ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, our audited Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements and other disclosures included in this Annual Report on Form 10-K (including the disclosures under Part I, Item 1A. Risk Factors). Additional information related to the comparison of our results of operations between the years 2020 and 2019 is included in Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2020 Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”). Our Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles and are presented in U.S. dollars.

MANAGEMENT OVERVIEW

Gilead Sciences, Inc. (“Gilead,” “we,” “our” or “us”) is a biopharmaceutical company that has pursued and achieved breakthroughs in medicine for more than three decades, with the goal of creating a healthier world for all people. We are committed to advancing innovative medicines to prevent and treat life-threatening diseases, including HIV, viral hepatitis and cancer. We operate in more than 35 countries worldwide, with headquarters in Foster City, California.

Our portfolio of marketed products includes AmBisome®, Atripla®, Biktarvy®, Cayston®, Complera®, Descovy®, Descovy for PrEP®, Emtriva®, Epclusa®, Eviplera®, Genvoya®, Harvoni®, Hepcludex® (bulevirtide), Hepsera®, Jyseleca® (filgotinib), Letairis®, Odefsey®, Ranexa®, Sovaldi®, Stribild®, Tecartus®, Trodelvy®, Truvada®, Truvada for PrEP®, Tybost®, Veklury®, Vemlidy®, Viread®, Vosevi®, Yescarta® and Zydelig®. The approval status of Hepcludex and Jyseleca vary worldwide, and Hepcludex and Jyseleca are not approved in the United States. We also sell and distribute authorized generic versions of Epclusa and Harvoni in the United States through our separate subsidiary, Asegua Therapeutics, LLC. In addition, we sell and distribute certain products through our corporate partners under collaborative agreements.

Business Highlights(1)

We delivered strong financial performance in 2021. Veklury continued to play a critical role in addressing the coronavirus disease 2019 (“COVID-19”) pandemic. Veklury’s performance helped mitigate the impacts of COVID-19 on other parts of the business, including on our HIV and chronichepatitis C virus (“HCV”) franchises, and the impacts of the October 2020 loss of exclusivity of Truvada and Atripla in the United States. Despite these transitory headwinds, underlying demand for our virology portfolio remained strong, led by the continued growth of our Biktarvy franchise. We also received increased contributions from our oncology franchise, experiencing growth in Trodelvy, as well as our Cell Therapy franchise.

We continued to expand and strengthen both our commercial portfolio and clinical pipeline across therapeutic focus areas to drive future growth potential. During 2021, we announced an additional six filings for regulatory approval. In addition to investing in our internal pipeline programs, we also continued to enter into and leverage our existing strategic collaborations and partnerships, including opting into four additional pipeline assets from our collaboration with Arcus Biosciences, Inc. (“Arcus”) to further develop the foundation for a more sustainable and diversified business.

Viral Diseases

•In October 2021, U.S. Food and Drug Administration (“FDA”) approved a new low-dose tablet dosage form of Biktarvy for pediatric patients weighing at least 14 kg to less than 25 kg who are virologically suppressed or new to antiretroviral therapy.

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

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

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

•In March 2021, we entered into an agreement with Merck Sharp & Dohme Corp. (“Merck”), a subsidiary of Merck & Co., Inc., to jointly develop and commercialize long-acting investigational treatments in HIV that combine Gilead’s investigational capsid inhibitor, lenacapavir, and Merck’s investigational nucleoside reverse transcriptase translocation inhibitor, islatravir.

•In March 2021, we completed the acquisition of MYR GmbH (“MYR”). The acquisition provides us with Hepcludex, which is conditionally approved by EMA for the treatment of chronic hepatitis delta virus (“HDV”) in adults with compensated liver disease.

COVID-19

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

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

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

Oncology

Cell Therapy

•In January 2022, FDA approved an update to the prescribing information for Yescarta to include the use of prophylactic corticosteroids across all approved indications. Yescarta is now the first and only chimeric antigen receptor (“CAR”) T-cell therapy with information in the label to help physicians manage, and potentially prevent, treatment side effects.

•In October 2021, FDA approved Tecartus for the treatment of adult patients with relapsed or refractory B-cell precursor acute lymphoblastic leukemia (“ALL”). Tecartus is the first and only CAR T cell therapy approved for adults with ALL.

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

•In August 2021, Kite and Appia Bio, Inc. entered into a collaboration and license agreement to research and develop hematopoietic stem cell derived cell therapies directed toward hematological malignancies.

•In June 2021, Kite entered into a research collaboration and license agreement with Shoreline Biosciences, Inc. to develop novel allogeneic cell therapies across a variety of cancer targets.

•In June 2021, Fosun Kite Biotechnology Co. Ltd, a joint venture between Kite and Shanghai Fosun Pharmaceutical (Group) Co., Ltd, received approval from the China National Medical Products Administration for axicabtagene ciloleucel for the treatment of adult patients with relapsed or refractory LBCL in China.

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

Other

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

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

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

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

•In September 2021, Health Canada approved Trodelvy for the treatment of adult patients with unresectable locally advanced or metastatic TNBC who have received two or more therapies, at least one of them for metastatic disease. Canada joined Australia, Great Britain, Switzerland and the United States among the countries that have approved Trodelvy for use under Project Orbis, a global collaborative review program for high impact oncology marketing applications across participating countries.

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

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

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(1) We announced and discussed these updates in further detail in press releases available on our website at www.gilead.com. Readers are also encouraged to review all other press releases available on our website mentioned above. The content on the referenced websites does not constitute a part of and is not incorporated by reference into this Annual Report on Form 10-K.

2021 Financial Highlights

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

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

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NM - Not Meaningful

Total revenues increased by 11% to $27.3 billion in 2021, compared to $24.7 billion in 2020, primarily due to increased sales of Veklury, our FDA-approved treatment for hospitalized patients with COVID-19. The increase also reflects the continued growth of Biktarvy in all geographies and the continued uptake of Trodelvy, Cell Therapy and chronic hepatitis B virus (“HBV”) and HDV products. The increases were partially offset by the decrease in Truvada and Atripla sales in the United States, as expected, primarily due to the continued generic competition following the October 2020 loss of exclusivity in the United States.

Net income attributable to Gilead was $6.2 billion or $4.93 diluted earnings per share in 2021, compared to $123 million or $0.10 diluted earnings per share in 2020. The increase was primarily due to lower acquired in-process research and development (“IPR&D”) charges, revenue growth and lower unrealized losses from our equity investments, partially offset by a $1.25 billion charge for a settlement related to bictegravir litigation, and a charge of $625 million related to the Arcus collaboration opt-in. Our acquired IPR&D expenses in 2020 were $5.9 billion primarily related to our acquisition of Forty Seven as well as collaborations and other investments that we entered into during the year with Arcus, Pionyr Immunotherapeutics, Inc. (“Pionyr”), Tango Therapeutics, Inc. (“Tango”), Tizona Therapeutics, Inc. (“Tizona”) and Jounce Therapeutics, Inc. (“Jounce”).

Strategy and Outlook 2022

Our purpose is to deliver life-changing medications to patients in need through scientific breakthroughs, innovation and strong operational execution. Our strategic ambitions are to (i) bring 10+ transformative therapies to patients by 2030; (ii) be the biotech employer and partner of choice; and (iii) deliver shareholder value in a sustainable and responsible manner. Our strategic priorities reflect how we will deliver those ambitions: (i) expand internal and external innovation; (ii) strengthen portfolio strategy and decision making; (iii) increase patient benefit and access; and (iv) continue to evolve our culture.

In 2022, we will continue to focus on executing our strategy to expand and diversify our commercial portfolio and clinical pipelines across our three therapeutic focus areas: virology, oncology and inflammation. Specifically, we plan to significantly increase clinical development studies across our novel oncology portfolio while maintaining our leadership in antiviral medications through our work in HIV, hepatitis, the COVID-19 pandemic and emerging viruses. Our collaboration with Arcus provides additional opportunities for us to further develop the foundation for a more sustainable and diversified business. Beyond expanding our products and pipeline, we also continue to focus on our employees, the evolution of our culture and our efforts to promote racial equity and social justice. Additionally, we expect to maintain a rigorous focus on disciplined expense management.

While, the COVID-19 pandemic continues to impact our business and broader market dynamics, we expect revenue growth of between 2 – 4% in 2022 product sales, excluding Veklury, as compared to 2021. Our HIV product sales will continue to recover from the COVID-19 pandemic and demonstrate year-over-year growth, as the financial impact of the Truvada and Atripla loss of exclusivity will be largely behind us starting in the second quarter of 2022. We also expect our oncology businesses, including Cell Therapy and Trodelvy, to contribute to our growth.

Veklury sales are generated in a highly dynamic and complex global environment, which continues to evolve. As a result, Veklury sales are subject to significant volatility and uncertainty. Future product demand will depend on the nature of the COVID-19 pandemic, including duration, infection rates, hospitalizations, and availability and adoption of alternative therapies and vaccines. While we anticipate a year-over-year decline in Veklury product sales, we expect Veklury to continue to play a key role in the pandemic and contribute meaningfully to our revenue in 2022, more heavily weighted towards the beginning of the year.

Our ability to deliver on our strategy is subject to a number of uncertainties, including, but not limited to, the effects of the COVID-19 pandemic, which remains unpredictable; the uncertainty regarding the amount and timing of future Veklury sales; the continuation of an uncertain global macroeconomic environment; our ability to realize the potential benefits of our acquisitions, collaborations or licensing arrangements; our ability to initiate, progress or complete clinical trials within currently anticipated timeframes, including as a result of any current or future holds on clinical trials; the possibility of unfavorable results from new and ongoing clinical trials; our ability to submit new drug applications for new product candidates or expanded indications in the currently anticipated timelines; our ability to receive regulatory approvals in a timely manner or at all; market share and price erosion caused by the introduction of generics; loss of exclusivity of our products; higher than anticipated effects of the loss of exclusivity from Truvada and Atripla; slower than anticipated growth in Biktarvy, Trodelvy, Vemlidy and Cell Therapy products; inaccuracies in our patient start estimates; additional pricing pressures from payers and competitors; an increase in discounts, chargebacks and rebates due to ongoing contracts and future negotiations with commercial and government payers; potential government actions that could have the effect of lowering prices; a larger-than anticipated shift in payer mix to a more highly discounted payer segment; and volatility in foreign currency exchange rates.

RESULTS OF OPERATIONS

Revenues

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

Product sales:

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NM - Not Meaningful

Product Sales

HIV

HIV product sales decreased by 4% to $16.3 billion in 2021, compared to $16.9 billion in 2020, due to the anticipated decline in sales volume of our Truvada (emtricitabine (“FTC”) and tenofovir disoproxil fumarate (“TDF”))-based products driven by the continued generic competition following the October 2020 loss of exclusivity of Truvada and Atripla in the United States. Truvada and Atripla product sales were $1.3 billion lower in 2021, compared to 2020. The decrease was also impacted by lower sales of Genvoya driven by decrease in volume worldwide primarily due to patients switching to Biktarvy. These declines were partially offset by an increase in Biktarvy product sales worldwide driven by higher demand, higher net average selling price driven by favorable changes in estimates of government rebates and discounts in the United States. We expect that our HIV business will continue to recover from the COVID-19 pandemic in 2022. We also expect the impact of the Truvada and Atripla loss of exclusivity will be largely behind us starting in the second quarter of 2022.

Veklury

Veklury product sales were $5.6 billion in 2021, compared to $2.8 billion in 2020. Veklury became commercially available in the third quarter of 2020, resulting in a partial year of sales in 2020. The increase was also attributable to higher hospital demand worldwide. Sales of Veklury are generally affected by COVID-19 related rates of infections, hospitalizations and vaccinations as well as the availability, uptake and effectiveness of alternative treatments for COVID-19. As a result, future sales of Veklury are difficult to predict.

HCV

HCV product sales decreased by 9% to $1.9 billion in 2021, compared to $2.1 billion in 2020, primarily due to lower demand driven by fewer patient starts worldwide due to the impact of the COVID-19 pandemic. The slight increase in HCV sales in Europe in 2021 was due to a favorable change in estimate of government rebates, which offset the revenue decrease associated with lower demand.

HBV / HDV

HBV and HDV product sales increased by 13% to $969 million in 2021, compared to $860 million in 2020, primarily due to higher Vemlidy product sales due to higher demand in all geographies, partially offset by lower Viread product sales in Other international locations. Hepcludex sales in 2021 were $37 million as launch activities continued across Europe following our first quarter 2021 acquisition of MYR.

Cell Therapy

Cell Therapy product sales, which include Yescarta and Tecartus, increased by 43% to $871 million in 2021, compared to $607 million in 2020. The growth was primarily due to the July 2020 launch of Tecartus in the United States for the treatment of adult patients with relapsed or refractory mantle cell lymphoma (“MCL”) and the December 2020 launch of Tecartus for MCL in Europe, resulting in partial year of sales in 2020. The increase was also driven by continued higher demand for Yescarta worldwide for LBCL and volume growth related to approval of Yescarta for FL in the United States in 2021.

Trodelvy

Trodelvy product sales increased to $380 million in 2021, compared to $49 million in 2020. We obtained Trodelvy through the fourth quarter 2020 acquisition of Immunomedics, resulting in a partial year of sales in 2020. In addition, 2021 revenues include continued uptake of Trodelvy following the full regulatory approval for metastatic TNBC in the United States and Europe and accelerated approval for metastatic UC in the United States.

Other Product Sales

Other product sales, which include AmBisome, Cayston, Jyseleca, Letairis, Ranexa and Zydelig, were $1.0 billion in 2021 and remained flat as compared to 2020. AmBisome sales volume increased due to higher demand in geographies outside the United States. The increase was mostly offset by lower Letairis sales in the United States, as anticipated, due to continued generic competition following the loss of exclusivity in 2019.

Gross-to-Net Deductions

We record product sales net of estimated government and other rebates and chargebacks, cash discounts for prompt payment, distributor fees, sales returns and other related costs. These deductions totaled $14.4 billion, or 35% of gross product sales in 2021, compared to $15.3 billion, or 39% of gross product sales in 2020. The reduction is driven by changes in product mix, primarily due to higher Veklury sales in 2021. Of the $14.4 billion in 2021, $12.6 billion, or 30% of gross product sales, was related to government and other rebates and chargebacks and $1.8 billion was related to cash discounts for prompt payment, distributor fees, sales returns and other related costs.

Foreign Currency Exchange Impact

Of our total product sales, 29% and 26% were generated outside the United States in 2021 and 2020, respectively. We generally face exposure to movements in foreign currency exchange rates, primarily in the Euro. We use foreign currency exchange contracts to hedge a portion of our foreign currency exposures. Foreign currency exchange, net of hedges, had a favorable impact on our total product sales of $141 million in 2021, based on a comparison using foreign currency exchange rates from 2020, largely driven by Euro-based product sales.

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

HIV Products

Descovy (FTC/TAF) Based Products

Truvada (FTC/TDF) Based Products

HCV Products

HBV/HDV Products

Cell Therapy Products

Other Products

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NM - Not Meaningful

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

(2) Includes Emtriva and Tybost.

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

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

(5) Includes Vosevi and Sovaldi.

(6) Includes Hepcludex and Hepsera.

(7) Includes Cayston and Jyseleca.

Costs and Expenses

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

(In millions, except percentages) 2021 2020 Change

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

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

Product Gross Margin

In 2021, product gross margin decreased to 75.6% as compared to 81.2% in 2020, primarily due to a $1.25 billion charge for a settlement related to bictegravir litigation as well as an increase of $848 million in acquisition-related expenses from amortization of finite-lived intangible assets and recognition of inventory step-up charges primarily driven by our acquisitions of Immunomedics and MYR. Product gross margin was also impacted by higher inventory write-down charges and changes in product mix. The increases were partially offset by lower royalty expenses due to lower sales of products containing emtricitabine and elvitegravir and the reversal of a previously recorded $175 million litigation accrual following a favorable court decision related to axicabtagene ciloleucel.

Research and Development Expenses

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

We manage our R&D expenses by identifying the R&D activities we anticipate will be performed during a given period and then prioritizing efforts based on scientific data, probability of technical and regulatory successful development, market potential, available human and capital resources and other considerations. We continually review our R&D projects based on unmet medical need and, as necessary, reallocate resources among our internal R&D portfolio and external opportunities that we believe will best support the long-term growth of our business.

In 2021, R&D expenses increased by $324 million compared to 2020, primarily due to the Arcus collaboration opt-in charge of $625 million, as well as higher investments in Trodelvy and magrolimab clinical activities. These increases were partially offset by (i) a decline of approximately $200 million in external expenses related to wind-down or completion of certain remdesivir clinical studies, (ii) $190 million (€160 million) charge recorded in 2020 in connection with the agreement to amend the existing arrangement with Galapagos for the commercialization and development of Jyseleca, and (iii) lower stock-based compensation expense. R&D expenses for 2020 included accelerated stock-based compensation expenses of $166 million related to our acquisitions of Immunomedics and Forty Seven.

Acquired In-Process Research and Development Expenses

Acquired IPR&D expenses of $177 million in 2021 were related to licensing, collaboration, investment and other arrangements we entered into during the year. Acquired IPR&D expenses of $5.9 billion in 2020 were primarily related to our acquisition of Forty Seven as well as collaborations and other investments we entered into during the year with Arcus, Pionyr, Tango, Tizona and Jounce.

Selling, General and Administrative Expenses

SG&A expenses relate to sales and marketing, finance, human resources, legal and other administrative activities, including information technology investments. SG&A expenses consist primarily of personnel costs, facilities and overhead costs, outside marketing, advertising and legal expenses and other general and administrative costs. SG&A expenses also include the Branded Prescription Drug (“BPD”) fee. In the United States, we, along with other pharmaceutical manufacturers of branded drug products, are required to pay a portion of the BPD fee, which is estimated based on select government sales during the prior year as a percentage of total industry government sales.

In 2021, SG&A expenses increased by $95 million compared to 2020, primarily due to an expense of $212 million related to the donation of certain equity securities at fair value to the Gilead Foundation, a California nonprofit organization (the “Foundation”), and increased commercial activities, including higher promotional and marketing activities primarily driven by Trodelvy. SG&A expenses for 2020 included accelerated stock-based compensation expense of $204 million related to our acquisitions of Immunomedics and Forty Seven, and a charge of $97 million related to a U.S. Department of Justice investigation, which was settled in the third quarter of 2020.

Interest Expense and Other Income (Expense), Net

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

(in millions, except percentages) 2021 2020 Change

Other income (expense), net $ (639) $ (1,418) (55) %

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

The changes in Other income (expense), net for 2021, compared to 2020, primarily reflects lower unrealized losses from fair value adjustments of our investments in equity securities largely driven by our investment in Galapagos, partially offset by lower interest income. Changes in the fair value of equity securities resulted in net unrealized losses of $610 million and $1.7 billion for the years ended December 31, 2021 and 2020, respectively.

Income Taxes

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

(in millions, except percentages) 2021 2020

Income before income taxes $ 8,278 $ 1,669

Effective tax rate 25.1 % 94.7 %

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

LIQUIDITY AND CAPITAL RESOURCES

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

Cash Flows

The following table summarizes our cash flow activities:

Net cash provided by (used in):

Financing activities $ (8,877) $ 770

Operating Activities

Cash provided by operating activities represents the cash receipts and disbursements related to all of our activities other than investing and financing activities. Operating cash flow is derived by adjusting our net income for non-cash items and changes in operating assets and liabilities. Cash provided by operating activities increased by $3.2 billion to $11.4 billion in 2021 compared to 2020. The increase was primarily due to revenue growth from sales of Veklury as well as higher collection of receivables in 2021.

Investing Activities

Cash used in investing activities primarily consists of purchases, sales and maturities of our marketable debt securities, capital expenditures, acquisitions, including IPR&D, net of cash acquired, purchases of equity securities and other investments. Cash used in investing activities was $3.1 billion in 2021 compared to $14.6 billion in 2020. The decrease in cash used in investing activities was primarily due to a decrease in cash outflows related to acquisitions, including IPR&D, net of cash acquired. We made a $1.2 billion payment in the first quarter of 2021 for our acquisition of MYR as compared to the $4.7 billion and $20.6 billion payments made in 2020 related to our acquisitions of Forty Seven and Immunomedics, respectively. The decrease was partially offset by net cash generated by investing activities in 2020 related to proceeds from sales and maturities of marketable debt securities used to partially fund these acquisitions.

Financing Activities

Cash used in financing activities for the year ended December 31, 2021 was $8.9 billion, compared to cash provided by financing activities of $770 million in 2020. In 2021, we utilized cash for $4.75 billion of debt repayments, $3.6 billion of dividend payments and $546 million of common stock repurchases. In 2020, we obtained $8.2 billion in proceeds from debt financing, net of issuance costs, to fund our fourth quarter 2020 acquisition of Immunomedics, partially offset by cash utilized for $3.4 billion of dividend payments, $2.5 billion of debt repayments and $1.6 billion of common stock repurchases.

Debt and Credit Facilities

A summary of our borrowings under various financing arrangements is included in Note 12. Debt and Credit Facilities of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. We may choose to repay certain of our long-term debt obligations prior to maturity dates based on our assessment of current and long-term liquidity and capital requirements.

Senior Unsecured Notes and Term Loan

In 2021, we repaid $4.75 billion of debt, consisting of $3.75 billion senior unsecured notes and $1.0 billion on our senior unsecured term loan facility. We repaid $1.0 billion of senior unsecured notes due April 2021 in the first quarter of 2021 and $1.25 billion of senior unsecured notes due December 2021 in the third quarter of 2021. Additionally, we repaid $500 million of senior unsecured notes due upon maturity in September 2021. In October 2021, we exercised our option to call $500 million of senior unsecured floating rate notes and $500 million of 0.75% senior unsecured notes, both having a final maturity date of September 2023. These two early repayments totaling $1.0 billion principal amount were made in the fourth quarter of 2021. In December 2021, we exercised our option to call $500 million of senior unsecured notes having a final maturity of March 2022. The notes were repaid in February 2022. No new debt was issued in 2021. We are required to comply with certain covenants under our note indentures governing our senior unsecured notes. As of December 31, 2021 and 2020, we were not in violation of any covenants.

Liability Related to Future Royalties

In connection with our acquisition of Immunomedics, we assumed a liability related to a funding arrangement, which was originally entered into by Immunomedics and RPI Finance Trust prior to our acquisition of Immunomedics. The liability related to future royalties was primarily included in Long-term debt, net on our Consolidated Balance Sheets. See Note 6. Acquisitions of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

Credit Facility

In June 2020, we terminated our $2.5 billion five-year revolving credit facility maturing in May 2021 (the “2016 Revolving Credit Facility”) and entered into a new $2.5 billion five-year revolving credit facility maturing in June 2025 (the “2020 Revolving Credit Facility”). The 2020 Revolving Credit Facility can be used for working capital requirements and for general corporate purposes, including, without limitation, acquisitions. As of December 31, 2021 and 2020, there were no amounts outstanding under the 2020 Revolving Credit Facility. The 2020 Revolving Credit Facility contains customary representations, warranties, affirmative and negative covenants and events of default. As of December 31, 2021, we were in compliance with all covenants.

Capital Return Program

The details of our Stock Repurchase Programs and Dividends are included in Note 15. Stockholders’ Equity of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Stock Repurchase Programs

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

In the first quarter of 2020, our Board of Directors authorized a new $5.0 billion stock repurchase program (the “2020 Program”), which will commence upon the completion of the 2016 Program. Purchases under the 2020 Program may be made in the open market or in privately negotiated transactions.

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

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

Dividends

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

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

Capital Resources

We believe our existing capital resources, supplemented by cash flows generated from our operations, will be adequate to satisfy our capital needs for the foreseeable future. Our future capital requirements will depend on many factors, including but not limited to the following:

•the commercial performance of our current and future products;

•the progress and scope of our R&D efforts, including preclinical studies and clinical trials;

•the cost, timing and outcome of regulatory reviews;

•the expansion of our sales and marketing capabilities;

•the possibility of acquiring additional manufacturing capabilities or office facilities;

•the possibility of acquiring other companies or new products;

•debt service requirements;

•the establishment of additional collaborative relationships with other companies; and

•costs associated with the defense, settlement and adverse results of government investigations and litigation.

We may in the future require additional funding, which could be in the form of proceeds from equity or debt financings. If such funding is required, we cannot guarantee that it will be available to us on favorable terms, if at all.

Material Cash Requirements

We continually evaluate our liquidity and capital resources, including our access to external capital to ensure that we can adequately and efficiently finance our operations. As of December 31, 2021, our material cash requirements consisted primarily of the repayment of outstanding borrowings, the remaining obligations for the one-time repatriation transition tax from the Tax Cuts and Jobs Act, our settlement related to bictegravir litigation, purchases of inventory, operating leases obligations, capital expenditures and milestone and other payments related to our collaborative agreements. See Notes 11. Collaborations and Other Arrangements, 12. Debt and Credit Facilities, 13. Leases, 14. Commitments and Contingencies and 18. Income Taxes of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information. We anticipate our cash requirements related to capital expenditures will increase in 2022 as compared to the prior year as we work to expand our site infrastructure and capabilities.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

The discussion and analysis of our financial condition and results of operations is based on our Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. On an ongoing basis, we evaluate and base our estimates on historical experience and on various other market specific and other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates.

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

Government and Other Rebates and Chargebacks

Revenues from product sales are recognized net of estimated government and other rebates and chargebacks, cash discounts for prompt payment, distributor fees, sales return provisions and other related deductions. These deductions to product sales are referred to as gross-to-net deductions and are estimated and recorded in the period in which the related product sales occur. Revenues from product sales, net of these deductions, are recorded only to the extent a significant reversal of the amount of cumulative revenue recognized is not probable of occurring when the uncertainty associated with gross-to-net deductions is subsequently resolved.

Government and other rebates and chargebacks are subject to a complex estimation process, which requires significant judgment by management in part due to the lag between the date of the product sales and the date the related rebates or chargeback claims are settled. Government and other rebates and chargebacks include amounts payable to payers and healthcare providers under various programs, and may vary by product, by payer and by individual payer plans. For qualified programs that can purchase our products through wholesalers or other distributors at a lower contractual price, the wholesalers or distributors charge back to us the difference between their acquisition cost and the lower contractual price. Rebates and chargebacks are estimated primarily based on product sales, and expected payer mix and discount rates, which require significant estimates and judgment. Additionally, in developing our estimates of government and other rebates and chargebacks, we consider the following:

•historical and estimated payer mix;

•statutory discount requirements and contractual terms;

•historical claims experience and processing time lags;

•estimated patient population;

•known market events or trends;

•market research;

•channel inventory data obtained from our major U.S. wholesalers; and

•other pertinent internal or external information.

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

Product sales in 2021 include the impact of $617 million for changes in estimates related to our 2020 product sales, primarily in the United States. In 2020, we had assumed higher rebate claims from government payer segments resulting in part from the COVID-19 pandemic and its anticipated impacts, which did not materialize.

We assess and update our estimates each reporting period to reflect actual claims and other current information. We believe the methodology that we use to estimate our government and other rebates and chargebacks is reasonable and appropriate given the current facts and circumstances. However, actual results may differ significantly from our estimates. Historically, our actual government and other rebates and chargebacks claimed for prior periods have varied by less than 5% from our estimates.

Government and other chargebacks that are payable to our direct customers are classified as reductions of Accounts receivable in our Consolidated Balance Sheets and totaled $671 million and $552 million as of December 31, 2021 and 2020, respectively. See Note 10. Other Financial Information of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information. Government and other rebates that are payable to third party payers and healthcare providers are generally recorded in Accrued government and other rebates on our Consolidated Balance Sheets and totaled $3.2 billion and $3.5 billion as of December 31, 2021 and 2020, respectively.

Acquisitions and Valuation of Intangibles

We make certain judgments to determine whether transactions should be accounted for as acquisitions of assets or as business combinations. If it is determined that substantially all of the fair value of gross assets acquired in a transaction is concentrated in a single asset (or a group of similar assets), the transaction is treated as an acquisition of assets. We evaluate the inputs, processes, and outputs associated with the acquired set of activities and assets. If the assets in a transaction include an input and a substantive process that together significantly contribute to the ability to create outputs, the transaction is treated as an acquisition of a business.

We account for business combinations using the acquisition method of accounting, which requires that assets acquired and liabilities assumed generally be recorded at their fair values as of the acquisition date. Excess of consideration over the fair value of net assets acquired is recorded as goodwill. Estimating fair value requires us to make significant judgments and assumptions. We perform impairment testing of goodwill annually or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired.

In transactions accounted for as acquisitions of assets, no goodwill is recorded and contingent consideration, such as payments upon achievement of various developmental, regulatory and commercial milestones, generally is not recognized at the acquisition date. In an asset acquisition, upfront payments allocated to IPR&D projects at the acquisition date are expensed unless there is an alternative future use. In addition, product development milestones are expensed upon achievement.

Valuation of Intangible Assets

We have acquired, and expect to continue to acquire, intangible assets through asset acquisitions or business combinations. The identifiable intangible assets are measured at their respective fair values as of the acquisition date. Intangible assets acquired through business combinations are subject to potential adjustments within the measurement period, which may be up to one year from the acquisition date. The fair values of the intangible assets are generally determined using a probability-weighted income approach that discounts expected future cash flows to present value. The estimated net cash flows are discounted using a discount rate that is based on the estimated weighted-average cost of capital for companies with profiles similar to our profile and represents the rate that market participants would use to value the intangible assets. The discounted cash flow models used in valuing these intangible assets require the use of significant estimates and assumptions including but not limited to:

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

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

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

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

•appropriate discount rate;

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

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

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

Impairment and Amortization of Intangible Assets

Intangible assets related to IPR&D projects acquired in a business combination are capitalized as indefinite-lived intangible assets until the completion or abandonment of the associated R&D efforts. During the period the assets are considered indefinite-lived, they are not amortized. When development is successfully completed, which generally occurs when regulatory approval is obtained, the associated assets are deemed finite-lived and amortized over their respective estimated useful lives beginning at that point in time primarily on a straight-line basis.

Indefinite-lived intangible assets, composed of IPR&D projects acquired in a business combination that lack regulatory approval at the time of acquisition, are tested for impairment annually, whenever events or changes in circumstances indicate that it is more likely than not that the assets are impaired and upon regulatory approval. Estimates of fair value result from a complex series of judgments about future events and uncertainties and make assumptions at a point in time (acquisition date or subsequent impairment assessment date). Changes in estimates and assumptions, including the timing of product launch, pricing reductions, failure to obtain anticipated regulatory approval, deterioration in U.S. and global financial markets or other unanticipated events and circumstances, may decrease the projected cash flows or increase the discount rate and could potentially result in an impairment charge.

The eventual realized value of the acquired IPR&D project may vary from its fair value at the date of acquisition. If the carrying value of an intangible asset exceeds its estimated fair value, an impairment charge is recorded to write down the intangible asset to its estimated fair value. For example, in 2019, we recognized an $800 million impairment charge related to IPR&D projects primarily for the treatment of indolent B-cell non-Hodgkin lymphoma due to changes in estimated market opportunities. A high rate of failure is inherent in the discovery and development of new products.

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

See Note 9. Goodwill and Intangible Assets of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

Legal Contingencies

We are a party to various legal actions. The most significant of these are described in Note 14. Commitments and Contingencies of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. It is not possible to determine the outcome of these matters. We recognize accruals for such actions to the extent that we conclude that a loss is both probable and reasonably estimable. We accrue for the best estimate of a loss within a range; however, if no estimate in the range is better than any other, then we accrue the minimum amount in the range. If we determine that a material loss is reasonably possible, we disclose the possible loss or range of loss, or that the amount of loss cannot be estimated at this time.

Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of the inherent uncertainty and unpredictability related to these matters, accruals are based on what we believe to be the best information available at the time of our assessment, including the legal facts and circumstances of the case, status of the proceedings, applicable law and the views of legal counsel. Upon the final resolution of such matters, it is possible that there may be a loss in excess of the amount recorded, and such amounts could have a material adverse effect on our results of operations, cash flows or financial position. We periodically reassess these matters when additional information becomes available and adjust our estimates and assumptions when facts and circumstances indicate the need for any changes. In the fourth quarter of 2021, we recorded an accrual of $1.25 billion in Accrued and other current liabilities on our Consolidated Balance Sheets for the settlement related to bictegravir litigation. See Note 14. Commitments and Contingencies of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

Income Taxes

We estimate our income tax provision, including deferred tax assets and liabilities, based on significant management judgment. We evaluate the realization of our deferred tax assets each reporting period. We record a valuation allowance to reduce our deferred tax assets to the amounts that are more likely than not to be realized. We consider future taxable income, ongoing tax planning strategies and our historical financial performance in assessing the need for a valuation allowance. If we expect to realize deferred tax assets for which we have previously recorded a valuation allowance, we will reduce the valuation allowance in the period in which such determination is first made.

We are subject to income taxes in the United States and various foreign jurisdictions, including Ireland. Due to economic and political conditions, various countries are actively considering or have made changes to existing tax laws. We cannot predict the form or timing of potential legislative changes that could have a material adverse impact on our results of operations. In addition, significant judgment is required in determining our worldwide provision for income taxes.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by tax authorities based on the technical merits of the position. The tax benefit recognized in the Consolidated Financial Statements for a particular tax position is based on the largest benefit that is more likely than not to be realized. The amount of unrecognized tax benefits (“UTB”) is adjusted as appropriate for changes in facts and circumstances, such as significant amendments to existing tax law, new regulations or interpretations by tax authorities, new information obtained during a tax examination or resolution of an examination. We recognize both accrued interest and penalties, where appropriate, related to UTB in Income tax (expense) benefit on our Consolidated Statements of Income.

RECENT ACCOUNTING PRONOUNCEMENTS

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

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks that may result from changes in foreign currency exchange rates, interest rates, credit risks and market prices. To reduce certain of these risks, we enter into various types of foreign currency or interest rate derivative hedging transactions, follow investment guidelines and monitor outstanding receivables as part of our risk management program.

Foreign Currency Exchange Risk

We have operations in more than 35 countries worldwide. As a result, our financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which we distribute our products. Our operating results are exposed to changes in foreign currency exchange rates between the U.S. dollar and various foreign currencies, the most significant of which is the Euro. When the U.S. dollar strengthens against these 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 increase. 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.

Approximately 26% of our product sales were denominated in foreign currencies during 2021. To partially mitigate the impact of changes in currency exchange rates on net cash flows from our foreign currency denominated sales, we may enter into foreign currency exchange forward or option contracts. 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 that cash is collected or paid. In general, the market risks of these contracts are offset by corresponding gains and losses on the transactions being hedged.

As of December 31, 2021 and 2020, we had open foreign currency forward contracts with notional amounts of $2.9 billion and $2.4 billion, respectively. A hypothetical 10% adverse movement in foreign currency exchange rates compared with the U.S. dollar relative to exchange rates as of December 31, 2021 and 2020 would have resulted in a reduction in fair value of these contracts of approximately $333 million and $249 million, respectively, and if realized, would have negatively affected earnings over the remaining life of the contracts. The analysis does not consider the impact that hypothetical changes in foreign currency exchange rates would have on anticipated transactions that these foreign currency sensitive instruments were designed to offset.

Interest Rate Risk

Our portfolio of available-for-sale debt securities and our senior unsecured notes create an exposure to interest rate risk. With respect to our investment portfolio, we adhere to an investment policy that requires us to limit amounts invested in securities based on credit rating, maturity, industry group and investment type and issuer, except for securities issued by the U.S. government. The goals of our investment policy, in order of priority, are as follows:

• safety and preservation of principal and diversification of risk;

• liquidity of investments sufficient to meet cash flow requirements; and

• a competitive after-tax rate of return.

The following table summarizes the expected maturities and average interest rates of our interest-generating assets and interest-bearing liabilities as of December 31, 2021:

Expected Maturity Total Fair Value

Assets

Liabilities

_______________________________

(1) Amounts represent principal balances. In addition to the senior unsecured fixed rate notes, we have a $2.5 billion five-year revolving credit facility that matures in June 2025. There were no amounts outstanding under the five-year revolving credit facility as of December 31, 2021. See Note 12. Debt and Credit Facilities of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

Market Price Risk

We hold shares of common stock of certain publicly traded biotechnology companies primarily in connection with license and collaboration agreements. These equity securities are measured at fair value with any changes in fair value recognized in earnings.

The fair value of these equity securities was approximately $1.8 billion and $2.4 billion as of December 31, 2021 and 2020, respectively. Changes in fair value of these equity securities are impacted by the volatility of the stock market and changes in general economic conditions, among other factors. A hypothetical 20% increase or decrease in the stock prices of these equity securities would have increased or decreased their fair value as of December 31, 2021 and 2020 by approximately $364 million and $478 million, respectively.

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

GILEAD SCIENCES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Years ended December 31, 2021, 2020 and 2019

CONTENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) 50

Audited Consolidated Financial Statements:

Consolidated Balance Sheets 52

Consolidated Statements of Income 53

Consolidated Statements of Comprehensive Income (Loss) 54

Consolidated Statements of Stockholders’ Equity 55

Consolidated Statements of Cash Flows 56

Notes to Consolidated Financial Statements 57

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Gilead Sciences, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Gilead Sciences, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 23, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Government and commercial rebates

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1988.

San Jose, California

February 23, 2022

GILEAD SCIENCES, INC.

Consolidated Balance Sheets

December 31,

(in millions, except per share amounts) 2021 2020

Assets

Current assets:

Cash and cash equivalents $ 5,338 $ 5,997

Short-term marketable debt securities 1,182 1,411

Prepaid and other current assets 2,141 2,013

Property, plant and equipment, net 5,121 4,967

Long-term marketable debt securities 1,309 502

Liabilities and Stockholders’ Equity

Current liabilities:

Accrued government and other rebates 3,244 3,460

Accrued and other current liabilities 6,145 4,336

Current portion of long-term debt and other obligations, net 1,516 2,757

Long-term income taxes payable 4,767 5,016

Other long-term obligations 976 1,214

Commitments and contingencies (Note 14)

Stockholders’ equity:

Accumulated other comprehensive income (loss) 83 (60)

Noncontrolling interest (5) 19

Total liabilities and stockholders’ equity $ 67,952 $ 68,407

See accompanying notes.

GILEAD SCIENCES, INC.

Consolidated Statements of Income

Year Ended December 31,

Revenues:

Royalty, contract and other revenues 297 334 330

Costs and expenses:

Acquired in-process research and development expenses 177 5,856 5,051

Selling, general and administrative expenses 5,246 5,151 4,381

Net loss attributable to noncontrolling interest 24 34 22

Shares used in per share calculation - basic 1,256 1,257 1,270

Shares used in per share calculation - diluted 1,262 1,263 1,277

See accompanying notes.

GILEAD SCIENCES, INC.

Consolidated Statements of Comprehensive Income (Loss)

Year Ended December 31,

Other comprehensive income (loss):

Net foreign currency translation gain (loss), net of tax (38) (2) 6

Available-for-sale debt securities:

Net unrealized gain (loss), net of tax (6) 43 54

Reclassifications to net income, net of tax — (42) (1)

Cash flow hedges:

Net unrealized gain (loss), net of tax 129 (103) 72

Reclassifications to net income, net of tax 58 (41) (126)

Other comprehensive income (loss) 143 (145) 5

Comprehensive loss attributable to noncontrolling interest 24 34 22

Comprehensive income (loss) attributable to Gilead $ 6,368 $ (22) $ 5,391

See accompanying notes.

GILEAD SCIENCES, INC.

Consolidated Statements of Stockholders’ Equity

Shares Amount

Cumulative effect from the adoption of new accounting standards — — — — 8 — 8

Other comprehensive income, net of tax — — — 5 — — 5

Issuances under employee stock purchase plan 2 — 90 — — — 90

Issuances under equity incentive plans 10 — 118 — — — 118

Stock-based compensation — — 638 — — — 638

Dividends declared ($2.52 per share) — — — — (3,239) — (3,239)

Cumulative effect from the adoption of new accounting standard — — — — (7) — (7)

Change in noncontrolling interest — — — — — (72) (72)

Net income (loss) — — — — 123 (34) 89

Other comprehensive income (loss), net of tax — — 1 (145) (1) — (145)

Issuances under employee stock purchase plan 2 — 100 — — — 100

Issuances under equity incentive plans 11 — 156 — — — 156

Stock-based compensation — — 642 — — — 642

Dividends declared ($2.72 per share) — — — — (3,464) — (3,464)

Other comprehensive income (loss), net of tax — — — 143 — — 143

Issuances under employee stock purchase plan 2 — 111 — — — 111

Issuances under equity incentive plans 9 — 58 — — — 58

Stock-based compensation — — 640 — — — 640

Repurchases of common stock (11) — (28) — (664) — (692)

Dividends declared ($2.84 per share) — — — — (3,618) — (3,618)

See accompanying notes.

GILEAD SCIENCES, INC.

Consolidated Statements of Cash Flows

Year Ended December 31,

Operating Activities:

Net (gain) loss from equity securities 610 1,662 (1,241)

Acquired in-process research and development expenses 177 5,856 4,251

In-process research and development impairment — — 800

Changes in operating assets and liabilities:

Prepaid expenses and other (42) (214) (307)

Investing Activities:

Proceeds from sales of marketable debt securities 730 23,239 7,523

Proceeds from maturities of marketable debt securities 2,180 9,479 22,398

Financing Activities:

Proceeds from debt financing, net of issuance costs — 8,184 —

Proceeds from issuances of common stock 169 256 209

Repayments of debt and other obligations (4,750) (2,500) (2,750)

Net cash (used in) provided by financing activities (8,877) 770 (7,634)

Effect of exchange rate changes on cash and cash equivalents (35) 43 (2)

Net change in cash and cash equivalents (659) (5,634) (6,309)

Cash and cash equivalents at end of period $ 5,338 $ 5,997 $ 11,631

Supplemental disclosure of cash flow information:

Interest paid, net of amounts capitalized $ 979 $ 951 $ 982

See accompanying notes.

GILEAD SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Overview

Basis of Presentation

The accompanying Consolidated Financial Statements include the accounts of Gilead, our wholly-owned subsidiaries and certain variable interest entities for which we are the primary beneficiary. All intercompany transactions have been eliminated. For consolidated entities where we own or are exposed to less than 100% of the economics, we record net income or loss attributable to noncontrolling interests in our Consolidated Statements of Income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties.

We assess whether we are the primary beneficiary of a variable interest entity (“VIE”) at the inception of the arrangement and at each reporting date. This assessment is based on our power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and our obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. We did not have any material VIEs as of December 31, 2021.

Certain reclassifications have been made to prior periods in the Consolidated Financial Statements and accompanying notes to conform with the current presentation. Beginning 2020, acquired in-process research and development (“IPR&D”) expenses are reported separately from Research and development expenses on our Consolidated Statements of Income. Our Consolidated Statements of Income for the year ended December 31, 2019 was conformed to separately present acquired IPR&D expenses.

Segment Information

We have one operating segment which primarily focuses on the discovery, development and commercialization of innovative medicines in areas of unmet medical need. Our Chief Executive Officer, as the chief operating decision-maker (“CODM”), manages and allocates resources to the operations of our company on an entity-wide basis. Managing and allocating resources on an entity-wide basis enables our CODM to assess the overall level of resources available and how to best deploy these resources across functions and research and development (“R&D”) projects based on unmet medical need and, as necessary, reallocate resources among our internal R&D portfolio and external opportunities to best support the long-term growth of our business. See Note 2. Revenues for a summary of disaggregated revenues by product and geographic region.

Significant Accounting Policies, Estimates and Judgments

The preparation of these Consolidated Financial Statements in accordance with U.S. generally accepted accounting principles requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. On an ongoing basis, we evaluate our 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. Estimates are assessed each period and updated to reflect current information, such as the economic considerations related to the impact that the coronavirus disease (“COVID-19”) could have on our significant accounting estimates. Actual results may differ significantly from these estimates.

Revenue Recognition

Product Sales

We recognize revenue from product sales when control of the product transfers, generally upon shipment or delivery, to the customer, or in certain cases, upon the corresponding sales by our customer to a third party. The revenues are recognized net of estimated government and other rebates and chargebacks, cash discounts for prompt payment, distributor fees, sales return provisions and other related deductions. These deductions to product sales are referred to as gross-to-net deductions and are estimated and recorded in the period in which the related product sales occur. Our payment terms to customers generally range from 30 to 90 days; however, payment terms differ by jurisdiction, by customer and, in some instances, by type of product. Revenues from product sales, net of gross-to-net deductions, are recorded only to the extent a significant reversal in the amount of cumulative revenue recognized is not probable of occurring when the uncertainty associated with gross-to-net deductions is subsequently resolved. Taxes assessed by governmental authorities and collected from customers are excluded from product sales. If we expect, at contract inception, that the period between the transfer of control and corresponding payment from the customer will be one year or less, we do not adjust the amount of consideration for the effects of a financing component.

Gross-to-Net Deductions

Rebates and Chargebacks

Government and other rebates and chargebacks include amounts payable to payers and healthcare providers under various programs, and may vary by product, by payer and individual payer plans. Rebates and chargebacks are based on contractual arrangements or statutory requirements which may vary by product, payer and individual payer plans. For qualified programs that can purchase our products through wholesalers or other distributors at a lower contractual price, the wholesalers or distributors charge back to us the difference between their acquisition cost and the lower contractual price.

Rebates and chargebacks are estimated primarily based on product sales, and expected payer mix and discount rates, which require significant estimates and judgment. Additionally, in developing our estimates, we consider: historical and estimated payer mix; statutory discount requirements and contractual terms; historical claims experience and processing time lags; estimated patient population; known market events or trends; market research; channel inventory data obtained from our major U.S. wholesalers; and other pertinent internal or external information. We assess and update our estimates each reporting period to reflect actual claims and other current information.

Government and other chargebacks that are payable to our direct customers are generally classified as reductions of Accounts receivable on our Consolidated Balance Sheets. Government and other rebates that are payable to third party payers and healthcare providers are recorded in Accrued government and other rebates on our Consolidated Balance Sheets.

Cash Discounts

We estimate cash discounts based on contractual terms, historical customer payment patterns and our expectations regarding future customer payment patterns.

Distributor Fees

Under our inventory management agreements with our significant U.S. wholesalers, we pay the wholesalers a fee primarily for compliance with certain contractually determined covenants such as the maintenance of agreed upon inventory levels. These distributor fees are based on a contractually determined fixed percentage of sales.

Allowance for Sales Returns

Allowances are made for estimated sales returns by our customers and are recorded in the period the related revenue is recognized. We typically permit returns if the product is damaged, defective, or otherwise cannot be used by the customer. In the United States, we typically permit returns six months prior to and up to one year after the product expiration date. Outside the United States, returns are only allowed in certain countries on a limited basis.

Our estimates of sales returns are based primarily on analysis of our historical product return patterns, industry information reporting the return rates for similar products and contractual agreement terms. We also take into consideration known or expected changes in the marketplace specific to each product.

Shipping and Handling

Shipping and handling activities are considered to be fulfillment activities and not considered to be a separate performance obligation.

Royalty, Contract and Other Revenues

Royalty revenue is recognized in the period in which the obligation is satisfied and the corresponding sales by our corporate partners occur.

Research and Development Expenses

R&D expenses consist primarily of clinical studies performed by contract research organizations (“CROs”), materials and supplies, payments under collaborative and other arrangements including milestone payments, licenses and fees, expense reimbursements to the collaboration partners, personnel costs including salaries, benefits and stock-based compensation expense, and overhead allocations consisting of various support and infrastructure costs. Milestone payments made to third-party collaborators are expensed as incurred up to the point of regulatory approval. Milestone payments made upon regulatory approval are capitalized and amortized over the remaining useful life of the related product. From time to time, we enter into development and collaboration agreements in which we share expenses with a collaborative partner. We record payments received from our collaborative partners for their share of the development costs as a reduction of R&D expenses.

We charge R&D costs, including clinical study costs, to expense when incurred. Clinical study costs are a significant component of R&D expenses. Most of our clinical studies are performed by third-party CROs. We monitor levels of performance under each significant contract including the extent of patient enrollment and other activities through communications with our CROs. We accrue costs for clinical studies performed by CROs over the service periods specified in the contracts and adjust our estimates, if required, based upon our ongoing review of the level of effort and costs actually incurred by the CROs. All of our material CRO contracts are terminable by us upon written notice and we are generally only liable for actual services completed by the CRO and certain non-cancelable expenses incurred at any point of termination. Payments we make for R&D services prior to the services being rendered are recorded as prepaid assets in our Consolidated Balance Sheets and are expensed as the services are provided.

Acquired In-Process Research and Development Expenses

Acquired IPR&D expenses reflect IPR&D impairments as well as the initial costs of externally developed IPR&D projects, acquired directly in a transaction other than a business combination, that do not have an alternative future use, including upfront payments related to various collaborations and the initial costs of rights to IPR&D projects. The acquired IPR&D is expensed on acquisition date. Future costs to develop these IPR&D projects are recorded in Research and development expenses on our Consolidated Statements of Income as incurred.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses relate to sales and marketing, finance, human resources, legal and other administrative activities. SG&A expenses consist primarily of personnel costs, facilities and overhead costs, outside marketing, advertising and legal expenses, and other general and administrative costs. SG&A expenses also include the Branded Prescription Drug (“BPD”) fee. In the United States, we, along with other pharmaceutical manufacturers of branded drug products, are required to pay a portion of the BPD fee, which is estimated based on select government sales during the prior year as a percentage of total industry government sales.

We expense the costs of advertising, including promotional expenses, as incurred. Advertising expenses were $735 million, $795 million and $784 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Cash and Cash Equivalents

We consider highly liquid investments with insignificant interest rate risk and an original maturity of three months or less on the purchase date to be cash equivalents.

Marketable and Non-Marketable Securities

Marketable Debt Securities

We determine the appropriate classification of our marketable debt securities at the time of purchase and reevaluate such designation at each balance sheet date. All of our marketable debt securities are considered available-for-sale and carried at estimated fair values and reported in cash equivalents, short-term marketable debt securities or long-term marketable debt securities. Unrealized gains and losses on available-for-sale debt securities are excluded from net income and reported in Accumulated other comprehensive income (loss) (“AOCI”) as a separate component of stockholders’ equity. Other income (expense), net, includes interest, amortization of purchase premiums and discounts, realized gains and losses on sales of securities and expected credit losses, if any. The cost of securities sold is based on the specific identification method. We regularly review our investments for declines in fair value below their amortized cost basis to determine whether the impairment is due to credit-related factors or noncredit-related factors. Our review includes the creditworthiness of the security issuers, the severity of the unrealized losses, whether we have the intent to sell the securities and whether it is more likely than not that we will be required to sell the securities before the recovery of their amortized cost bases. When we determine that a portion of the unrealized loss is due to an expected credit loss, we recognize the loss amount in Other income (expense), net, with a corresponding allowance against the carrying value of the security we hold. The portion of the unrealized loss related to factors other than credit losses is recognized in AOCI.

Marketable and Non-Marketable Equity Securities

Investments in equity securities, other than equity method investments, are recorded at fair market value if fair value is readily determinable, and unrealized gains and losses are included in Other income (expense), net on our Consolidated Statements of Income.

For investments in entities over which we have significant influence but do not meet the requirements for consolidation and have not elected the fair value option, we use the equity method of accounting with our share of the underlying income or loss of such entities reported in Other income (expense), net on our Consolidated Statements of Income. We have elected the fair value option to account for our equity investments in Arcus Biosciences, Inc. (“Arcus”) and Galapagos NV (“Galapagos”) over which we have significant influence. We believe the fair value option best reflects the underlying economics of these investments. See Note 11. Collaborations and Other Arrangements for additional information.

Equity securities without readily determinable fair values are recorded using the measurement alternative of cost less impairment, if any, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer. Certain investments in equity securities of non-public companies are accounted for using the equity method based on our ownership percentage and other factors that indicate we have significant influence over the investee. See Note 11. Collaborations and Other Arrangements for additional information.

Our investments in equity securities are recorded in Prepaid and other current assets or Other long-term assets on our Consolidated Balance Sheets. We regularly review our securities for indicators of impairment.

Concentrations of Risk

We are subject to credit risk from our portfolio of cash equivalents and marketable securities. Under our investment policy, we limit amounts invested in such securities by credit rating, maturity, industry group, investment type and issuer, except for securities issued by the U.S. government. We are not exposed to any significant concentrations of credit risk from these financial instruments. The goals of our investment policy, in order of priority, are as follows: safety and preservation of principal and diversification of risk; liquidity of investments sufficient to meet cash flow requirements; and a competitive after-tax rate of return.

We are also subject to credit risk from our accounts receivable related to our product sales. Trade accounts receivable are recorded net of allowances for wholesaler chargebacks related to government and other programs, cash discounts for prompt payment and credit losses. Estimates of our allowance for credit losses consider a number of factors including existing contractual payment terms, individual customer circumstances, historical payment patterns of our customers, a review of the local economic environment and its potential impact on expected future customer payment patterns and government funding and reimbursement practices. The majority of our trade accounts receivable arises from product sales in the United States and Europe. Additions to the allowance for credit losses, write-offs and recoveries of customer receivables were not material for the years ended December 31, 2021, 2020 and 2019.

Inventories

Inventories are recorded at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. We periodically review our inventories to identify obsolete, slow-moving, excess or otherwise unsaleable items. If obsolete, slow-moving, excess or unsaleable items are observed and there are no alternate uses for the inventory, we record a write-down to net realizable value through a charge to Cost of goods sold on our Consolidated Statements of Income. The determination of net realizable value requires judgment, including consideration of many factors, such as estimates of future product demand, product net selling prices, current and future market conditions and potential product obsolescence, among others.

When future commercialization is considered probable and the future economic benefit is expected to be realized, based on management’s judgment, we capitalize pre-launch inventory costs prior to regulatory approval. A number of factors are considered, including the current status in the regulatory approval process, potential impediments to the approval process such as safety or efficacy, anticipated R&D initiatives that could impact the indication in which the compound will be used, viability of commercialization and marketplace trends.

Property, Plant and Equipment

Property, plant and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are recognized using the straight-line method. Repairs and maintenance costs are expensed as incurred. Estimated useful lives in years are generally as follows:

Description Estimated Useful Life

Buildings and improvements Shorter of 35 years or useful life

Laboratory and manufacturing equipment 4-10

Office, computer equipment and other 3-15

Leasehold improvements Shorter of useful life or lease term

Leases

We determine if an arrangement contains a lease at inception. Right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term, which is the non-cancelable period stated in the contract adjusted for any options to extend or terminate when it is reasonably certain that we will exercise that option. Right-of-use assets are adjusted for prepaid lease payments, lease incentives and initial direct costs incurred. Operating lease expense for the minimum lease payments is recognized on a straight-line basis over the lease term.

We account for lease and nonlease components in our lease agreements as a single lease component in determining lease assets and liabilities. In addition, we do not recognize the right-of-use assets and liabilities for leases with lease terms of one year or less.

As most of our operating leases do not provide an implicit interest rate, we generally utilize a collateralized incremental borrowing rate, applied in a portfolio approach when relevant, based on the information available at the commencement date to determine the lease liability.

Acquisitions

We account for business combinations using the acquisition method of accounting, which generally requires that assets acquired, including IPR&D projects, and liabilities assumed be recorded at their fair values as of the acquisition date on our Consolidated Balance Sheets. Any excess of consideration over the fair value of net assets acquired is recorded as goodwill. The determination of estimated fair value requires us to make significant estimates and assumptions. As a result, we may record adjustments to the fair values of assets acquired and liabilities assumed within the measurement period, which may be up to one year from the acquisition date, with the corresponding offset to goodwill. Transaction costs associated with business combinations are expensed as they are incurred.

When we determine net assets acquired do not meet the definition of a business combination under the acquisition method of accounting, the transaction is accounted for as an acquisition of assets and, therefore, no goodwill is recorded and contingent consideration, such as payments upon achievement of various developmental, regulatory and commercial milestones, generally is not recognized at the acquisition date. In an asset acquisition, upfront payments allocated to IPR&D projects at the acquisition date and subsequent milestone payments are expensed as incurred on our Consolidated Statements of Income unless there is an alternative future use.

Goodwill and Intangible Assets

Goodwill represents the excess of the consideration transferred over the estimated fair value of assets acquired and liabilities assumed in a business combination. Intangible assets are measured at their respective fair values as of the acquisition date and may be subject to adjustment within the measurement period, which may be up to one year from the acquisition date. Intangible assets related to IPR&D projects are considered to be indefinite-lived until the completion or abandonment of the associated R&D efforts. We do not amortize goodwill and intangible assets with indefinite useful lives. Goodwill and indefinite-lived intangible assets are tested for impairment annually or more frequently if events or changes in circumstances indicate that it is more likely than not that the assets are impaired.

When development is successfully completed, which generally occurs when regulatory approval is obtained, the associated assets are deemed finite-lived and amortized over their respective estimated useful lives beginning at that point in time. Intangible assets with finite useful lives are amortized over their estimated useful lives, primarily on a straight-line basis, and are reviewed for impairment when facts or circumstances indicate that the carrying value of these assets may not be recoverable.

Impairment of Long-Lived Assets

Long-lived assets, including property, plant and equipment and finite-lived intangible assets, are reviewed for impairment whenever facts or circumstances either internally or externally may indicate that the carrying value of an asset may not be recoverable. Should there be an indication of impairment, we test for recoverability by comparing the estimated undiscounted future cash flows expected to result from the use of the asset to the carrying amount of the asset or asset group. If the asset or asset group is determined to be impaired, any excess of the carrying value of the asset or asset group over its estimated fair value is recognized as an impairment loss.

Valuation of Contingent Consideration Resulting from a Business Combination

In connection with certain acquisitions, we may be required to pay future consideration that is contingent upon the achievement of specified development, regulatory approval or sales-based milestone events. We record contingent consideration resulting from a business combination at its fair value on the acquisition date. Each reporting period thereafter, we revalue these obligations and record increases or decreases in their fair value in Research and development expenses on our Consolidated Statements of Income until such time that the related product candidate receives marketing approval.

Increases or decreases in fair value of the contingent consideration liabilities can result from updates to assumptions such as the expected timing or probability of achieving the specified milestones, changes in projected revenues or changes in discount rates. Significant judgment is employed in determining these assumptions as of the acquisition date and for each subsequent period. Updates to assumptions could have a significant impact on our results of operations in any given period. Actual results may differ from estimates.

Foreign Currency Translation, Transaction Gains and Losses, and Hedging Contracts

Non-U.S. entity operations are recorded in the functional currency of each entity. Results of operations for non-U.S. dollar functional currency entities are translated into U.S. dollars using average currency rates. Assets and liabilities are translated using currency rates at period end. Foreign currency translation adjustments are recorded as a component of AOCI within stockholders’ equity. Foreign currency transaction gains and losses are recorded in Other income (expense), net, on our Consolidated Statements of Income. Net foreign currency transaction gains and losses were not material for the years ended December 31, 2021, 2020 and 2019.

We hedge a portion of our foreign currency exposures related to outstanding monetary assets and liabilities as well as forecasted product sales using foreign currency exchange forward contracts. In general, the market risk related to these contracts is offset by corresponding gains and losses on the hedged transactions. The credit risk associated with these contracts is driven by changes in interest and currency exchange rates and, as a result, varies over time. By working only with major banks and closely monitoring current market conditions, we seek to limit the risk that counterparties to these contracts may be unable to perform. We also seek to limit our risk of loss by entering into contracts that permit net settlement at maturity. Therefore, our overall risk of loss in the event of a counterparty default is limited to the amount of any unrealized gains on outstanding contracts (i.e., those contracts that have a positive fair value) at the date of default. We do not enter into derivative contracts for trading purposes.

Fair Value of Financial Instruments

We apply fair value accounting for all financial and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. We define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risks.

Derivative Financial Instruments

We recognize all derivative instruments as either assets or liabilities at fair value on our Consolidated Balance Sheets. Unrealized changes in the fair value of derivatives designated as part of a hedge transaction are recorded in AOCI. The unrealized gains or losses in AOCI are reclassified into Product sales on our Consolidated Statements of Income when the respective hedged transactions affect earnings. Changes in the fair value of derivatives that are not part of a hedge transaction are recorded each period in Other income (expense), net on our Consolidated Statements of Income.

We assess, both at inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are effective in offsetting the changes in cash flows or fair values of the hedged items. If we determine that a forecasted transaction is probable of not occurring, we discontinue hedge accounting for the affected portion of the hedge instrument, and any related unrealized gain or loss on the contract is recognized in Other income (expense), net on our Consolidated Statements of Income.

Share-Based Compensation

We provide share-based compensation in the form of various types of equity-based awards, including restricted stock units (“RSU”s), performance share awards or units (“PSU”s) and stock options. Compensation expense is recognized on the Consolidated Statements of Income based on the estimated fair value of the award on the grant date. The estimated fair value of RSUs is based on the closing price of our common stock. For PSUs, depending on the terms of the award, fair value on the date of grant is determined based on either the Monte Carlo valuation methodology or the closing stock price on the date of grant. For stock option awards, estimated fair value is based on the Black-Scholes option valuation model.

Contingencies

We are a party to various legal actions. We recognize accruals for such actions to the extent that we conclude that a loss is both probable and reasonably estimable. We accrue the best estimate of loss within a range; however, if no estimate in the range is better than any other, then we accrue the minimum amount in the range. If we determine that a material loss is reasonably possible, we disclose the possible loss or range of loss, or that the amount of loss cannot be estimated at this time.

Income Taxes

Our income tax provision is computed under the liability method. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Significant estimates are required in determining our provision for income taxes. Some of these estimates are based on interpretations of applicable tax laws or regulations.

We have elected to account for the tax on Global Intangible Low-Taxed Income, enacted as part of the Tax Cuts and Jobs Act, as a component of tax expense in the period in which the tax is incurred.

Other Significant Accounting Policies

Our other significant accounting policies are described in the remaining appropriate Notes to the Consolidated Financial Statements.

2. REVENUES

Disaggregation of Revenues

Revenues were as follows:

Product Sales:

HIV

Hepatitis C virus (“HCV”)

Hepatitis B virus (“HBV”) / Hepatitis Delta virus (“HDV”)

Cell Therapy

Other

_______________________________

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

(2) Includes Emtriva and Tybost.

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

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

(5) Includes Vosevi and Sovaldi.

(6) Includes Hepcludex and Hepsera.

(7) Includes Cayston and Jyseleca.

Revenues From Major Customers

The following table summarizes revenues from each of our customers who individually accounted for 10% or more of our total revenues:

Year Ended December 31,

AmerisourceBergen Corporation 23 % 27 % 21 %

Cardinal Health, Inc. 22 % 21 % 21 %

McKesson Corporation 20 % 20 % 22 %

Revenues Recognized from Performance Obligations Satisfied in Prior Periods

Revenues recognized from performance obligations satisfied in prior years related to our revenue share with Janssen, as described in Note 11. Collaborations and Other Arrangements, and royalties for licenses of our intellectual property were $851 million, $841 million and $741 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Revenues from product sales, net of gross-to-net deductions, are recorded only to the extent a significant reversal in the amount of cumulative revenue recognized is not probable of occurring when the uncertainty associated with gross-to-net deductions is subsequently resolved. Estimates are assessed each period and updated to reflect current information. Changes in estimates related to sales made in prior years resulted in $856 million, $101 million and $257 million increase in revenues for the years ended December 31, 2021, 2020 and 2019, respectively. This was primarily related to changes in estimates for accrued government and other rebates and allowances for sales returns upon product expiration.

Contract Balances

Our contract assets, which consist of unbilled amounts primarily from arrangements where the licensing of intellectual property is the only or predominant performance obligation, totaled $174 million and $198 million as of December 31, 2021 and 2020, respectively. Contract liabilities, which generally result from receipt of advance payment before our performance under the contract, were not material as of December 31, 2021 and 2020, respectively. Revenue expected to be recognized in the future from contract liabilities as the related performance obligations are satisfied is not expected to be material in any one year.

3.FAIR VALUE MEASUREMENTS

We determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value, as follows:

•Level 1 inputs include quoted prices in active markets for identical assets or liabilities;

•Level 2 inputs include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability; and

•Level 3 inputs include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Our Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation.

Our financial instruments consist primarily of cash and cash equivalents, marketable debt securities, accounts receivable, foreign currency exchange contracts, equity securities, accounts payable and short-term and long-term debt. Cash and cash equivalents, marketable debt securities, certain equity securities, and foreign currency exchange contracts are reported at their respective fair values on our Consolidated Balance Sheets. Equity securities without readily determinable fair values are recorded using the measurement alternative of cost less impairment, if any, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer. Short-term and long-term debt are reported at their amortized costs on our Consolidated Balance Sheets. The remaining financial instruments are reported on our Consolidated Balance Sheets at amounts that approximate current fair values. There were no transfers between Level 1, Level 2 and Level 3 in the periods presented.

The following table summarizes the types of assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy:

(in millions) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Assets:

Available-for-sale debt securities:

U.S. treasury securities $ 407 $ — $ — $ 407 $ 309 $ — $ — $ 309

U.S. government agencies securities — 4 — 4 — — — —

Non-U.S. government securities — 50 — 50 — 43 — 43

Residential mortgage and asset-backed securities — 424 — 424 — 316 — 316

Equity securities:

Other publicly traded equity securities 331 — — 331 531 — — 531

Foreign currency derivative contracts — 80 — 80 — 12 — 12

Liabilities:

Foreign currency derivative contracts — 5 — 5 — 121 — 121

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(1) See Note 11. Collaborations and Other Arrangements for additional information.

Equity Securities

The following table summarizes the classification of our equity securities measured at fair value on a recurring basis on our Consolidated Balance Sheets:

Cash and cash equivalents $ 3,661 $ 4,361

Prepaid and other current assets 885 853

Changes in the fair value of equity securities resulted in net unrealized losses of $610 million and $1.7 billion and net unrealized gains of $1.2 billion for the years ended December 31, 2021, 2020 and 2019 respectively, which were included in Other income (expense), net, on our Consolidated Statements of Income.

Other Equity Securities

Equity method investments and other equity investments without readily determinable fair values were $338 million and $262 million as of December 31, 2021 and 2020, respectively, and were excluded from the above tables. These amounts were included in Other long-term assets on our Consolidated Balance Sheets.

Related Party Transaction

During the second quarter of 2021, we donated certain equity securities at fair value to the Gilead Foundation, a California nonprofit organization (the “Foundation”). The Foundation is a related party as certain officers of the company also serve as directors of the Foundation. The donation expense of $212 million was recorded within Selling, general and administrative expenses on our Consolidated Statements of Income for the year ended December 31, 2021.

Level 2 Inputs

We estimate the fair values of Level 2 investments by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income-based and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate the fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities, prepayment/default projections based on historical data and other observable inputs.

For our marketable securities, we review trading activity and pricing as of the measurement date. When sufficient quoted pricing for identical securities is not available, we use market pricing and other observable market inputs for similar securities obtained from various third-party data providers. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data.

Substantially all of our foreign currency derivative contracts have maturities within an 18-month time horizon and all are with counterparties that have a minimum credit rating of A- or equivalent by S&P Global Ratings, Moody’s Investors Service, Inc. or Fitch Ratings, Inc. We estimate the fair values of these contracts by taking into consideration the valuations obtained from a third-party valuation service that utilizes an income-based industry standard valuation model for which all significant inputs are observable, either directly or indirectly. These inputs include foreign currency exchange rates, London Interbank Offered Rates (“LIBOR”) and swap rates. These inputs, where applicable, are observable at commonly quoted intervals.

The total estimated fair values of our aggregate short-term and long-term debt, determined using Level 2 inputs based on their quoted market values, were approximately $28.6 billion and $34.6 billion as of December 31, 2021 and 2020, respectively, and the carrying values were $25.6 billion and $30.3 billion as of December 31, 2021 and 2020, respectively.

Level 3 Inputs

In connection with our first quarter 2021 acquisition of MYR, we measured assets acquired and liabilities assumed at fair value on a nonrecurring basis, except for the liability for contingent consideration. The estimated fair value of the liability for contingent consideration was $341 million and $317 million as of the acquisition date and December 31, 2021, respectively. The change in estimated fair value from the acquisition date was primarily due to the effect of foreign exchange remeasurement. The contingent consideration was estimated using probability-weighted scenarios for U.S. Food and Drug Administration (“FDA”) approval of Hepcludex. See Note 6. Acquisitions for additional information.

In connection with our fourth quarter 2020 acquisition of Immunomedics, Inc. (“Immunomedics”), we measured assets acquired and liabilities assumed at fair value on a nonrecurring basis. The liability assumed related to the sale of future royalties is subsequently amortized using the effective interest method over the remaining estimated life. The fair values of the liability related to the sale of future royalties were $1.3 billion and $1.1 billion as of December 31, 2021 and 2020, respectively, and the carrying value was $1.1 billion as of December 31, 2021 and 2020. See Note 6. Acquisitions and Note 12. Debt and Credit Facilities for additional information.

In 2020, in connection with collaborations and other equity arrangements we entered into with Pionyr Immunotherapeutics Inc. (“Pionyr”) and Tizona Therapeutics, Inc. (“Tizona”), we also measured fair values of our exclusive options to acquire the remaining outstanding capital stock of Pionyr and Tizona on a nonrecurring basis. See Note 11. Collaborations and Other Arrangements for additional information.

In 2019, we measured IPR&D intangible assets acquired in connection with the acquisition of Kite Pharma, Inc. (“Kite”) at fair value on a nonrecurring basis, and recognized a pre-tax impairment charge of $800 million. The fair values of the acquired IPR&D assets are estimated based on probability-adjusted discounted cash flow calculations using Level 3 fair value measurements, and inputs include estimated revenues, costs, probability of technical and regulatory success and discount rates. Amounts capitalized as IPR&D are subject to impairment testing until the completion or abandonment of the associated R&D efforts. See Note 9. Goodwill and Intangible Assets for additional information.

Our policy is to recognize transfers into or out of Level 3 classification as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers between Level 1, Level 2 and Level 3 in the periods presented.

4. AVAILABLE-FOR-SALE DEBT SECURITIES

The following table summarizes our available-for-sale debt securities:

U.S. government agencies securities 4 — — 4 — — — —

Non-U.S. government securities 50 — — 50 43 — — 43

Residential mortgage and asset-backed securities 425 — (1) 424 316 — — 316

The following table summarizes the classification of our available-for-sale debt securities in our Consolidated Balance Sheets:

Cash and cash equivalents $ 6 $ 113

Short-term marketable debt securities 1,182 1,411

Long-term marketable debt securities 1,309 502

The following table summarizes our available-for-sale debt securities by contractual maturity:

(in millions) Amortized Cost Fair Value

After one year through five years 1,288 1,286

After five years 24 23

We held a total of 534 and 75 positions which were in unrealized loss positions as of December 31, 2021 and 2020, respectively. Aggregated gross unrealized losses on available-for-sale debt securities were not material for the years ended December 31, 2021 and 2020. No impairment was recognized for the years ended December 31, 2021, 2020 and 2019.

5.DERIVATIVE FINANCIAL INSTRUMENTS

Our operations in foreign countries expose us to market risk associated with foreign currency exchange rate fluctuations between the U.S. dollar and various foreign currencies, primarily the Euro. To manage this risk, we may hedge a portion of our foreign currency exposures related to outstanding monetary assets and liabilities as well as forecasted product sales using foreign currency exchange forward or option contracts. In general, the market risk related to these contracts is offset by corresponding gains and losses on the hedged transactions. The credit risk associated with these contracts is driven by changes in interest and currency exchange rates, and as a result, varies over time. By working only with major banks and closely monitoring current market conditions, we seek to limit the risk that counterparties to these contracts may be unable to perform. We also seek to limit our risk of loss by entering into contracts that permit net settlement at maturity. Therefore, our overall risk of loss in the event of a counterparty default is limited to the amount of any unrealized gains on outstanding contracts (i.e., those contracts that have a positive fair value) at the date of default. We do not enter into derivative contracts for trading purposes.

We hedge our exposure to foreign currency exchange rate fluctuations for certain monetary assets and liabilities that are denominated in a non-functional currency. The derivative instruments we use to hedge this exposure are not designated as hedges, and as a result, changes in their fair value are recorded in Other income (expense), net, on our Consolidated Statements of Income.

We hedge our exposure to foreign currency exchange rate fluctuations for forecasted product sales that are denominated in a non-functional currency. The derivative instruments we use to hedge this exposure are designated as cash flow hedges and have maturities of 18 months or less. Upon executing a hedging contract and each reporting period thereafter, we assess hedge effectiveness using regression analysis. The unrealized gains or losses in AOCI are reclassified into Product sales on our Consolidated Statements of Income when the respective hedged transactions affect earnings. The majority of gains and losses related to the hedged forecasted transactions reported in AOCI as of December 31, 2021 are expected to be reclassified to Product sales within 12 months.

The cash flow effects of our derivative contracts for the years ended December 31, 2021, 2020 and 2019 were included within Net cash provided by operating activities on our Consolidated Statements of Cash Flows.

We had notional amounts on foreign currency exchange contracts outstanding of $2.9 billion and $2.4 billion as of December 31, 2021 and 2020, respectively.

While all our derivative contracts allow us the right to offset assets and liabilities, we have presented amounts on a gross basis. The following table summarizes the classification and fair values of derivative instruments in our Consolidated Balance Sheets:

Derivative Assets Derivative Liabilities

(in millions) Classification Fair Value Classification FairValue

Derivatives designated as hedges:

Total derivatives designated as hedges 80 5

Derivatives not designated as hedges:

Total derivatives not designated as hedges — —

Total derivatives $ 80 $ 5

Derivative Assets Derivative Liabilities

(in millions) Classification Fair Value Classification FairValue

Derivatives designated as hedges:

Total derivatives designated as hedges — 120

Derivatives not designated as hedges:

Total derivatives not designated as hedges 12 1

Total derivatives $ 12 $ 121

The following table summarizes the effect of our foreign currency exchange contracts on our Consolidated Financial Statements:

Year Ended December 31,

Derivatives designated as hedges:

GILD US Equity

GILD · 10-K · period ended 2021-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

GILD US Equity☆

GILD · 10-K · period ended 2021-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

GILD US Equity