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Item 7. Management’s Discussion and Analysis

2024-02-23 compared with 2023-02-22 · 173 added, 140 removed, 150 unchanged (68% of the section changed)

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

The following discussion and analysis is intended to provide material information around events and uncertainties known

to management 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.

The following discussion and analysis is intended to provide material information around events and uncertainties known to management that are relevant to an assessment of the financial condition and results of operations of Gilead and should therefore be read in conjunction with our audited Consolidated Financial Statements and the related notes thereto and other disclosures included as part of this Annual Report on Form 10-K (including the disclosures under Part I, Item 1A.

Risk Factors).

Additional information related to the comparison of our results of operations between the years 2022 and 2021 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’s Discussion and Analysis of Financial Condition and Results of Operations of our 2022 Form 10-K filed with U.S.

Securities and Exchange Commission .

Management Overview

Strategy and Outlook

Gilead Sciences, Inc.

(“Gilead,” “we,” “our” or “us”) is a biopharmaceutical company that has pursued and achieved breakthroughs in medicine for more than three decades, with the goal of creating a healthier world for all people.

We are committed to advancing innovative medicines to prevent and treat life-threatening diseases, including HIV, viral hepatitis and cancer.

(including its consolidated subsidiaries, referred to as “Gilead,” the “company,” “we,” “our” or “us”) is a biopharmaceutical company that has pursued and achieved breakthroughs in medicine for more than three decades, with the goal of creating a healthier world for all people.

We are committed to advancing innovative medicines to prevent and treat life-threatening diseases, including HIV, viral hepatitis, coronavirus disease 2019 (“COVID-19”) and cancer.

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

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 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.

During 2023, we continued to advance our portfolio and broaden available therapies while delivering continued growth in our HIV and Oncology product sales.

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.

We also continued to provide shareholder returns through dividends and share repurchases.

Key Business Updates

The following updates are based on press releases issued since our last annual report.

Readers are encouraged to review all press releases available on our website at www.gilead.com.

The content on the referenced website does not constitute a part of and is not incorporated by reference into this 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.

• Announced that the Phase 3 OAKTREE trial of obeldesivir in non-hospitalized participants without risk factors for developing severe COVID-19 did not meet its primary endpoint of improvement in time to symptom alleviation.

Obeldesivir was well-tolerated in this large study population.

• Received U.S.

Food and Drug Administration (“FDA”) and European Commission (“EC”) approval to extend the use of Veklury to treat COVID-19 in appropriate patients with mild to severe hepatic impairment as well as people with severe renal impairment, including those on dialysis.

• Announced a collaboration with Assembly Biosciences, Inc.

(“Assembly”) to advance the research and development of novel antiviral therapies, including for herpesviruses, chronic hepatitis B virus (“HBV”) and chronic hepatitis delta virus (“HDV”).

• Received full marketing authorization from EC for Hepcludex (bulevirtide) for the treatment of adults with HDV and compensated liver disease.

Hepcludex was initially granted conditional marketing authorization in July 2020.

Bulevirtide remains the only approved treatment for HDV in the European Union (“EU”) and is not approved in the U.S.

• Announced a full clinical hold placed by FDA on all magrolimab studies in myelodysplastic syndromes and acute myeloid leukemia, and that we will not pursue further development of magrolimab in hematologic cancers.

• Announced that the Phase 3 EVOKE-01 study of Trodelvy versus docetaxel in previously treated metastatic non-small cell lung cancer did not meet its primary endpoint of overall survival.

While not statistically powered, we observed an encouraging trend in a subgroup of patients non-responsive to prior anti-PD-(L)1 immunotherapy, that we may potentially explore further.

• Received FDA approval of Yescarta’s label update to include overall survival data from the Phase 3 ZUMA-7 study, which showed a statistically significant overall survival improvement for Yescarta in second-line relapsed or refractory (“R/R”) large B-cell lymphoma (“LBCL”) versus standard of care.

• Received FDA approval of a manufacturing process change resulting in reduced median turnaround time for Yescarta in the U.S.

to an anticipated 14 days (from 16 days previously).

• 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 patients with relapsed or refractory multiple myeloma, and later announced expansion of the Arcellx collaboration to include exercising an option for the ARC-SparX ACLX-001 program in multiple myeloma, expanding the scope of the existing anito-cel collaboration to include lymphomas, and a further equity investment.

• Announced an exclusive license agreement with Compugen Ltd.

(“Compugen”) for later-stage development and commercialization of novel pre-clinical anti-IL18 binding protein antibodies, including COM503, that have the potential to treat various tumor types.

• Announced a collaboration with Tentarix Biotherapeutics Inc.

(“Tentarix”) to discover and develop novel therapies across oncology and inflammation, using Tentarix’s proprietary Tentacles platform.

• Received EC approval for Trodelvy as monotherapy for the treatment of adult patients with unresectable 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 advanced setting.

• Announced, through Fosun Kite Biotechnology Co., Ltd., a joint venture between us and Shanghai Fosun Pharmaceutical (Group) Co., Ltd., the approval of axicabtagene ciloleucel (under the trade name Yikaida ® ) by the China National Medical Products Administration for the treatment of adult patients with R/R LBCL who failed first-line immunochemotherapy or relapsed within 12 months after first-line immunochemotherapy.

• Completed the transfer of Yescarta’s marketing authorization in Japan from Daiichi Sankyo Co., Ltd.

to Gilead Sciences K.K.

• Announced the acquisition of XinThera, Inc.

(“XinThera”), adding additional pipeline assets including rights to a portfolio of small molecule inhibitors targeting PARP1 for oncology as well as MK2 for inflammatory diseases.

• Completed the acquisition of Tmunity Therapeutics, Inc.

(“Tmunity”), a clinical stage private biotech company, which provides preclinical and clinical programs.

This includes 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.

• Received FDA approval of 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.

• Announced that we entered into a definitive agreement to acquire all of the outstanding common stock of CymaBay Therapeutics, Inc.

(“CymaBay”) and its lead product candidate, seladelpar, which is an investigational treatment for primary biliary cholangitis.

• Announced an amendment expanding the collaboration agreement with Arcus Biosciences, Inc.

(“Arcus”), including research programs in inflammatory diseases, an update to the domvanalimab collaboration program, and an additional equity investment.

• Exercised an option to license investigational targeted protein degrader molecule NX‑0479 (“GS-6791”) from Nurix Therapeutics, Inc.

GS-6791 is a potent, selective, oral IRAK4 degrader with potential applications in the treatment of rheumatoid arthritis and other inflammatory diseases.

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

Key Financial Results

Year Ended December 31,

(in millions, except percentages and per share amounts) 2023 2022 Change

1 unchanged sentence

Net income attributable to Gilead

$ 5,665 $ 4,592 23 %

Diluted earnings per share attributable to Gilead $ 4.50 $ 3.64 24 %

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.

Total revenues decreased 1% to $27.1 billion in 2023, compared to 2022, driven by lower Veklury sales, largely offset by higher HIV and Oncology sales.

Net income attributable to Gilead was $5.7 billion and diluted earnings per share attributable to Gilead was $4.50 in 2023, compared to $4.6 billion and $3.64 diluted earnings per share attributable to Gilead in 2022.

The increase was primarily due to lower in-process research and development (“IPR&D”) impairment expenses, lower net unrealized losses on equity investments and higher interest income, partially offset by higher costs of goods sold and operating expenses, and lower revenues.

Results of Operations

6 unchanged sentences

HIV $ 14,848 $ 2,102 $ 1,226 $ 18,175 $ 13,820 $ 2,219 $ 1,155 $ 17,194 6 %

Veklury 1,575 702 1,628 3,905 3,640 1,095 830 5,565 (30) %

1,005 413 392 1,810 1,018 421 442 1,881 (4) %

HBV/HDV 435 112 441 988 397 104 468 969 2 %

Oncology 1,833 875 224 2,932 1,494 573 73 2,139 37 %

Cell Therapy 1,055 658 156 1,869 968 430 60 1,459 28 %

Trodelvy 777 217 68 1,063 525 143 12 680 56 %

Liver Disease 1,421 511 852 2,784 1,440 525 833 2,798 (1) %

1,002 378 386 1,767 1,005 413 392 1,810 (2) %

HBV / HDV 418 133 466 1,017 435 112 441 988 3 %

Veklury 972 408 805 2,184 1,575 702 1,628 3,905 (44) %

Other 304 301 255 859 388 323 235 946 (9) %

4 unchanged sentences

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

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 — %

(1) Chronic hepatitis C virus (“HCV”)

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

Year Ended December 31, 2023 Year Ended December 31, 2022

(in millions, except percentages) U.S.

Europe Other International Total U.S.

Europe Other International Total Change

Biktarvy $ 9,692 $ 1,253 $ 905 $ 11,850 $ 8,510 $ 1,103 $ 777 $ 10,390 14 %

Complera/Eviplera 47 70 12 129 74 113 13 200 (35) %

Descovy 1,771 100 114 1,985 1,631 118 123 1,872 6 %

Genvoya 1,752 205 103 2,060 1,983 284 136 2,404 (14) %

Odefsey 1,012 294 44 1,350 1,058 364 47 1,469 (8) %

Stribild 72 21 8 101 88 29 10 127 (20) %

Truvada 82 13 19 114 113 15 18 147 (22) %

Revenue share - Symtuza (1)

382 133 13 529 348 168 14 530 — %

Other HIV (2)

37 12 7 56 15 24 17 57 (1) %

Total HIV $ 14,848 $ 2,102 $ 1,226 $ 18,175 $ 13,820 $ 2,219 $ 1,155 $ 17,194 6 %

_______________________________

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

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.

(2) Includes Atripla, Emtriva, Sunlenca and Tybost.

HIV product sales increased 6% to $18.2 billion in 2023, compared to 2022, primarily due to higher demand across treatment and prevention, in addition to higher average realized price and favorable channel inventory dynamics.

In particular, Biktarvy sales increased primarily reflecting higher demand, including patients switching from other Gilead HIV products, as well as higher average realized price.

Also, Descovy sales increased primarily driven by favorable channel inventory dynamics and higher demand.

Cell Therapy product sales increased 28% to $1.9 billion in 2023, compared to 2022, primarily due to increased Yescarta demand for the treatment of R/R LBCL and increased Tecartus demand for the treatment of R/R adult acute lymphoblastic leukemia and R/R mantle cell lymphoma.

Trodelvy product sales increased 56% to $1.1 billion in 2023, compared to 2022, primarily due to higher demand in new and existing geographies.

Liver Disease

Liver Disease product sales decreased 1% to $2.8 billion in 2023, compared to 2022, primarily due to unfavorable HCV pricing dynamics and foreign exchange rates, partially offset by higher demand across HCV, HDV and HBV products.

Veklury product sales decreased 44% to $2.2 billion in 2023, compared to 2022, primarily due to lower demand driven by lower rates of COVID-19 related hospitalizations in all regions.

Other product sales decreased 9% to $859 million in 2023, compared to 2022, primarily due to loss of exclusivity for Letairis.

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 — %

A substantial portion of our product sales is subject to significant discounts from list price, including government and commercial rebates and chargebacks, as well as other deductions, including patient co-pay assistance, cash discounts for prompt payment, distributor fees, and sales return provisions.

These deductions to product sales are generally referred to as gross-to-net deductions and are primarily a function of product sales volume, product mix, contractual or statutory discounts and estimated payer mix.

Rebates and chargebacks are based on contractual arrangements or statutory requirements and include amounts due to payers and healthcare providers under various programs.

These amounts may vary by product, payer and individual plans.

Providers qualified under certain programs can purchase our products through wholesalers or other distributors at a discount.

The wholesalers or distributors then charge the discount back to us.

Other gross-to-net deductions include patient co-pay assistance, cash discounts for prompt payment, distributor fees that we pay under our inventory management agreements with our significant U.S.

wholesalers and are based on contractually-determined fixed percentage of sales, and sales return provisions.

Our gross-to-net deductions totaled $16.4 billion, or 38% of gross product sales in 2023, compared to $14.6 billion, or 35% of gross product sales in 2022.

The increase to 38% was primarily due to changes in product mix, where decreases in Veklury product sales in all regions were offset by increased sales in HIV and oncology products, and changes in payer mix.

Of the $16.4 billion in 2023, $14.3 billion or 33% of gross product sales was related to rebates and chargebacks, $2.2 billion or 5% was primarily related to patient co-pay assistance, cash discounts for prompt payment, distributor fees, and sales return provisions.

Of the $14.6 billion in 2022, $12.6 billion or 30% of gross product sales was related to rebates and chargebacks, $2.0 billion or 5% was primarily related to patient co-pay assistance, cash discounts for prompt payment, distributor fees, and sales return provisions.

Current year gross-to-net deductions as a percent of gross product sales may not be indicative of future results.

Foreign Currency Exchange Impact

1 unchanged sentence

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

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

in 2022 and 2021, respectively.

Approximately 26% and 29% of our product sales were denominated in foreign currencies during 2023 and 2022, respectively.

Foreign currency exchange, net of hedges, had an unfavorable impact on our total product sales of $224 million in 2023, based on a comparison using foreign currency exchange rates from 2022.

Royalty, Contract and Other Revenues

Royalty, contract and other revenues decreased 39% to $182 million in 2023, compared to 2022, primarily due to higher milestone payments received in 2022 and lower royalty revenues in 2023 due to the impact of generic launches.

Costs and Expenses

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

Year Ended December 31,

(in millions, except percentages) 2023 2022 Change

3 unchanged sentences

Acquired in-process research and development expenses $ 1,155 $ 944 22 %

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

In-process research and development impairments $ 50 $ 2,700 (98) %

Selling, general and administrative expenses $ 6,090 $ 5,673 7 %

________________________________

NM - Not Meaningful

Product Gross Margin

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.

Product gross margin decreased to 75.9% in 2023, compared to 2022, primarily driven by higher intangible asset amortization expenses related to the pretreated HR+/HER2- metastatic breast cancer indication for Trodelvy following its approval in February 2023, restructuring expenses related to changes in our manufacturing strategy, which resulted in write-offs of certain manufacturing facilities, related inventories and other costs totaling $479 million, and product mix, partially offset by higher amortization of inventory step-up charges in 2022.

Research and Development Expenses

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.

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

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

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

We do not track total R&D expenses by product candidate, therapeutic area or development phase.

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

Year Ended December 31,

(in millions) 2023 2022

Personnel, infrastructure and other support costs $ 3,204 $ 2,811

Clinical studies and other costs 2,514 2,166

Total $ 5,718 $ 4,977

Research and development expenses increased $741 million in 2023, compared to 2022.

Personnel, infrastructure and other support costs as well as Clinical studies and other costs both increased due to clinical activities primarily related to oncology and virology, including progression and acceleration of trials, as well as new study launches.

Acquired In-Process Research and Development Expenses

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.

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

Acquired in-process research and development expenses were $1.2 billion in 2023, primarily comprised of $313 million associated with the Arcellx collaboration, $269 million associated with the Tmunity acquisition, $218 million associated with the XinThera acquisition, $97 million associated with the Assembly collaboration and $60 million associated with the Compugen licensing agreement.

Acquired in-process research and development expenses were $944 million in 2022, primarily comprised of $389 million associated with the acquisition of MiroBio Ltd, $315 million associated with the collaboration with Dragonfly Therapeutics, Inc., $82 million associated with the collaboration with Jounce Therapeutics, Inc.

and acquisition of GS-1811, and $60 million associated with the collaboration with MacroGenics, Inc.

Acquisitions and Note 7.

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.

In-Process Research and Development Impairments

In-process research and development impairments included $50 million in 2023 related to a partial impairment charge on our bulevirtide IPR&D intangible asset due to a change in assumptions primarily around probability and timing of regulatory approval, and $2.7 billion in 2022 related to a partial impairment charge on our HR+/HER2- IPR&D intangible asset.

As of December 31, 2023, approximately $5.9 billion was assigned to an indefinite-lived IPR&D intangible asset related to Trodelvy for metastatic non-small cell lung cancer (“NSCLC”).

In addition to NSCLC, Trodelvy is being explored for potential investigational use in a range of tumor types where Trop-2 is highly expressed.

Gilead’s clinical development program in metastatic NSCLC includes multiple ongoing registrational Phase 3 studies and several ongoing Phase 2 studies for Trodelvy as a first- or second-line indication.

In January 2024, we announced that our Phase 3 EVOKE-01 study of Trodelvy evaluating sacituzumab govitecan-hziy (“SG”) did not meet its primary endpoint of overall survival (“OS”) in previously treated NSCLC.

However, a numerical improvement in OS favoring SG was observed in the study, including in patients with both squamous and non-squamous histology.

The safety profile for Trodelvy was consistent with prior studies.

In addition, a more than three-month difference in median OS favoring SG was observed in a sub-group of patients non-responsive to last prior anti-PD-(L)1 therapy, representing over 60% of the trial population.

This analysis was pre-specified in the protocol, but not alpha-controlled for formal statistical testing and we are continuing to analyze this data.

Gilead intends to explore potential pathways to further understand the role SG may have in these patients.

We plan to discuss this data with regulators and key opinion leaders to determine the most appropriate next steps.

We believe that this new information represents an indicator of potential impairment in the first quarter of 2024 and, as a result, the fair value of the indefinite-lived IPR&D intangible asset related to Trodelvy may be below its carrying value.

We expect to complete an interim impairment assessment of the related IPR&D intangible asset during the first quarter of 2024.

To the extent that the estimated fair value is less than the carrying value of the asset, we will be required to record an impairment charge on our Consolidated Statements of Income during the three months ended March 31, 2024.

Any such impairment charge, which we are unable to reasonably estimate at this time, could have a material impact on our consolidated results of operations.

Selling, General and Administrative Expenses

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.

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

Selling, general and administrative expenses increased $417 million in 2023, compared to 2022, primarily due to a $525 million litigation expense for settlements with certain plaintiffs in the HIV antitrust litigation in the second quarter of 2023 and increased commercial activities in oncology and HIV, partially offset by a $406 million non-recurring charge in 2022 associated with the termination of the Trodelvy license collaboration agreement with Everest Medicines.

Interest Expense and Other Income (Expense), Net

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

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

Year Ended December 31,

(in millions, except percentages) 2023 2022 Change

Interest expense $ (944) $ (935) 1 %

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

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:

Other income (expense), net $ 198 $ (581) NM

_______________________________

NM - Not Meaningful

Interest expense remained relatively flat in 2023 compared to 2022.

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

Other income (expense), net in 2023 included $376 million of interest income, partially offset by $167 million of net unrealized losses on equity investments.

Other income (expense), net in 2022 included $657 million of net unrealized losses on equity investments, partially offset by $106 million of interest income.

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

Year Ended December 31,

(in millions, except percentages) 2023 2022 Change

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Effective tax rate 18.2 % 21.5 % (3.3) %

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.

Our effective tax rate decreased in 2023, compared to 2022, primarily due to a decrease in unrecognized tax benefits as a result of reaching agreement with a tax authority on certain tax positions in 2023.

The Organisation for Economic Co-operation and Development has a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as Pillar Two), with certain aspects effective January 1, 2024 and other aspects effective January 1, 2025.

Certain countries in which we operate have adopted Pillar Two legislation and other countries are in the process of introducing legislation to implement Pillar Two.

We do not expect Pillar Two to have a material impact on our results of operations, liquidity or capital resources.

Liquidity and Capital Resources

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.

We regularly 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 $8.4 billion and $7.6 billion as of December 31, 2023 and 2022, respectively.

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The following table summarizes our cash flow activities:

Year Ended December 31,

(in millions) 2023 2022

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Net cash provided by operating activities was $8.0 billion in 2023, compared to $9.1 billion in 2022.

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.

The change was primarily due to higher income tax payments and higher inventory and operating spend, which includes HIV antitrust litigation settlement payments, in 2023, reduced by the effect of a non-recurring payment of a $1.25 billion settlement related to bictegravir litigation in 2022 and higher collections in 2023.

Investing Activities

Net cash used in investing activities was $2.3 billion in 2023, compared to $2.5 billion in 2022.

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

The change was primarily due to a decrease in acquisition spend, including acquired IPR&D, and capital expenditures, partially offset by higher net purchases of marketable debt and equity securities.

Financing Activities

Net cash used in financing activities was $5.1 billion in 2023, compared to $6.5 billion in 2022.

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 2023, we utilized cash of $2.3 billion for debt repayments, $3.8 billion for dividend payments and $1.0 billion for common stock repurchases.

These were partially offset by $2.0 billion in proceeds from the issuance of senior unsecured notes in September 2023, net of issuance costs.

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

Capital Resources

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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.

Rebates and chargebacks are determined using 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.

Rebates and chargebacks are based on contractual arrangements or statutory requirements and include amounts due to payers and healthcare providers under various programs.

These amounts may vary by product, payer and individual plans.

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

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

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Total $ 3,915 $ 12,622 $ (12,509) $ 4,028

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.

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

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

However, historical results are not indicative of future results.

Valuation of Intangible Assets

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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.

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.

For example, in the second quarter of 2023, we recorded an accrual of $525 million in Other current liabilities on our Consolidated Balance Sheets for settlements with certain plaintiffs in the HIV antitrust litigation, which we paid in the second half of 2023.

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

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

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

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