GILEAD SCIENCES INC

Previous wording

The following discussion and analysis is intended to provide material information around events and uncertainties known to management that are relevant to an assessment of the financial condition and results of operations of Gilead and should therefore be read in conjunction with our audited Consolidated Financial Statements and the related notes thereto and other disclosures included as part of our Annual Report on Form 10-K for the year ended December 31, 2023 and our unaudited Condensed Consolidated Financial Statements for the three and six months ended June 30, 2024 and the related notes thereto and other disclosures (including the disclosures under Part II, Item 1A. Risk Factors) included in this Quarterly Report on Form 10-Q.

Current wording

The following discussion and analysis is intended to provide material information around events and uncertainties known to management that are relevant to an assessment of the financial condition and results of operations of Gilead and should therefore be read in conjunction with our audited Consolidated Financial Statements and the related notes thereto and other disclosures included as part of our Annual Report on Form 10-K for the year ended December 31, 2023 and our unaudited Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2024 and the related notes thereto and other disclosures (including the disclosures under Part II, Item 1A. Risk Factors) included in this Quarterly Report on Form 10-Q.

Previous wording

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

Current wording

•Received approval from 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.

Previous wording

•Entered into an amended license agreement featuring the buy-out of global seladelpar royalties from Janssen Pharmaceutica NV for $320 million. This transaction will be reflected in Gilead’s third quarter results.

Current wording

•Entered into an amended license agreement featuring the buy-out of global seladelpar royalties from Janssen Pharmaceutica NV (“Janssen”) for $320 million.

Previous wording

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

Current wording

•Completed the acquisition of CymaBay Therapeutics, Inc. (“CymaBay”), for $4.3 billion in total equity value, or $3.9 billion net cash paid, adding investigational candidate seladelpar for the treatment of primary biliary cholangitis to Gilead’s Liver Disease portfolio.

Previous wording

Total revenues increased 5% to $7.0 billion and $13.6 billion for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023, primarily due to higher product sales in HIV, Oncology and Liver Disease.

Current wording

Total revenues increased 6% to $21.2 billion for the nine months ended September 30, 2024, compared to the same period in 2023, primarily due to higher product sales in HIV, Oncology and Liver Disease.

Previous wording

Net income attributable to Gilead was $1.6 billion and diluted earnings per share attributable to Gilead was $1.29 for the three months ended June 30, 2024, compared to net income attributable to Gilead of $1.0 billion and diluted earnings per share attributable to Gilead of $0.83 for the same period in 2023. The increase was primarily driven by lower operating expenses, including a 2023 expense of $525 million for settlements with certain plaintiffs in HIV antitrust litigation which did not repeat in 2024, as well as higher revenues and lower income tax expense, partially offset by higher net unrealized losses on equity securities.

Current wording

Net income attributable to Gilead was $1.3 billion and diluted earnings per share attributable to Gilead was $1.00 for the three months ended September 30, 2024, compared to net income attributable to Gilead of $2.2 billion and diluted earnings per share attributable to Gilead of $1.73 for the same period in 2023. The decrease was primarily due to:

Previous wording

Net loss attributable to Gilead was $2.6 billion and diluted loss per share attributable to Gilead was $2.05 for the six months ended June 30, 2024, compared to net income attributable to Gilead of $2.1 billion and diluted earnings per share attributable to Gilead of $1.63 for the same period in 2023. The decrease was primarily driven by an acquired in-process research and development (“IPR&D”) charge of $3.9 billion related to the acquisition of CymaBay as well as a pre-tax IPR&D partial impairment charge of $2.4 billion related to assets acquired by Gilead from Immunomedics, Inc. (“Immunomedics”) in 2020 and higher net unrealized losses on equity securities. The decrease was partially offset by higher revenues, lower operating expenses, including the aforementioned $525 million legal settlement, and lower income tax expense.

Current wording

•A pre-tax in-process research and development (“IPR&D”) partial impairment charge of $1.8 billion related to assets acquired by Gilead from Immunomedics, Inc. (“Immunomedics”) in 2020 (see further information in “Results of Operations; In-Process Research and Development Impairment” below); and

Previous wording

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

Current wording

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

Previous wording

HIV product sales increased 3% to $4.7 billion and $9.1 billion for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023, primarily driven by higher demand across treatment and prevention, partially offset by lower average realized price. In particular, Biktarvy sales increased primarily reflecting higher demand, including patients switching from Genvoya and other Gilead HIV products, partially offset by lower average realized price. Descovy sales decreased primarily driven by lower average realized price, partially offset by higher demand.

Current wording

•Biktarvy sales increased primarily due to higher demand, including patients switching from Genvoya and other Gilead HIV products, and higher average realized price, partially offset by lower inventory build in the distribution channel.

Previous wording

Liver Disease product sales increased 17% and 13% to $832 million and $1.6 billion for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023, primarily driven by higher average realized price due to channel mix in the United States as well as higher demand in products for chronic hepatitis C virus (“HCV”), HBV and, in Europe, chronic hepatitis D virus (“HDV”).

Current wording

Liver Disease product sales increased 4% to $733 million for the three months ended September 30, 2024, compared to the same period in 2023, primarily due to higher demand in products for chronic hepatitis C virus (“HCV”), HBV and, in Europe, chronic hepatitis D virus (“HDV”), partially offset by lower average realized price.

Previous wording

Veklury product sales decreased 16% and 7% to $214 million and $769 million for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023, primarily driven by lower rates of COVID-19 related hospitalizations.

Current wording

Veklury product sales increased 9% to $692 million for the three months ended September 30, 2024, compared to the same period in 2023, primarily driven by increased rates of COVID-19-related hospitalizations, particularly in the U.S.

Previous wording

Cell Therapy product sales increased 11% and 9% to $521 million and $1.0 billion for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023, primarily due to increased Yescarta demand for the treatment of relapsed or refractory (“R/R”) large B-cell lymphoma outside the United States and increased Tecartus demand for the treatment of R/R adult acute lymphoblastic leukemia and R/R mantle cell lymphoma, mostly in Europe.

Current wording

•Increased Tecartus sales primarily due to higher demand for the treatment of R/R adult acute lymphoblastic leukemia (“ALL”).

Previous wording

Other product sales increased 15% and 14% to $280 million and $504 million for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023, primarily due to increased sales of Letairis related to a temporary shortage of generics in the market. The increase for the six months ended June 30, 2024 also included higher demand for AmBisome.

Current wording

Other product sales increased 7% to $705 million for the nine months ended September 30, 2024, compared to the same period in 2023, primarily due to higher average realized price and higher demand for AmBisome as well as higher average realized price and higher demand for Letairis related to a temporary shortage of generics in the market.

Previous wording

Approximately 26% and 25% of our product sales were denominated in foreign currencies during the three months ended June 30, 2024 and 2023, respectively. Foreign currency exchange, net of hedges, had an unfavorable impact on our total product sales of $69 million for the three months ended June 30, 2024, based on a comparison using foreign currency exchange rates from the three months ended June 30, 2023.

Current wording

Approximately 26% and 27% of our product sales were denominated in foreign currencies during the three months ended September 30, 2024 and 2023, respectively. Foreign currency exchange, net of hedges, had an unfavorable impact on our total product sales of $56 million for the three months ended September 30, 2024, based on a comparison using foreign currency exchange rates from the three months ended September 30, 2023.

Previous wording

Approximately 28% and 26% of our product sales were denominated in foreign currencies during the six months ended June 30, 2024 and 2023, respectively. Foreign currency exchange, net of hedges, had an unfavorable impact on our total product sales of $116 million for the six months ended June 30, 2024, based on a comparison using foreign currency exchange rates from the six months ended June 30, 2023.

Current wording

Approximately 27% of our product sales were denominated in foreign currencies during the nine months ended September 30, 2024 and 2023. Foreign currency exchange, net of hedges, had an unfavorable impact on our total product sales of $172 million for the nine months ended September 30, 2024, based on a comparison using foreign currency exchange rates from the nine months ended September 30, 2023.

Previous wording

Research and development expenses were $1.4 billion and $2.9 billion for the three and six months ended June 30, 2024, respectively, and remained relatively flat compared to the same periods in 2023. Personnel, infrastructure and other support costs increased for the three months ended June 30, 2024 primarily due to higher compensation expenses and restructuring expenses. Personnel, infrastructure and other support costs increased for the six months ended June 30, 2024 primarily due to stock-based compensation expenses of $67 million and other integration costs related to the acquisition of CymaBay, higher compensation expenses and restructuring expenses. Clinical studies and other costs decreased during both periods in 2024, compared to the same periods in 2023, primarily due to timing of clinical activities, including the wind-down of studies for magrolimab and obeldesivir for treatment of COVID-19 and higher R&D reimbursements.

Current wording

•Clinical studies and other costs decreases mainly related to timing of clinical activities, including the wind-down of studies for magrolimab and obeldesivir for treatment of COVID-19; partially offset by

Previous wording

Acquired in-process research and development expenses were $38 million and $4.2 billion for the three and six months ended June 30, 2024, respectively, with the expenses in the six month period primarily comprised of $3.9 billion related to the CymaBay acquisition in March 2024 and $100 million related to the Arcus Biosciences, Inc. collaboration amendment in January 2024. Acquired in-process research and development expenses were $236 million and $717 million for the three and six months ended June 30, 2023, respectively, primarily comprised of $170 million related to the XinThera, Inc. acquisition in May 2023, $244 million related to the Tmunity Therapeutics, Inc. acquisition in February 2023 and $212 million related to the Arcellx, Inc. collaboration entered into in January 2023. See Note 6. Acquisitions, Collaborations and Other Arrangements of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

Current wording

•$3.9 billion associated with the CymaBay acquisition in March 2024; and

Previous wording

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

Current wording

In January 2024, we received data from our Phase 3 EVOKE-01 study of Trodelvy evaluating sacituzumab govitecan-hziy (“SG”) indicating that the study did not meet its primary endpoint of overall survival in previously treated metastatic NSCLC, thus triggering a review for potential impairment of the NSCLC IPR&D impairment asset. Based on our evaluation of the study results and all other data currently available, and in connection with the preparation of the financial statements for the first quarter, we performed an interim impairment test and determined that the revised estimated fair value of the NSCLC IPR&D intangible asset was below its carrying value. As a result, we recognized a partial impairment charge of $2.4 billion in In-process research and development impairment on our Condensed Consolidated Statements of Operations for the three months ended March 31, 2024.

Previous wording

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

Current wording

To arrive at the revised estimated fair value, we used a probability-weighted income approach that discounts expected future cash flows to present value, which requires the use of Level 3 fair value measurements and inputs, and requires the use of critical estimated inputs, including: revenues and operating profits related to the planned utilization of SG in NSCLC, which, include inputs such as addressable patient population, projected market share, treatment duration, and the life of the potential commercialized product; the probability of technical and regulatory success; the time and resources needed to complete the development and approval of SG in NSCLC; an appropriate discount rate based on the estimated weighted-average cost of capital for companies with profiles similar to our profile; and risks related to the viability of and potential alternative treatments in any future target markets. Our revised discounted cash flows for the March 31, 2024 fair value estimation 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. Our revised discounted cash flows for the September 30, 2024 fair value estimation primarily reflect the removal of cash flows associated with second-line plus patients, and the remaining carrying value as of that date reflects Trodelvy’s opportunity as a combination therapy in first-line metastatic NSCLC patients supported by its ongoing Phase 3 clinical trial in this patient population. The revised estimated fair value of the NSCLC IPR&D intangible asset was $3.5 billion as of March 31, 2024 and $1.8 billion as of September 30, 2024.

Previous wording

No IPR&D impairment charges were recorded during the three months ended June 30, 2024 and three and six months ended June 30, 2023.

Current wording

No IPR&D impairment charges were recorded during the three and nine months ended September 30, 2023.

Previous wording

Selling, general and administrative expenses decreased 26% and 13% to $1.4 billion and $2.8 billion for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023, primarily due to a 2023 expense of $525 million for settlements with certain plaintiffs in HIV antitrust litigation which did not repeat in 2024 as well as a decrease in our allocation of the branded prescription drug fee, partially offset by stock-based compensation and other integration expenses related to the acquisition of CymaBay.

Current wording

•A decrease in our allocation of the branded prescription drug fee; partially offset by

Previous wording

Interest expense increased 3% and 7% to $237 million and $491 million for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023, due to a higher average interest rate on long-term debt, partially offset by lower debt balances. See Note 9. Debt and Credit Facilities of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on our long-term debt and related interest rates.

Current wording

See Note 9. Debt and Credit Facilities of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on our long-term debt and related interest rates.

Previous wording

Unfavorable movements in Other (income) expense, net for the three and six months ended June 30, 2024, compared to the same periods in 2023, primarily related to higher net losses from equity securities and lower interest income due to lower average cash balances.

Current wording

Favorable movements in Other (income) expense, net for the three months ended September 30, 2024, compared to the same period in 2023, primarily related to higher net gains from equity securities, partially offset by lower interest income due to lower average cash balances.

Previous wording

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

Current wording

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

Previous wording

Our effective tax rate decreased for the six months ended June 30, 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.

Current wording

Our effective tax rate decreased for the three months ended September 30, 2024, compared to the same period in 2023, primarily due to:

Previous wording

Our effective tax rate decreased for the three months ended June 30, 2024, compared to the same period in 2023, primarily due to the remeasurement of certain deferred tax liabilities related to acquired intangible assets recorded in the three months ended June 30, 2023 and a settlement with a tax authority in the three months ended June 30, 2024.

Current wording

Our effective tax rate decreased for the nine months ended September 30, 2024, compared to the same period in 2023, primarily due to:

Previous wording

Cash, cash equivalents and marketable debt securities were $2.8 billion and $8.4 billion as of June 30, 2024 and December 31, 2023, respectively. During the three months ended March 31, 2024, we sold all of our marketable debt securities and used the proceeds to partially fund our acquisition of CymaBay.

Current wording

Cash, cash equivalents and marketable debt securities were $5.0 billion and $8.4 billion as of September 30, 2024 and December 31, 2023, respectively. During the three months ended March 31, 2024, we sold all of our marketable debt securities and used the proceeds to partially fund our acquisition of CymaBay.

Previous wording

Cash and cash equivalents decreased by $3.3 billion from December 31, 2023 to June 30, 2024 due to the following cash flow activities:

Current wording

Cash and cash equivalents decreased by $1.0 billion from December 31, 2023 to September 30, 2024 due to the following cash flow activities:

Previous wording

Net cash provided by operating activities for the six months ended June 30, 2024 consisted of our net loss of $2.6 billion adjusted for non-cash and non-operating expenses of $8.1 billion primarily related to our acquisition of CymaBay, impairment charges and amortization expenses, partially offset by a $1.2 billion transition tax payment associated with the Tax Cuts and Jobs Acts of 2017.

Current wording

Net cash provided by operating activities for the nine months ended September 30, 2024 amounted to $7.9 billion, net of a $1.2 billion transition tax payment associated with the Tax Cuts and Jobs Acts of 2017. Refer to the Condensed Consolidated Statements of Cash Flows for additional information.

Previous wording

Net cash used in investing activities primarily relates to the $3.9 billion net cash payment for the CymaBay acquisition and purchases of equity securities, partially offset by proceeds from the liquidation of marketable debt securities.

Current wording

Net cash used in investing activities for the nine months ended September 30, 2024 primarily related to:

Previous wording

Net cash used in financing activities primarily relates to $2.0 billion for dividend payments, $1.85 billion for repayment of debt and other obligations, and $500 million for common stock repurchases.

Current wording

Net cash used in financing activities for the nine months ended September 30, 2024 primarily related to:

Previous wording

We believe our existing capital resources, including cash and cash equivalents and our revolving credit facility, supplemented by cash flows generated from our operations, will be adequate to satisfy our capital needs for the foreseeable future. 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 the Liquidity section above and in Notes 4. Available-For-Sale Debt Securities and Equity Securities, 6. Acquisitions, Collaborations and Other Arrangements, 9. Debt and Credit Facilities, 10. Commitments and Contingencies and 12. Income Taxes of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, there were no material changes to our capital resources and material cash requirements during the six months ended June 30, 2024.

Current wording

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 the Liquidity section above and in Notes 4. Available-For-Sale Debt Securities and Equity Securities, 6. Acquisitions, Collaborations and Other Arrangements, 9. Debt and Credit Facilities, 10. Commitments and Contingencies and 12. Income Taxes of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, there were no material changes to our capital resources and material cash requirements during the nine months ended September 30, 2024.

Previous wording

Subsequently, in August 2024, we announced that our Board of Directors declared a quarterly dividend of $0.77 per share of common stock for the third quarter of 2024. The dividend is payable on September 27, 2024, to stockholders of record at the close of business on September 13, 2024. Future dividends will be subject to Board approval.

Current wording

Subsequently, in November 2024, we announced that our Board of Directors declared a quarterly dividend of $0.77 per share of common stock for the fourth quarter of 2024. The dividend is payable on December 30, 2024, to stockholders of record at the close of business on December 13, 2024. Future dividends will be subject to Board approval.

Previous wording

A summary of our critical accounting estimates is presented in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023. Other than as disclosed in Notes 2. Revenues, 7. Intangible Assets, 10. Commitments and Contingencies and 12. Income Taxes of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, there were no material changes to our critical accounting estimates during the six months ended June 30, 2024.

Current wording

A summary of our critical accounting estimates is presented in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023. Other than as disclosed in Notes 2. Revenues, 7. Intangible Assets, 10. Commitments and Contingencies and 12. Income Taxes of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, there were no material changes to our critical accounting estimates during the nine months ended September 30, 2024.