We are a party to various legal actions. The mostCertain significant of thesematters are described below. 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 and the loss or range of loss can be estimated, we disclose the possible loss. Unless otherwise noted, itthe outcome of these matters either is not expected to be material or is not possible to determine the outcome of these matters, andsuch that we cannot reasonably estimate the maximum potential exposure or the range of possible loss.
As part of the approval process for some of our products, FDA granted us a New Chemical Entity (NCE)(“NCE”) exclusivity period during which other manufacturers’ applications for approval of generic versions of our productproducts will not be approved. Generic manufacturers may challenge the patents protecting products that have been granted NCE exclusivity one year prior to the end of the NCE exclusivity period. Generic manufacturers have sought and may continue to seek FDA approval for a similar or identical drug through an abbreviated new drug application (ANDA)(“ANDA”), the application form typically used by manufacturers seeking approval of a generic drug. The sale of generic versions of our products earlier thanprior to their patent expiration would have a significant negative effect on our revenues and results of operations. To seek approval for a generic version of a product having NCE status, a generic company may submit its ANDA to FDA four years after the branded product’s approval. For sofosbuvir, this date falls in December 2017. Consequently, it is possible that one or more generics may file an ANDA for Sovaldi in December 2017.
We are a party to various legal actions that arose in the ordinary course of our business. We do not believe that it is probable or reasonably possible that these other legal actions will have a material adverse impact on our consolidated business, financial position, or results of operations.
On October 3, 2017, the closing date, we acquired all of the outstanding common stock of Kite. As a result, Kite became our wholly-owned subsidiary. Kite uses a patient’s own immune cells to fight cancer. Kite has developed engineered cell therapies that express either a chimeric antigen receptor (CAR) or an engineered T cell receptor, depending on the type of cancer. Kite’s most advanced therapy candidate, axi-cel, is a CAR T therapy. In October 2017, axi-cel, now known commercially as Yescarta, was approved by FDA, making it the first to market as a treatment for refractory aggressive non-Hodgkin lymphoma, which includes diffuse large B-cell lymphoma (DLBCL), transformed follicular lymphoma (TFL) and primary mediastinal B-cell lymphoma (PMBCL). A marketing authorization application has also been filed for axi-cel for the treatment of relapsed/refractory DLBCL, TFL and PMBCL with the European Medicines Agency, representing the first known submission in Europe for a CAR T therapy. Kite has additional candidates in clinical trials in both hematologic cancers and solid tumors, including KITE-585, a CAR T therapy candidate that targets B-cell maturation antigen expressed in multiple myeloma. This transaction will be accounted for as a business combination.
The acquisition price was approximately $11.2 billion, consisting of approximately $11.1 billion in cash and approximately $0.1 billion representing the portion of the replaced stock-based compensation attributable to the pre-combination period. In addition, approximately $0.7 billion was excluded from the acquisition price representing the portion of the replaced stock-based compensation attributable to the post combination period, which is expected to be recognized through 2021. Given the timing of the closing of this transaction, we are currently in the process of valuing the assets acquired and liabilities assumed in the business combination. As a result, we are not yet able to provide the amounts to be recognized as of the closing date for the major classes of assets acquired and liabilities assumed and other related disclosures. We will include this and other related information in our Annual Report on Form 10-K for the year ending December 31, 2017.
We financed the transaction with $3.0 billion in senior unsecured notes issued in September 2017, a $6.0 billion term loan facility credit agreement entered into in September 2017 and drawn in October 2017, as well as cash on hand. See Note 8, Debt and Credit Facilities for additional information.
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Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Quarterly Report on Form 10-Q contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The forward-looking statements are contained principally in this section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors.” Words such as “expect,” “anticipate,” “target,” “goal,” “project,” “hope,” “intend, “plan,” “believe,” “seek,” “estimate,” “continue,” “may,” “could,” “should,” “might,” variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements other than statements of historical fact are forward-looking statements, including statements regarding overall trends, operating cost and revenue trends, liquidity and capital needs and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions. We have based these forward-looking statements on our current expectations about future events. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Our actual results may differ materially from those suggested by these forward-looking statements for various reasons, including those identified below under “Risk Factors.” Given these risks and uncertainties, you are cautioned not to place undue reliance on forward-looking statements. The forward-looking statements included in this report are made only as of the date hereof. Except as required under federal securities laws and the rules and regulations of the Securities and Exchange Commission, we do not undertake and specifically decline any obligation to update any of these statements or to publicly announce the results of any revisions to any forward-looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions or otherwise. In evaluating our business, you should carefully consider the risks described in the section entitled “Risk Factors” under Part II, Item 1A in addition to the other information in this Quarterly Report on Form 10-Q. Any of the risks contained herein could materially and adversely affect our business, results of operations and financial condition.
You should read the following management’s discussion and analysis is intended to provide material information around events and uncertainties known to management that are relevant to an assessment of ourthe financial condition and results of operations of Gilead and should therefore be read in conjunction with our audited Consolidated Financial Statements and the related notes thereto and other disclosures included as part of our Annual Report on Form 10-K for the year ended December 31, 20162023 and our unaudited Condensed Consolidated Financial Statements for the ninethree months ended September 30, 2017March 31, 2024 and the related notes thereto and other disclosures (including the disclosures under Part II, Item 1A, “1A. Risk Factors”)Factors) included in this Quarterly Report on Form 10-Q. Our Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles and are presented in U.S. dollars.
Management Overview
Gilead Sciences, Inc. (Gilead, we, our(including its consolidated subsidiaries, referred to as “Gilead,” the “company,” “we,” “our” or us), incorporated in Delaware on June 22, 1987,“us”) is a research-based biopharmaceutical company that discovers, developshas pursued and commercializesachieved 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 in areas of unmet medical need. With each new discoveryto prevent and investigational drug candidate, we strive to transformtreat life-threatening diseases, including HIV, viral hepatitis, coronavirus disease 2019 (“COVID-19”) and simplify care for people with life-threatening illnesses around the world.cancer. We have operationsoperate in more than 3035 countries worldwide, with headquarters in Foster City, California. Gilead’s primary areas
Key Business Updates
The following updates are based on select press releases issued since the filing of focus include human immunodeficiency virus (HIV), liver diseases such as chronic hepatitis C virus (HCV) infection and chronic hepatitis B virus (HBV) infection, hematology/oncology, cardiovascular and inflammation/respiratory diseases. We seekour Annual Report on Form 10-K for the year ended December 31, 2023. Readers are encouraged to add toreview all press releases available on our existing portfolio of products through our internal discovery and clinical development programs and through product acquisition and in-licensing strategies.
Our portfolio of marketed products includes AmBisome®, Atripla®, Cayston®, Complera®/Eviplera®, Descovy®, Emtriva®, Epclusa®, Genvoya®, Harvoni®, Hepsera®, Letairis®, Odefsey®, Ranexa®, Sovaldi®, Stribild®, Truvada®, Tybost®, Vemlidy®, Viread®, Vitekta®, Vosevi®, YescartaTM and Zydelig®. We have U.S. and international commercial sales operations, with marketing subsidiaries in over 30 countries. We also sell and distribute certain products through our corporate partners under royalty-paying collaborative agreements.
Business Highlights
During the third quarter of 2017, we continued to advance our product pipeline across our therapeutic areas with the goal of delivering best-in-class drugs that advance the current standard of care and/or address unmet medical need. Recent key developments include:
Kite Acquisition
In October 2017, we acquired all of the outstanding common stock of Kite Pharma, Inc. (Kite) for $180 per share in cash, or approximately $11.2 billion, excluding approximately $0.7 billion relating to the portion of the replaced stock-based compensation attributable to the post combination period. We financed the transaction with $3.0 billion in senior unsecured notes, a $6.0 billion term loan facility credit agreement and cash on hand. Kite is an industry leader in the emerging field of cell therapy, which uses a patient’s own immune cells to fight cancer. Kite has developed engineered cell therapies that express either a chimeric antigen receptor or an engineered T cell receptor, dependingwebsite at www.gilead.com. The content on the typereferenced website does not constitute a part of cancer. The acquisition resulted in Kite becoming our wholly-owned subsidiary and established us as a leader in cellular therapy.is not incorporated by reference into this Quarterly Report on Form 10-Q.
Virology
Through the acquisition, we acquired axicabtagene ciloleucel (axi-cel), a chimeric antigen receptor T cell (CAR T) therapy. In October 2017, we received•Received approval from the U.S. Food and Drug Administration (FDA)(“FDA”) to update Biktarvy’s label with additional data reinforcing the safety and efficacy profile to treat pregnant people with HIV-1 with suppressed viral loads.
•Received approval from FDA to expand Biktarvy’s label to include treatment of people with HIV who have suppressed viral loads with known or suspected M184V/I resistance.
•Received approval from FDA to expand the indication for axi-cel, now known commercially as Yescarta, making itVemlidy to include treatment of chronic hepatitis B virus (“HBV”) in children six years and older who weigh at least 25 kg with compensated liver disease.
Oncology
•Announced a research collaboration, option and license agreement with Merus N.V. to discover novel antibody-based trispecific T-cell engagers in oncology.
•Entered into an exclusive license agreement with Xilio Therapeutics, Inc. (“Xilio”) to develop and commercialize Xilio’s tumor-activated IL-12 program, including investigational candidate XTX301 in advanced solid tumors.
Inflammation
•Completed the first to market as a treatmentacquisition of CymaBay Therapeutics, Inc. (“CymaBay”), for refractory aggressive non-Hodgkin lymphoma, which includes diffuse large B-cell lymphoma (DLBCL), transformed follicular lymphoma (TFL) and primary mediastinal B-cell lymphoma (PMBCL). We have also filed a marketing authorization application for axi-cel$4.3 billion in total equity value, or $3.9 billion net cash paid, adding investigational candidate seladelpar for the treatment of relapsed/refractory DLBCL, TFL and PMBCLprimary biliary cholangitis to Gilead’s Liver Disease portfolio. Seladelpar is an investigational, oral, selective peroxisome proliferator-activated receptor delta (PPARδ) agonist with the European Medicines Agency, representing the first known submission in Europe for a CAR T therapy. Approval in Europe is expected in 2018, although there can be no assurance that we will receive such approval on a timely basis or at all. In addition to axi-cel, we also acquired therapy candidates in clinical trials in both hematologic cancers and solid tumors, including KITE-585, a CAR T therapy candidate that targets B-cell maturation antigen expressed in multiple myeloma.
Other Key Announcements
We announced results from a Phase 2, randomized, placebo-controlled trial evaluating two doses of GS-0976, an oral, investigational inhibitor of acetyl-CoA carboxylase, in patients with nonalcoholic steatohepatitis. The data demonstrate that the higher dose of GS-0976 (20 mg taken orally once daily) when administered for 12 weeks was associated with statistically significant reductions in hepatic steatosis (buildup of fatOrphan Drug Designation in the liver)United States and a noninvasive marker of fibrosis comparedEurope. PPARδ has been shown to placebo.
We announced detailed 48-week results from a Phase 3 study evaluatingregulate critical metabolic and liver disease pathways. FDA accepted the efficacy and safety of switching virologically suppressed HIV-1 infected adult patients from a multi-tablet regimen containing a boosted protease inhibitor (bPI) to a fixed-dose combination of bictegravir (50 mg) (BIC), an investigational integrase strand transfer inhibitor, and emtricitabine/tenofovir alafenamide (200/25 mg) (FTC/TAF), a dual-NRTI backbone. In the ongoing study, BIC/FTC/TAF was found to be statistically non-inferior to regimens containing bPIs and demonstrated no treatment-emergent resistance at 48 weeks.
China Food andNew Drug Administration approved Sovaldi (sofosbuvir 400 mg)Application for the treatment of HCV infection. Sovaldi was approvedseladelpar in February 2024 for the treatment of adults and adolescents (aged 12 to 18 years) infected with HCV genotypes 1, 2, 3, 4, 5 or 6 as a component of a combination antiviral treatment regimen. Sovaldi is our first HCV medicine approved in China.
FDA granted priority review, for our new drug application (NDA) for an investigational, fixed-dose combination of BIC/FTC/TAF for the treatment of HIV-1 infection. We filed the NDA for BIC/FTC/TAF with a priority review voucher on June 12, 2017, and FDA has set aPrescription Drug User Fee Act target action date under PDUFA of February 12, 2018.August 14, 2024.
Key Financial HighlightsResults
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | | |
| | March 31, | | | | | | |
(in millions, except percentages and per share amounts) | | 2024 | | 2023 | | Change | | | | | | |
Total revenues | | $ | 6,686 | | | $ | 6,352 | | | 5 | % | | | | | | |
Net (loss) income attributable to Gilead | | $ | (4,170) | | | $ | 1,010 | | | NM | | | | | | |
Diluted (loss) earnings per share attributable to Gilead | | $ | (3.34) | | | $ | 0.80 | | | NM | | | | | | |
NM - Not Meaningful
Total revenues were $6.5 billion for the third quarter of 2017, comparedincreased 5% to $7.5 billion for the third quarter of 2016, primarily due to lower product sales, which were $6.4 billion compared to $7.4 billion for the same quarter of 2016.
Research and development (R&D) expenses were $789 million for the third quarter of 2017, compared to $1.1 billion for the third quarter of 2016, primarily due to the 2016 impacts of a $200 million milestone expense associated with Nimbus Apollo, Inc. (Nimbus) and a $117 million impairment charge related to in-process R&D (IPR&D).
Net income attributable to Gilead was $2.7 billion or $2.06 per diluted share for the third quarter of 2017, compared to $3.3 billion or $2.49 per diluted share for the third quarter of 2016, primarily due to lower product sales and a higher effective tax rate, partially offset by lower expenses.
As of September 30, 2017, we had $41.4 billion of cash, cash equivalents and marketable securities, compared to $36.6 billion as of June 30, 2017. This increase was primarily due to the issuance of $3.0 billion aggregate principal amount of senior unsecured notes in September 2017 to partially fund our acquisition of Kite, which was completed in October 2017. During the third quarter of 2017, cash flow from operating activities was $2.7 billion.
Results of Operations
Total Revenues
The following table summarizes our product sales and royalty, contract and other revenues:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Nine Months Ended | | |
| | September 30, | | | | September 30, | | |
(In millions, except percentages) | | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Revenues: | | | | | | | | | | | | |
Product sales | | $ | 6,402 |
| | $ | 7,405 |
| | (14 | )% | | $ | 19,825 |
| | $ | 22,737 |
| | (13 | )% |
Royalty, contract and other revenues | | 110 |
| | 95 |
| | 16 | % | | 333 |
| | 333 |
| | — | % |
Total revenues | | $ | 6,512 |
| | $ | 7,500 |
| | (13 | )% | | $ | 20,158 |
| | $ | 23,070 |
| | (13 | )% |
Product sales for the three months ended September 30, 2017
Total product sales were $6.4$6.7 billion for the three months ended September 30, 2017,March 31, 2024, compared to $7.4the same period in 2023, primarily due to higher HIV, Oncology and Liver Disease sales.
Net loss attributable to Gilead was $4.2 billion and diluted loss per share attributable to Gilead was $3.34 for the three months ended March 31, 2024, compared to net income attributable to Gilead of $1.0 billion and diluted earnings per share attributable to Gilead of $0.80 for the same period in 2016,2023. The decrease was primarily duedriven by an acquired in-process research and development (“IPR&D”) charge of $3.9 billion related to the acquisition of CymaBay, as well as a decreasepre-tax IPR&D partial impairment charge of $2.4 billion related to assets acquired by Gilead from Immunomedics, Inc. (“Immunomedics”) in antiviral2020.
Results of Operations
Revenues
The following table summarizes the period-over-period changes in our Total revenues:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2024 | | Three Months Ended March 31, 2023 | | |
(in millions) | | U.S. | | Europe | | Rest of World | | Total | | U.S. | | Europe | | Rest of World | | Total | | Change |
Product sales: | | | | | | | | | | | | | | | | | | |
HIV | | | | | | | | | | | | | | | | | | |
Biktarvy | | $ | 2,315 | | | $ | 365 | | | $ | 265 | | | $ | 2,946 | | | $ | 2,161 | | | $ | 304 | | | $ | 212 | | | $ | 2,677 | | | 10 | % |
Descovy | | 371 | | | 26 | | | 29 | | | 426 | | | 395 | | | 25 | | | 29 | | | 449 | | | (5) | % |
Genvoya | | 332 | | | 49 | | | 21 | | | 403 | | | 417 | | | 55 | | | 29 | | | 501 | | | (20) | % |
Odefsey | | 223 | | | 76 | | | 11 | | | 310 | | | 230 | | | 76 | | | 11 | | | 317 | | | (2) | % |
Symtuza - Revenue share(1) | | 104 | | | 33 | | | 3 | | | 141 | | | 98 | | | 36 | | | 4 | | | 138 | | | 2 | % |
Other HIV(2) | | 60 | | | 45 | | | 12 | | | 117 | | | 62 | | | 32 | | | 13 | | | 108 | | | 9 | % |
Total HIV | | 3,405 | | | 596 | | | 342 | | | 4,342 | | | 3,364 | | | 528 | | | 298 | | | 4,190 | | | 4 | % |
| | | | | | | | | | | | | | | | | | |
Liver Disease | | | | | | | | | | | | | | | | | | |
Sofosbuvir/Velpatasvir(3) | | 248 | | | 79 | | | 78 | | | 405 | | | 204 | | | 90 | | | 90 | | | 385 | | | 5 | % |
Vemlidy | | 95 | | | 11 | | | 119 | | | 225 | | | 87 | | | 9 | | | 103 | | | 199 | | | 13 | % |
Other Liver Disease(4) | | 42 | | | 47 | | | 19 | | | 107 | | | 27 | | | 41 | | | 23 | | | 91 | | | 18 | % |
Total Liver Disease | | 385 | | | 137 | | | 215 | | | 737 | | | 318 | | | 140 | | | 217 | | | 675 | | | 9 | % |
| | | | | | | | | | | | | | | | | | |
Veklury | | 315 | | | 70 | | | 169 | | | 555 | | | 252 | | | 111 | | | 209 | | | 573 | | | (3) | % |
| | | | | | | | | | | | | | | | | | |
Oncology | | | | | | | | | | | | | | | | | | |
Cell Therapy | | | | | | | | | | | | | | | | | | |
Tecartus | | 55 | | | 36 | | | 8 | | | 100 | | | 59 | | | 27 | | | 3 | | | 89 | | | 13 | % |
Yescarta | | 170 | | | 158 | | | 52 | | | 380 | | | 210 | | | 121 | | | 28 | | | 359 | | | 6 | % |
Total Cell Therapy | | 225 | | | 195 | | | 60 | | | 480 | | | 269 | | | 148 | | | 31 | | | 448 | | | 7 | % |
| | | | | | | | | | | | | | | | | | |
Trodelvy | | 206 | | | 68 | | | 36 | | | 309 | | | 162 | | | 54 | | | 6 | | | 222 | | | 39 | % |
Total Oncology | | 431 | | | 262 | | | 96 | | | 789 | | | 431 | | | 202 | | | 37 | | | 670 | | | 18 | % |
| | | | | | | | | | | | | | | | | | |
Other | | | | | | | | | | | | | | | | | | |
AmBisome | | 14 | | | 70 | | | 60 | | | 144 | | | 6 | | | 60 | | | 49 | | | 116 | | | 24 | % |
Other(5) | | 59 | | | 9 | | | 12 | | | 80 | | | 62 | | | 12 | | | 9 | | | 83 | | | (4) | % |
Total Other | | 73 | | | 79 | | | 71 | | | 224 | | | 69 | | | 72 | | | 58 | | | 199 | | | 13 | % |
Total product sales | | 4,609 | | | 1,144 | | | 894 | | | 6,647 | | | 4,434 | | | 1,053 | | | 819 | | | 6,306 | | | 5 | % |
Royalty, contract and other revenues | | 23 | | | 15 | | | 1 | | | 39 | | | 18 | | | 26 | | | 2 | | | 46 | | | (15) | % |
Total revenues | | $ | 4,633 | | | $ | 1,159 | | | $ | 894 | | | $ | 6,686 | | | $ | 4,452 | | | $ | 1,079 | | | $ | 821 | | | $ | 6,352 | | | 5 | % |
_______________________________(1) Represents our revenue from cobicistat (“C”), emtricitabine (“FTC”) and tenofovir alafenamide (“TAF”) in Symtuza (darunavir/C/FTC/TAF), a fixed dose combination product sales.commercialized by Janssen Sciences Ireland Unlimited Company (“Janssen”).
Antiviral(2) Includes Atripla, Complera/Eviplera, Emtriva, Sunlenca, Stribild, Truvada and Tybost.
(3) Includes Epclusa and the authorized generic version of Epclusa sold by Gilead’s separate subsidiary, Asegua Therapeutics LLC (“Asegua”).
(4) Includes ledipasvir/sofosbuvir (Harvoni and the authorized generic version of Harvoni sold by Asegua), Hepcludex, Hepsera, Sovaldi, Viread and Vosevi.
(5) Includes Cayston, Jyseleca, Letairis, Ranexa and Zydelig.
HIV
HIV product sales which include sales of our HIV, HBV and HCV products, were $5.8increased 4% to $4.3 billion for the three months ended September 30, 2017,March 31, 2024, compared to $6.8 billion for the same period in 2016. HIV and HBV product sales were $3.6 billion for the three months ended September 30, 2017, compared to $3.5 billion for the same period in 2016. The increase was2023, primarily driven by the continued uptake of our TAF-based products:higher demand. In particular, Biktarvy sales increased primarily reflecting higher demand, including patients switching from Genvoya and other Gilead HIV products. Descovy and Odefsey. HCV product sales which consist of Harvoni, Epclusa, Sovaldi and Vosevi, were $2.2 billion for the three months ended September 30, 2017, compared to $3.3 billion for the same period in 2016. The decrease wasdecreased primarily driven by lower average realized price due to lower sales of Harvoni and Sovaldi across all major markets,channel mix, partially offset by sales of Epclusa, which was approved by FDA and the European Commission in June and July 2016, respectively, and sales of Vosevi, which was approved by FDA and the European Commission in July 2017.higher demand.
In the HCV market, following the approval of the newer HCV products, there was a rapid increase in the number of patients who were treated and cured followed by a decline in the number of patients seeking care and being able to access HCV treatment. As a result of this dynamic, we expect patient starts to continue to decline relative to 2016 in all major markets and this was a primary driver for the decreases of our HCV products sales for the three and nine months ended September 30, 2017 as compared to the same periods in 2016. We also expectLiver Disease
Liver Disease product sales increased 9% to be further impacted by the effects of competition from new HCV products on net price and market share. We anticipate that the effect of competition on net pricing and market share will be more fully reflected beginning in the fourth quarter of 2017.
Other product sales, which include sales of Letairis, Ranexa and AmBisome, were $559$737 million for the three months ended September 30, 2017,March 31, 2024, compared to $564 million for the same period in 2016.2023, primarily driven by favorable inventory dynamics, the timing of chronic hepatitis C virus (“HCV”) product purchases by the Department of Corrections in the United States, as well as higher demand across HBV, HCV, and in the European Union (“EU”), chronic hepatitis D virus (“HDV”) products.
Of our totalVeklury
Veklury product sales 29% were generateddecreased 3% to $555 million for the three months ended March 31, 2024, compared to the same period in 2023, primarily driven by lower rates of COVID-19 related hospitalizations.
Oncology
Cell Therapy
Cell Therapy product sales increased 7% to $480 million for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to increased Yescarta demand for the treatment of relapsed or refractory (“R/R”) large B-cell lymphoma outside the United States duringand increased Tecartus demand for the treatment of R/R adult acute lymphoblastic leukemia and R/R mantle cell lymphoma, mostly in Europe.
Trodelvy
Trodelvy product sales increased 39% to $309 million for the three months ended September 30, 2017. March 31, 2024, compared to the same period in 2023, primarily due to higher demand.
Other
Other product sales increased 13% to $224 million for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to higher demand for AmBisome.
Foreign Currency Exchange Impact
We facedgenerally face exposure to movements in foreign currency exchange rates, primarily in the Euro. We useduse foreign currency exchange contracts to hedge a percentageportion of our foreign currency exposure. Foreign currency exchange, netexposures.
Approximately 28% of hedges, did not have a material impact on our product sales forwere denominated in foreign currencies during the three months ended September 30, 2017, compared to the same period in 2016.
Product sales in the United States were $4.5 billion for the three months ended September 30, 2017, compared to $5.1 billion for the same period in 2016. Declines in sales of our HCV products were partially offset by increases in sales of our HIVMarch 31, 2024 and HBV products. The declines in sales of our HCV products were primarily due to lower Harvoni and Sovaldi sales volume as a result of lower total market patient starts and increased competition, partially offset by sales of Vosevi. The increases in the sales of our HIV and HBV products were primarily driven by sales of our TAF-based products, partially offset by decreases in our tenofovir disoproxil fumarate (TDF)-based products and the prior year impact of a favorable revision to our rebate reserves of $332 million.
Product sales in Europe were $1.2 billion for the three months ended September 30, 2017, compared to $1.4 billion for the same period in 2016. The decrease was primarily due to lower Harvoni and Sovaldi sales volume, partially offset by sales of Epclusa. Sales of our HIV and HBV products for the three months ended September 30, 2017 were flat compared to the same period in 2016. Foreign currency exchange, net of hedges, did not have a material impact on our product sales for the three months ended September 30, 2017, compared to the same period in 2016.
Product sales in other locations were $663 million for the three months ended September 30, 2017, compared to $931 million for the same period in 2016,primarily due to lower sales in Japan. Sales in Japan were $170 million for the three months ended September 30, 2017, compared to $452 million for the same period in 2016, primarily due to lower Harvoni and Sovaldi sales volume as a result of lower total market patient starts and increased competition.
Product sales for the nine months endedSeptember 30, 2017
Total product sales were $19.8 billion for the nine months ended September 30, 2017, compared to $22.7 billion for the same period in 2016, primarily due to a decrease in antiviral product sales.
Antiviral product sales were $18.1 billion for the nine months ended September 30, 2017, compared to $21.2 billion for the same period in 2016. HIV and HBV product sales were $10.5 billion for the nine months ended September 30, 2017, compared to $9.5 billion for the same period in 2016. The increase was primarily driven by the continued uptake of our TAF-based products. HCV product sales were $7.6 billion for the nine months ended September 30, 2017, compared to $11.6 billion for the same period in 2016. The decrease was due to lower sales of Harvoni and Sovaldi across all major markets, partially offset by sales of Epclusa and Vosevi.
Other product sales, which include sales of Letairis, Ranexa and AmBisome, were $1.7 billion for the nine months ended September 30, 2017, compared to $1.6 billion for the same period in 2016.
Of our total product sales, 30% were generated outside the United States during the nine months ended September 30, 2017. We faced exposure to movements in foreign currency exchange rates, primarily in the Euro. We used foreign currency exchange
contracts to hedge a percentage of our foreign currency exposure.2023. Foreign currency exchange, net of hedges, had an unfavorable impact on our total product sales of $147$47 million for the nine months ended September 30, 2017, compared to the same period in 2016.
Product sales in the United States were $14.0 billion for the nine months ended September 30, 2017, compared to $14.3 billion for the same period in 2016. Declines in sales of our HCV products were partially offset by increases in sales of our HIV and HBV products. The declines in sales of our HCV products were primarily due to lower Harvoni and Sovaldi sales volume as a result of lower total market patient starts and increased competition, partially offset by sales of Epclusa and Vosevi. The increases in the sales of our HIV and HBV products were primarily driven by sales of our TAF-based products, partially offset by decreases in our TDF-based products and the prior year impact of a favorable revision to our rebate reserves of $332 million.
Product sales in Europe were $3.9 billion for the nine months ended September 30, 2017, compared to $4.7 billion for the same period in 2016. The decrease was primarily due to lower Harvoni and Sovaldi sales volume, partially offset by sales of Epclusa. Sales of our HIV and HBV products for the nine months ended September 30, 2017 were flat compared to the same period in 2016. In addition, foreign currency exchange, net of hedges, had an unfavorable impact of $118 million on our product sales for the nine months ended September 30, 2017, compared to the same period in 2016.
Product sales in other locations were $2.0 billion for the nine months ended September 30, 2017, compared to $3.7 billion for the same period in 2016,primarily due to lower sales in Japan. Sales in Japan were $556 million for the nine months ended September 30, 2017, compared to $2.2 billion for the same period in 2016, primarily due to lower Harvoni and Sovaldi sales volume as a result of lower total market patient starts and increased competition.
The following table summarizes the period-over-period changes in our product sales by product:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Nine Months Ended | | |
| | September 30, | | | | September 30, | | |
(In millions, except percentages) | | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Antiviral products: | | | | | | | | | | | | |
HCV products | | | | | | | | | | | | |
Harvoni | | $ | 973 |
| | $ | 1,860 |
| | (48 | )% | | $ | 3,726 |
| | $ | 7,441 |
| | (50 | )% |
Epclusa | | 882 |
| | 640 |
| | 38 | % | | 2,945 |
| | 704 |
| | * |
|
Sovaldi | | 219 |
| | 825 |
| | (73 | )% | | 847 |
| | 3,460 |
| | (76 | )% |
Vosevi | | 123 |
| | — |
| | * |
| | 123 |
| | — |
| | * |
|
HIV and HBV | | | | | | | | | | | | |
Genvoya | | 988 |
| | 461 |
| | 114 | % | | 2,614 |
| | 921 |
| | * |
|
Truvada | | 811 |
| | 858 |
| | (5 | )% | | 2,337 |
| | 2,698 |
| | (13 | )% |
Atripla | | 439 |
| | 650 |
| | (32 | )% | | 1,366 |
| | 1,998 |
| | (32 | )% |
Descovy | | 316 |
| | 88 |
| | * |
| | 853 |
| | 149 |
| | * |
|
Odefsey | | 296 |
| | 105 |
| | * |
| | 781 |
| | 174 |
| | * |
|
Viread | | 274 |
| | 303 |
| | (10 | )% | | 834 |
| | 862 |
| | (3 | )% |
Complera/Eviplera | | 237 |
| | 411 |
| | (42 | )% | | 744 |
| | 1,160 |
| | (36 | )% |
Stribild | | 229 |
| | 621 |
| | (63 | )% | | 831 |
| | 1,527 |
| | (46 | )% |
Other | | 56 |
| | 19 |
| | * |
| | 122 |
| | 56 |
| | 118 | % |
Total antiviral products | | 5,843 |
| | 6,841 |
| | (15 | )% | | 18,123 |
| | 21,150 |
| | (14 | )% |
Other products: | | | | | | | | | | | | |
Letairis | | 213 |
| | 215 |
| | (1 | )% | | 654 |
| | 593 |
| | 10 | % |
Ranexa | | 164 |
| | 170 |
| | (4 | )% | | 517 |
| | 467 |
| | 11 | % |
AmBisome | | 92 |
| | 91 |
| | 1 | % | | 276 |
| | 262 |
| | 5 | % |
Zydelig | | 40 |
| | 39 |
| | 3 | % | | 110 |
| | 129 |
| | (15 | )% |
Other | | 50 |
| | 49 |
| | 2 | % | | 145 |
| | 136 |
| | 7 | % |
Total product sales | | $ | 6,402 |
| | $ | 7,405 |
| | (14 | )% | | $ | 19,825 |
| | $ | 22,737 |
| | (13 | )% |
_______________________ | | | | | | | | | | | | |
* Percentage not meaningful
Following is additional discussion of our results by product:
Harvoni
Harvoni sales accounted for 17% and 21% of our total antiviral product sales for the three and nine months ended September 30, 2017, respectively, and 27% and 35% of our total antiviral product sales for the three and nine months ended September 30, 2016, respectively.
For the three months ended September 30, 2017, product sales were $718 million in the United States, $110 million in Europe and $145 million in other locations, compared to $1.1 billion in the United States, $380 million in Europe and $396 million in other locations for the same period in 2016. The decreases in all major markets were primarily due to lower sales volume.
For the nine months ended September 30, 2017, product sales were $2.6 billionin the United States, $583 million in Europe and $515 million in other locations, compared to $4.0 billion in the United States, $1.4 billion in Europe and $2.0 billion in other locations for the same period in 2016. The decreases in all major markets were primarily due to lower sales volume. In the United States, the decrease was also due toMarch 31, 2024, based on a favorable revision to our sales return reserve of $181 million in the second quarter of 2016.
Epclusa
Epclusa sales accounted for 15% and 16% of our total antiviral product sales for the three and nine months ended September 30, 2017, respectively, and 9% and 3% of our total antiviral product sales for the three and nine months ended September 30, 2016, respectively.
Forcomparison using foreign currency exchange rates from the three months ended September 30, 2017, product sales were $543 million in the United StatesMarch 31, 2023.
Costs and $263 million in Europe, compared to $593 million in the United States and $40 million in Europe for the same period in 2016. In the United States, the decrease was due to lower average net selling price, partially offset by higher sales volume driven by a shift in the market from Sovaldi to Epclusa. In Europe, the increase was driven by higher sales volume as Epclusa was approved by the European Commission in July 2016.
For the nine months ended September 30, 2017, product sales were $2.1 billion in the United States and $649 million in Europe, compared to $657 million in the United States and $40 million in Europe for the same period in 2016. The increases were primarily due to higher sales volume as Epclusa was approved by FDA and the European Commission in June and July 2016, respectively.
Sovaldi
Sovaldi sales accounted for 4% and 5% of our total antiviral product sales for the three and nine months ended September 30, 2017, respectively, and 12% and 16% of our total antiviral product sales for the three and nine months ended September 30, 2016, respectively.
For the three months ended September 30, 2017, product sales were $32 million in the United States, $19 million in Europe and $168 million in other locations, compared to $363 million in the United States, $184 million in Europe and $278 million in other locations for the same period in 2016. The decreases were primarily due to lower sales volume driven by a shift in the market from Sovaldi to Epclusa.
For the nine months ended September 30, 2017, product sales were $120 million in the United States, $238 million in Europe and $489 million in other locations, compared to $1.8 billion in the United States, $727 million in Europe and $950 million in other locations for the same period in 2016. The decreases were primarily due to lower sales volume driven by a shift in the market from Sovaldi to Epclusa. In the United States, the decrease was also due to a favorable revision to our sales return reserve of $98 million in the second quarter of 2016.
TAF-based regimens - Genvoya, Descovy and Odefsey
Genvoya was approved by FDA and the European Commission in November 2015. Descovy was approved by FDA and the European Commission in April 2016. Odefsey was approved by FDA and the European Commission in March and June 2016, respectively.
Product sales of our newly launched TAF-based regimens accounted for 27% and 23% of our total antiviral product sales for three and nine months ended September 30, 2017, respectively, and 10% and 6% of our total antiviral product sales for the three and nine months ended September 30, 2016, respectively.
For the three months ended September 30, 2017, sales of our TAF-based regimens were $1.3 billion in the United States and $248 million in Europe, compared to $567 million in the United States and $79 million in Europe for the same period in 2016. The increases were primarily driven by higher sales volume as patients shifted away from TDF-based regimens.
For the nine months ended September 30, 2017, sales of our TAF-based regimens were $3.6 billion in the United States and $594 million in Europe, compared to $1.1 billion in the United States and $137 million in Europe for the same period in 2016. The increases were primarily driven by higher sales volume as patients shifted away from TDF-based regimens.
TDF-based regimens - Stribild, Complera/Eviplera, Atripla, Truvada and Viread
Product sales of these TDF-based regimens accounted for 34% of our total antiviral product sales for three and nine months ended September 30, 2017, and 42% and 39% of our total antiviral product sales for the three and nine months ended September 30, 2016, respectively.
For the three months ended September 30, 2017, sales of our TDF-based regimens were $1.3 billion in the United States, $461 million in Europe and $192 million in other locations, compared to $2.0 billion in the United States, $644 million in Europe and $206 million in other locations for the same period in 2016. In the United States, the decreases were primarily due to lower sales volume as a result of the continued uptake of our TAF-based regimens and a favorable revision to our rebate reserves of $312 million relating to Stribild and Complera in the third quarter of 2016, partially offset by the increased usage of Truvada for pre-exposure prophylaxis (PrEP). In Europe, the decreases were primarily due to lower sales volume as a result of loss of exclusivity of Truvada and Viread and the continued uptake of our TAF-based regimens.
For the nine months ended September 30, 2017, sales of our TDF-based regimens were $4.0 billion in the United States, $1.5 billion in Europe and $627 million in other locations, compared to $5.6 billion in the United States, $2.0 billion in Europe and $642 million in other locations for the same period in 2016. In the United States, the decreases were primarily due to lower sales volume as a result of the continued uptake of our TAF-based regimens and a favorable revision to our rebate reserves of $312 million relating to Stribild and Complera in the third quarter of 2016, partially offset by the increased usage of Truvada for PrEP. In Europe, the decreases were primarily due to lower sales volume as a result of loss of exclusivity of Truvada and Viread and the continued uptake of our TAF-based regimens.
Cost of Goods Sold and Product Gross Margin
The following table summarizes our cost of goods sold and product gross margin:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
(In millions, except percentages) | | 2017 | | 2016 | | 2017 | | 2016 |
Cost of goods sold | | $ | 1,032 |
| | $ | 1,129 |
| | $ | 3,115 |
| | $ | 3,186 |
|
Product gross margin | | 84 | % | | 85 | % | | 84 | % | | 86 | % |
Our product gross margin for the three and nine months ended September 30, 2017 decreased compared to the same period in 2016 primarily due to changes in our product mix, as our HCV product sales decreased as a percentage of total product sales.
Operating Expenses
The following table summarizes the period-over-period changes in our R&Dcosts and expenses:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | | |
| | March 31, | | | | | | |
(in millions, except percentages) | | 2024 | | 2023 | | Change | | | | | | |
Cost of goods sold | | $ | 1,552 | | | $ | 1,401 | | | 11 | % | | | | | | |
Product gross margin | | 76.6 | % | | 77.8 | % | | -114 bps | | | | | | |
Research and development expenses | | $ | 1,520 | | | $ | 1,447 | | | 5 | % | | | | | | |
Acquired in-process research and development expenses | | $ | 4,131 | | | $ | 481 | | | NM | | | | | | |
In-process research and development impairment | | $ | 2,430 | | | $ | — | | | NM | | | | | | |
Selling, general and administrative expenses | | $ | 1,375 | | | $ | 1,319 | | | 4 | % | | | | | | |
NM - Not Meaningful
Product Gross Margin
Product gross margin decreased to 76.6% for the three months ended March 31, 2024, compared to the same period in 2023, primarily driven by product mix, as well as higher intangible asset amortization expenses and selling, general and administrative (SG&A) expenses:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Nine Months Ended | | |
| | September 30, | | | | September 30, | | |
(In millions, except percentages) | | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Research and development expenses | | $ | 789 |
| | $ | 1,141 |
| | (31 | )% | | $ | 2,584 |
| | $ | 3,890 |
| | (34 | )% |
Selling, general and administrative expenses | | $ | 879 |
| | $ | 831 |
| | 6 | % | | $ | 2,626 |
| | $ | 2,406 |
| | 9 | % |
related to the pretreated hormone receptor-positive, human epidermal growth factor receptor 2-negative (“HR+/HER2-”) metastatic breast cancer indication for Trodelvy following its approval in February 2023.Research and Development Expenses
Research and development (“R&D&D”) expenses consist primarily of clinical studies performed by contract research organizations, materials and supplies, licenses and fees, up-front payments under collaboration arrangements, milestone payments, personnel costs including salaries, benefits and stock-based compensation expense, infrastructure, materials and overhead allocations consisting of varioussupplies and other support costs, research and facilities-related costs.clinical studies performed by contract research organizations and our collaboration partners and other outside services.
We do not track total R&D expenses by product candidate, therapeutic area or development phase. However, we manage our R&D expenses by identifying the R&D activities we anticipate willexpect 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 continuallyregularly review our R&D pipeline and the status of developmentactivities based on unmet medical need and, as necessary, reallocate resources among theour internal R&D portfolio and external opportunities that we believe will best support the futurelong-term growth of our business.
We do not track total R&D expenses by product candidate, therapeutic area or development phase.
The following table provides a breakout of expenses by major cost type:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | |
| | March 31, | | |
(in millions) | | 2024 | | 2023 | | | | |
Personnel, infrastructure and other support costs | | $ | 963 | | | $ | 817 | | | | | |
Clinical studies and other costs | | 557 | | | 629 | | | | | |
Total | | $ | 1,520 | | | $ | 1,447 | | | | | |
Research and development expenses increased 5% to $1.5 billion for the three months ended September 30, 2017 decreased by $352 million or 31%,March 31, 2024, compared to the same period in 2016,2023. Personnel, infrastructure and other support costs increased primarily due to the 2016 impacts of a $200 million milestone expense associated with Nimbus and a $117 million impairment chargestock-based compensation expenses related to IPR&D.
R&D expenses for the nine months ended September 30, 2017acquisition of CymaBay and restructuring expenses. Clinical studies and other costs decreased by $1.3 billion or 34%, compared to the same period in 2016, primarily due to higher R&D reimbursements and the 2016 impactsdiscontinuation or ramp-down of our purchasemagrolimab and other studies.
Acquired In-Process Research and Development Expenses
Acquired in-process research and development expenses are recorded when incurred and reflect costs of Nimbus, up-front collaboration expensesexternally-developed IPR&D projects, acquired directly in a transaction other than a business combination, that do not have an alternative future use, including upfront and milestone payments related to various collaborations and the costs of rights to IPR&D projects.
Acquired in-process research and development expenses were $4.1 billion for the three months ended March 31, 2024, primarily comprised of $3.9 billion related to the CymaBay acquisition and $100 million related to the Arcus Biosciences, Inc. collaboration. Acquired in-process research and development expenses were $481 million for the three months ended March 31, 2023, primarily comprised of $244 million related to the Tmunity Therapeutics, Inc. acquisition and $212 million related to the Arcellx, Inc. collaboration. See Note6. Acquisitions, Collaborations and Other Arrangements of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.
In-Process Research and Development Impairment
As of December 31, 2023, approximately $5.9 billion was assigned to an indefinite-lived IPR&D intangible asset related to Trodelvy for metastatic non-small cell lung cancer (“NSCLC”). In addition to NSCLC, Trodelvy is being explored for potential investigational use in a range of tumor types where Trop-2 is highly expressed. Gilead’s clinical development program in metastatic NSCLC includes ongoing Phase 2 and registrational Phase 3 studies for Trodelvy as a first- or second-line indication.
In January 2024, we received data from our licensePhase 3 EVOKE-01 study of Trodelvy evaluating sacituzumab govitecan-hziy (“SG”) indicating that the study did not meet its primary endpoint of overall survival in previously treated metastatic NSCLC, thus triggering a review for potential impairment of the NSCLC IPR&D impairment asset.
Based on our evaluation of the study results and collaboration agreementall other data currently available, and in connection with Galapagos NV, milestone expense associatedthe preparation of the financial statements for the first quarter, we performed an interim impairment test and determined that the revised estimated fair value of the NSCLC IPR&D intangible asset was below its carrying value. As a result, we recognized a partial impairment charge of $2.4 billion in In-process research and development impairment on our Condensed Consolidated Statements of Operations for the three months ended March 31, 2024.
To arrive at the revised estimated fair value, we used a probability-weighted income approach that discounts expected future cash flows to present value, which requires the use of Level 3 fair value measurements and inputs, and requires the use of critical estimated inputs, including: revenues and operating profits related to the planned utilization of SG in NSCLC, which, include inputs such as addressable patient population, projected market share, treatment duration, and the life of the potential commercialized product; the probability of technical and regulatory success; the time and resources needed to complete the development and approval of SG in NSCLC; an appropriate discount rate based on the estimated weighted-average cost of capital for companies with Nimbusprofiles similar to our profile; and risks related to the viability of and potential alternative treatments in any future target markets. Our revised discounted cash flows primarily reflect the smaller addressable market that Trodelvy could serve among metastatic NSCLC patients and a delay in expected launch timing for second-line plus patients. The revised estimated fair value of the NSCLC IPR&D intangible asset was$3.5 billion as of March 31, 2024.
If future events result in adverse changes in the key assumptions used in determining fair value, including the timing of product launches, information on the competitive landscape of treatments in this indication, changes to the probability of technical or regulatory success, failure to obtain anticipated regulatory approval or discount rate, among others, additional impairments may be recorded and could be material to our financial statements.
No IPR&D impairment charges related to IPR&D.were recorded during the three months ended March 31, 2023.
Selling, General and Administrative Expenses
SG&ASelling, general and administrative expenses relate to salesare recorded when incurred and marketing, finance, human resources, legal and other administrative activities. Expenses areconsist primarily comprised of personnel costs, facilities and overhead costs, outside marketing, advertising and legal expenses, and other general and administrative costs. SG&Acosts related to sales and marketing, finance, human resources, legal and other administrative activities.
Selling, general and administrative expenses also include the branded prescription drug (BPD) fee.
SG&A expensesincreased 4% to $1.4 billion for the three months ended September 30, 2017 were flatMarch 31, 2024, compared to the same period in 2016.2023, primarily due to stock-based compensation expenses related to the acquisition of CymaBay and restructuring expenses.
SG&A expensesInterest Expense and Other Income (Expense), Net
The following table summarizes the period-over-period changes in Interest expense and Other (income) expense, net:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | | |
| | March 31, | | | | | | |
(in millions, except percentages) | | 2024 | | 2023 | | Change | | | | | | |
Interest expense | | $ | 254 | | | $ | 230 | | | 11 | % | | | | | | |
Other (income) expense, net | | $ | (91) | | | $ | 174 | | | NM | | | | | | |
NM - Not Meaningful
Interest expense increased 11% to $254 million for the ninethree months ended September 30, 2017 increased by $220 million or 9%,March 31, 2024, compared to the same period in 2016, primarily2023 due to a higher BPD fee expense resulting from a favorable adjustment of $191 million in the first quarter of 2016.
Interest Expense
Interest expense for the three months ended September 30, 2017 increased to $291 million, compared to $242 million for the same period in 2016. Interest expense for the nine months ended September 30, 2017 increased to $821 million, compared to $699 million for the same period in 2016. The increases for both periods were primarily due to the issuance of $5.0 billion aggregate principal amount of senior unsecured notes in September 2016.
Provision for Income Taxes
Our provision for income taxes was $959 million and $951 million for the three months ended September 30, 2017 and 2016, respectively. Our effective tax rate was 26.1% and 22.2% for the three months ended September 30, 2017 and 2016, respectively.
Our provision for income taxes was $2.9 billion and $2.8 billion for the nine months ended September 30, 2017 and 2016, respectively. Our effective tax rate was 25.6% and 21.2% for the nine months ended September 30, 2017 and 2016, respectively.
The increases in the effective tax rates for the three and nine months ended September 30, 2017 compared to the same periods in 2016 were primarily due to changes in the geographic mix of earnings.
Liquidity and Capital Resources
We believe that our existing capital resources, supplemented by our cash flows generated from operating activities, will be adequate to satisfy our capital needs for the foreseeable future. The following table summarizes our cash, cash equivalents and marketable securities and working capital:
|
| | | | | | | | |
(In millions) | | September 30, 2017 | | December 31, 2016 |
Cash, cash equivalents and marketable securities | | $ | 41,360 |
| | $ | 32,380 |
|
Working capital | | $ | 25,720 |
| | $ | 10,370 |
|
Cash, Cash Equivalents and Marketable Securities
Cash, cash equivalents and marketable securities totaled $41.4 billion at September 30, 2017, an increase of $9.0 billion when compared to $32.4 billion at December 31, 2016. During the nine months ended September 30, 2017, we generated $9.1 billion in operating cash flow, issued $3.0 billion aggregate principal amount of senior unsecured notes in September 2017 to partially fund our acquisition of Kite, which was completed in October 2017, paid cash dividends of $2.0 billion and utilized $848 million to repurchase stock.
Of the total cash, cash equivalents and marketable securities at September 30, 2017, approximately $32.4 billion was generated from operations in foreign jurisdictions and is intended for use in our foreign operations. We do not rely on unrepatriated earnings as a source of funds for our domestic business as we expect to have sufficient cash flow and borrowing capacity in the United States to fund our domestic operational and strategic needs.
Working Capital
Working capital was $25.7 billion at September 30, 2017, compared to $10.4 billion at December 31, 2016. The increase of $15.4 billion was primarily driven by an increase in cash, cash equivalents and short-term marketable securities resulting from a shift in the duration of our marketable securities portfolio to reduceaverage interest rate riskand the $3.0 billion issuance of senior unsecured notes in connection with our acquisition of Kite, partially offset by $1.7 billion increase in current portion ofon long-term debt.
Cash Flows
The following table summarizes our cash flow activities: |
| | | | | | | | |
| | Nine Months Ended |
| | September 30, |
(In millions) | | 2017 | | 2016 |
Cash provided by (used in): | | | | |
Operating activities | | $ | 9,145 |
| | $ | 13,508 |
|
Investing activities | | $ | (6,053 | ) | | $ | (9,310 | ) |
Financing activities | | $ | 46 |
| | $ | (7,377 | ) |
Cash Provided by Operating Activities
Cash provided by operating activities was $9.1 billion for the nine months ended September 30, 2017. Cash flows from operating activities represent 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 decreased by $4.4 billion for the nine months ended September 30, 2017 when compared to the same period in 2016, primarily due to lower product sales.
Cash Used in Investing Activities
Cash used in investing activities was $6.1 billion for the nine months ended September 30, 2017. Cash flows from investing activities primarily consist of net purchases of marketable securities and other investments and our capital expenditures. Cash used in investing activities decreased by $3.3 billion for the nine months ended September 30, 2017, when compared to the same period in 2016, primarily due to higher net purchases of marketable securities in 2016.
Cash Provided by (Used in) Financing Activities
Cash provided by financing activities was $46 million for the nine months ended September 30, 2017, compared to cash used in financing activities of $7.4 billion for the same period in 2016. The change was primarily due to lower repurchases of our common stock in 2017, partially offset by lower net proceeds from our debt issuances.
Debt and Credit Facilities
In connection with our acquisition of Kite, we entered into the following financing arrangements:
In September 2017, we issued $3.0 billion aggregate principal amount of senior unsecured notes consisting of $750 million principal amount of floating rate notes due September 2018, $750 million principal amount of floating rate notes due March 2019, and $500 million principal amount of floating rate notes due September 2019 (collectively, the Floating Rate Notes) and $1.0 billion principal amount of 1.85% senior notes due September 2019. The Floating Rate Notes bear interest rates equal to three month LIBOR, plus 0.17% with respect to the Floating Rate Notes due September 2018, 0.22% with respect to the Floating Rate Notes due March 2019 and 0.25% with respect to the Floating Rate Notes due September 2019. The Fixed Rate Notes will pay interest semiannually and the Floating Rate Notes will pay interest quarterly.
In September 2017, we entered into a $6.0 billion principal amount term loan facility credit agreement consisting of a $1.0 billion principal amount 364-day senior unsecured term loan facility, a $2.5 billion principal amount three-year senior unsecured term loan facility and a $2.5 billion principal amount five-year senior unsecured term loan facility (collectively, the Term Loan Facilities). In October 2017, we drew $6.0 billion principal amount on the Term Loan Facilities and used the proceeds to finance our acquisition of Kite. The Term Loan Facilities bear interest at floating rates based on LIBOR plus an applicable margin which will vary based on our debt rating from Fitch Ratings, Inc, Moody’s Investors Service, Inc. and S&P Global Ratings. The 364-day senior unsecured term loan facility and three-year senior unsecured term loan facility will be due and payable at maturity. The five-year senior unsecured term loan facility will be payable in quarterly amounts equal to 2.5% of the initial principal amount of the five-year senior unsecured term loan facility on each fiscal quarter end date after the second anniversary of the closing date,
with any remaining balance due and payable at maturity. We may reduce the commitments under any of the Term Loan Facilities and may terminate or permanently prepay loans under any of the Term Loan Facilities in whole or in part at any time, without premium or penalty. Amounts repaid under the Term Loan Facilities cannot be reborrowed.
We are required to comply with certain covenants under the credit agreements and note indentures governing our senior notes. As of September 30, 2017, we were not in violation of any covenants. Additionally, as of September 30, 2017, no amounts were outstanding under our revolving credit facility.
The summary of our borrowings under various financing arrangements is included in See Note 8,9. Debt and Credit Facilities of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.10-Q for additional information on our long-term debt and related interest rates.
Other (income) expense, net for the three months ended March 31, 2024 primarily included $108 million of interest income, partially offset by $14 million of net unrealized losses on equity investments. Other (income) expense, net for the three months ended March 31, 2023 primarily included $256 million of net unrealized losses on equity investments, partially offset by $78 million of interest income. Critical Accounting Policies, Estimates and JudgmentsIncome Taxes
The preparationfollowing table summarizes the period-over-period changes in Income tax (benefit) expense:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | | |
| | March 31, | | | | | | |
(in millions, except percentages) | | 2024 | | 2023 | | Change | | | | | | |
(Loss) income before income taxes | | $ | (4,486) | | | $ | 1,300 | | | $ | (5,786) | | | | | | | |
Income tax (benefit) expense | | $ | (315) | | | $ | 316 | | | $ | (631) | | | | | | | |
Effective tax rate | | 7.0 | % | | 24.3 | % | | (17.3) | % | | | | | | |
Our effective tax rate decreased for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to the non-deductible acquired IPR&D expense recorded in connection with our first quarter 2024 acquisition of CymaBay.
Liquidity and Capital Resources
We regularly evaluate our liquidity and capital resources, including our access to external capital, so that we can adequately and efficiently finance our operations.
Liquidity
Cash, cash equivalents and marketable debt securities were $4.7 billion and $8.4 billion as of March 31, 2024 and December 31, 2023, respectively. Cash and cash equivalents decreased by $1.4 billion from December 31, 2023 to March 31, 2024. The following table summarizes our cash flow activities:
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, |
(in millions) | | 2024 | | 2023 |
Net cash provided by (used in): | | | | |
Operating activities | | $ | 2,219 | | | $ | 1,744 | |
Investing activities | | $ | (2,207) | | | $ | (826) | |
Financing activities | | $ | (1,361) | | | $ | (1,406) | |
Effect of exchange rate changes on cash and cash equivalents | | $ | (18) | | | $ | 13 | |
Operating Activities
Net cash provided by operating activities was $2.2 billion for the three months ended March 31, 2024, compared to $1.7 billion for the same period in 2023. The change was primarily due to lower rebate payments, mostly due to timing, as well as lower inventory spend, partially offset by lower collections.
Investing Activities
Net cash used in investing activities was $2.2 billion for the three months ended March 31, 2024, compared to $826 million for the same period in 2023. The change was primarily due to the $3.9 billion net cash payment for the CymaBay acquisition, partially offset by proceeds from liquidation of marketable debt securities to fund the acquisition.
Financing Activities
Net cash used in financing activities was $1.4 billion for the three months ended March 31, 2024 and 2023. During the three months ended March 31, 2024, we utilized cash of $990 million for dividend payments and $400 million for common stock repurchases. During the three months ended March 31, 2023, we utilized cash of $969 million for dividend payments and $400 million for common stock repurchases.
Capital Resources and Material Cash Requirements
A summary of our capital resources and material cash requirements is presented in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023. Other than as disclosed in Notes 4. Available-For-Sale Debt Securities and Equity Securities, 6. Acquisitions, Collaborations and Other Arrangements, 9. Debt and Credit Facilities, 10. Commitments and Contingencies and 12. Income Taxes of the Notes to Condensed Consolidated Financial Statements requires usincluded in Part I, Item 1 of this Quarterly Report on Form 10-Q, there were no material changes to make estimatesour capital resources and judgments that affectmaterial cash requirements during the reported amountsthree months ended March 31, 2024.
Subsequently, in April 2024, we repaid $1.75 billion of senior unsecured notes due at maturity and made a scheduled $1.2 billion federal income tax payment for transition tax on the financial statementsmandatory deemed repatriation of foreign earnings from the Tax Cuts and related disclosures. On an ongoing basis, management evaluates its significant accounting policies and estimates. We base our estimates on historical experience and on various 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.Jobs Act.
Critical Accounting Estimates are assessed each period and updated to reflect current information.
A summary of our critical accounting policies and estimates is presented in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2016. There were no material changes to our critical accounting policies2023. Other than as disclosed in Notes 2. Revenues, 7. Intangible Assets, 10. Commitments and estimates during the nine months ended September 30, 2017.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Recent Accounting Pronouncements
See Note 1, Summary of Significant Accounting PoliciesContingencies and 12. Income Taxes of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, for additional information.there were no material changes to our critical accounting estimates during the three months ended March 31, 2024.
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Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
There have been no material changes inItem 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information about our market risk during the nine months ended September 30, 2017 compared to the disclosuresis presented in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2016.2023. Other than as disclosed in Notes 3. Fair Value Measurements, 4. Available-For-Sale Debt Securities and Equity Securities, 5. Derivative Financial Instruments and 9. Debt and Credit Facilities of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, there were no material changes to these disclosures.
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Item 4. | CONTROLS AND PROCEDURES |
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation as of September 30, 2017March 31, 2024 was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our “disclosure controls and procedures,” which are defined in Rule 13a-15(e) under the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act)“Exchange Act”), as controls and other procedures of a company that are designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in theU.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the company’sour management, including itsour Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at September 30, 2017.as of March 31, 2024.
Changes in Internal Control over Financial Reporting
Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated any changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2017, and has concluded that there was noMarch 31, 2024, to identify any change during such quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. In August 2023, we began deploying a new enterprise resource planning system (“ERP”) as well as other related systems. We have made changes to our internal control over financial reporting to address the related processes and systems. We will continue to evaluate any further changes in our internal control over financial reporting over the course of the implementation of the new ERP and other related systems, which is scheduled to occur in phases over the next few years.
Limitations on the Effectiveness of Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls
and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were effective to provide reasonable assurance that the objectives of our disclosure control system were met.
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PART II. | OTHER INFORMATION |
PART II. OTHER INFORMATION
Item 1.LEGAL PROCEEDINGS
For a description of our significant pending legal proceedings, please see Note 9,10. Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements included in Part I, Item I1 of this Quarterly Report on Form 10-Q.
Item 1A. RISK FACTORS
In evaluating our business, you should carefully consider the following discussion of material risks, events and uncertainties that make an investment in us speculative or risky in addition to the other information in this Quarterly Report on Form 10-Q. A manifestation of any of the following risks and uncertainties could, in circumstances we may or may not be able to accurately predict, materially and adversely affect our business resultsand operations, growth, reputation (including the commercial or scientific reputation of operationsour products), prospects, product pipeline and sales, operating and financial condition.results, financial condition, cash flows, liquidity and stock price. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. It is not possible to predict or identify all such factors; our operations could also be affected by factors, and, therefore,events or uncertainties that are not presently known to us or that we currently do not consider to present significant risks to our operations. Therefore, you should not consider the following risks to be a complete statement of all the potential risks or uncertainties that we face.
A substantial portionProduct and Commercialization Risks
Certain of our revenues is derived from sales of products subject us to treat HCV and HIV. If we are unable to increase HIV salesadditional or if HCV sales decrease more than anticipated, then our results of operations may be adversely affected.heightened risks.
During the nine months ended September 30, 2017, sales of Harvoni, Epclusa, Sovaldi and Vosevi for the treatment of HCV accounted for approximately 39% of our total product sales. The primary drivers of our HCV product revenues are patient starts, net pricing and market share. Since the second quarter of 2015, the number of new patient starts has diminished, and we expect patient starts to continue to decline relative to 2016 in all major markets, resulting in a decrease in our HCV product sales. Our HCV revenues have declined and are expected to further decline as a result of increased competition from new HCV products, which has further eroded net pricing and market share. We anticipate that this impact on pricing and market share will be more fully reflected beginning in the fourth quarter of 2017. Our HCV product sales could also be further impacted by a larger than anticipated shift in our payer mix to more highly discounted payer segments and geographic regions.
In addition, future sales of our HCV products are difficult to estimate because demand depends, in part, on the extent of reimbursement of our HCV products by private and government payers. In light of continued financial crises experienced by several countries in the European Union, some governments have announced or implemented measures to further reduce healthcare expenditures. We may continue to experience global pricing pressure which could result in larger discounts or rebates on our products or delayed reimbursement, which negatively impacts our product sales and results of operations. Also, private and public payers can choose to exclude our HCV products from their formulary coverage lists or limit the types of patients for whom coverage will be provided, which would negatively impact the demand for, and revenues of, our HCV products. Any change in the formulary coverage, reimbursement levels or discounts or rebates offered on our HCV products to payers may impact our anticipated revenues. We expect pricing pressure in the HCV market to continue. If we are unable to achieve our forecasted HCV sales, our stock price could experience significant volatility.HIV
We receive a substantial portion of our revenue from sales of our products for the treatment and prevention of HIV infection, which include Genvoya, Truvada, Atripla, Descovy, Stribild, Odefsey and Complera/Eviplera.infection. During the ninethree months ended September 30, 2017,March 31, 2024, sales of our HIV products accounted for approximately 52%65% of our total product sales. Most of our HIV products contain tenofovir alafenamide (TAF), tenofovir disoproxil fumarate (TDF) and/or emtricitabine, which belong to the nucleoside class of antiviral therapeutics. In addition, if the treatment paradigm for HIV changes, causing nucleoside-based therapeutics to fall out of favor, or if we are unable to maintain or increase our HIV product sales, our results of operations would likely suffer and we would likely need to scale back our operations, including our spending on research and development (R&D) efforts.
We may be unable to sustain or increase sales of our HCV or HIV products for any number of reasons, including but not limitedmarket share gains by competitive products, including generics, or the inability to introduce new HIV medications necessary to remain competitive. In such case, we may need to scale back our operations, including our future drug development and spending on research and development (“R&D”) efforts. For example, many of our HIV products contain tenofovir alafenamide (“TAF”), which belongs to the reasons discussed abovenucleoside class of antiviral therapeutics. If there are any changes to the treatment or prevention paradigm for HIV, and nucleoside-based therapeutics do not remain the preferred regimen, our HIV product sales would be adversely impacted.
Veklury
We face risks related to our supply and sale of Veklury, which was approved by U.S. Food and Drug Administration (“FDA”) as a treatment for patients with coronavirus disease 2019 (“COVID-19”). Veklury sales generally reflect COVID-19 related rates and severity of infections and hospitalizations, as well as the availability, uptake and effectiveness of vaccines and alternative treatments for COVID-19. In May 2023, the World Health Organization declared the end of COVID-19 as a public health emergency of international concern. Future sales of Veklury in the short- and long-term remain uncertain. If we do not accurately forecast demand or manufacture Veklury at levels to align with actual demand, then we may experience product shortages or build excess inventory that may need to be written off.
Cell Therapy
Advancing a novel and personalized therapy such as Yescarta or Tecartus, which are chimeric antigen receptor (“CAR”) T-cell therapies, creates significant challenges, including:
•educating and certifying medical personnel regarding the procedures and the following:potential side effects, such as cytokine release syndrome and neurologic toxicities, in compliance with the Risk Evaluation and Mitigation Strategy program required by FDA;
As•securing sufficient supply of other medications to manage side effects, such as tocilizumab and corticosteroids, which may not be available in sufficient quantities, may not adequately control the side effects and/or may have detrimental impacts on the efficacy of cell therapy;
•developing and maintaining a robust and reliable process for engineering a patient’s T cells in our HCVfacilities and HIVinfusing them back into the patient; and
•conditioning patients with chemotherapy in advance of administering our therapy, which may increase the risk of adverse side effects.
The use of engineered T cells as a potential cancer treatment is a recent development and may not be broadly accepted by physicians, patients, hospitals, cancer treatment centers, payers and others in the medical community. While FDA has approved some cell therapies, including Yescarta and Tecartus, we must continue to demonstrate to the medical community the potential advantages of cell therapy compared to existing and future therapeutics. In November 2023, FDA announced that it is investigating the risk of T-cell malignancies in patients who received treatment with CAR T-cell therapy, noting that the overall benefits of CAR T-cell therapy products continue to outweigh their potential risks for their approved uses. In January 2024, FDA determined that safety labeling issues were needed for approved CAR T-cell therapies, including a “boxed warning” about the possible risk of T-cell malignancies in patients treated with CAR T-cell therapy. Additionally, FDA requested continued monitoring and reporting of cases of secondary cancers. For challenges related to the reimbursement of Yescarta and Tecartus, see also “Our existing products are used oversubject to reimbursement pressures from government agencies and other third parties, required rebates and discounts, and other pricing pressures.”
We rely on third-party sites to collect patients’ white blood cells, known as apheresis centers, as well as shippers, couriers, and hospitals for the logistical collection of patients’ white blood cells and ultimate delivery of Yescarta and Tecartus to patients. These vendors may encounter disruptions or difficulties that could result in product loss and regulatory action. Apheresis centers may also choose not to participate in our quality certification process, or we may be unable to complete such certification in a longer periodtimely manner or at all, which could delay or constrain our manufacturing and commercialization efforts.
We also face risks related to our in-house CAR T-cell therapy manufacturing facilities in California, Maryland and the Netherlands, spanning process development, vector manufacturing, clinical trial production and commercial product manufacturing. Quality, reliability and speed are critical in cell therapy manufacturing to quickly and safely deliver our cell therapies to patients. Any delays or quality issues with our manufacturing operations could adversely affect our business and damage our reputation. In addition, we may not be able to sufficiently increase manufacturing network capacity to meet growing demand.
Our success depends on developing and commercializing new products or expanding the indications for existing products.
If we are unable to launch commercially successful new products or new indications for existing products, our business will be adversely impacted. The launch of commercially successful products is necessary to grow our business, cover our substantial R&D expenses, and offset revenue losses when existing products lose market share due to factors such as competition and loss of patent exclusivity. There are many difficulties and uncertainties inherent in drug development and the introduction of new products. The product development cycle is characterized by significant investments of resources, long lead times and unpredictable outcomes due to the nature of developing medicines for human use. We expend significant time and resources on our product pipeline without any assurance that we will recoup our investments or that our efforts will be commercially successful. A high rate of failure is inherent in many patientsthe discovery and in combination with otherdevelopment of new products, and additional studies are conducted, new issues with respect to safety, resistance and interactions with other drugs may arise, which could cause us to provide additional warnings or contraindications on our labels, narrow our approved indications or halt sales of a product, each of which could reduce our revenues.
As our products mature, private insurers and government payers often reduce the amount they will reimburse patients for these products, which increases pressure on us to reduce prices.
If physicians do not see the benefit of our HCV or HIV products, the sales of our HCV or HIV products will be limited.
As new branded or generic products are introduced into major markets, our ability to maintain pricing and market share may be affected. For example, TDF, one of the active pharmaceutical ingredients in Stribild, Complera/Eviplera, Atripla and Truvada, and the main active pharmaceutical ingredient in Viread, now has generic competitionfailure can occur at any point in the European Union and is expected to face generic competitionprocess, including late in the United Statesprocess after substantial investment. Such failures have had, and other countries in late 2017. In addition, because emtricitabine, the other active pharmaceutical ingredient of Truvada, faced generic competition in
the European Union in 2016, Truvada has started to face generic competitionmay have in the European Union and other countries outside of the United States in 2017. This has hadfuture, a negative impact on our business and financial results, of operations.
If we fail to commercialize new products or expand the indications for existing products, our prospects for future revenues may be adversely affected.
If we do not introduce new products or increase salesincluding as a result of our existing products, we will not be ableinability to increase or maintain our total revenues nor continue to expand ourrecover R&D, efforts. Drug development is inherently riskyclinical trial, acquisition-related and many product candidates fail during the drug development process. For example, during 2016 we announced that we terminated our Phase 2 and 2b studies of simtuzumab for the treatment of idiopathic pulmonary fibrosis, nonalcoholic steatohepatitis (NASH) and primary sclerosing cholangitis, our Phase 2 and 2/3 studies of GS-5745 for the treatment of Crohn’s Disease and ulcerative colitis, our Phase 2 studies of selonsertib for the treatment of pulmonary arterial hypertension and diabetic kidney disease and our studies of eleclazine for the treatment of cardiovascular diseases. In addition, we may decide to terminate product development after expending significant resources and effort. For example, after completion of two Phase 3 studies of momelotinib for the treatment of myelofibrosisother expenses incurred in 2016, we decided to terminateconnection with the development of momelotinib. In addition, if we are unable to obtain regulatory approvaland launch preparations for product candidates from our recent acquisition of Kite Pharma, Inc. (Kite) and effectively commercialize Kite’s product candidates, we may not be able to realize the anticipated benefits from our acquisition of Kite, including any expected future revenues from Kite’s product candidates.
We have filed our new drug application (NDA) and marketing authorization application (MAA)face challenges in accurately forecasting sales because of the United States and European Union, respectively, for the approval of a once-daily, single-tablet regimen containing bictegravir (50 mg) and emtricitabine/tenofovir alafenamide (200/25 mg) for the treatment of HIV-1 infectiondifficulties in adults. We have also filed a MAA in the European Union for the approval of axicabtagene ciloleucel (axi-cel) for the treatment of relapsed/refractory diffuse large B-cell lymphoma, transformed follicular lymphoma and primary mediastinal B-cell lymphoma. These and any future marketing applications we file may not be approved by the regulatory authorities on a timely basis, or at all. Even if marketing approval is granted for these products, there may be significant limitations on their use. Further, we may be unable to file our marketing applications for new products.
Our inability to accurately predictpredicting demand for our products uptake of new products orand fluctuations in customer inventories makes it difficult for us to accurately forecast sales and may cause our forecasted revenues and earnings to fluctuate, which could adversely affect our financial results and our stock price.purchasing patterns or wholesaler inventories.
We may be unable to accurately predict demand for our products, including the uptake of new products, as demand is dependentdepends on a number of factors. For example, because our HCV products represent a cure and competitors’ HCV products have enteredproduct demand may be adversely affected if physicians do not see the market, revenues from our HCV products are difficult for us and investors to estimate. The primary driversbenefit of our HCV product revenues are patient starts, net pricing and market share. In our experience, the number of patient starts is very difficult to accurately predict. In addition, demand for our HCV products will depend on the extent of reimbursement of our HCV products by private and public payers in the United States and other countries. Private and public payers can choose to exclude our HCV products from their formulary coverage lists or limit the types of patients for whom coverage will be provided, which would negatively impact the demand for and revenues of our HCV products. We continue to experience pricing pressure in the United States, the European Union and other countries. Any change in the formulary coverage, reimbursement levels or discounts or rebates offered on our HCV products to payers may negatively impact our anticipated revenues. In addition, because rebate claims for product discounts are made by payers one or two quarters in arrears, we estimate the rebates we will be required to pay in connection with sales during a particular quarter based on claims data from prior quarters. For example, in the first quarter of 2016, we received higher than expected prior quarter rebate claims. This had the effect of lowering our revenue for the quarter. Because HCV-related revenues are difficult to predict, investors may have widely varying expectations that may be materially higher or lower than our actual or anticipated revenues. To the extent our actual or anticipated HCV product revenues exceed or fall short of these expectations, our stock price may experience significant volatility.
During the nine months ended September 30, 2017, approximately 88% of our product sales in the United States were to three wholesalers, McKesson Corp., AmerisourceBergen Corp. and Cardinal Health, Inc. The U.S. wholesalers with whom we have entered into inventory management agreements make estimates to determine end user demand and may not be completely effective in matching their inventory levels to actual end user demand. As a result, changes in inventory levels held by those wholesalers can cause our operating results to fluctuate unexpectedly if our sales to these wholesalers do not match end user demand. In addition, inventory is held at retail pharmacies and other non-wholesaler locations with whom we have no inventory management agreements and no control over buying patterns. Adverse changes in economic conditions or other factors may cause retail pharmacies to reduce their inventories of our products, which would reduce their orders from wholesalers and, consequently, the wholesalers’ orders from us, even if end user demand has not changed. For example, during the fourth quarter of 2016, strong wholesaler and sub-wholesaler purchases of our products resulted in inventory draw-down by wholesalers and sub-wholesalers in the first quarter of 2017. As inventory in the distribution channel fluctuates from quarter to quarter, we may continue to see fluctuations in our earnings and a mismatch between prescription demand for our products and our revenues.
In addition,Additionally, the non-retail sector in the United States,U.S., which includes government institutions, including state AIDS Drug Assistance Programs, (ADAPs), the U.S. Department of Veterans Affairs, (VA), correctional facilities and large health maintenance organizations, tends to be even less consistent in terms of buying patterns and often causes quarter-over-quarter fluctuations that do not necessarily mirror actual patient demand for our products. Federal and state budget pressures, including sequestration, as well as the annual grant cycles for federal and state funds, may cause purchasing patterns to not reflect patient demand offor our products. For example, in the first quarters of certain prior years, we observed large non-retail purchases of our HIV products by a number of state ADAPs that exceeded patient demand. We believe such purchases were driven by the grant cycle for federal ADAP funds. Additionally, during the second half of 2016, we experienced fluctuations in VA new HCV patient starts and purchasing patterns due to VA funding. We expect to continue to experience fluctuations in the purchasing patterns of our non-retail customers which may result in fluctuations in our product sales, revenues and earnings in the future.customers. In light of the global economic downturn and budget crises faced by many European countries, we have observed variations in purchasing patterns induced by cost containment measures in Europe. We believe these measures have caused some government agencies and other purchasers to reduce inventory of our products in the distribution channels, which has decreased our revenues and caused fluctuations in our product sales and earnings. Wewe may continue to see this trend in the future.
Yescarta, a chimeric antigen receptor T cell (CAR T) therapy, represents a novel approach to cancer treatment that creates significant challenges for us.
Yescarta, a CAR T therapy, involves (i) harvesting T cells from the patient’s blood, (ii) engineering T cells to express cancer-specific receptors, (iii) increasing the number of engineered T cells and (iv) infusing the functional cancer-specific T cells back into the patient. Advancing this novel and personalized therapy creates significant challenges, including:
educating and certifying medical personnel regarding the therapy procedures and the potential side effect profile of our therapy, such as the potential adverse side effects related to cytokine release syndrome and neurologic toxicities, in compliance with the Risk Evaluation and Mitigation Strategy (REMS) program required by FDA for Yescarta;
using medicines to manage adverse side effects of our therapy, such as tocilizumab and corticosteroids, which may not be available in sufficient quantities, may not adequately control the side effects and/or may have a detrimental impact on the efficacy of the treatment;
sourcing clinical and commercial supplies for the materials used to manufacture and process Yescarta;
developing a robust and reliable process, while limiting contamination risks, for engineering a patient’s T cells ex vivo and infusing the engineered T cells back into the patient; and
conditioning patients with chemotherapy in advance of administering our therapy, which may increase the risk of adverse side effects.
The use of engineered T cells as a potential cancer treatment is a recent development and may not be broadly accepted by physicians, patients, hospitals, cancer treatment centers, payers and others in the medical community. We may not be able to establish or demonstrate in the medical community the safety and efficacy of Yescarta and the potential advantages and side effects compared to existing and future therapeutics. If we fail to overcome these significant challenges, our sales of Yescarta and our stock price could be adversely affected.
We may be required to pay significant damages to Merck as a result of a jury’s finding that we willfully infringed a patent owned by Merck’s Idenix subsidiary.
In December 2013, Idenix, Universita Degli Studi di Cagliari (UDSG), Centre National de la Recherche Scientifiquesell and L’Université Montpellier II sued us in U.S. District Court for the District of Delaware alleging that the commercialization of sofosbuvir will infringe Idenix’s U.S. Patent No. 7,608,600 (the ‘600 patent) and that an interference exists between the ‘600 patent and our U.S. Patent No. 8,415,322. Also in December 2013, Idenix and UDSG sued us in the U.S. District Court for the District of Massachusetts alleging that the commercialization of sofosbuvir will infringe U.S. Patent Nos. 6,914,054 (the ‘054 patent) and 7,608,597 (the ‘597 patent). In June 2014, the court transferred the Massachusetts litigation to the U.S. District Court for the District of Delaware. Idenix was acquired by Merck in August 2014.
Prior to trial in December 2016, Idenix committed to give us a covenant not to sue with respect to any claims arising out of the ‘054 patent related to sofosbuvir and withdrew that patent from the trial. In addition, Idenix declined to litigate the ‘600 patent infringement action at trial in light of the appeal then pending at the U.S. Court of Appeals for the Federal Circuit (CAFC) regarding who was the first to invent the subject matter claimed in the ‘600 patent. In January 2017, the District Court stayed Idenix’s infringement claim on the ‘600 patent pending the outcome of the appeal of the interference decision on that patent (the Second Idenix Interference), described above. Unless Idenix is successful in persuading the United States Supreme Court to consider a further appeal to challenge the Federal Circuit’s June 2017 decision in our favor in the Second Idenix Interference, we will ask for dismissal of, or for judgment to be entered against Idenix on, the ‘600 infringement and interference claims. A jury trial was held in December 2016 on the ‘597 patent. In December 2016, the jury found that we willfully infringed the asserted claims of
the ‘597 patent and awarded Idenix $2.54 billion in past damages. The parties have filed post-trial motions and briefings, and the district judge heard oral argument in September 2017. In September 2017, the judge denied Idenix’s motions for enhanced damages and attorney’s fees. We expect the judge to rule on outstanding motions in late 2017 or early 2018. Once the judge has issued these rulings, the case will move to the CAFC.
Although we cannot predict with certainty the ultimate outcome of this litigation, we believe the jury verdict to be in error, and that errors were also made by the court with respect to certain rulings before and during trial. We expect that our arguments in the pending post-trial motions and on appeal will focus on one or more of the arguments we made to the judge and jury, those being (i) when properly construed, we do not infringe the claims of the ‘597 patent, (ii) the patent is invalid for failure to properly describe the claimed invention and (iii) the patent is invalid because it does not enable one of skill in the art to practice the claimed invention.
If the jury’s verdict is upheld on appeal, our estimated potential loss as of September 30, 2017 would include (i) the $2.54 billion determined by the jury, which represents 10% of our adjusted revenues from sofosbuvir-containing products from launch through August 2016, (ii) approximately $269 million, which represents 10% of our adjusted revenues from sofosbuvir-containing products from September 2016 through January 25, 2017, (iii) pre- and post-judgment interest, and (iv) approximately $539 million, which represents going forward royalties yet to be assessed by the court, which we have estimated assuming 14% of our adjusted revenues from sofosbuvir-containing products from January 26, 2017 through September 30, 2017 based on post-trial briefings filed by Idenix with the court, and which would be payable based on adjusted revenues from sofosbuvir-containing products for the period from January 26, 2017 through expiry of the Idenix patent in May 2021. Therefore, we estimate the range of possible loss through September 30, 2017 to be between zero and $3.6 billion. The parties agreed to stay consideration of going forward royalties until the appeal from the jury verdict and post-trial motions has been resolved. Idenix may appeal the court’s denial of enhanced damages.
If the jury’s verdict is upheld on appeal, the amount we could be required to pay could be material. The timing and magnitude of the amount of any such payment could have a material adverse impact on our results of operations and stock price.
Our results of operations may be adversely affected by current and potential future healthcare reforms.
Legislative and regulatory changes to government prescription drug procurement and reimbursement programs occur relatively frequently in the United States and foreign jurisdictions. In the United States, we, along with other pharmaceutical manufacturers of branded drug products, are required to pay a portion of an industry fee (also known as the branded prescription drug (BPD) fee), calculated based on select government sales during the year as a percentage of total industry government sales. The amount of the annual BPD fee imposed on the pharmaceutical industry as a whole is $4.0 billion in 2017, which will increase to a peak of $4.1 billion in 2018, and then decrease to $2.8 billion in 2019 and thereafter. Our BPD fee expenses were $270 million in 2016, $414 million in 2015 and $590 million in 2014. The BPD fee is not tax deductible.
There has been extensive discussion about a possible repeal or amendment of The Patient Protection and Affordable Care Act (the Affordable Care Act) as well as other government actions intended to eliminate the Affordable Care Act, any of which could negatively impact the use and/or reimbursement of our products. In October 2017, President Trump signed an Executive Order directing federal agencies to review regulations applicable to association health plans and short-term health insurance, and announced that the administration would halt federal subsidies to insurance plans under the Affordable Care Act. Previously in January 2017, the new administration issued an Executive Order directing federal agencies with authorities and responsibilities under the Affordable Care Act to waive, defer, grant exemptions from, or delay the implementation of any provision of the Affordable Care Act that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. It is expected that Congress will continue to consider legislation to repeal and replace some or all elements of the Affordable Care Act.
In addition, many states have proposed legislation that seeks to indirectly or directly regulate pharmaceutical drug pricing by requiring biopharmaceutical manufacturers to publicly report proprietary pricing information or to place a maximum price ceiling on pharmaceutical products purchased by state agencies. If such proposed legislation is passed, we may experience additional pricing pressures on our products. For example, in October 2017, California’s governor signed a prescription drug price transparency state bill into law, requiring prescription drug manufacturers to provide advance notice and explanation for price increases of certain drugs that exceed a specified threshold. Similar bills have been previously introduced at the federal level and we expect that additional legislation may be introduced this year. The potential effect of health insurance market destabilization during ongoing repeal and replace discussions, as well as the impact of potential changes to the way the Medicaid program is financed, will likely affect patients’ sources of insurance and resultant drug coverage. Discussions continue at the federal level regarding policies that would either allow or require the U.S. government to directly negotiate drug prices with pharmaceutical manufacturers for Medicare patients, require manufacturers to pay higher rebates in Medicare Part D, give states more flexibility on drugs that are covered under the Medicaid program, and other policy proposals that could impact reimbursement for our products. Other discussions have centered on legislation that would permit the re-importation of prescription medications from Canada or other countries. It is difficult to predict the impact, if any, of any such legislation, executive actions or Medicaid flexibility on the use and reimbursement
distribute most of our products in the United States, includingU.S. exclusively through the potential for the importation of generic versionswholesale channel. Historically, approximately 90% of our products.
Further, Yescartaproduct sales in the U.S. have been to three wholesalers, Cardinal Health, Inc., Cencora, Inc., and McKesson Corporation. The U.S. wholesalers with whom we have entered into inventory management agreements make estimates to determine end-user demand and may not be accurate in matching their inventory levels to actual end-user demand. As a result, changes in inventory levels held by those wholesalers can cause our operating results to fluctuate unexpectedly if our sales to these wholesalers do not match end-user demand. In addition, inventory is expectedheld at retail pharmacies and other non-wholesaler locations with whom we have no inventory management agreements and no control over buying patterns. Adverse changes in economic conditions, increased competition or other factors may cause retail pharmacies to be administered on an in-patient basis. It is possible that federal government reimbursement through programs like Medicare and Medicaid will be insufficient to cover the complete cost associated with the therapy. This could impact the willingness of some hospitals to offer the therapy and doctors to recommend the therapy and could lessen the attractivenessreduce their inventories of our therapy to patients.
products, which would reduce their orders from wholesalers and, consequently, the wholesalers’ orders from us, even if end-user demand has not changed. In addition, state Medicaid programs could request additional supplemental rebateswe have observed that strong wholesaler and sub-wholesaler purchases of our products in the second half of the year typically results in inventory draw-down by wholesalers and sub-wholesalers in the subsequent first quarter. As inventory in the distribution channel fluctuates from quarter to quarter, we may continue to see fluctuations in our earnings and a mismatch between prescription demand for our products and our revenues.
We face significant competition from global pharmaceutical and biotechnology companies, specialized pharmaceutical firms and generic drug manufacturers.
New branded or generic products entering major markets affects our ability to maintain pricing and market share. Our products compete with other available products based primarily on efficacy, safety, tolerability, acceptance by doctors, ease of patient compliance, ease of use, price, insurance and other reimbursement coverage, distribution and marketing. A number of companies are pursuing the development of products and technologies that may be competitive with our existing products or research programs. These competing companies include large pharmaceutical and biotechnology companies and specialized pharmaceutical firms acting either independently or together with other such companies. Furthermore, academic institutions, government agencies and other public and private organizations conducting research may seek patent protection or may establish collaborative arrangements for competitive products or programs. We may be adversely impacted if any of these competitors gain market share as a result of the increase in the federal base Medicaid rebate. Private insurers could also use the enactment of these increased rebates to exert pricing pressure on our products, and to the extent that private insurersnew technologies, commercialization strategies or managed care programs follow Medicaid coverage and payment developments, the adverse effects may be magnified by private insurers adopting lower payment schedules.otherwise.
Our existing products are subject to reimbursement pressures from government agencies and other third parties. Pharmaceuticalparties, required rebates and discounts, and other pricing and reimbursement pressures may reduce profitability.pressures.
Product Reimbursements
Successful commercialization of our products depends, in part, on the availability and amount of governmental and third-party payer reimbursement for the cost of suchour products and related treatments and medical services in the markets where we sell our products. Government health authorities,As our products mature, pricing pressures from private health insurers and other organizations generally provide reimbursement. government payers often result in a reduction of the net product prices.
Legislative and regulatory actions affecting government prescription drug procurement and reimbursement programs occur relatively frequently. For example, in January 2024, FDA authorized Florida’s proposed program to import prescription drugs from Canada, including Biktarvy, Descovy, Genvoya and Odefsey, although Florida must meet certain additional requirements before it can begin shipments of prescription drugs into the U.S. from Canada. We may be adversely impacted by any such legislative and regulatory actions, though it is difficult to predict the impact, if any, on the use and reimbursement of our products.
Product Pricing, Discounts and Rebates
In the United States,U.S., the European Union (“EU”) and other significant or potentially significant markets for our products and product candidates, government authorities and third-party payers are increasingly attempting to limit or regulate the price of medical products and services. The volume of drug pricing-related legislation has dramatically increased in recent years, including:
•U.S. Congress has enacted laws requiring manufacturer refunds on certain amounts of discarded drug from single-use vials and eliminating the existing cap on Medicaid rebate amounts beginning in 2024.
•U.S. Congress has enacted the Inflation Reduction Act of 2022 (the “Act”), which, among other changes, (1) requires the Department of Health and Human Services to “negotiate” Medicare prices for certain drugs (starting with 10 drugs in 2026, adding 15 drugs in 2027 and 2028, and adding 20 drugs in 2029 and subsequent years), (2) imposes an inflation-based rebate on Medicare Part B utilization starting in 2023 and Part D utilization beginning October 1, 2022, and (3) restructures the Medicare Part D benefit to cap out-of-pocket expenses for Part D beneficiaries beginning in 2024 and, effective January 1, 2025, increases Part D plans’ contributions in the catastrophic coverage phase and increases manufacturers’ discount contributions across coverage phases such that manufacturers must pay a 10% discount in the initial coverage phase and a 20% discount in the catastrophic phase on drugs utilized by all Part D beneficiaries, including low income subsidy patients. We continue to evaluate the potential impact of the Act on our business. Centers for Medicare & Medicaid Services (“CMS”) has issued a number of guidance documents, but it remains unclear how certain provisions will be implemented. Additional guidance, legislation or rulemaking may be issued that could reflect the government’s evolving views. In addition, multiple manufacturers and trade organizations have challenged the Medicare “negotiation” provisions of the Act, and additional legal challenges may be filed in the future. While the full impact of the Act on our business and the pharmaceutical industry remains uncertain at this time, we anticipate that the Act will increase our payment obligations under the redesigned Part D discount program, limit the prices we can charge for our products, and increase the rebates we must provide government programs for our products, thereby reducing our profitability and negatively impacting our financial results.
•Many state legislatures are considering, or have already passed into law, legislation that seeks to indirectly or directly regulate pharmaceutical drug pricing, such as requiring manufacturers to publicly report proprietary pricing information, creating review boards for prices, establishing drug payment limits, and encouraging the use of generic drugs. For example, in August 2023, the Colorado Prescription Drug Affordability Review Board (“PDAB”) selected Genvoya for an affordability review, and subsequently determined that Genvoya was not unaffordable. Similar affordability reviews of our products are taking place in Oregon and Maryland, and findings that our products are unaffordable could lead to legislative action to designate an upper limit on the amount certain purchasers and payors can pay for our products. These initiatives and such other legislation may cause added pricing pressures on our products, and the resulting impact on our business is uncertain at this time.
•Many countries outside the U.S., including the EU member states, have established complex and lengthy procedures to obtain price approvals and coverage reimbursement and periodically review their pricing and reimbursement decisions. The outcome of these reviews cannot be predicted and could have an adverse effect on the pricing and reimbursement of our medical products in the EU member states. Reductions in the pricing of our medical products in one member state could affect the price in other member states and have a negative impact on our financial results.
A significantsubstantial portion of our product sales of the majority of our products areis subject to significant discounts from list price. See alsoprice, including rebates that we may be required to pay state Medicaid agencies and discounts provided to covered entities under Section 340B of the Public Health Service Act (“340B”). Changes to the 340B program or the Medicaid program at the federal or state level could have a material adverse effect on our risk factor “A substantial portionbusiness. For example, the continued growth of the 340B program limits the prices we may charge on an increasing percentage of sales. Changes to the calculation of rebates under the Medicaid program could substantially increase our revenues is derivedMedicaid rebate obligations and decrease the prices we charge 340B-covered entities.
In March 2022, we implemented a contract pharmacy integrity initiative for our branded hepatitis C virus (“HCV”) products. This integrity initiative does not involve any products from sales ofAsegua Therapeutics LLC. Our integrity initiative requires covered entities that enter into 340B bill to/ship to arrangements with contract pharmacies for our branded HCV products to treat HCV and HIV. If we are unableprovide claims level data for units dispensed from such contract pharmacies; covered entities without an in-house pharmacy that choose not to increase HIV sales or if HCV sales decrease more than anticipated, then our results of operations may be adversely affected.”
We face significant competition.
We face significant competition from global pharmaceutical and biotechnology companies, specialized pharmaceutical firms and generic drug manufacturers. Our products compete with other available products based primarily on efficacy, safety, tolerability, acceptance by doctors, ease of patient compliance, ease of use, price, insurance and other reimbursement coverage, distribution and marketing.
Our HCV products, Sovaldi, Harvoni, Epclusa and Vosevi, compete primarily with Mavyret (glecaprevir/pibrentasvir) marketed by AbbVie Inc. (AbbVie) and Zepatier (elbasvir and grazoprevir) marketed by Merck & Co. Inc. (Merck).
Our HIV products compete primarily with products from ViiV Healthcare (ViiV), which markets fixed-dose combination products that compete with Descovy, Odefsey, Genvoya, Stribild, Complera/Eviplera, Atripla and Truvada. For example, two products marketed by ViiV, Tivicay (dolutegravir), an integrase inhibitor, and Triumeq, a single-tablet triple-combination antiretroviral regimen, have adversely impacted sales of our HIV products. In addition, lamivudine, marketed by ViiV, competes with emtricitabine, the active pharmaceutical ingredient of Emtriva and a component of Genvoya, Stribild, Complera/Eviplera, Atripla and Truvada. For Tybost, we compete with ritonavir marketed by AbbVie.
We also face competition from generic HIV products. Generic versions of lamivudine and Combivir (lamivudine and zidovudine) are availableparticipate in the United Statesinitiative can designate a single contract pharmacy for shipment. Certain manufacturers that have implemented other contract pharmacy integrity programs have received enforcement letters from the U.S. Department of Health and certain other countries. Generic versions of Sustiva (efavirenz), a component of Atripla, are now available in Canada and Europe and we anticipate competition from generic efavirenz inHuman Services (“HHS”) asserting that those programs violate the United States in December 2017. We340B statute, have observed some pricing pressure relatedbeen referred to the Sustiva componentHHS Office of our Atripla sales. TDF, oneInspector General for assessment of the active pharmaceutical ingredients in Stribild, Complera/Eviplera, Atripla and Truvada, and the main active pharmaceutical ingredient in Viread, now has generic competition in the European Union and is expected to face generic competition in the United States and other countries in late 2017. In addition, because emtricitabine, the other active pharmaceutical ingredient of Truvada, faced generic competition in the European Union in 2016, Truvada has started to face generic competition in the European Union and other countries outside of the United States in 2017.
Our HBV products, Vemlidy, Viread and Hepsera, face competition from Baraclude (entecavir) marketed by BMS as well as generic entecavir. Our HBV products also compete with Tyzeka/Sebivo (telbivudine) marketed by Novartis Pharmaceuticals Corporation (Novartis).
Yescarta will compete with other companies developing advanced T cell therapies for the treatment of relapsed/refractory diffuse large B-cell lymphoma, including Novartis and Juno Therapeutics, Inc. (Juno).
Letairis competes with Tracleer (bosentan) and Opsumit (macitentan) marketed by Actelion Pharmaceuticals US, Inc. and also with Adcirca (tadalafil) marketed by United Therapeutics Corporation and Pfizer Inc. (Pfizer).
Ranexa competes predominantly with generic compounds from three distinct classes of drugs for the treatment of chronic angina in the United States, including generic and/or branded beta-blockers, calcium channel blockers and long-acting nitrates.
AmBisome competes with Vfend (voriconazole) marketed by Pfizer and caspofungin, a product developed by Merck that is marketed as Cancidas in the United States and as Caspofungin elsewhere. In addition, we are aware of at least three lipid formulations
that claim similarity to AmBisome becoming available outside of the United States. These formulations may reduce market demand for AmBisome. Furthermore, the manufacture of lipid formulations of amphotericin B is very complex and if any of these formulations are found to be unsafe, sales of AmBisome may be negatively impacted by association.
In addition, a number of companies are pursuing the development of technologies which are competitive with our existing products or research programs. These competing companies include specialized pharmaceutical firms and large pharmaceutical companies acting either independently or together with other pharmaceutical companies. Furthermore, academic institutions, government agencies and other public and private organizations conducting research may seek patent protection and may establish collaborative arrangements for competitive products or programs. If any of these competitors gain market share on our products, it could adversely affect our results of operations and stock price.
Patient assistance programs for pharmaceutical products have come under increasing scrutiny by governments, legislative bodies and enforcement agencies. These activities may result in actions that have the effect of reducing prices or harming our business or reputation.
Recently, there has been enhanced scrutiny of company-sponsored patient assistance programs, including insurance premium and co-pay assistance programs and donations to third-party charities that provide such assistance. If we, or our vendors or donation recipients, are deemed to have failed to comply with relevant laws, regulations or government guidance in any of these areas, we could be subject to criminal and civil sanctions, including significant fines, civil monetary penalties, and exclusion from participationhave been subject to administrative dispute resolution proceedings brought on behalf of covered entities. These manufacturers are currently challenging HHS’ position in government healthcare programs,ongoing litigation. Certain states have also enacted laws requiring manufacturers to provide 340B pricing through contract pharmacy arrangements; we believe these laws, which are being challenged in ongoing litigation, are invalid. We also believe that our integrity initiative complies with the requirements of the 340B statute. However, additional legal or legislative developments with respect to the 340B program, including Medicare and Medicaid, actions against executives overseeingpotential litigation with HHS or other stakeholders, may negatively impact our business, and burdensome remediation measures.ability to implement or continue our integrity initiative.
In February 2016,addition, standard reimbursement structures do not always adequately reimburse for innovative therapies. For example, beginning in fiscal year 2021, CMS established a new severity-adjusted diagnosis-related group (“DRG”) 018 for Medicare inpatient reimbursement of CAR T-cell products such as Yescarta and Tecartus. While the new DRG has a significantly higher base payment amount than the prior DRG 016, the payment available may not be sufficient to reimburse some hospitals for their cost of care for patients receiving Yescarta and Tecartus. When reimbursement is not aligned well to account for treatment costs, Medicare beneficiaries may be denied access as this misalignment could impact the willingness of some hospitals to offer the therapy and of doctors to recommend the therapy. Additionally, in the EU, there are barriers to reimbursement in individual countries that could limit the uptake of Yescarta and Tecartus.
Moreover, we receivedestimate the rebates we will be required to pay in connection with sales during a subpoenaparticular quarter based on claims data from prior quarters. In the U.S., actual rebate claims are typically made by payers one to three quarters in arrears. Actual claims and payments may vary significantly from our estimates.
We may experience adverse impacts resulting from the U.S. Attorney’s Office forimportation of our products from lower price markets or the Districtdistribution of Massachusetts requesting documents related toillegally diverted or counterfeit versions of our support of 501(c)(3) organizations that provide financial assistance to patients and documents concerning our provision of financial assistance to patients for our HCV products. Other companies have disclosed similar inquiries. We are cooperating with this inquiry. In October 2017, we received a civil investigative demand from the U.S. Attorney’s Office for the District of Massachusetts requesting documents related to our copay coupon program and Medicaid price reporting methodology. We intend to cooperate with this inquiry.
It is possible that any actions taken by the U.S. Department of Justice as a result of this inquiry or any future action taken by federal or local governments, legislative bodies and enforcement agencies could result in civil penalties or injunctive relief, negative publicity or other negative actions that could harm our reputation, reduce demandPrices for our products and/or reduce coverage of ourare based on local market economics and competition and sometimes differ from country to country. Our sales in countries with relatively higher prices may be reduced if products including by federal health care programs such as Medicarecan be imported and Medicaidresold into those countries from lower price markets. For example, in January 2024, FDA authorized Florida’s proposed program to import prescription drugs from Canada, and state health care programs. If any or all of these events occur, our business and stock price could be materially and adversely affected.
Approximately 30% of our productU.S. sales occur outside the United States, and currency fluctuations and hedging expenses may cause our earnings to fluctuate, which could adversely affect our stock price.
Because a significant percentage of our product sales are denominated in foreign currencies, primarily the Euro, we face exposure to adverse movements in foreign currency exchange rates. When the U.S. dollar strengthens against these foreign currencies, the relative value of sales made in the respective foreign currency decreases. Conversely, when the U.S. dollar weakens against these currencies, the relative value of such sales increases. Overall, we are a net receiver of foreign currencies and, therefore, benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar.
We use foreign currency exchange forward and option contracts to hedge a percentage of our forecasted international sales, primarily those denominated in the Euro. We also hedge certain monetary assets and liabilities denominated in foreign currencies, which reduces but does not eliminate our exposure to currency fluctuations between the date a transaction is recorded and the date cash is collected or paid. Foreign currency exchange, net of hedges, had an unfavorable impact on our product sales of $147 million for the nine months ended September 30, 2017, compared to the same period in 2016.
We cannot predict future fluctuations in the foreign currency exchange rates of the U.S. dollar. If the U.S. dollar appreciates significantly against certain currencies and our hedging program does not sufficiently offset the effects of such appreciation, our results of operations will be adversely affected and our stock price may decline.
Additionally,if Florida meets the expenses that we recognizeadditional requirements set by FDA in relation to our hedging activities can also cause our earnings to fluctuate. The level of hedging expenses that we recognize in a particular period is impacted by the changes in interest rate spreads between the foreign currencies that we hedge and the U.S. dollar.
If significant safety issues arise for our marketed products or our product candidates, our future sales may be reduced, which would adversely affect our results of operations.
The data supporting the marketing approvals for our products and forming the basis for the safety warnings in our product labels were obtained in controlled clinical trials of limited duration and, in some cases, from post-approval use. As our products are used over longer periods of time by many patients with underlying health problems, taking numerous other medicines, we
expect to continue to find new issues such as safety, resistance or drug interaction issues, which may require us to provide additional warnings or contraindications on our labels or narrow our approved indications, each of which could reduce the market acceptance of these products.
Regulatory authorities have been moving towards more active and transparent pharmacovigilance and are making greater amounts of stand-alone safety information and clinical trial data directly available to the public through websites and other means, such as periodic safety update report summaries, risk management plan summaries and various adverse event data. Safety information, without the appropriate context and expertise, may be misinterpreted and lead to misperception or legal action which may potentially cause our product sales or stock price to decline.
For Yescarta, a novel CAR T therapy, treatment-related adverse effects may not be appropriately recognized and managed by the treating medical staff, as toxicities resulting from personalized T cell therapy are not typically encountered in the general patient population and by medical personnel. Common medicines that may be used at academic medical centers and hospitals to help manage adverse side effects of Yescarta, such as tocilizumab and corticosteroids, may not be available in sufficient quantities, may not adequately control such adverse side effects and/or may have a detrimental impact on the efficacy of the treatment.its authorization. We have trained and expect to continue to train medical personnel to understand the side effect profile of Yescarta in complianceentered into agreements with generic drug manufacturers as well as licensing agreements with the REMS program required by FDA for Yescarta, although we can give no assurances on the efficacyMedicines Patent Pool, a United Nations-backed public health organization, which allow generic drug manufacturers to manufacture generic versions of our training efforts. Inadequate training in recognizing or managing the potential adverse effects of Yescarta, or the disregard or modification of our training by medical staff, could result in more severe or prolonged toxicities or even patient deaths.
Further, if serious safety, resistance or drug interaction issues arise with our marketed products, sales of these products could be limited or halted by us or by regulatory authorities and our results of operations would be adversely affected.
Our operations depend on compliance with complex FDA and comparable international regulations. Failure to obtain broad approvals on a timely basis or to maintain compliance could delay or halt commercialization of our products.
The products we develop must be approved for marketing and sale by regulatory authorities and, once approved, are subject to extensive regulation by FDA, the European Medicines Agency (EMA) and comparable regulatory agencies in other countries. We are continuing clinical trials for manycertain of our products for currentlydistribution in certain low- and middle-income countries. We may be adversely affected if any generic versions of our products, whether or not produced and/or distributed under these agreements, are exported to the U.S., the EU or markets with higher prices.
In the EU, we are required to permit products purchased in one EU member state to be sold in another member state. Purchases of our products in member states where our selling prices are relatively low for resale in member states in which our selling prices are relatively high can affect the inventory level held by our wholesalers and can cause the relative sales levels in the various countries to fluctuate from quarter to quarter and not reflect the actual consumer demand in any given quarter.
Additionally, diverted products may be used in countries where they have not been approved and additional uses. We anticipate that we will file for marketing approval in additional countries and for additional indications andpatients may source the diverted products overoutside the next several years.legitimate supply chain. These diverted products may fail to receive such marketing approvals on a timely basis, be handled, shipped and stored inappropriately, which may affect the quality and/or at all.
Further, how we manufacture and sell our products is subject to extensive regulation and review. Discovery of previously unknown problems with our marketed products or problems with our manufacturing, safety reporting or promotional activities may result in restrictions on our products, including withdrawalefficacy of the products fromand could harm patients and adversely impact us.
We are also aware of the market. If we failexistence of various suppliers around the world that, without Gilead’s authorization, purport to comply with applicable regulatory requirements, including those related to promotion and manufacturing, we could be subject to penalties including fines, suspensions of regulatory approvals, product recalls, seizure ofsource our products and criminal prosecution.generic versions of our products and sell them for use in countries where those products have not been approved. As a result, patients may be at risk of taking unapproved medications that may not be what they purport to be, may not have the potency they claim to have or may contain harmful substances, which could harm patients and adversely impact us.
Further, third parties have illegally distributed and sold, and may continue to illegally distribute and sell, illegally diverted and counterfeit versions of our medicines, which do not meet the rigorous quality standards of our manufacturing and supply chain. For example, under FDA rules,as part of a U.S. civil enforcement lawsuit in coordination with law enforcement, and pursuant to court order, we seized thousands of bottles of Gilead-labeled medication with counterfeit supply chain documentation. Our investigation revealed that pharmaceutical distributors that are often requirednot authorized by Gilead to conduct post-approval clinical studiessell Gilead medicine sold purportedly genuine Gilead medicine sourced from an illegal counterfeiting scheme to assessindependent pharmacies nationwide.
Illegally diverted and counterfeit versions of Gilead-branded medicines exist and may pose a known serious risk signals of serious riskto patient health and safety. Our actions to stop or to identify an unexpected serious risk and implement a REMS for our products, which could include a medication guide, patient package insert, a communication plan to healthcare providers or other elements as FDA deems are necessary to assure safe use of the drug, which could include imposing certain restrictions onprevent the distribution or useand sale of a product. Failure to comply with these or other requirements imposed by FDA could result in significant civil monetary penaltiesillegally diverted and counterfeit versions of our medicines around the world may be costly and unsuccessful, which may adversely affect patients and our operating results may be adversely affected.reputation and business, including our product revenues and financial results.
The resultsProduct Development and anticipated timelines ofSupply Chain Risks
We face risks in our clinical trials, are uncertainincluding the potential for unfavorable results, delays in anticipated timelines and may not support continued development of a product candidate, which would adversely affect our prospects for future revenue growth.disruption.
We are required to demonstrate the safety and efficacy of productsproduct candidates that we develop for each intended use through extensive preclinical studies and clinical trials. The results from preclinical and early clinicalthese studies do not always accurately predict results in later, large-scale clinical trials. Even successfully completed large-scale clinical trials may not result in marketable products. For example, during 2016 we announced that we terminated our Phase 2 and 2b studies of simtuzumab for the treatment of idiopathic pulmonary fibrosis, NASH and primary sclerosing cholangitis, our Phase 2 and 2/3 studies of GS-5745 for the treatment of Crohn’s Disease and ulcerative colitis, our Phase 2 studies of selonsertib for the treatment of pulmonary arterial hypertension and diabetic kidney disease, and our studies of eleclazine for the treatment of cardiovascular diseases, after determining that study data showed insufficient evidence of treatment benefit. In addition, after completion of two Phase 3 studies of momelotinib for the treatment of myelofibrosis in 2016, we decided to terminate development of momelotinib. If any of our product candidates fails to achieve its primary endpoint in clinical trials, if safety issues arise or if the results from our clinical trials are otherwise inadequate to support regulatory approval of our product candidates, commercialization of that product candidate could be delayed or halted. In addition, we may also face challenges in clinical trial protocol design.
If the clinical trials for any of the product candidates in our pipeline are delayed or terminated, our prospects for future revenue growth would be adversely impacted. For example, we
We face numerous risks and uncertainties with our product candidates,
including Descovy for pre-exposure prophylaxis (PrEP); selonsertib for the treatment of NASH; andecaliximab for the treatment of gastric cancer; and filgotinib for the treatment of rheumatoid arthritis, Crohn’s disease and ulcerative colitis, each currently in Phase 3 clinical trials that could result in delays or prevent completion of the development and approval of theseour product candidates. These risks includecandidates, including challenges in clinical trial protocol design, our ability to enroll patients in clinical trials, the possibility of unfavorable or inadequate trial results to support further development of our product candidates, including failure to meet a trial’s primary endpoint, safety issues arising from our clinical trials, and the need to modify or delay our clinical trials or to perform additional trials. For example, in January 2024, we announced that our Phase 3 EVOKE-01 study evaluating sacituzumab govitecan-hziy did not meet its primary endpoint of overall survival in previously treated metastatic non-small cell lung cancer (“NSCLC”), which resulted in us recording an impairment charge during the three months ended March 31, 2024 (for more information, see Note 7. Intangible Assets of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q). In addition, following results and data from several magrolimab studies as well as corresponding FDA clinical holds, we announced in February 2024 that we would not pursue further development of magrolimab in hematologic cancers.
As a result, we may be unable to successfully complete our clinical trials and the risk of failing to obtainon our anticipated timelines, or at all. Based on trial results, it is possible that FDA and other regulatory body approvals. As a result,authorities do not approve our product candidates, may never be successfully commercialized.or that any market approvals include significant limitations on the products’ use. In addition, clinical trials involving our commercial products can raise new safety issues for our existing products, which could adversely impact our business. Further, we have in the past and we may in the future make a strategic decision to discontinue development of our product candidates, if, for example,including but not limited to situations where we believe commercialization will be difficult relative to other opportunities in our pipeline. If these programsFor example, in January 2024, we announced with our partner Arcus Biosciences, Inc. (“Arcus”) the discontinuation of further enrollment in the Phase 3 ARC-10 study evaluating domvanalimab plus zimberelimab in first-line locally advanced or metastatic, PD-L1-high NSCLC based on strategic prioritization to advance and otherspotentially accelerate other Phase 3 studies in our pipeline cannotcollaboration with Arcus. Therefore, our product candidates may never be completed on a timely basis or at all, then our prospects for future revenue growthsuccessfully commercialized, and we may be adversely impacted. In addition,unable to recoup the significant R&D, clinical trials involving our commercial products could raise new safety issues for our existing products, which could in turn decrease our revenuestrial, acquisition-related and harm our business.
Dueother expenses incurred. We expect to our reliancespend significant time and resources on third-party contract research organizations to conduct our clinical trials,trial activities without any assurance that we will recoup our investments or that our efforts will be commercially successful.
There are unable to directly controlalso risks associated with the timing, conduct, expense and qualityuse of third parties in our clinical trials.
trial activities. We extensively outsource our clinical trial activities and usually perform only a small portion of the start-up activities in-house. We rely on independent third-party contract research organizations (CROs)(“CROs”) to perform most of our clinical studies, including document preparation, site identification, screening and preparation, pre-study visits, training, program management, patient enrollment, ongoing monitoring, site management and bioanalytical analysis.bioanalysis. In addition, we depend on third-party contract manufacturing organizations (“CMOs”), including those located outside the U.S., to manufacture clinical materials. Many important aspects of the services performed for us by the CROs and CMOs are out ofnot within our direct control. If there is any dispute or disruption in our relationshiprelationships with our CROs and CMOs, including as a result of legislative or regulatory actions (such as the recently proposed BIOSECURE Act in the U.S. (the “BIOSECURE Act”)), our clinical trials and regulatory submissions may be delayed.delayed and our costs may increase. Moreover, in our regulatory submissions, we rely on the quality and validity of the clinical work performed by third-party CROs. If any of our CROs’ processes, methodologies or results were determined to be invalid or inadequate, our own clinical data and results and related regulatory approvals couldmay be adversely affected.
We depend on relationships with other companies for sales and marketing performance, technology, development, logistics and commercialization of product candidates and revenues. Failure to maintain these relationships, poor performance by these companiesmay face manufacturing difficulties, delays or disputes with these companies could negatively impact our business.
We rely on a number of significant collaborative relationships with major pharmaceutical companies for our sales and marketing performance in certain territories. These include collaborations with Janssen for Odefsey, Complera/Eviplera and Symtuza in Europe; BMS for Atripla in the United States, Europe and Canada; F. Hoffmann-La Roche Ltd. (together with Hoffmann-La Roche Inc., Roche) for Tamiflu worldwide; and GSK for ambrisentan in territories outside of the United States. In some countries, we rely on international distributors for sales of Truvada, Viread, Hepsera, Emtriva and AmBisome. Some of these relationships also involve the clinical development of these products by our partners. Reliance on collaborative relationships poses a number of risks, including the risk that:
we are unable to control the resources our corporate partners devote to our programs or products;
disputes may arise with respect to the ownership of rights to technology developed with our corporate partners;
disagreements with our corporate partners could cause delays in, or termination of, the research, development or commercialization of product candidates or result in litigation or arbitration;
contracts with our corporate partners may fail to provide significant protection or may fail to be effectively enforced if one of these partners fails to perform;
our corporate partners have considerable discretion in electing whether to pursue the development of any additional products and may pursue alternative technologies or products either on their own or in collaboration with our competitors;
our corporate partners with marketing rights may choose to pursue competing technologies or to devote fewer resources to the marketing of our products than they do to products of their own development; and
our distributors and our corporate partners may be unable to pay us, particularly in light of current economic conditions.
Given these risks, there is a great deal of uncertainty regarding the success of our current and future collaborative efforts. If these efforts fail, our product development or commercialization of new products could be delayed or revenues from products could decline.
Yescarta is available only through a REMS program, which is required by FDA to mitigate the potential risks of the product. Only hospitals and their associated clinics certified in the REMS program are permitted to dispense Yescarta. All relevant staff involved in the prescribing, dispensing or administering of Yescarta must be trained on the REMS program requirements and must successfully complete a REMS program knowledge assessment. Failure of hospitals and clinics to enroll in the Yescarta REMS program or to successfully complete and comply with the program requirements may result in regulatory action from FDA or decreased sales of Yescarta, which could harm our business and our reputation.
For Yescarta, we rely on technology partners to assist in the development and maintenance of the Kite Konnect platform. This platform is critical to ensure positive prescriber and patient experience as well as chain of identity and chain of custody of Yescarta. If the technology platform is incomplete, insufficiently maintained or develops technological issues, we may experience a disruption to the sales and logistics of our Yescarta business, which could extend for a significant period of time, and we may need to expend considerable resources and time to repair or improve the platform in cooperation with our partners. In addition, we rely on sites to collect patient white blood cells, known as apheresis centers, shippers, couriers, and hospitals for the logistical collection of patient’s white blood cells and ultimate delivery of Yescarta to patients. Any disruption or difficulties incurred by any of these vendors could result in product loss and regulatory action and harm our Yescarta business and our reputation.
In addition, to ensure that any apheresis center is prepared to ship cells to our manufacturing facilities, we plan to conduct quality certifications of each apheresis center. Accordingly, we plan to target 70-90 key transplant and lymphoma centers; however, apheresis centers may choose not to participate in the certification process or we may be unable to complete certification in a timely manner or at all, which could delay or restrain our manufacturing and commercialization efforts. As a result, our sales of Yescarta may be limited which could harm our results of operations.
Our success will depend to a significant degree on our ability to defend our patents and other intellectual property rights both domestically and internationally. We may not be able to obtain effective patents to protect our technologies from use by competitors and patents of other companies could require us to stop using or pay for the use of required technology.
Patents and other proprietary rights are very important to our business. Our success will depend to a significant degree on our ability to:
obtain patents and licenses to patent rights;
preserve trade secrets;
defend against infringement and efforts to invalidate our patents; and
operate without infringing on the intellectual property of others.
If we have a properly drafted and enforceable patent, it can be more difficult for our competitors to use our technology to create competitive products and more difficult for our competitors to obtain a patent that prevents us from using technology we create. As part of our business strategy, we actively seek patent protection both in the United States and internationally and file additional patent applications, when appropriate, to cover improvements in our compounds, products and technology.
We have a number of U.S. and foreign patents, patent applications and rights to patents related to our compounds, products and technology, but we cannot be certain that issued patents will be enforceable or provide adequate protection or that pending patent applications will result in issued patents. Patent applications are confidential for a period of time before a patent is issued. As a result, we may not know if our competitors filed patent applications for technology covered by our pending applications or if we were the first to invent or first to file an application directed toward the technology that is the subject of our patent applications. Competitors may have filed patent applications or received patents and may obtain additional patents and proprietary rights that block or compete with our products. In addition, if competitors file patent applications covering our technology, we may have to participate in litigation, interference or other proceedings to determine the right to a patent. Litigation, interference or other proceedings are unpredictable and expensive, such that, even if we are ultimately successful, our results of operations may be adversely affected by such events.
For example, TDF, one of the active pharmaceutical ingredients in Stribild, Complera/Eviplera, Atripla and Truvada, and the main active pharmaceutical ingredient in Viread, now has generic competition in the European Union and is expected to face generic competition in the United States and other countries in late 2017. In addition, because emtricitabine, the other active pharmaceutical ingredient of Truvada, faced generic competition in the European Union in 2016, Truvada has started to face generic competition in the European Union and other countries outside of the United States in 2017. The entry of these generic products may lead to market share and price erosion and have a negative impact on our business and results of operations. In addition, patents do not cover the ranolazine compound, the active ingredient of Ranexa. Instead, when it was discovered that only a sustained-release formulation of ranolazine would achieve therapeutic plasma levels, patents were obtained on those formulations and the characteristic plasma levels they achieve. Patents do not cover the active ingredients in AmBisome.
We may obtain patents for certain products many years before marketing approval is obtained for those products. Because patents have a limited life, which may begin to run prior to the commercial sale of the related product, the commercial value of the patent may be limited. However, we may be able to apply for patent term extensions or supplementary protection certificates in some countries.
Generic manufacturers have sought, and may continue to seek, FDA approval to market generic versions of our products through an abbreviated new drug application (ANDA), the application form typically used by manufacturers seeking approval of a generic drug. See a description of our ANDA litigation in Note 9, Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and risk factor entitled
“Litigation with generic manufacturers has increased our expenses which may continue to reduce our earnings. If we are unsuccessful in all or some of these lawsuits, some or all of our claims in the patents may be narrowed or invalidated and generic versions of our products could be launched prior to our patent expiry.” beginning on page 49.
Our success depends in large part on our ability to operate without infringing upon the patents or other proprietary rights of third parties.
If we infringe the valid patents of third parties, we may be prevented from commercializing products or may be required to obtain licenses from these third parties. We may not be able to obtain alternative technologies or any required license on reasonable terms or at all. If we fail to obtain these licenses or alternative technologies, we may be unable to develop or commercialize some or all of our products. For example, we are aware of patents and patent applications owned by other parties that may claim to cover the use of sofosbuvir and axi-cel. We are also aware of U.S. Patent Nos. 9,044,509 and 9,579,333 assigned to the U.S. Department of Health and Human Services that purports to claim a process of protecting a primate host from infection by an immunodeficiency retrovirus by administering a combination of emtricitabine and tenofovir or TDF prior to exposure of the host to the immunodeficiency retrovirus. We have been in contact with the U.S. Department of Health and Human Services about the scope and relevance of the patents and have explained that we do not believe that these patents are valid because the patent office was not given the most relevant prior art and because physicians and patients were using the claimed methods years before the Centers for Disease Control and Prevention filed the applications for the patents. See also a description of our litigation regarding sofosbuvir and axi-cel in Note 9, Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the risk factors entitled “If any party is successful in establishing exclusive rights to our HCV products, our revenues and earnings from the sale of those products could be adversely affected” beginning on page 45 and “If any party is successful in establishing exclusive rights to axi-cel, our anticipated revenues and earnings from the sale of that product could be adversely affected” beginning on page 47.
Furthermore, we also rely on unpatented trade secrets and improvements, unpatented internal know-how and technological innovation. For example, a great deal of our liposomal manufacturing expertise, which is a key component of our liposomal technology, is not covered by patents but is instead protected as a trade secret. We protect these rights mainly through confidentiality agreements with our corporate partners, employees, consultants and vendors. These agreements provide that all confidential information developed or made known to an individual during the course of their relationship with us will be kept confidential and will not be used or disclosed to third parties except in specified circumstances. In the case of employees, the agreements provide that all inventions made by an individual while employed by us will be our exclusive property. We cannot be certain that these parties will comply with these confidentiality agreements, that we have adequate remedies for any breach or that our trade secrets will not otherwise become known or be independently discovered by our competitors. Under some of our R&D agreements, inventions become jointly owned by us and our corporate partner and in other cases become the exclusive property of one party. In certain circumstances, it can be difficult to determine who owns a particular invention and disputes could arise regarding those inventions. If our trade secrets or confidential information become known or independently discovered by competitors or if we enter into disputes over ownership of inventions, our business and results of operations could be adversely affected.
If any party is successful in establishing exclusive rights to our HCV products, our revenues and earnings from the sale of those products could be adversely affected.
We own patents and patent applications that claim sofosbuvir (Sovaldi) as a chemical entity and its metabolites and the fixed-dose combinations of ledipasvir and sofosbuvir (Harvoni), sofosbuvir and velpatasvir (Epclusa) and sofosbuvir, velpatasvir and voxilaprevir (Vosevi). Third parties may have, or may obtain rights to, patents that allegedly could be used to prevent or attempt to prevent us from commercializing our HCV products. For example, we are aware of patents and patent applications owned by other parties that may be alleged by such parties to cover the use of our HCV products. We cannot predict the ultimate outcome of intellectual property claims related to our HCV products, and we have spent, and will continue to spend, significant resources defending against these claims.
If third parties successfully obtain valid and enforceable patents, and successfully prove infringement of those patents by our HCV products, we could be prevented from selling sofosbuvir unless we were able to obtain a license under such patents. Such a license may not be available on commercially reasonable terms or at all.
Interference Proceedings and Litigation with Idenix Pharmaceuticals, Inc. (Idenix), Universita Degli Studi di Cagliari (UDSG), Centre National de la Recherche Scientifique and L’Universite Montpellier II
In February 2012, we received notice that the U.S. Patent and Trademark Office (USPTO) had declared Interference No. 105,871 (First Idenix Interference) between our U.S. Patent No. 7,429,572 (the ‘572 patent) and Idenix’s pending U.S. Patent Application No. 12/131,868 to determine who was the first to invent certain nucleoside compounds. In January 2014, the USPTO Patent Trial and Appeal Board (PTAB) determined that Pharmasset and not Idenix was the first to invent the compounds. Idenix has appealed the PTAB’s decisions to the U.S. District Court for the District of Delaware, which has stayed that appeal pending
the outcome of the appeal of the interference involving Idenix’s U.S. Patent No. 7,608,600 (the ‘600 patent) as described below. In light of the decision in the Second Idenix Interference in our favor (as described below), we believe that the District Court will dismiss the First Idenix Interference with prejudice or enter judgment against Idenix and in our favor.
In December 2013, after receiving our request to do so, the USPTO declared Interference No. 105,981 (Second Idenix Interference) between our pending U.S. Patent Application No. 11/854,218 and Idenix’s ‘600 patent. The ‘600 patent includes claims directed to methods of treating HCV with nucleoside compounds. In March 2015, the PTAB determined that Pharmasset and not Idenix was the first to invent the claimed methods of treating HCV. Idenix appealed this decision in both the U.S. District Court for the District of Delaware and the CAFC. The CAFC heard oral arguments in September 2016 and affirmed the PTAB decision in June 2017. In November 2017, the CAFC denied Idenix’s petition for a rehearing. Idenix may file further petitions in the United States Supreme Court. We filed a motion to dismiss the appeal in Delaware, which was granted. Idenix appealed the dismissal to the CAFC and that court had stayed this other appeal pending a decision in the Second Idenix Interference. We believe that the appeal from the Delaware dismissal should be dismissed in light of the recent decision of the CAFC affirming the PTAB’s prior decision in the Second Idenix Interference that Idenix is not entitled to its patent.
We believe that the Idenix claims involved in the First and Second Idenix Interferences, and similar U.S. and foreign patents claiming the same compounds, metabolites and uses thereof, are invalid. As a result, we filed an Impeachment Action in the Federal Court of Canada to invalidate Idenix Canadian Patent No. 2,490,191 (the ‘191 patent), which is the Canadian patent that corresponds to the ‘600 patent. Idenix asserted that the commercialization of Sovaldi in Canada will infringe its ‘191 patent and that our Canadian Patent No. 2,527,657, corresponding to our ‘572 patent, is invalid. In November 2015, the Canadian court held that Idenix’s patent is invalid and that our patent is valid. Idenix appealed the decision to the Canadian Federal Court of Appeal in November 2015. In July 2017, the Canadian Federal Appeal Court affirmed the lower court’s decision in our favor. In September 2017, Idenix appealed the decision to the Supreme Court of Canada.
We filed a similar legal action in Norway in the Oslo District Court seeking to invalidate Idenix’s Norwegian patent corresponding to the ‘600 patent. In September 2013, Idenix filed an invalidation action in the Norwegian proceedings against our Norwegian Patent No. 333700, which corresponds to the ‘572 patent. In March 2014, the Norwegian court found all claims in the Idenix Norwegian patent to be invalid and upheld the validity of all claims in our patent. Idenix appealed the decision to the Norwegian Court of Appeal. In April 2016, the Court of Appeal issued its decision invalidating the Idenix patent and upholding our patent. The decision revoking Idenix’s patent is now final.
In January 2013, we filed a legal action in the Federal Court of Australia seeking to invalidate Idenix’s Australian patent corresponding to the ‘600 patent. In April 2013, Idenix asserted that the commercialization of Sovaldi in Australia infringes its Australian patent corresponding to the ‘600 patent. In March 2016, the Australian court revoked Idenix’s Australian patent. Idenix has appealed this decision. The appeal hearing was held in November 2016 and we are awaiting the decision.
In March 2014, the European Patent Office (EPO) granted Idenix European Patent No. 1 523 489 (the ‘489 patent), which corresponds to the ‘600 patent. The same day that the ‘489 patent was granted, we filed an opposition with the EPO seeking to revoke the ‘489 patent. An opposition hearing was held in February 2016, and the EPO ruled in our favor and revoked the ‘489 patent. Idenix has appealed. In March 2014, Idenix also initiated infringement proceedings against us in the United Kingdom (UK), Germany and France alleging that the commercialization of Sovaldi would infringe the UK, German and French counterparts of the ‘489 patent. A trial was held in the UK in October 2014. In December 2014, the High Court of Justice of England and Wales (UK Court) invalidated all challenged claims of the ‘489 patent on multiple grounds. Idenix appealed. In November 2016, the appeals court affirmed the UK Court’s decision invalidating Idenix’s patent, and in April 2017, the UK Supreme Court refused Idenix’s application for permission to appeal. In March 2015, the German court in Düsseldorf determined that the Idenix patent was highly likely to be invalid and stayed the infringement proceedings pending the outcome of the opposition hearing held by the EPO in February 2016. Idenix has not appealed this decision of the German court staying the proceedings. Upon Idenix’s request, the French proceedings have been stayed.
See also our risk factor “We may be required to pay significant damages to Merck as a result of a jury’s finding that we willfully infringed a patent owned by Merck’s Idenix subsidiary.”
Idenix was acquired by Merck in August 2014, and Merck continues to pursue the Idenix claims described herein.
Litigation with Merck
In August 2013, Merck contacted us requesting that we pay royalties on the sales of sofosbuvir and obtain a license to U.S. Patent No. 7,105,499 (the ‘499 patent) and U.S. Patent No. 8,481,712 (the ‘712 patent), which it co-owns with Ionis Pharmaceuticals, Inc. The ‘499 and ‘712 patents cover compounds which do not include, but may relate to, sofosbuvir. We filed a lawsuit in August 2013 in the U.S. District Court for the Northern District of California seeking a declaratory judgment that the Merck patents are invalid and not infringed. During patent prosecution, Merck amended its patent application in an attempt to cover compounds related to sofosbuvir. Initially, in March 2016, a jury determined that we had not established that Merck’s patents are invalid for lack of written description or lack of enablement and awarded Merck $200 million in damages. However, in June 2016, the court
ruled in our favor on our defense of unclean hands and determined that Merck may not recover any damages from us for the ‘499 and ‘712 patents. The judge has determined that Merck is required to pay our attorney’s fees due to the exceptional nature of this case. In July 2017, the court issued a decision setting the amount of attorney fees awarded to Gilead.
Merck has filed notices of appeal to the CAFC regarding the court’s decision on our defense of unclean hands and its award of attorney’s fees. We appealed the issue relating to the invalidity of Merck’s patent. If the decision on our defense of unclean hands is reversed on appeal and Merck’s patent is upheld, we may be required to pay damages and a royalty on sales of sofosbuvir-containing products following the appeal. In that event, the judge has indicated that she will determine the amount of the royalty, if necessary, at the conclusion of any appeal in this case.
Litigation with the University of Minnesota
The University of Minnesota (the University) has obtained Patent No. 8,815,830 (‘830 patent), which purports to broadly cover nucleosides with antiviral and anticancer activity. In August 2016, the University filed a lawsuit against us in the U.S. District Court for the District of Minnesota, alleging that the commercialization of sofosbuvir-containing products infringes the ‘830 patent. We believe that the ‘830 patent is invalid and will not be infringed by the continued commercialization of sofosbuvir. In October 2017, the court granted our motion to transfer the case to California. We have also filed four petitions for inter partes review in the USPTO alleging that all asserted claims are invalid for anticipation and obviousness.
Petitions for Inter Partes Review filed by Initiative for Medicines, Access & Knowledge
In October 2017, we received notice that Initiative for Medicines, Access & Knowledge (I-MAK) submitted multiple petitions requesting inter partes review to the PTAB alleging that certain patents associated with sofosbuvir are invalid as either not novel or obvious. We strongly believe I-MAK’s petitions are without merit and that sofosbuvir, the only approved HCV drug of its kind, is both novel and not obvious. Accordingly, we will defend against these allegations. If the PTAB decides to initiate one or more inter partes reviews, a decision would be expected about a year later. Either party can appeal the PTAB’s decision to the CAFC.
European Patent Claims
In February 2015, several parties filed oppositions in the EPO requesting revocation of our granted European patent covering sofosbuvir that expires in 2028. In October 2016, the EPO upheld the validity of certain claims of our sofosbuvir patent. We anticipate that the challengers will appeal this decision in favor of our patent. We have appealed this decision, seeking to restore all of the original claims, and several of the original opposing parties have also appealed, requesting full revocation. The appeal process may take several years.
In April 2017, several parties filed oppositions in the EPO requesting revocation of our granted European patent relating to sofosbuvir that expires in 2024.
While we are confident in the strength of our patents, we cannot predict the ultimate outcome of these actions. If we are unsuccessful in defending these oppositions, some or all of our patent claims may be narrowed or revoked and the patent protection for sofosbuvir in Europe could be substantially shortened or eliminated entirely. If our patents are revoked, and no other European patents are granted covering these compounds, our exclusivity may be based entirely on regulatory exclusivity granted by EMA. Sovaldi has been granted regulatory exclusivity that will prevent generic sofosbuvir from entering the European Union for 10 years following approval of Sovaldi, or January 2024. If we lose patent protection for sofosbuvir prior to 2028, our revenues and results of operations could be negatively impacted for the years including and succeeding the year in which such exclusivity is lost, which may cause our stock price to decline.
If any party is successful in establishing exclusive rights to axi-cel, our anticipated revenues and earnings from the sale of that product could be adversely affected.
In October 2017, we acquired Kite, which is now our wholly-owned subsidiary. Through the acquisition, we acquired axicabtagene ciloleucel (axi-cel), a CAR T therapy. In October 2017, we received approval from FDA for axi-cel, now known commercially as Yescarta.
We own patents and patent applications that claim axi-cel chimeric DNA segments. Third parties may have, or may obtain rights to, patents that allegedly could be used to prevent or attempt to prevent us from commercializing axi-cel or to require us to obtain a license in order to commercialize axi-cel. For example, we are aware that Juno has exclusively licensed Patent No. 7,446,190 (the ‘190 patent) which was issued to Sloan Kettering Cancer Center. In September 2017, Juno and Sloan Kettering Cancer Center filed a lawsuit against Kite in the U.S. District Court for the Central District of California, alleging that the commercialization of axi-cel infringes the ‘190 patent.
In August 2015, Kite filed a petition for inter partes review in the USPTO alleging that the asserted claims of the ‘190 patent are invalid as obvious. In December 2016, the PTAB determined that the claims of the ‘190 patent are not invalid due to obviousness. In February 2017, Kite filed a Notice of Appeal to the CAFC. That appeal is currently pending.
We cannot predict the ultimate outcome of intellectual property claims related to axi-cel. If Juno’s patent is upheld as valid and Juno successfully proves infringement of that patent by axi-cel, we could be prevented from selling Yescarta unless we were able to obtain a license to this patent. Such a license may not be available on commercially reasonable terms or at all.
Manufacturing problems,interruptions, including at our third-party manufacturers and corporate partners, could cause inventory shortages and delay product shipments and regulatory approvals, which may adversely affect our results of operations.
In order to generate revenue from our products, we must be able to produce sufficient quantities of our products to satisfy demand. Many of our products are the result of complex manufacturing processes. The manufacturing process for pharmaceutical products is also highly regulated and regulators may shut down manufacturing facilities that they believe do not comply with regulations.partners.
Our products, which are either manufactured at our own facilities or by third-party manufacturers orand corporate partners.partners, are the result of complex, highly regulated manufacturing processes. We depend on third partiesthird-party manufacturers and corporate partners to perform manufacturing activities effectively and on a timely basis for the majority of our solid doseactive pharmaceutical ingredients and drug products. In addition, Roche, either by itself or throughThese third parties is responsible for manufacturing Tamiflu.are independent entities subject to their own unique operational and financial risks that are out of our control. We and our third-party manufacturers and our corporate partners are subject to Good Manufacturing Practices (GMP)(“GMP”), which are extensive regulations governing manufacturing processes, stability testing, record keeping and quality standards as defined by FDA and EMA. SimilarEuropean Medicines Agency (“EMA”), as well as comparable regulations are in effect in other countries.jurisdictions. Manufacturing operations are also subject to routine inspections by regulatory agencies.
Any adverse developments affecting or resulting from our manufacturing operations or the operations of our third-party manufacturers and corporate partners are independent entities who are subject to their own unique operational and financial risks which are outmay result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls or other interruptions in the commercial supply of our control. If we or any of these third-party manufacturers or corporate partnersproducts. We have incurred, and will continue to incur, inventory write-off charges and other expenses for products that fail to performmeet specifications and quality standards as required, thiswell as changes we may adopt in our manufacturing strategy, and we may need to undertake costly remediation efforts or seek more costly manufacturing alternatives. Such developments could impairincrease our abilitymanufacturing costs, cause us to deliverlose revenues or market share and damage our products on a timely basis or receive royalties orreputation. In addition, manufacturing issues may cause delays in our clinical trials and applications for regulatory approval. Further, we may have to write-off the costs of manufacturing any batch that fails to pass quality inspection or meet regulatory approval. In addition, we, our third-party manufacturers and our corporate partners may only be able to produce some of our products at one or a limited number of facilities and, therefore, have limited manufacturing capacity for certain products. To the extent these risks materialize and affect their performance obligations to us, our financial results may be adversely affected.
Our manufacturing operations are subject to routine inspections by regulatory agencies. IfFor example, if we are unable to remedy any deficiencies cited by FDA or other regulatory agencies in thesetheir inspections, our currently marketedexisting products and the timing of regulatory approval of productsproduct candidates in development could be adversely affected. Further, there is risk that regulatory agencies in other countries where marketing applications are pending will undertake similar additional reviews or apply a heightened standard of review, which could delay the regulatory approvals for products in those countries. IfOur business may be adversely affected if approval of any of our product candidates were delayed or if production of our marketed products was interrupted, our anticipated revenues and our stock price would be adversely affected.were interrupted.
We have limited experience managing the T cell engineering process, and our processes may be more difficult or more expensive than the approaches taken by our competitors. We cannot be sure that the manufacturing processes employed by us will result in engineered T cells that will be safe and effective. In addition, we may encounter difficulties in production, particularly in scaling up and validating initial production to meet patient demand and ensuring the absence of contamination. These problems could include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Further, if contaminants are discovered in our supply of Yescarta or in the manufacturing facilities, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination, which could require substantial resources and management attention. We cannot assure you that any stability or other issues relating to the manufacture of Yescarta will not occur in the future or that any such issues may be remedied on a timely basis or at all. In addition, we may fail to manage the logistics of collecting and shipping patient material to the manufacturing site and shipping Yescarta back to the patient. Logistical and shipment delays and problems caused by us, our vendors or other factors not in our control, such as weather and natural disasters, could prevent or delay the delivery of our products and product candidates to patients. Additionally, we are required to maintain a complex chain of identity and custody with respect to patient material as such material moves to the manufacturing facilities, through the manufacturing process, and back to the patient. Failure to maintain chain of identity and custody could result in patient death, loss of product or regulatory action, which could have an adverse effect on us, our reputation and our stock price.
We may not be able to obtain materials or supplies necessary to conduct clinical trials or to manufacture and sell our products, which wouldcould limit our ability to generate revenues.revenues as well as increase our expenses.
We need access to certain supplies and products to conduct our clinical trials and to manufacture and sell our products. If we are unable to purchase sufficient quantitiesenough of these materials or find suitable alternatealternative materials in a timely manner, our development efforts for our product candidates may be delayed or our ability to manufacture and sell our products wouldcould be limited,limited. For example, in the U.S., there has been a shortage of certain cancer drugs that are the backbone of standard-of-care treatments, such as carboplatin and cisplatin, which would limitare also used in R&D and clinical trials. While we have observed minimal impacts to our abilityoncology clinical trials to generate revenues.date, if these shortages continue or increase in magnitude, our ongoing and future oncology clinical trials may be delayed, halted or adversely impacted.
Suppliers of key components and materials must be named in the NDAnew drug application or MAAmarketing authorization application filed with FDA, EMA or otherthe regulatory authority for any product candidate for which we are seeking marketing approval, and significant delays can occur if the qualification
of a new supplier is required. Even after a manufacturer is qualified by the regulatory authority, the manufacturer must continue to expend time, money and effort in the area of production and quality control to ensuremaintain full compliance with GMP. Manufacturers are subject to regular periodic inspections by the regulatory authorities following initial approval. If, as a result of these inspections, a regulatory authority determines that the equipment, facilities, laboratories or processes do not comply with applicable regulations and conditions of product approval, the regulatory authority may suspend the manufacturing operations. If the manufacturing operations of any of the single suppliers for our products are suspended, we may be unable to generate sufficient quantities of commercial or clinical supplies of product to meet market demand, which would in turn decrease our revenues and harm our business.demand. In addition, if deliverydeliveries of materialmaterials from our suppliers wereare interrupted for any reason, including as a result of natural disasters or extreme weather conditions, we may be unable to ship certain of our products for commercial supply or to supply our productsproduct candidates in development for clinical trials. In addition,Also, some of our products and the materials that we utilize in our operations are mademanufactured by only one supplier or at only one facility. For example, we manufacture certain drug product intermediates utilized in AmBisome exclusively at our facilities in San Dimas, California. In the event of a disaster, including an earthquake, equipment failure or other difficulty,facility, which we may not be unableable to replace this manufacturing capacity in a timely manner and may be unable to manufacture AmBisome to meet market needs.
In addition, we depend on a single supplier for amphotericin B, the active pharmaceutical ingredient of AmBisome, and high-quality cholesterol in the manufacture of AmBisome. We also rely on a single source for the active pharmaceutical ingredients found in Letairis and Cayston. Astellas US LLC, which markets Lexiscan in the United States, is responsible for the commercial manufacture and supply of product in the United States and is dependent on a single supplier for the active pharmaceutical ingredient of Lexiscan.commercially reasonable terms, or at all. Problems with any of the single suppliers or facilities we depend on, including in the event of a disaster, such as an earthquake, flood or fire, equipment failure or other difficulty, may negatively impact our development and commercialization efforts.
A significant portion of the raw materials and intermediates used to manufacture our antiviral products and product candidates are supplied by third-party manufacturers and corporate partners outside of the United States.U.S. As a result, any political or economic factors in a specific country or region, including any new, or changes in or interpretations of existing, trade regulations, compliance requirements or tax or other legislation (such as the recently proposed BIOSECURE Act), that would limit or prevent third parties outside of the United StatesU.S. from supplying these materials wouldcould adversely affect our ability to manufacture and supply our antiviral products to meet market needs and have a material and adverse effect on our operating results. Such factors may also negatively impact our ability to supply our clinical trials, which may result in the delay of our clinical trials and regulatory submissions as well as increased costs.
If we were to encounter any of these difficulties, our ability to provide our products andconduct clinical trials on product candidates and to patients would be jeopardized.
Litigation with generic manufacturers has increased our expenses which may continue to reduce our earnings. If we are unsuccessful in all or some of these lawsuits, some or all of our claims in the patents may be narrowed or invalidatedmanufacture and generic versions ofsell our products could be impaired.
Regulatory and Other Legal Risks
Our operations depend on compliance with complex FDA and comparable international regulations. Failure to obtain approvals on a timely basis or to maintain compliance could delay or halt commercialization of our products.
The products we develop must be approved for marketing and sale by regulatory authorities and, once approved, are subject to extensive regulation by FDA, EMA and comparable regulatory agencies in other countries. We have filed, and anticipate that we will continue to file, for marketing approval in additional countries and for additional indications and products. These and any future marketing applications we file may not be approved by the regulatory authorities on a timely basis, or at all. For example, in October 2022, we announced that FDA issued a complete response letter for our Biologics License Application for bulevirtide for the treatment of adults with hepatitis delta virus infection. Additionally, FDA review of the new drug application for seladelpar for the treatment of primary biliary cholangitis is ongoing with a Prescription Drug User Fee Act target action date in the second half of 2024, and the FDA may not approve it on a timely basis, or at all. Even if marketing approval is granted for these products, there may be significant limitations on their use. We cannot state with certainty when or whether any of our product candidates under development will be approved or launched; whether we will be able to develop, license or acquire additional product candidates or products; or whether any products, once launched, priorwill be commercially successful.
Further, how we manufacture and sell our products is subject to extensive regulation and review. For example, under FDA rules, we are often required to conduct post-approval clinical studies to assess a known serious risk, signals of serious risk or to identify an unexpected serious risk. In certain circumstances, we may be required to implement a Risk Evaluation and Mitigation Strategy program for our products, which could include a medication guide, patient package insert, a communication plan to healthcare providers, restrictions on distribution or use of a product and other elements FDA deems necessary to assure safe use of the drug. Discovery of previously unknown problems with our marketed products or product candidates, including serious safety, resistance or drug interaction issues, or problems with our manufacturing, safety reporting or promotional activities, may result in regulatory approvals being delayed, denied or granted with significant restrictions on our products, including limitations on or the withdrawal of the products from the market.
Failure to comply with these or other requirements imposed by FDA could result in significant civil monetary penalties, fines, suspensions of regulatory approvals, product recalls, seizure of products and criminal prosecutions.
We are impacted by evolving laws, regulations and legislative or regulatory actions applicable to the healthcare industry.
The healthcare industry is subject to various federal, state and international laws and regulations pertaining to drug approval, reimbursement, rebates, price reporting, healthcare fraud and abuse, and data privacy and security. In the U.S., these laws include anti-kickback and false claims laws, Federal Food, Drug, and Cosmetic Act, laws and regulations relating to the Medicare and Medicaid programs and other federal and state programs, such as the Medicaid Rebate Statute and the 340B statute, laws that regulate written and verbal communications about our products, individual state laws relating to pricing and sales and marketing practices, the Health Insurance Portability and Accountability Act and other federal and state laws relating to the privacy and security of health information, including the Executive Order on Preventing Access to Americans’ Bulk Sensitive Personal Data and United States Government-Related Data by Countries of Concern issued in February 2024. Actual or alleged violations of these laws or any related regulations may be punishable by criminal and/or civil sanctions, including, in some instances, substantial fines, civil monetary penalties, exclusion from participation in federal and state healthcare programs, including Medicare, Medicaid and U.S. Department of Veterans Affairs and U.S. Department of Defense health programs, actions against executives overseeing our business and significant remediation measures, negative publicity or other consequences. These laws and regulations are broad in scope and subject to changing and evolving interpretations, which could require us to incur substantial costs associated with compliance, alter one or more of our sales or marketing practices, or impact our ability to obtain or maintain regulatory approvals. The resulting impact on our business is uncertain and could be material. Additionally, recently proposed legislation in the U.S., such as the BIOSECURE Act (which among other things, could prohibit U.S. executive agencies from contracting with, or expending loans or granting funds to, companies that use biotechnology equipment or services from certain parties outside of the U.S.), has the potential to adversely impact our ability to receive services from such parties, including certain of which we use in connection with our clinical trials and our clinical and commercial manufacturing, which could increase the cost or limit the supply of material available to us, delay the procurement or supply of such material, delay or impact clinical trials and regulatory submissions, delay the launch of commercial products and adversely affect our financial condition and business prospects.
In addition, government price reporting and payment regulations are complex, and we are continually assessing the methods by which we calculate and report pricing in accordance with these obligations. Our methodologies for calculations are inherently subjective and may be subject to review and challenge by various government agencies, which may disagree with our interpretation. If the government disagrees with our reported calculations, we may need to restate previously reported data and could be subject to additional financial and legal liability.
There also continues to be enhanced scrutiny of company-sponsored patient assistance programs, including co-pay assistance programs and manufacturer donations to third-party charities that provide such assistance. There has also been enhanced scrutiny by governments on reimbursement and other patient support offerings, clinical education programs and promotional speaker programs. If we, or our agents and vendors, are deemed to have failed to comply with laws, regulations or government guidance in any of these areas, we could be subject to criminal or civil sanctions. Any similar violations by our competitors could also negatively impact our industry reputation and increase scrutiny over our business and our products.
For a description of our government investigations and related litigation, see Note 10. Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
We are subject to risks if significant safety issues arise for our marketed products or our product candidates.
As additional studies are conducted after obtaining marketing approval for our products, and as our products are used over longer periods of time by many patients, including patients with underlying health problems or those taking other medicines, we expect to continue finding new issues related to safety, resistance or drug interactions. Any such issues may require changes to our patent expiry.product labels, such as additional warnings, contraindications or even narrowed indications, or the halt of product sales.
Regulatory authorities have been moving towards more active and transparent pharmacovigilance and are making greater amounts of stand-alone safety information and clinical trial data directly available to the public through websites and other means, such as periodic safety update report summaries, risk management plan summaries and various adverse event data. Safety information, without the appropriate context and expertise, may be misinterpreted and lead to misperception or legal action.
Our success depends to a significant degree on our ability to obtain and defend our patents and other intellectual property rights both domestically and internationally, and to operate without infringing upon the patents or other proprietary rights of third parties.
Patents and other proprietary rights are very important to our business. As part of our business strategy, we actively seek patent protection both in the approval process for someU.S. and internationally and file additional patent applications, when appropriate, to cover improvements in our compounds, products and technology. Our success depends to a significant degree on our ability to:
•obtain patents and licenses to patent rights;
•preserve trade secrets and internal know-how;
•defend against infringement of our products, FDA granted uspatents and efforts to invalidate them; and
•operate without infringing on the intellectual property of others.
Because patent applications are confidential for a New Chemical Entity (NCE) exclusivity period during which other manufacturers’of time after filing, we may not know if our competitors have filed applications for approval of generic versionstechnology covered by our pending applications or if we were the first to invent or first to file an application directed toward the technology that is the subject of our productpatent applications. If competitors file patent applications covering our technology, we may have to participate in litigation, post-grant proceedings before the U.S. Patent and Trademark Office or other proceedings to determine the right to a patent or validity of any patent granted. Such litigation and proceedings are unpredictable and expensive, and could divert management attention from other operations, such that, even if we are ultimately successful, we may be adversely impacted.
Patents covering our existing compounds, products and processes, and those that we will likely file in the future, may not be approved. Generic manufacturersprovide complete or adequate protection. Filing patent applications is a fact-intensive and complex process. We may challengefile patent applications that ultimately do not result in patents or have patents that do not provide adequate protection for the related product. Future litigation or other proceedings regarding the enforcement or validity of our existing patents protecting products that have been granted NCE exclusivity one year prior toor any future patents could result in the endinvalidation of our patents or substantially reduce their protection. In addition, we may face criticism as a result of our legitimate use of the NCE exclusivity period. patent systems to protect our investments in new and useful innovations in medicine.
Generic manufacturers have sought, and may continue to seek, FDA approval for a similar or identical drugto market generic versions of our products through an ANDA,abbreviated new drug application (“ANDA”), the application formprocess typically used by manufacturers seeking approval of a generic drug. To seek approvalFor a description of our ANDA litigation, see Note 10. Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. ANDA litigation and related settlement and license agreements, in some cases, may result in a loss of exclusivity for aour patents sooner than we would otherwise expect. In addition, loss of exclusivity may be earlier than expected under these settlement and license agreements under certain circumstances. For example, settlement and license agreements with generic version of a product having NCE status, amanufacturers typically include acceleration clauses that permit generic manufacturer may submit its ANDA to FDA four years afterentry before the branded product’s approval. For sofosbuvir, thisagreed-upon entry date falls in December 2017. Consequently, it is possible that one or morecertain circumstances, and generic manufacturers may file an ANDA for sofosbuvir in December 2017.
Current legal proceedings of significance with some of our generic manufacturers include:
Apotex
In June 2014, we received notice that Apotex Inc. (Apotex) submitted an abbreviated new drug submission (ANDS)continue to Health Canada requesting permission to manufacture and market a generic version of Truvada and a separate ANDS requesting permission to manufacture and market a generic version of Viread. In the notice, Apotex alleges that three ofchallenge the patents associated with Truvada and two of the patents associated with Viread are invalid, unenforceable and/or will not be infringed by Apotex’s manufacture, use or sale of a generic version of Truvada or Viread. In August 2014, we filed lawsuits against Apotex in the Federal Court of Canada seeking orders of prohibition against approval of these ANDS. A hearing in those cases was held in April 2016. In July 2016, the court issued an order prohibiting Health Canada from approving Apotex’s generic version ofprotecting our Viread product until the expiry of our patents in July 2017.products. The court declined to prohibit approval of Apotex’s generic version of our Truvada product. The court’s decision did not rule on the validity of the patents. The launch of Apotex’s generic version of our Truvada product would be at risk of infringement of our patents, including patents that we were unable to assert in the present lawsuit, and liability for our damages. Apotex has appealed the court’s decision.
Mylan
In February 2016, we received notice that Mylan Pharmaceuticals, Inc. (Mylan) submitted an ANDA to FDA requesting permission to manufacture and market a generic version of Tybost (cobicistat). In the notice, Mylan alleges that the patent covering cobicistat is invalid as obvious and that Mylan’s generic product cannot infringe an invalid claim. In March 2016, we filed lawsuits against Mylan in the U.S. District Court for the District of Delaware and U.S. District Court for the Northern District of West Virginia. The trial in Delaware is scheduled for January 2018, and the parties have agreed to dismiss the action in West Virginia. The patent in suit that covers Tybost is also listed in the Orange Book for Stribild and Genvoya.
Amneal
In May 2017, we received notice that Amneal Pharmaceuticals LLC (Amneal) submitted an ANDA to FDA requesting permission to manufacture and market a generic version of Truvada at low dosage strengths. In the notice, Amneal alleges that two patents associated with emtricitabine are invalid, unenforceable and/or will not be infringed by Amneal’s manufacture, use or saleentry of generic versions of Truvada at low dosage strengths. In July 2017, we filed a lawsuit against Amnealour products has, and may in the U.S. District Court for the District of Delaware for infringement of our patents.future, lead to market share and price erosion.
In June 2017, we received notice that Macleods Pharmaceuticals Ltd. (Macleods) submitted ANDAs to FDA requesting permission to manufacture and market generic versions of Truvada and Atripla. In the notices, Macleods alleges that two patents associated with emtricitabine, three patents associated with the emtricitabine and TDF fixed dose combination and three patents associated with the emtricitabine, TDF and efavirenz fixed dose combination are invalid, unenforceable and/or will not be infringed by Macleod’s manufacture, use or sale of generic versions of Truvada or Atripla. In July 2017, we filed a lawsuit against Macleods in the U.S. District Court for the District of Delaware for infringement of these patents.
We cannot predict the ultimate outcome of the foregoing actions and other litigation with generic manufacturers, and we may spend significant resources enforcing and defending these patents.
If we are unsuccessful infound to infringe the valid patents of third parties, we may be required to pay significant monetary damages or we may be prevented from commercializing products or may be required to obtain licenses from these lawsuits,third parties. We may not be able to obtain alternative technologies or any required license on commercially reasonable terms or at all. If we fail to obtain these licenses or alternative technologies, we may be unable to develop or commercialize some or all of our original claimsproducts. For example, we are aware of patents and patent applications owned by other parties that such parties may claim to cover the use of our products and research activities. For a description of our pending patent litigation, see Note 10. Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Furthermore, we also rely on unpatented trade secrets and improvements, unpatented internal know-how and technological innovation. We protect these rights mainly through confidentiality agreements with our corporate partners, employees, consultants and vendors. We cannot be certain that these parties will comply with these confidentiality agreements, that we have adequate remedies for any breach or that our trade secrets, internal know-how or technological innovation will not otherwise become known or be independently discovered by our competitors. Under some of our R&D agreements, inventions become jointly owned by us and our corporate partner and in other cases become the patents mayexclusive property of one party. In certain circumstances, it can be narrowed or invalidateddifficult to determine who owns a particular invention and the patent protection for Truvada, Viread and Letairis in the United States and Atripla, Truvada and Viread in Canadadisputes could arise regarding those inventions. We could be substantially shortened. Further,adversely affected if allour trade secrets, internal know-how, technological innovation or confidential information become known or independently discovered by competitors or if we enter into disputes over ownership of the patents covering one or more products are invalidated, FDA or Health Canada could approve the requests to manufacture a generic version of such products in the United States or Canada, respectively, prior to the expiration date of those patents. The sale of generic versions of these products earlier than their patent expiration would have a significant negative effect on our revenues and results of operations.inventions.
We face credit riskspotentially significant liability and increased expenses from our emerging market and Southern European customers that may adversely affect our results of operations.
We have exposure to customer credit risks in emerging markets and Southern Europe. Southern European product sales to government-owned or supported customers in Southern Europe, specifically Spain, Portugal, Italy and Greece have historically been subject to significant payment delays due to government funding and reimbursement practices. This has resulted and may continue to result in days sales outstanding being significantly higher in these countries due to the average length of time that accounts receivable remain outstanding. As of September 30, 2017, our accounts receivable, net in Southern Europe, specifically Spain, Portugal, Italy and Greece, totaled approximately $375 million, of which $121 million were greater than 120 days past due, including $59 million greater than 365 days past due.
Historically, receivable balances with certain publicly-owned hospitals accumulate over a period of time and are then subsequently settled as lump sum payments. This pattern is also experienced by other pharmaceutical companies that sell directly to hospitals. If significant changes were to occur in the reimbursement practices of these European governments or if government funding becomes unavailable, we may not be able to collect on amounts due to us from these customers and our results of operations would be adversely affected.
Imports from countries where our products are available at lower prices and unapproved generic or counterfeit versions of our products could have a negative impact on our reputation and business.
Prices for our products are based on local market economics and competition and sometimes differ from country to country. Our sales in countries with relatively higher prices may be reduced if products can be imported into those or other countries from lower price markets. There have been cases in which other pharmaceutical products were sold at steeply discounted prices in the developing world and then re-exported to European countries where they could be re-sold at much higher prices. If this happens with our products, particularly Truvada and Viread, which we have agreed to make available at substantially reduced prices to more than 130 countries participating in our Gilead Access Program, or Atripla and Complera, which Merck and Janssen, respectively, distributes at substantially reduced prices to HIV-infected patients in developing countries, our revenues would be adversely affected. In addition, we have entered into voluntary licensing agreements with generic drug companies in India, South
Africa and China, as well as a licensing agreement with the Medicines Patent Pool, a United Nations-backed public health organization, which allows generic drug companies to manufacture generic versions of HIV products incorporating our licensed compounds, TDF, TAF, emtricitabine, cobicistat, elvitegravir and bictegravir (upon regulatory approval in the United States), for distribution in low- and middle-income countries. We have also entered into licensing agreements with India-based generic manufacturers to produce and distribute generic versions of our HCV products to developing countries. If generic versions of our HIV and HCV products under these licenses are then re-exported to the United States, Europe or other markets outside of these developing world countries, our revenues would be adversely affected. We also make our HCV products available in low- and middle-income countries at significantly discounted prices. If the discounted HCV products are re-exported from these low- and middle-income countries into the United States or other higher price markets, our revenues could be adversely affected.
In addition, purchases of our products in countries where our selling prices are relatively low for resale in countries in which our selling prices are relatively high may adversely impact our revenues and gross margin and may cause our sales to fluctuate from quarter to quarter. For example, in the European Union, we are required to permit products purchased in one country to be sold in another country. Purchases of our products in countries where our selling prices are relatively low for resale in countries in which our selling prices are relatively high can affect the inventory level held by our wholesalers and can cause the relative sales levels in the various countries to fluctuate from quarter to quarter and not reflect the actual consumer demand in any given quarter. These quarterly fluctuations may impact our earnings, which could adversely affect our stock price and harm our business.
We are also aware of the existence of various “Buyers Clubs” around the world that promote the personal importation of generic versions of our HCV products that have not been approved for use in the countries into which they are imported. As a result, patients may be at risk of taking unapproved medications which may not be what they purport to be, may not have the potency they claim to have or may contain harmful substances. To the extent patients take unapproved generic versions of one or more of our medications and are injured or not cured by these products, our brand or the commercial or scientific reputation of our HCV products could be harmed.
Further, third parties may illegally distribute and sell counterfeit versions of our products, which do not meet the rigorous quality standards of our manufacturing and supply chain. For example, in the first quarter of 2017, bottles of counterfeit drugs labeled under the Harvoni brand name were discovered at a retail pharmacy chain and pharmaceutical wholesalers in Japan. We investigated this matter and accelerated planned changes to our product packaging to make counterfeiting more difficult. We cooperated and continue to cooperate with the Japanese health ministry. Also, in the third quarter of 2017, bottles of counterfeit drugs labeled under the Sovaldi brand name were discovered at a retail pharmacy chain and pharmaceutical wholesalers in Germany. We investigated this matter and determined that a number of wholesalers had obtained Sovaldi from an unapproved source. We cooperated and continue to cooperate with the German regulatory authorities. We actively take actions to discourage counterfeits of our products around the world, including working with local regulatory and legal authorities to enforce laws against counterfeit drugs. Counterfeit drugs pose a serious risk to patient health and safety. Our reputation and business could suffer as a result of counterfeit drugs sold under our brand name.
Expensive litigation and government investigations have increasedrelating to our expenses which may continue to reduce our earnings.products and operations.
We are involved in a number of litigation, investigation and other dispute-related matters that require us to expend substantial internal and financial resources. From time to time, these matters require us to pay significant monetary amounts, including royalty payments for past and future sales. We expect these matters will continue to require a high level of internal and financial resources for the foreseeable future. These matters have reduced, and willare expected to continue to reduce, our earnings. Please see a description of our litigation, investigation and other dispute-related matters in Note 9, Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. The outcome of such lawsuits or any other lawsuits that may be brought against us, the investigations or any other investigations that may be initiated, are inherently uncertain, and adverse developments or outcomes can result in significant expenses, monetary damages, penalties or injunctive relief against us that could significantly reduce our earnings and cash flows and harm our business.
In some countries, we may be required to grant compulsory licenses for our products or our patents may not be enforced.
In a number of developing countries, government officials and other interested groups have suggested that pharmaceutical companies should make drugs for HCV or HIV infection available at low cost. Alternatively, governments in those developing countries could require that we grant compulsory licenses to allow competitors to manufacture and sell their own versions of our products, thereby reducing our product sales. For example, there is growing attention on the availability of HCV therapies and some activists are advocating for the increased availability of HCV therapies through other means including compulsory licenses. The government of Malaysia has exercised Government Rights under Section 84 of the Malaysian Patents Act to practice the patented invention of sofosbuvir for a period of three years for use only in government hospitals and clinics. We are challenging the Malaysian government’s actions. In the past, certain offices of the government of Brazil have expressed concern over the affordability of our HIV products and declared that they were considering issuing compulsory licenses to permit the manufacture of otherwise patented products for HIV infection, including Viread. In addition, concerns over the cost and availability of Tamiflu related to a potential avian flu pandemic and H1N1 influenza generated international discussions over compulsory licensing of
our Tamiflu patents. For example, the Canadian government considered allowing Canadian manufacturers to manufacture and export the active ingredient in Tamiflu to eligible developing and least developed countries under Canada’s Access to Medicines Regime. Furthermore, Roche issued voluntary licenses to permit third-party manufacturing of Tamiflu. For example, Roche granted a sublicense to Shanghai Pharmaceutical (Group) Co., Ltd. for China and a sublicense to India’s Hetero Drugs Limited for India and certain developing countries. If compulsory licenses permit generic manufacturing to override our product patents for our HCV, HIV or other products, or if we are required to grant compulsory licenses for these products, it could reduce our earnings and cash flows and harm our business.significant management attention.
In addition, certain countries do not permit enforcement of our patents, or permit our patents to issue, and third-party manufacturers are able to sell generic versions of our products in those countries. For example, in July 2009, the Brazilian patent authority rejected our patent application for tenofovir disoproxil fumarate, the active pharmaceutical ingredient in Viread. This was the highest level of appeal available to us within the Brazilian patent authority. Because we do not currently have a patent in Brazil, the Brazilian government now purchases its supply of tenofovir disoproxil fumarate from generic manufacturers. In the first quarter of 2017, the Brazilian Health Regulatory Agency rejected our patent applications related to sofosbuvir and our HCV products. We successfully appealed those decisions, and those applications are now under examination at the Brazilian Patent and Trademark Office. Sales of generic versions of our products could significantly reduce our sales and adversely affect our results of operations, particularly if generic versions of our products are imported into territories where we have existing commercial sales.
We may face significant liability resulting from our products that may not be covered by insurance and such liability could materially reduce our earnings.
The testing, manufacturing, marketing and use of our commercial products, as well as product candidates in development, involve substantial risk of product liability claims. These claims may be made directly by consumers, healthcare providers, pharmaceutical companies or others. We may not have sufficientlimited insurance coverage for product liabilities that may arise. In addition, the cost to defend lawsuits or pay damages for product liabilityarise and claims may exceed our insurance coverage. If we do not maintain adequate coverage
For a description of our litigation, investigation and other dispute-related matters, see Note 10. Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. The outcome of such legal proceedings or if claims exceedany other legal proceedings that may be brought against us, the investigations or any other investigations that may be initiated and any other dispute-related matters, are inherently uncertain, and adverse developments or outcomes can result in significant expenses, monetary damages, penalties or injunctive relief against us.
Operational Risks
Our business has been, and may in the future be, adversely affected by outbreaks of epidemic, pandemic or contagious diseases.
Actual or threatened outbreaks of epidemic, pandemic or contagious diseases, or other public health emergencies, may significantly disrupt our coverage,global operations and adversely affect our business, financial condition will be adversely affected. In addition, negative publicity associatedand results of operations. As we have seen with any claims, regardlessthe COVID-19 pandemic, outbreaks can result in global supply chain and logistics disruptions and distribution constraints. The impact of their merit, may decrease the futurean outbreak or other public health crisis on our results of operations and financial condition would depend on numerous evolving factors, but could involve higher operating expenses, lower demand for our products as a result of governmental, business and impairindividuals’ actions taken in response to such an event (including quarantines, travel restrictions and interruptions to healthcare services, which can impact enrollment in or operation of our clinical trials or limit patients’ ability or willingness to access and seek care), challenges associated with the safety of our employees and safe occupancy of our job sites, and financial condition.market volatility and significant macroeconomic uncertainty in global markets. An outbreak or public health emergency also could amplify many of the other risks described throughout the “Risk Factors” section of this Quarterly Report on Form 10-Q.
We face risks associated with our global operations.
Our global operations are accompanied by certain financial, political, economic and other risks, including those listed below:
•Foreign Currency Exchange: For the three months ended March 31, 2024, approximately 28% of our product sales were denominated in foreign currencies. Because a significant percentage of our product sales is denominated in foreign currencies, primarily the Euro, we face exposure to adverse movements in foreign currency exchange rates. Overall, we are a net receiver of foreign currencies, and therefore, we benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar. Our hedging program does not eliminate our exposure to currency fluctuations. We may be adversely impacted if the U.S. dollar appreciates significantly against certain currencies and our hedging program does not sufficiently offset the effects of such appreciation. For example, see “Foreign Currency Exchange Impact” in Part I, Item 2 of this Quarterly Report on Form 10-Q for a discussion of our exposure to movements in foreign currency exchange rates, primarily in the Euro, and the impacts from foreign currency exchange, net of hedges, for the three months ended March 31, 2024.
•Interest Rates and Inflation: We have interest-generating assets and interest-bearing liabilities, including our senior unsecured notes and credit facilities. Fluctuations in interest rates could expose us to increased financial risk. In addition, high inflation, such as what we are seeing in the current economic environment, has adversely impacted and may continue to adversely impact our business and financial results.
•Anti-Bribery: We are subject to the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws that govern our international operations with respect to payments to government officials. Our international operations are heavily regulated and require significant interaction with foreign officials. We operate in parts of the world that have experienced governmental corruption to some degree. In certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices or may require us to interact with doctors and hospitals, some of which may be state-controlled, in a manner that is different than local custom. It is possible that certain of our practices may be challenged under these laws. In addition, our internal control policies and procedures may not protect us from reckless or criminal acts committed by our employees and agents. Enforcement activities under anti-bribery laws could subject us to administrative and legal proceedings and actions, which could result in civil and criminal sanctions, including monetary penalties and exclusion from healthcare programs.
Other risks inherent in conducting a global business include:
•Restrictive government actions against our intellectual property and other assets such as nationalization, expropriation, the imposition of compulsory licenses or similar actions, including waiver of intellectual property protections.
•Protective economic policies taken by governments, such as trade protection measures and import and export licensing requirements, which may result in the imposition of trade sanctions or similar restrictions by the U.S. or other governments.
•Political instability or disruption in a geographic region where we operate, regardless of cause, including war, terrorism, social unrest and political changes, including in China, Russia, Ukraine, Israel and surrounding areas.
•Increasing use of social media platforms and modern technologies present new risks and challenges, and inappropriate or unauthorized use of these platforms can result in exposure of sensitive data or information and damage our brand and reputation.
Climate change and related natural disasters, as well as legal, regulatory, or market measures to address climate change, can negatively affect our business and operations.
Many of our operations and facilities, including those essential to our manufacturing, R&D and commercialization/distribution activities, are located in regions subject to natural or man-made disasters, such as climate change, earthquakes, hurricanes, rising sea levels and flooding, fires, extreme heat, drought or other extreme weather conditions, or efforts taken by third parties to prevent or mitigate such disasters, such as public safety power shutoffs and facility shutdowns. The severity and frequency of weather-related events has been amplified, and is expected to continue to be amplified, by climate change. Such natural disasters have caused, and in the future may harmcause, damage to and/or disrupt our future revenues.
Our worldwide operations, could be subject towhich may result in a material adverse effect on our business interruptions stemming from natural or man-made disasters for whichand financial results. For example, our facility in Cork, Ireland, where we may be uninsured or inadequately insured. Ourconduct commercial manufacturing, packaging and labeling and perform quality control testing and final release of many of our products, temporarily suspended on-site operations as a result of the flooding caused by Storm Babet in October 2023. Additionally, our corporate headquarters in Foster City and our Santa Monica location, which together house a majority of ourcertain R&D activities, and our San Dimas, La Verne, Oceanside and El Segundo manufacturing facilities are located in California, a seismically active region. AsAlthough we have business continuity plans and contingencies in place and conduct periodic assessments of our natural disaster risk as part of our overall enterprise risk management program, a major earthquake or other natural disaster can result in significant recovery time and a prolonged interruption to our operational and business activities. We may be required to incur significant costs to remedy the effects of such natural disasters and to resume or restore our operations, which could adversely impact us. Our suppliers and third-party manufacturers and corporate partners face similar risks, and any disruption to their operations could have an adverse effect on our manufacturing and supply chain. Also, see risks under the headings “We may face manufacturing difficulties, delays or interruptions, including at our third-party manufacturers and corporate partners” and “We may not be able to obtain materials or supplies necessary to conduct clinical trials or to manufacture and sell our products, which could limit our ability to generate revenues as well as increase our expenses.”
In addition, growing concern regarding climate change has resulted in an evolving legal and regulatory landscape, with new requirements enacted to prevent, mitigate or adapt to the implications of climate change. These regulations, which can differ across jurisdictions, subject Gilead to many transitional risks, including, for example, new or expanded carbon pricing or taxes, increased compliance costs, restrictions on greenhouse gas emissions, investment in new technologies, increased carbon disclosure and transparency, investments in data gathering and reporting systems, upgrades of facilities to meet new building codes and the redesign of utility systems, which could increase the company’s operating costs, including the cost of electricity and energy. Our suppliers and third-party manufacturers and corporate partners face similar transition risks and may pass along any increased costs to the company.
Our aspirations, goals and disclosures related to environmental, social and governance (“ESG”) matters expose us to numerous risks, including risks to our reputation and stock price.
Institutional and individual investors are increasingly using ESG screening criteria to determine whether Gilead qualifies for inclusion in their investment portfolios. We are frequently asked by investors and other stakeholders to set ambitious ESG goals and provide new and more robust disclosure on goals, progress toward goals and other matters of interest to ESG stakeholders. In response, we have adapted the tracking and reporting of our corporate responsibility program to various evolving ESG frameworks, and we have established and announced goals and other objectives related to ESG matters. These goal statements reflect our current plans and aspirations and are not guarantees that we will be able to achieve them. Our efforts to accomplish and accurately report on these goals and objectives present numerous operational, reputational, financial, legal and other risks, any of which could have a material negative impact, including on our reputation and stock price.
Our ability to achieve any goal or objective, including with respect to environmental and diversity initiatives, is subject to numerous risks, many of which are outside of our control. Examples of such risks include: (1) the availability and cost of low- or non-carbon-based energy sources and technologies, (2) evolving regulatory requirements affecting ESG standards or disclosures, (3) the availability of suppliers that can meet our sustainability, diversity and other standards, (4) our ability to recruit, develop and retain diverse talent in our labor markets and (5) the impact of our organic growth and acquisitions or dispositions of businesses or operations.
The standards for tracking and reporting on ESG matters are relatively new, have not been harmonized and continue to evolve. Our selection of disclosure frameworks that seek to align with various reporting standards may change from time to time and may result in a lack of consistent or meaningful comparative data from period to period. In addition, regulatory authorities may impose mandatory disclosure requirements with respect to ESG matters, such as recent U.S. Securities and Exchange Commission rules requiring companies to make certain climate-related disclosures, including information about climate-related risks, greenhouse gas emissions and certain climate-related financial statement metrics, or California’s Climate-Related Financial Risk Act and the Climate Corporate Data Accountability Act. Our processes and controls may not reflect evolving standards for identifying, measuring and reporting ESG matters, immediately or at all, our interpretation of reporting standards may differ from those of others, and such standards may change over time, any of which could result in significant revisions to our goals or reported progress in achieving such goals. In addition, enhancements to our processes and controls to reflect evolving reporting standards may be costly and require additional resources.
If our ESG practices do not meet evolving investor or other stakeholder expectations and standards, then our reputation, our ability to attract or retain employees and our attractiveness as an investment, business partner or acquiror could be negatively impacted. Similarly, our failure or perceived failure to pursue or fulfill our goals, targets and objectives or to satisfy various reporting standards within the timelines we announce, or at all, could also have similar negative impacts and expose us to government enforcement actions and private litigation.
We depend on relationships with third parties for sales and marketing performance, technology, development, logistics and commercialization of products. Failure to maintain these relationships, poor performance by these companies or disputes with these third parties could negatively impact our business.
We rely on a number of collaborative relationships with third parties for our sales and marketing performance in certain territories. In some countries, we rely on international distributors for sales of certain of our products. Some of these relationships also involve the clinical development of these products by our partners. Reliance on collaborative relationships poses a number of risks, including the risk that:
•we are unable to control the resources our corporate partners devote to our programs or products;
•disputes may arise with respect to the ownership of rights to technology developed with our corporate partners;
•disagreements with our corporate partners could cause delays in, or termination of, the research, development or commercialization of product candidates or result in litigation or arbitration;
•contracts with our corporate partners may fail to provide significant protection or may fail to be effectively enforced if one of these partners fails to perform;
•our corporate partners have considerable discretion in electing whether to pursue the development of any additional products and may pursue alternative technologies or products either on their own or in collaboration with our competitors;
•our corporate partners with marketing rights may choose to pursue competing technologies or to devote fewer resources to the marketing of our products than they do to products of their own development; and
•our distributors and our corporate partners may be unable to pay us.
Given these risks, there is a great deal of uncertainty regarding the success of our current and future collaborative efforts. If these efforts fail, our product development or commercialization of new products could be delayed or revenues from products could decline.
Due to the specialized and technical nature of our business, the failure to attract, develop and retain highly qualified personnel could adversely impact us.
Our future success will depend in large part on our continued ability to attract, develop and retain highly qualified scientific, technical and management personnel, as well as personnel with expertise in clinical testing, governmental regulation and commercialization. Our ability to do so also depends in part on how well we maintain a strong workplace culture that is attractive to employees. In addition, competition for qualified personnel in the biopharmaceutical field is intense, and there is a limited pool of qualified potential employees to recruit. We face competition for personnel from other companies, universities, public and private research institutions, government entities and other organizations. Furthermore, changes to immigration and work authorization laws and regulations could make it more difficult for employees to work in or transfer to one of the jurisdictions in which we operate. Additionally, we periodically make adjustments to reflect our personnel needs in response to changing macroeconomic conditions, market opportunities, management changes, acquisitions, cost levels and other internal and external considerations, which may adversely impact our workplace culture and ability to retain and incentivize employees.
The failure to successfully implement or upgrade enterprise resource planning and other information systems could adversely impact our business and results of operations.
We periodically implement or upgrade new or enhanced enterprise resource planning (“ERP”) and other information systems in order to better manage our business operations, align our global organizations and enable future growth. Implementation or upgrade of new business processes and information systems requires the commitment of significant personnel, training and financial resources, and entails risks to our business operations. If we do not successfully implement ERP and other information systems improvements, or if there are delays or difficulties in implementing these systems, we may not carry adequate earthquake insurancerealize anticipated productivity improvements or cost efficiencies, and significant recovery timewe may experience operational difficulties and challenges in effectively managing our business, all of which could be required to resume operations,result in quality issues, reputational harm, lost market and revenue opportunities, and otherwise adversely affect our business, financial condition and results of operations.
For example, we are currently in the process of implementing new ERP and other information systems to help us manage our operations and financial reporting. Costs and risks inherent in this transition may include disruptions to business continuity, administrative and technical problems, interruptions or delays in sales, manufacturing or R&D processes, expenditure overruns, delays in paying our suppliers and employees, and data migration issues. If we do not properly address or mitigate these issues, this could result in increased costs and diversion of resources, negatively impacting our operating results and ability to effectively manage our business. Additionally, if we do not effectively implement the ERP system as planned, or the ERP system does not operate as intended, the effectiveness of our internal control over financial reporting could be materiallynegatively affected.
Information system service interruptions or breaches, including significant cybersecurity incidents, could give rise to legal liability and regulatory action under data protection and privacy laws and adversely affected in the event of a major earthquake. In addition,affect our Yescarta business is also reliant on our ability to manage the logistics of collecting and shipping patient material to our manufacturing facilities and shipping Yescarta back to the patient. Any logistical and shipment delays caused by such natural or man-made disasters could prevent or delay the delivery of our products to patients and could harm our Yescarta business.operations.
We are dependent on information technology systems, infrastructure and data.
We are dependent upon information technology systems, infrastructure and data, including our new Kite Konnect platform.platform, which is critical to maintain chain of identity and chain of custody of Yescarta and Tecartus. The multitude and complexity of our computer systems make them inherently vulnerable to service interruption or destruction, including those caused by failures during system upgrades or implementations, user error, network or hardware failure, malicious intrusion and randomransomware attack. Likewise, data privacy or securitycybersecurity incidents or breaches by employees or others may pose a risk thatcan result in the exposure of sensitive data, including our intellectual property or trade secrets or the personal information of our employees, patients, customers or other business partners may be exposed to unauthorized persons or to the public. CyberattacksIf our information systems or third-party information systems on which we rely suffer severe damage, disruption or shutdown, including during upgrades or new implementations, and our business continuity plans do not effectively resolve the issues in a timely manner, we could experience delays in reporting our financial results, and we may lose revenue and profits as a result of our inability to timely manufacture, distribute, invoice and collect payments. Cybersecurity attacks and incidents are increasing in their frequency, sophistication and intensity. Cyberattacks couldMalicious actors seek to steal money, gain unauthorized access to, destroy or manipulate data, and disrupt operations, and some of their attacks may not be recognized or discovered until after a significant period of time well after initial entry into the environment, such as novel or zero-day attacks that are launched before patches are available and defenses can be readied. Malicious actors are also increasingly developing methods to avoid prevention, detection and alerting capabilities, including employing counter-forensic tactics making response activities more difficult. Such attacks and incidents include, for example, the deployment of harmful malware, exploitation of vulnerabilities, computer viruses, key loggers, ransomware, denial-of-service, social engineering and other means to affect service reliability and operations and threaten data confidentiality, integrity and availability. Our business and technology partners face similar risks and any security breach of their systems could adversely affect our security posture. While
Like many companies, we have invested,experienced and expect to continue to invest,be the target of cybersecurity incidents, including data breaches and temporary service interruptions. When cybersecurity incidents occur, our policy is to respond and address them in the protection ofaccordance with applicable governmental regulations and other legal requirements, including our data and information technology infrastructure, therecybersecurity protocols. There can be no assurance that our efforts in response to cybersecurity incidents, as well as our investments to protect our information technology infrastructure and data, will shield us from significant losses, brand and reputational harm and potential liability or the effortsprevent any future interruption or breach of our partners and vendors, will prevent service interruptions, or identify breaches in our systems, that could adversely affect our business and operations and/or result insystems. Such cybersecurity incidents can cause the loss of critical or sensitive information, whichincluding personal information, and could result in financial,give rise to legal liability and regulatory action under data protection and privacy laws. Financial, legal, business, or reputational harmlosses may result from a cybersecurity incident or breach of our information technology systems.
Regulators globally are also imposing data privacy and security requirements, such as EU’s General Data Protection Regulation (“GDPR”) and other domestic data privacy and security laws, such as the California Consumer Privacy Act and the California Privacy Rights Act. These and other similar types of laws and regulations that have been or may be passed, often include requirements with respect to us. In addition,personal information, and non-compliance with such laws may result in liability through private actions (subject to statutorily defined damages in the event of certain data breaches) and enforcement. Other changes or new laws or regulations associated with the enhanced protection of personal information, could greatly increase our liability insurancecost of providing our products and services or even prevent us from offering certain services in jurisdictions in which we operate.
Strategic and Financial Risks
We are subject to risks associated with engaging in business acquisitions, licensing arrangements, collaborations, options, equity investments, asset divestitures and other strategic transactions.
We have engaged in, and may in the future engage in, such transactions as part of our business strategy. We may not identify suitable transactions in the future and, if we do, we may not complete such transactions in a timely manner, on a cost-effective basis, or at all, including the possibility that a governmental entity or regulatory body may delay or refuse to grant approval for the consummation of the transaction. If we are successful in making an acquisition or closing a licensing arrangement or collaboration, the products, intellectual property and technologies that are acquired or licensed may not be sufficientsuccessful or may require significantly greater resources and investments than anticipated. As part of our annual impairment testing of our goodwill and other indefinite-lived intangible assets in type or amountthe fourth quarter, and earlier if impairment indicators exist, as required under U.S. generally accepted accounting principles, we have in the past and may in the future need to cover us against claimsrecognize impairment charges related to security breaches, cyberattacksthe products, intellectual property and technologies that are acquired or licensed. For example, as a result of an impairment analysis we conducted following our receipt of data in March 2022 from the Phase 3 TROPiCS-02 study evaluating Trodelvy in patients with hormone receptor-positive, human epidermal growth receptor 2-negative metastatic breast cancer, we recognized a partial in-process research and development impairment charge on our Condensed Consolidated Statements of Income during 2022. Similarly, we recorded a partial impairment charge during the three months ended March 31, 2024 in connection with our Phase 3 EVOKE-01 study evaluating sacituzumab govitecan-hziy (for more information, see Note 7. Intangible Assets of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q). For option structured deals, there is no assurance that we will elect to exercise our option right, and it is possible that disagreements, uncertainties or other related breaches.circumstances may arise, including with respect to whether our option rights have been appropriately triggered, which may hinder our ability to realize the expected benefits. For example, in March 2023, we waived our exclusive option to acquire Pionyr Immunotherapeutics, and in September 2023, we waived our exclusive option to acquire Tizona Therapeutics, Inc. For equity investments in our strategic partners, such as in connection with our collaborations with Arcus Biosciences, Inc., Galapagos NV and Arcellx, Inc., the value of our equity investments may fluctuate and decline in value. If we are not successful in the execution or implementation of these transactions, our financial condition, cash flows and results of operations may be adversely affected, and our stock price could decline.
We have paid substantial amounts of cash and incurred additional debt to finance our strategic transactions. Additional indebtedness and a lower cash balance could result in a downgrade of our credit ratings, limit our ability to borrow additional funds or refinance existing debt on favorable terms, increase our vulnerability to adverse economic or industry conditions, and reduce our financial flexibility to continue with our capital investments, stock repurchases and dividend payments. For example, as a result of the cash used and the debt issued in connection with our acquisition of Immunomedics, Inc. in 2020, S&P Global Ratings downgraded our credit rating. We may be adversely impacted by any failure to overcome these additional risks.
Changes in our effective income tax rate could reduce our earnings.
We are subject to income taxes in the United StatesU.S. and various foreign jurisdictions including Ireland.jurisdictions. Due to economic and political conditions, various countries are actively considering and have made changes to existing tax laws. Welaws, and 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. Various factors may have favorable or unfavorable effects on our incomesuch changes. Our effective tax rate including, but not limited to, changes in forecasted demand for our HCV products, our portion of the non-tax deductible annual BPD fee, the accounting for stock options and other share-based awards, mergers and acquisitions, the ability to manufacture product in our Cork, Ireland facility, the amortization of certain acquisition related intangibles for which we receive no tax benefit, future levels of R&D spending,rates are affected by changes in the mix of earnings in the variouscountries with differing statutory tax jurisdictions in which we operate,rates, changes in overall levelsthe valuation of pre-tax earningsdeferred tax assets and resolutionliabilities, the introduction of federal, statenew taxes, and foreign incomechanges in tax audits. The impact onlaws, regulations, administrative practices and interpretations, including in the U.S., Germany and Ireland.
We are also subject to the examination of our income tax provision resulting from the above mentioned factors may be significant and could have a negative impact on our consolidated results of operations.
Our income tax returns are subject to auditand other tax matters by federal, state and foreign tax authorities. We are currently under examination by the U.S. Internal Revenue Service for theand tax years from 2010 - 2014 and byauthorities in various state and foreign jurisdictions. There are differing interpretations of tax laws and regulations and, as a result, significant disputes may arise with these tax authorities involving issues of the timing and amount of deductions and allocations of income among various tax jurisdictions. ResolutionWe may be adversely affected by the resolution of one or more of these exposures in any reporting period could have a material impact on the results of operations for that period.
If we fail to attract and retain highly qualified personnel, we may be unable to successfully develop new product candidates, conduct our clinical trials and commercialize our product candidates.Our future success will depend in large part on our continued ability to attract and retain highly qualified scientific, technical and management personnel, as well as personnel with expertise in clinical testing, governmental regulation and commercialization. We face competition for personnel from other companies, universities, public and private research institutions, government entities and other organizations. Competition for qualified personnel in the biopharmaceutical field is intense, and there is a limited pool of qualified potential employees to recruit. We may not be able to attract and retain quality personnel on acceptable terms. If we are unsuccessful in our recruitment and retention efforts, our business may be harmed.
There can be no assurance that we will pay dividends or continue to repurchase stock.
Our Board of Directors authorized a dividend program under which we intend to pay quarterly dividends of $0.52 per share, subject to quarterly declarations by our Board of Directors. Our Board of Directors also approved the repurchase of up to $12.0 billion of our common stock, of which $8.2 billion is available for repurchase as of September 30, 2017. Any future declarations, amount and timing of any dividends and/or the amount and timing of such stock repurchases are subject to capital availability and determinations by our Board of Directors that cash dividends and/or stock repurchases are in the best interest of our stockholders and are in compliance with all respective laws and our agreements applicable to the declaration and payment of cash dividends and the repurchase of stock. Our ability to pay dividends and/or repurchase stock will depend upon, among other factors, our cash balances and potential future capital requirements for strategic transactions, including acquisitions, debt service requirements, results of operations, financial condition and other factors beyond our control that our Board of Directors may deem relevant. A reduction in or elimination of our dividend payments, our dividend program and/or stock repurchases could have a negative effect on our stock price.
| |
Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
In the first quarter of 2016,2020, our Board of Directors authorized a $12.0$5.0 billion sharestock repurchase program (2016 Program)(“2020 Program”), with no fixed expiration. Purchases under which repurchasesthe 2020 Program may be made in the open market or in privately negotiated transactions.transactions, but the program does not obligate us to repurchase any specific number of shares and may be amended, suspended or discontinued at any time. We started repurchases under the 20162020 Program in April 2016.December 2022.
During the third quarter of 2017, we repurchased and retired 2 million shares of our common stock for $153 million through open market transactions. The table below summarizes our stock repurchase activity under the 2016 Program for the three months ended September 30, 2017:March 31, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Number of Shares Purchased (in thousands) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Programs (in thousands) | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs (in millions) |
January 1 - January 31, 2024 | | 2,072 | | | $ | 82.17 | | | 1,815 | | | $ | 3,724 | |
February 1 - February 29, 2024 | | 1,916 | | | $ | 74.00 | | | 1,860 | | | $ | 3,587 | |
March 1 - March 31, 2024 | | 2,752 | | | $ | 74.24 | | | 1,529 | | | $ | 3,474 | |
Total | | 6,740 | | | $ | 76.61 | | | 5,204 | | | |
(1) The difference between the total number of shares purchased and the total number of shares purchased as part of a publicly announced program is due to shares of common stock withheld by us from employee restricted stock awards in order to satisfy applicable tax withholding obligations.
|
| | | | | | | | | | | | | |
| Total Number of Shares Purchased (in thousands) | | Average Price Paid per Share (in dollars) | | Total Number of Shares Purchased as Part of Publicly Announced Program (in thousands) | | Maximum Fair Value of Shares that May Yet Be Purchased Under the Program (in millions) |
July 1 - July 31, 2017 | 716 |
| | $ | 72.10 |
| | 673 |
| | $ | 8,256 |
|
August 1 - August 31, 2017 | 992 |
| | $ | 73.94 |
| | 791 |
| | $ | 8,198 |
|
September 1 - September 30, 2017 | 567 |
| | $ | 83.48 |
| | 549 |
| | $ | 8,152 |
|
Total | 2,275 |
| (1) | $ | 75.74 |
| | 2,013 |
| (1) | |
_________________________________________ | | | | | | | |
| |
(1)
| The difference between the total number of shares purchased and the total number of shares purchased as part of publicly announced program is due to shares of common stock withheld by us from employee restricted stock awards in order to satisfy applicable tax withholding obligations. |
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Item 3. | DEFAULTS UPON SENIOR SECURITIES |
Item 3.DEFAULTS UPON SENIOR SECURITIES
Not applicable.
| |
Item 4. | MINE SAFETY DISCLOSURES |
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
| |
Item 5. | Item 5. OTHER INFORMATION |
Not applicable.
None of our directors or officers adopted, modified or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarter ended March 31, 2024, as such terms are defined under Item 408(a) of Regulation S-K. Item 6. EXHIBITS
Reference is made to the Exhibit Index included herein.
Exhibit Index
|
| | | | |
Exhibit Footnote | Exhibit Number | | Description of Document |
(1) | 1.1 | | |
| | | |
(2) | 2.1 | | |
| | | |
(3) | 3.1 | | |
| | | |
(4) | 3.2 | | |
| | | |
| 4.1 | | Reference is made to Exhibit 3.1 and Exhibit 3.2 |
| | | |
(5) | 4.2 | | |
| | | |
(5) | 4.3 | | |
| | | |
(6) | 4.4 | | |
| | | |
(7) | 4.5 | | |
| | | |
(8) | 4.6 | | |
| | | |
(9) | 4.7 | | |
| | | |
(10) | 4.8 | | |
| | | |
(11) | 4.9 | | |
| | | |
(12) | 10.1 | | Term Loan Facility Credit Agreement, dated as of September 8, 2017, among Registrant, Bank of America, N.A., as Administrative Agent, certain other lenders party thereto, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Bookrunners, and Wells Fargo Bank, National Association, as Syndication Agent |
| | | |
*(13) | 10.2 | | |
| | | |
*(14) | 10.3 | | |
| | | |
*(15) | 10.4 | | |
| | | |
*(16) | 10.5 | | |
| | | |
*(17) | 10.6 | | |
| | | |
*(18) | 10.7 | | |
| | | |
*(15) | 10.8 | | |
| | | |
*(15) | 10.9 | | |
| | | |
*(15) | 10.10 | | |
| | | |
*(16) | 10.11 | | |
| | | |
*(19) | 10.12 | | |
| | | |
*(19) | 10.13 | | |
| | | |
*(20) | 10.14 | | |
| | | |
*(21) | 10.15 | | |
| | | |
*(16) | 10.16 | | |
| | | |
*(19) | 10.17 | | |
| | | |
*(20) | 10.18 | | |
| | | |
| | | | | | | | | | | | | | |
Exhibit Footnote | Exhibit Number | | Description of Document |
(1) | 2.1 | | |
| | | |
(2) | 3.1 | | |
| | | |
(3) | 3.2 | | |
| | | |
| 4.1 | | Reference is made to Exhibit 3.1 and Exhibit 3.2 |
| | | |
(4) | 4.2 | | |
| | | |
(4) | 4.3 | | |
| | | |
(5) | 4.4 | | |
| | | |
(6) | 4.5 | | |
| | | |
(7) | 4.6 | | |
| | | |
(8) | 4.7 | | |
| | | |
(9) | 4.8 | | |
| | | |
10 | 4.9 | | |
| | | |
(11) | 4.10 | | |
| | | |
(12) | 4.11 | | |
| | | |
(13) | 10.1* | | |
| | | |
(14) | 10.2* | | |
| | | |
(15) | 10.3* | | |
| | | |
(16) | 10.4* | | |
| | | |
(17) | 10.5* | | |
| | | |
(18) | 10.6* | | |
| | | |
(19) | 10.7* | | |
| | | |
(20) | 10.8* | | |
| | | |
(21) | 10.9* | | |
| | | |
(22) | 10.10* | | |
| | | |
(23) | 10.11* | | |
| | | |
| 10.12*,** | | |
| | | |
(24) | 10.13* | | |
| | | |
(17) | 10.14* | | |
| | | |
(25) | 10.15* | | |
| | | |
(22) | 10.16* | | |
| | | |
(26) | 10.17* | | |
| | | |
(19) | 10.18* | | |
| | | |
(20) | 10.19* | | |
| | | |
(21) | 10.20* | | |
| | | |
(23) | 10.21* | | |
| | | |
| 10.22*,** | | |
| | | |
| | | | | | | | | | | | | | |
(19) | 10.23* | | |
| | | |
(20) | 10.24* | | | |
| *(19) | | |
(21) | 10.1910.25* | | |
| | | |
(23) | 10.26* | | |
| | | |
| 10.27*,** | | |
| | | |
(17) | 10.28* | | |
| | | |
(18) | 10.29* | | |
| | | |
(19) | 10.30* | | |
| | | |
(20) | 10.31* | | |
| | | |
(21) | 10.32* | | |
| | | |
(22) | 10.33* | | |
| | | |
(23) | 10.34* | | |
| | | |
| 10.35*,** | | |
| | | |
(26) | 10.36* | | |
| | | |
(25) | 10.37* | | |
| | | |
(27) | 10.38* | | |
| | | |
(17) | 10.39* | | |
| | | |
(25) | 10.40* | | |
| | | |
(28) | 10.41* | | |
| | | |
(29) | 10.42* | | |
| | | |
(17) | 10.43* | | |
| | | |
(17) | 10.44* | | |
| | | |
(17) | 10.45* | | |
| *(16) | | |
(19) | 10.2010.46* | | |
| | | |
*(17)(19) | 10.2110.47* | | |
| | | |
(19) | 10.48* | | |
| *(18) | | |
(19) | 10.2210.49* | | |
| | | |
(23) | 10.50* | | |
| *(22) | | |
(23) | 10.2310.51* | | |
| | | |
*(23) | 10.2410.52* | | |
| | | |
*(24) | 10.25 | | |
| | | |
*(24) | 10.26 | | |
| | | |
*(23) | 10.27 | | |
| | | |
*(24) | 10.28 | | |
| | | |
*(24) | 10.29 | | |
| | | |
*(25) | 10.30 | | |
| | | |
*(24) | 10.31 | | |
| | | |
*(25) | 10.32 | | |
| | | |
*(24) | 10.33 | | |
| | | |
*(26) | 10.34 | | |
| | | |
*(16)(23) | 10.3510.53* | | |
| | | |
*(27)(30) | 10.3610.54* | | |
| | | |
*(18) | 10.37 | | |
| | | |
*(28) | 10.38 | | |
| | | |
*(29) | 10.39 | | |
| | | |
*(29) | 10.40 | | |
| | | |
*(29) | 10.41 | | |
| | | |
*(30) | 10.42 | | |
| | | |
*(31) | 10.43 | | |
| | | |
*(32) | 10.44 | | |
| | | |
*(33) | 10.45 | | |
| | | |
*(34) | 10.46 | | |
| | | |
*(35) | 10.47 | | |
| | | |
*(36) | 10.48 | | |
| | | |
*(37) | 10.49 | | Form of Indemnity Agreement entered into between Registrant and its directors and executive officers |
| | | |
*(37)(30) | 10.5010.55* | | Form of Employee Proprietary Information and Invention Agreement entered into between Registrant and certain of its officers and key employees |
| | | |
*(38)(31) | 10.5110.56* | | |
| | | |
+(39) +(32) | 10.5210.57* | | Amendment Agreement, dated October 25, 1993, between Registrant, the Institute of Organic Chemistry and Biochemistry (IOCB) and Rega Stichting v.z.w. (REGA), together with the following exhibits: the License Agreement, dated December 15, 1991, between Registrant, IOCB and REGA (the 1991 License Agreement),; the License Agreement, dated October 15, 1992, between Registrant, IOCB and REGA (the October 1992 License Agreement); and the License Agreement, dated December 1, 1992, between Registrant, IOCB and REGA (the December 1992 License Agreement) |
| | | |
|
+(33) | 10.58* | | | |
+(40) | 10.53 | | |
| | | |
+(41) +(34) | 10.5410.59 | | |
| | | |
+(42) +(35) | 10.5510.60 | | |
| | | |
+(43) | 10.56 | | |
| | | |
+(44) | 10.57 | | |
| | | |
+(44) | 10.58 | | |
| | | |
+(45) | 10.59 | | |
| | | |
+(46) | 10.60 | | |
| | | |
+(46) | 10.61 | | |
| | | |
+(47) | 10.62 | | |
| | | |
+(46) | 10.63 | | |
| | | |
+(48) | 10.64 | | |
| | | |
+(49) | 10.65 | | |
| | | |
+(50) | 10.66 | | |
| | | |
+(51) | 10.67 | |
|
| | | |
| 31.1 | | |
| | | |
| 31.2 | | |
| | | |
| 32.1** | | |
| | | |
| 101*** | | The following materials from Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in Extensible Business Reporting Language (XBRL) includes: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements. |
49
| |
(1) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on September 20, 2017, and incorporated herein by reference. |
| |
(2) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on August 28, 2017, and incorporated herein by reference. |
| |
(3) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on May 8, 2014, and incorporated herein by reference. |
| |
(4) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on December 23, 2015, and incorporated herein by reference. |
| |
(5) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on April 1, 2011, and incorporated herein by reference. |
| |
(6) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on December 13, 2011, and incorporated herein by reference. |
| |
(7) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on March 7, 2014, and incorporated herein by reference. |
| |
(8) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on November 17, 2014, and incorporated herein by reference. |
| |
(9) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on September 14, 2015, and incorporated herein by reference. |
| |
(10) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on September 20, 2016, and incorporated herein by reference. |
| |
(11) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on September 21, 2017, and incorporated herein by reference. |
| |
(12) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on September 13, 2017, and incorporated herein by reference. |
| |
(13) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on May 12, 2017, and incorporated herein by reference. |
| |
(14) | Filed as an exhibit to Registrant’s Current Report on Form 8-K/A filed on February 22, 2006, and incorporated herein by reference. |
| |
(15) | Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and incorporated herein by reference. |
| |
(16) | Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, and incorporated herein by reference. |
| |
(17) | Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, and incorporated herein by reference. |
| |
(18) | Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, and incorporated herein by reference. |
| |
(19) | Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, and incorporated herein by reference |
| |
(20) | Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, and incorporated herein by reference. |
| |
(21) | Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, and incorporated herein by reference. |
| |
(22) | Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, and incorporated herein by reference. |
| |
(23) | Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, and incorporated herein by reference. |
| |
(24) | Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, and incorporated herein by reference. |
| |
(25) | Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, and incorporated herein by reference. |
| |
(26) | Filed as an exhibit to Registrant’s Current Report on Form 8-K first filed on December 19, 2007, and incorporated herein by reference. |
| |
(27) | Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, and incorporated herein by reference. |
| |
(28) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on May 8, 2015, and incorporated herein by reference. |
| |
(29) | Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001, and incorporated herein by reference. |
| |
(30) | Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and incorporated herein by reference. |
| |
(31) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on March 11, 2016, and incorporated herein by reference. |
| |
(32) | Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, and incorporated herein by reference. |
| |
(33) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on May 17, 2016, and incorporated herein by reference. |
| |
(34) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on February 3, 2016, and incorporated herein by reference. |
| |
(35) | Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, and incorporated herein by reference. |
| |
(36) | Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, and incorporated herein by reference. |
| |
(37) | Filed as an exhibit to Registrant’s Registration Statement on Form S-1 (No. 33-55680), as amended, and incorporated herein by reference. |
| |
(38) | Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, and incorporated herein by reference. |
| |
(39) | Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended March 31, 1994, and incorporated herein by reference. |
| |
(40) | Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000, and incorporated herein by reference. |
| |
(41) | Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, and incorporated herein by reference. |
| |
(42) | Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, and incorporated herein by reference. |
| |
(43) | Filed as an exhibit to Triangle Pharmaceuticals, Inc.’s Quarterly Report on Form 10-Q/A filed on November 3, 1999, and incorporated herein by reference. |
| |
(44) | Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, and incorporated herein by reference. |
| |
(45) | Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, and incorporated herein by reference. |
| |
(46) | Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, and incorporated herein by reference. |
| |
(47) | Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, and incorporated herein by reference. |
| |
(48) | Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, and incorporated herein by reference. |
| |
(49) | Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, and incorporated herein by reference. |
| |
(50) | Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, and incorporated herein by reference. |
| |
(51) | Filed as an exhibit to Kite Pharma, Inc.’s Registration Statement on Form S-1/A (No. 333-196081) filed on June 17, 2014, and incorporated herein by reference. |
| |
* | Management contract or compensatory plan or arrangement. |
| |
** | This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing. |
| |
*** | XBRL information is filed herewith. |
| |
+ | Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the Mark). This Exhibit has been filed separately with the Secretary of the Securities and Exchange Commission without the Mark pursuant to Registrant’s Application Requesting Confidential Treatment under Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
| | | | | | | | | | | | | | |
+(36) | 10.61 | | |
| | | |
+(37) | 10.62 | | |
| | | |
+(37) | 10.63 | | |
| | | |
++(38) | 10.64 | | |
| | | |
++(38) | 10.65 | | |
| | | |
+(39) | 10.66 | | |
| | | |
+(40) | 10.67 | | |
| | | |
++(18) | 10.68 | | |
| | | |
| 31.1** | | |
| | | |
| 31.2** | | |
| | | |
| 32*** | | |
| | | |
(41) | 97.1 | | |
| | | |
| 101.INS** | | XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| | | |
| 101.SCH** | | Inline XBRL Taxonomy Extension Schema Document |
| | | |
| 101.CAL** | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| | | |
| 101.DEF** | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| | | |
| 101.LAB** | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| | | |
| 101.PRE** | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| | | |
| 104 | | Cover Page Interactive Data File, formatted in Inline XBRL (included as Exhibit 101) |
(1) Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on February 12, 2024, and incorporated herein by reference.
(2) Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on May 9, 2019, and incorporated herein by reference.
(3) Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on February 6, 2023, and incorporated herein by reference.
(4) Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on April 1, 2011, and incorporated herein by reference.
(5) Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on December 13, 2011, and incorporated herein by reference.
(6) Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on March 7, 2014, and incorporated herein by reference.
(7) Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on November 17, 2014, and incorporated herein by reference.
(8) Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on September 14, 2015, and incorporated herein by reference.
(9) Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on September 20, 2016, and incorporated herein by reference.
(10) Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on September 30, 2020, and incorporated herein by reference.
(11) Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on September 14, 2023, and incorporated herein by reference.
(12) Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and incorporated herein by reference.
(13) Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on May 12, 2017, and incorporated herein by reference.
(14) Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and incorporated herein by reference.
(15) Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on May 5, 2022, and incorporated herein by reference.
(16) Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, and incorporated herein by reference.
(17) Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, and incorporated herein by reference.
(18) Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, and incorporated herein by reference.
(19) Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and incorporated herein by reference.
(20) Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, and incorporated herein by reference.
(21) Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, and incorporated herein by reference.
(22) Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, and incorporated herein by reference.
(23) Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, and incorporated herein by reference.
(24) Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, and incorporated herein by reference.
(25) Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, and incorporated herein by reference.
(26) Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, and incorporated herein by reference.
(27) Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on May 5, 2023, and incorporated herein by reference.
(28) Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, and incorporated herein by reference.
(29) Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on December 10, 2018, and incorporated herein by reference.
(30) Filed as an exhibit to Registrant’s Registration Statement on Form S-1 (No. 33-55680), as amended, and incorporated herein by reference.
(31) Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, and incorporated herein by reference.
(32) Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended March 31, 1994, and incorporated herein by reference.
(33) Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000, and incorporated herein by reference.
(34) Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, and incorporated herein by reference.
(35) Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, and incorporated herein by reference.
(36) Filed as an exhibit to Triangle Pharmaceuticals, Inc.’s Quarterly Report on Form 10-Q/A filed on November 3, 1999, and incorporated herein by reference.
(37) Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, and incorporated herein by reference.
(38) Filed as an exhibit to Registrant’s Amendment No. 1 to Annual Report on Form 10-K/A filed on April 18, 2019, and incorporated herein by reference.
(39) Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, and incorporated herein by reference.
(40) Filed as an exhibit to Kite Pharma, Inc.’s Registration Statement on Form S-1/A (No. 333-196081) filed on June 17, 2014, and incorporated herein by reference.
(41) Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and incorporated herein by reference.
* Management contract or compensatory plan or arrangement.
** Filed herewith.
*** Furnished herewith.
+ Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the Mark). This Exhibit has been filed separately with the Secretary of the Securities and Exchange Commission without the Mark pursuant to Registrant’s Application Requesting Confidential Treatment under Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
++ Certain portions of this Exhibit were omitted by means of marking such portions with the Mark because the identified portions are (i) private or confidential and (ii) not material.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| | |
| | GILEAD SCIENCES, INC. |
| | (Registrant) |
| | |
Date: | May 8, 2024 | /s/ DANIEL P. O’DAY |
| Date: | November 6, 2017/s/ JOHN F. MILLIGAN
|
| | John F. Milligan, Ph.D.Daniel P. O’Day
PresidentChairman and Chief Executive Officer
(Principal Executive Officer) |
| | |
Date: | May 8, 2024 | /s/ ANDREW D. DICKINSON |
| Date: | November 6, 2017/s/ ROBIN L. WASHINGTON
|
| | Robin L. Washington
Executive Vice President and Andrew D. Dickinson Chief Financial Officer
(Principal Financial and Accounting Officer)
|