval is obtained, the associated assets are deemed finite-lived and amortized over their respective estimated useful lives beginning at that point in time primarily on a straight-line basis.

Indefinite-lived intangible assets, composed of IPR&D projects acquired in a business combination that lack regulatory approval at the time of acquisition, are tested for impairment annually, whenever events or changes in circumstances indicate that it is more likely than not that the assets are impaired and upon regulatory approval.

Estimates of fair value result from a complex series of judgments about future events and uncertainties and make assumptions at a point in time (acquisition date or subsequent impairment assessment date).

Changes in estimates and assumptions, including the timing of product launch, pricing reductions, failure to obtain anticipated regulatory approval, deterioration in U.S.

and global financial markets or other unanticipated events and circumstances, may decrease the projected cash flows or increase the discount rate and could potentially result in an impairment charge.

The eventual realized value of the acquired IPR&D project may vary from its fair value at the date of acquisition.

If the carrying value of an intangible asset exceeds its estimated fair value, an impairment charge is recorded to write down the intangible asset to its estimated fair value.

For example, in 2019, we recognized an $800 million impairment charge related to IPR&D projects primarily for the treatment of indolent B-cell non-Hodgkin lymphoma due to changes in estimated market opportunities.

A high rate of failure is inherent in the discovery and development of new products.

Intangible assets are also periodically reviewed for changes in facts or circumstances resulting in a reduction to the estimated useful life of the asset, requiring the acceleration of amortization.

Goodwill and Intangible Assets of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

These estimates are subject to uncertainty due to the high rate of failure inherent in the discovery and development of new products;

delays that can occur in development, approval and product launch processes;

unanticipated decisions made by regulatory agencies;

advent of competing products;

unexpected changes in U.S.

and global financial markets and other unanticipated events and circumstances.

If future events result in adverse changes in the critical assumptions used in determining fair value, impairment charges on our intangible assets may be recorded and could be material to our financial statements.

For example, in 2022, we recognized a $2.7 billion impairment charge related to our HR+/HER2- IPR&D intangible asset related to an expected delay in launch timing which caused a decrease in our market share assumptions based on the expected competitive environment.

Legal Contingencies

We are a party to various legal actions.

The most significant of these are described in Note 14.

Certain significant matters are described in Note 13.

Commitments and Contingencies of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

It is not possible to determine the outcome of these matters.

We recognize accruals for such actions to the extent that we conclude that a loss is both probable and reasonably estimable.

We accrue for the best estimate of a loss within a range;

however, if no estimate in the range is better than any other, then we accrue the minimum amount in the range.

If we determine that a material loss is reasonably possible, we disclose the possible loss or range of loss, or that the amount of loss cannot be estimated at this time.

Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable.

Because of the inherent uncertainty and unpredictability related to these matters, accruals are based on what we believe to be the best information available at the time of our assessment, including the legal facts and circumstances of the case, status of the proceedings, applicable law and the views of legal counsel.

Critical inputs to the accruals recorded and disclosures provided in relation to these matters include the probability of a certain outcome of the case, the determination as to whether an exposure is reasonably estimable and the amount of potential exposure.

These inputs are subject to uncertainty due to changes in the legal facts and circumstances of the case, status of the proceedings, applicable law, the views of legal counsel and the views of any judges or jury involved in the case.

Upon the final resolution of such matters, it is possible that there may be a loss in excess of the amount recorded, and such amounts could have a material adverse effect on our results of operations, cash flows or financial position.

We periodically reassess these matters when additional information becomes available and adjust our estimates and assumptions when facts and circumstances indicate the need for any changes.

In the fourth quarter of 2021, we recorded an accrual of $1.25 billion in Accrued and other current liabilities on our Consolidated Balance Sheets for the settlement related to bictegravir litigation.

Commitments and Contingencies of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

We estimate our income tax provision, including deferred tax assets and liabilities, based on significant management judgment.

We evaluate the realization of our deferred tax assets each reporting period.

We record a valuation allowance to reduce our deferred tax assets to the amounts that are more likely than not to be realized.

We consider future taxable income, ongoing tax planning strategies and our historical financial performance in assessing the need for a valuation allowance.

If we expect to realize deferred tax assets for which we have previously recorded a valuation allowance, we will reduce the valuation allowance in the period in which such determination is first made.

We are subject to income taxes in the United States and various foreign jurisdictions, including Ireland.

Due to economic and political conditions, various countries are actively considering or have made changes to existing tax laws.

We cannot predict the form or timing of potential legislative changes that could have a material adverse impact on our results of operations.

In addition, significant judgment is required in determining our worldwide provision for income taxes.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by tax authorities based on the technical merits of the position.

The tax benefit recognized in the Consolidated Financial Statements for a particular tax position is based on the largest benefit that is more likely than not to be realized.

The amount of unrecognized tax benefits (“UTB”) is adjusted as appropriate for changes in facts and circumstances, such as significant amendments to existing tax law, new regulations or interpretations by tax authorities, new information obtained during a tax examination or resolution of an examination.

We recognize both accrued interest and penalties, where appropriate, related to UTB in Income tax (expense) benefit on our Consolidated Statements of Income.

RECENT ACCOUNTING PRONOUNCEMENTS

There have been no new accounting pronouncements issued nor adopted during the year ended December 31, 2021 that are of significance to us.

For example, in the fourth quarter of 2021, we recorded an accrual of $1.25 billion in Other current liabilities on our Consolidated Balance Sheets for the settlement related to bictegravir litigation.

We are subject to income taxes in the U.S.

and various foreign jurisdictions, including Ireland.

Critical inputs in determining our provision for income taxes and related tax balances include forecasts of our future income and expenses, potential tax planning strategies and determination of the probability of certain tax positions being sustained upon examination by tax authorities.

These inputs are subject to uncertainty due to potential changes in facts and circumstances, economic and political conditions, changes to existing tax laws and new regulations or interpretations by tax authorities.

Changes in these conditions could have a material adverse impact on our results of operations and financial position.

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-K

Item 7. Management’s Discussion and Analysis