10-Q 1 q118form10-q.htm 10-Q Document




 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 10-Q
 
 
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2018
or 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________ to ________
Commission File No. 0-19731
 
 
GILEAD SCIENCES, INC.

(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
94-3047598
(State or Other Jurisdiction of
Incorporation or Organization)
(IRS Employer
Identification No.)
 
 
333 Lakeside Drive, Foster City, California
94404
(Address of principal executive offices)
(Zip Code)
650-574-3000
Registrant’s Telephone Number, Including Area Code
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ý    No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý Accelerated filer ¨ Non-accelerated filer ¨    (Do not check if a smaller reporting company)
Smaller reporting company ¨ Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨    No ý
Number of shares outstanding of the issuer’s common stock, par value $0.001 per share, as of April 30, 2018: 1,300,260,832
 





GILEAD SCIENCES, INC.
INDEX

PART I.
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
Item 3.
 
 
 
 
 
 
 
Item 4.
 
 
 
 
 
 
PART II.
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
Item 1A.
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
Item 3.
 
 
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
Item 5.
 
 
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 


We own or have rights to various trademarks, copyrights and trade names used in our business, including the following: GILEAD®, GILEAD SCIENCES®, AMBISOME®, AXI-CELTM, BIKTARVY®, CAYSTON®, COMPLERA®, DESCOVY®, EMTRIVA®, EPCLUSA®, EVIPLERA®, GENVOYA®, GILEAD COMPASS INITIATIVE™, HARVONI®, HEPSERA®, LETAIRIS®, ODEFSEY®, RANEXA®, SOVALDI®, STRIBILD®, SYNNOTCH™, THROTTLE™, TRUVADA®, TYBOST®, VEMLIDY®, VIREAD®, VOLIBRIS®, VOSEVI®, YESCARTA® and ZYDELIG®. ATRIPLA® is a registered trademark of Gilead Sciences, LLC. LEXISCAN® is a registered trademark of Astellas U.S. LLC. MACUGEN® is a registered trademark of Eyetech, Inc. TAMIFLU® is a registered trademark of Hoffmann-La Roche Inc. This report also includes other trademarks, service marks and trade names of other companies.







PART I.
FINANCIAL INFORMATION
Item 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in millions, except per share amounts)
 
March 31, 2018
 
December 31, 2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
7,643

 
$
7,588

Short-term marketable securities
16,355

 
17,922

Accounts receivable, net of allowances of $554 at March 31, 2018 and $455 at December 31, 2017
3,775

 
3,851

Inventories
885

 
801

Prepaid and other current assets
1,600

 
1,661

Total current assets
30,258

 
31,823

Property, plant and equipment, net
3,415

 
3,295

Long-term marketable securities
8,104

 
11,184

Intangible assets, net
16,803

 
17,100

Goodwill
4,159

 
4,159

Other long-term assets
2,642

 
2,722

Total assets
$
65,381

 
$
70,283

Liabilities and Stockholders’ Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
711

 
$
814

Accrued government and other rebates
5,048

 
4,704

Other accrued liabilities
2,414

 
3,370

Current portion of long-term debt and other obligations, net
2,497

 
2,747

Total current liabilities
10,670

 
11,635

Long-term debt, net
26,557

 
30,795

Long-term income taxes payable
6,832

 
6,794

Other long-term obligations
671

 
558

Commitments and contingencies (Note 10)


 


Stockholders’ equity:
 

 
 

Preferred stock, par value $0.001 per share; 5 shares authorized; none outstanding

 

Common stock, par value $0.001 per share; shares authorized of 5,600 at March 31, 2018 and December 31, 2017; shares issued and outstanding of 1,300 at March 31, 2018 and 1,308 at December 31, 2017
1

 
1

Additional paid-in capital
1,564

 
1,264

Accumulated other comprehensive income (loss)
(170
)
 
165

Retained earnings
19,196

 
19,012

Total Gilead stockholders’ equity
20,591

 
20,442

Noncontrolling interest
60

 
59

Total stockholders’ equity
20,651

 
20,501

Total liabilities and stockholders’ equity
$
65,381

 
$
70,283


See accompanying notes.

2



GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in millions, except per share amounts)
 
 
Three Months Ended
 
 
March 31,
 
 
2018
 
2017
Revenues:
 
 
 
 
Product sales
 
$
5,001

 
$
6,377

Royalty, contract and other revenues
 
87

 
128

Total revenues
 
5,088

 
6,505

Costs and expenses:
 
 
 
 
Cost of goods sold
 
1,001

 
957

Research and development expenses
 
937

 
931

Selling, general and administrative expenses
 
997

 
850

Total costs and expenses
 
2,935

 
2,738

Income from operations
 
2,153

 
3,767

Interest expense
 
(290
)
 
(261
)
Other income (expense), net
 
170

 
111

Income before provision for income taxes
 
2,033

 
3,617

Provision for income taxes
 
494

 
918

Net income
 
1,539

 
2,699

Net income (loss) attributable to noncontrolling interest
 
1

 
(3
)
Net income attributable to Gilead
 
$
1,538

 
$
2,702

Net income per share attributable to Gilead common stockholders - basic
 
$
1.18

 
$
2.07

Shares used in per share calculation - basic
 
1,307

 
1,308

Net income per share attributable to Gilead common stockholders - diluted
 
$
1.17

 
$
2.05

Shares used in per share calculation - diluted
 
1,320

 
1,320

Cash dividends declared per share
 
$
0.57

 
$
0.52























See accompanying notes.

3



GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(in millions)
 
 
Three Months Ended
 
 
March 31,
 
 
2018
 
2017
Net income
 
$
1,539

 
$
2,699

Other comprehensive income (loss):
 
 
 
 
Net foreign currency translation gain (loss), net of tax
 
7

 
(76
)
Available-for-sale securities:
 
 
 
 
Net unrealized gain (loss), net of tax impact of $0 and $2, respectively
 
(36
)
 
184

Reclassifications to net income, net of tax impact of $0 and $0, respectively
 

 
3

Net change
 
(36
)
 
187

Cash flow hedges:
 
 
 
 
Net unrealized loss, net of tax impact of $0 and $(7), respectively
 
(61
)
 
(87
)
Reclassifications to net income, net of tax impact of $0 and $(1), respectively
 
48

 
(42
)
Net change
 
(13
)
 
(129
)
Other comprehensive loss
 
(42
)
 
(18
)
Comprehensive income
 
1,497

 
2,681

Comprehensive income (loss) attributable to noncontrolling interest
 
1

 
(3
)
Comprehensive income attributable to Gilead
 
$
1,496

 
$
2,684




























See accompanying notes.

4



GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
 
 
Three Months Ended
 
 
March 31,
 
 
2018
 
2017
Operating Activities:
 
 
 
 
Net income
 
$
1,539

 
$
2,699

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation expense
 
56

 
49

Amortization expense
 
301

 
245

Stock-based compensation expense
 
220

 
89

Deferred income taxes
 
35

 
58

Other
 
49

 
39

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable, net
 
101

 
537

Inventories
 
(14
)
 
(5
)
Prepaid expenses and other
 
529

 
177

Accounts payable
 
(92
)
 
(262
)
Income taxes payable
 
(618
)
 
(24
)
Accrued liabilities
 
164

 
(677
)
Net cash provided by operating activities
 
2,270

 
2,925

 
 
 
 
 
Investing Activities:
 
 
 
 
Purchases of marketable securities
 
(397
)
 
(3,482
)
Proceeds from sales of marketable securities
 
221

 
3,173

Proceeds from maturities of marketable securities
 
4,762

 
734

Capital expenditures
 
(212
)
 
(118
)
Other
 
(20
)
 

Net cash provided by investing activities
 
4,354

 
307

 
 
 
 
 
Financing Activities:
 
 
 
 
Proceeds from issuances of common stock
 
111

 
96

Repurchases of common stock
 
(1,039
)
 
(565
)
Repayments of debt and other obligations
 
(4,500
)
 
(30
)
Payments of dividends
 
(753
)
 
(687
)
Other
 
(414
)
 
(58
)
Net cash used in financing activities
 
(6,595
)
 
(1,244
)
Effect of exchange rate changes on cash and cash equivalents
 
26

 
68

Net change in cash and cash equivalents
 
55

 
2,056

Cash and cash equivalents at beginning of period
 
7,588

 
8,229

Cash and cash equivalents at end of period
 
$
7,643

 
$
10,285



See accompanying notes.

5



GILEAD SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. The financial statements include all adjustments, consisting of normal recurring adjustments that the management of Gilead Sciences, Inc. (Gilead, we, our or us) believes are necessary for a fair presentation of the periods presented. These interim financial results are not necessarily indicative of results expected for the full fiscal year or for any subsequent interim period.
The accompanying Condensed 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 (loss) attributable to noncontrolling interest in our Condensed 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. As of March 31, 2018, we do not have any material VIEs.
The accompanying Condensed Consolidated Financial Statements and related Notes to Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the related notes thereto for the year ended December 31, 2017, included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (SEC).
Significant Accounting Policies, Estimates and Judgments
The preparation of these Condensed Consolidated 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 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. Actual results may differ significantly from these estimates.
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. The majority of our trade accounts receivable arises from product sales in the United States and Europe. To date, we have not experienced significant losses with respect to the collection of our accounts receivable. We believe that our allowance for doubtful accounts was adequate at March 31, 2018.
Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2014-09 (Topic 606) “Revenue from Contracts with Customers.” Topic 606 supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition” (Topic 605) and requires entities to recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled when promised goods or services are transferred to a customer. Entities adopting Topic 606 had the option of using either a full retrospective or a modified retrospective approach.    
On January 1, 2018, we adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. As such, results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under Topic 605.

6



As discussed further in Note 2, Revenues, our product sales are recognized when control of the product transfers, generally upon shipment or delivery to the customer. Certain product sales that were deferred under the sell-through or cash basis methods of accounting because fees were not fixed or determinable prior to the adoption of Topic 606 are now recognized upon transfer of control. Royalty revenue is recognized in the period in which the corresponding sales by our corporate partners occur. Prior to the adoption of Topic 606, royalty revenue was generally recognized in the quarter following the quarter in which the corresponding sales by our corporate partners occurred.
The cumulative effect of the changes made to our Condensed Consolidated Balance Sheets at January 1, 2018 for the adoption of Topic 606 was as follows (in millions):
 
 
December 31, 2017
 
Adjustments Due to Topic 606
 
January 1, 2018
Prepaid and other current assets
 
$
1,661

 
$
96

 
$
1,757

Other long-term assets
 
$
2,722

 
$
10

 
$
2,732

Other accrued liabilities
 
$
3,370

 
$
(115
)
 
$
3,255

Other long-term obligations
 
$
558

 
$
31

 
$
589

Retained earnings
 
$
19,012

 
$
190

 
$
19,202

For the three months ended March 31, 2018, the impact as a result of applying Topic 606 in place of Topic 605 was an increase to revenues of $5 million.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01 (ASU 2016-01) “Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 changes accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. Additionally, ASU 2016-01 clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. On January 1, 2018, we adopted this standard using a modified retrospective approach. The standard requires that equity investments with readily determinable fair values are measured at fair value with any changes in fair value recognized in earnings. As a result of the adoption, we reclassified $293 million of unrealized net gain from accumulated other comprehensive income (AOCI) to retained earnings on January 1, 2018, which primarily consisted of $278 million unrealized gain from our equity investment in Galapagos NV.
In August 2017, the FASB issued Accounting Standards Update No. 2017-12 (ASU 2017-12) “Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities.” The amendments in ASU 2017-12 more closely align the results of hedge accounting with risk management activities. ASU 2017-12 also amends the presentation and disclosure requirements and eases documentation and effectiveness assessment requirements. Pursuant to the provisions of ASU 2017-12, we are no longer required to separately measure and recognize hedge ineffectiveness for highly effective hedges. On January 1, 2018, we early adopted this standard on a prospective basis. Upon adoption of ASU 2017-12, we no longer recognize hedge ineffectiveness in our Condensed Consolidated Statements of Income, but we instead recognize the entire change in the fair value of the hedge contract in AOCI. The adoption did not have a material impact on our Condensed Consolidated Financial Statements. The primary impact of adoption was required disclosure changes. See Note 5, Derivative Financial Instruments for additional information.
In March 2018, the FASB issued Accounting Standards Update No. 2018-05 (ASU 2018-05) “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.” ASU 2018-05 amends Topic 740 by incorporating the SEC Staff Accounting Bulletin No. 118 (SAB 118) issued on December 22, 2017. SAB 118 provides guidance on accounting for the effects of the Tax Cuts and Jobs Act (Tax Reform) and allows a company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. See Note 14, Income Taxes for additional information.
Recently Issued Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02) “Leases.” ASU 2016-02 amends a number of aspects of lease accounting, including requiring lessees to recognize leases with a term greater than one year as a right-of-use asset and corresponding liability, measured at the present value of the lease payments. The guidance will become effective for us beginning in the first quarter of 2019 and is required to be adopted using a modified retrospective approach. Early adoption is permitted. We are evaluating the impact of the adoption of this standard and we anticipate recognition of additional assets and corresponding liabilities related to leases on our Condensed Consolidated Balance Sheets.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU 2016-13) “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets. This guidance will become effective for us beginning in the first quarter of 2020 and must be

7



adopted using a modified retrospective approach, with certain exceptions. Early adoption is permitted beginning in the first quarter of 2019. We are evaluating the impact of the adoption of this standard on our Condensed Consolidated Financial Statements.
2.
REVENUES
On January 1, 2018, we adopted Topic 606 using the modified retrospective method. As a result, we have changed our accounting policies for revenue recognition as detailed below. 
Product Sales
We recognize revenue from product sales when control of the product transfers, generally upon shipment or delivery, to the customer. Upon recognition of revenue from product sales, provisions are made for various forms of variable consideration, which include government and other rebates such as Medicaid reimbursements, customer incentives such as cash discounts for prompt payment, distributor fees and expected returns of expired products, as appropriate. Our payment terms to customers generally range from 30 to 90 days.
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.
Policy Elections and Practical Expedients Taken
We account for shipping and handling activities that are performed after a customer has obtained control of a good as fulfillment costs rather than as separate performance obligations; and
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 significant financing component.
Variable Consideration
Rebates and Chargebacks
We estimate reductions to our revenues for amounts paid to payers and healthcare providers in the United States, including Medicaid rebates, AIDS Drug Assistance Program rebates and chargebacks, Veterans Administration and Public Health Service chargebacks and other rebates, as well as foreign government rebates. Rebates and chargebacks are based on contractual arrangements or statutory requirements which may vary by product, payer and individual payer plans. Our estimates are based on products sold, historical utilization rates, and as available, pertinent third-party industry information, estimated patient population, known market events or trends, and for our U.S. product sales, channel inventory data obtained from our major U.S. wholesalers in accordance with our inventory management agreements. We also take into consideration, as available, new information regarding changes in programs’ regulations and guidelines that would impact the amount of the actual rebates and/or our expectations regarding future utilization rates for these programs. Government and other chargebacks that are payable to our direct customers are classified as reductions of Accounts receivable on our Condensed Consolidated Balance Sheets. Government and other rebates that are invoiced directly to us are recorded in Accrued government and other rebates on our Condensed Consolidated Balance Sheets.
Cash Discounts
We estimate cash discounts based on contractual terms, historical utilization rates and our expectations regarding future utilization rates.
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.
Product Returns
We do not provide our customers with a general right of product return, but typically permit returns if the product is damaged or defective when received by the customer, or in the case of product sold in the United States and certain countries outside the United States, if the product has expired. We will accept returns for product that will expire within six months or that have expired up to one year after their expiration dates. Our estimates for expected returns of expired products are based primarily on an ongoing analysis of our historical return patterns, historical industry information reporting the return rates for similar products and contractual agreements intended to limit the amount of inventory maintained by our wholesalers.

8



Revenue Recognized from Performance Obligations Satisfied in Prior Periods
During the three months ended March 31, 2018, revenue recognized from performance obligations satisfied in prior periods was $10 million, consisting primarily of royalties for licenses of our intellectual property and revised estimates for variable consideration related to sales made in prior periods.
Contract Assets
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 $117 million and $132 million at March 31, and January 1, 2018, respectively.
Disaggregation of Revenues
The following table disaggregates our product sales by product and geographic region and disaggregates our royalty, contract and other revenues by geographic region for the three months ended March 31, 2018 and 2017. The information for the three months ended March 31, 2017 has not been adjusted in accordance with our modified retrospective adoption of Topic 606 and continues to be reported in accordance with our historical accounting under Topic 605.
 
 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2017
(In millions)
 
U.S.
 
Europe
 
Other International
 
Total
 
U.S.
 
Europe
 
Other International
 
Total
Antiviral products:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Biktarvy
 
$
35

 
$

 
$

 
$
35

 
$

 
$

 
$

 
$

Descovy
 
274

 
75

 
12

 
361

 
209

 
37

 
5

 
251

Genvoya
 
853

 
186

 
43

 
1,082

 
669

 
87

 
13

 
769

Odefsey
 
279

 
58

 
5

 
342

 
203

 
23

 
1

 
227

Atripla
 
228

 
51

 
35

 
314

 
316

 
94

 
42

 
452

Complera/Eviplera
 
67

 
109

 
14

 
190

 
112

 
125

 
16

 
253

Stribild
 
133

 
29

 
12

 
174

 
226

 
67

 
16

 
309

Truvada
 
507

 
97

 
48

 
652

 
464

 
189

 
61

 
714

Vemlidy
 
47

 
3

 
8

 
58

 
11

 

 

 
11

Viread
 
7

 
30

 
60

 
97

 
117

 
71

 
72

 
260

Epclusa
 
269

 
198

 
69

 
536

 
735

 
138

 
19

 
892

Harvoni
 
234

 
56

 
58

 
348

 
926

 
243

 
202

 
1,371

Vosevi
 
86

 
16

 
5

 
107

 

 

 

 

Other antiviral
 
4

 
13

 
62

 
79

 
41

 
110

 
181

 
332

Other products:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Yescarta
 
40

 

 

 
40

 

 

 

 

Zydelig
 
14

 
18

 
1

 
33

 
15

 
19

 
1

 
35

Letairis
 
204

 

 

 
204

 
211

 

 

 
211

Ranexa
 
195

 

 

 
195

 
153

 

 

 
153

AmBisome
 
17

 
56

 
34

 
107

 
9

 
52

 
31

 
92

Other
 
34

 
10

 
3

 
47

 
33

 
11

 
1

 
45

Total product sales
 
3,527

 
1,005

 
469

 
5,001

 
4,450

 
1,266

 
661

 
6,377

Royalty, contract and other revenues
 
20

 
52

 
15

 
87

 
19

 
93

 
16

 
128

Total revenues
 
$
3,547

 
$
1,057

 
$
484

 
$
5,088

 
$
4,469

 
$
1,359

 
$
677

 
$
6,505

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;

9



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. 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; 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 securities, accounts receivable, foreign currency exchange contracts, equity securities, accounts payable and short-term and long-term debt. Cash and cash equivalents, marketable debt and equity securities, and foreign currency exchange contracts are reported at their respective fair values on our Condensed Consolidated Balance Sheets. Short-term and long-term debt are reported at their amortized costs on our Condensed Consolidated Balance Sheets. The remaining financial instruments are reported on our Condensed 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):
 
March 31, 2018
 
December 31, 2017
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities
$

 
$
11,972

 
$

 
$
11,972

 
$

 
$
14,747

 
$

 
$
14,747

U.S. treasury securities
3,884

 

 

 
3,884

 
4,061

 

 

 
4,061

Residential mortgage and asset-backed securities

 
3,406

 

 
3,406

 

 
4,058

 

 
4,058

U.S. government agencies securities

 
925

 

 
925

 

 
926

 

 
926

Certificates of deposit

 
3,908

 

 
3,908

 

 
5,131

 

 
5,131

Non-U.S. government securities

 
559

 

 
559

 

 
664

 

 
664

Marketable equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
4,674

 

 

 
4,674

 
4,714

 

 

 
4,714

Equity securities
680

 

 

 
680

 
635

 

 

 
635

Deferred compensation plan
126

 

 

 
126

 
116

 

 

 
116

Foreign currency derivative contracts

 
4

 

 
4

 

 
13

 

 
13

Total
$
9,364

 
$
20,774

 
$

 
$
30,138

 
$
9,526

 
$
25,539

 
$

 
$
35,065

Liabilities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Deferred compensation plan
$
126

 
$

 
$

 
$
126

 
$
116

 
$

 
$

 
$
116

Foreign currency derivative contracts

 
110

 

 
110

 

 
93

 

 
93

Total
$
126

 
$
110

 
$

 
$
236

 
$
116

 
$
93

 
$

 
$
209

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Our available-for-sale debt securities are classified as cash equivalents, short-term marketable securities and long-term marketable securities. See Note 4, Available-for-Sale Debt Securities for additional information.

10



The following table summarizes the classification of our marketable equity securities on our Condensed Consolidated Balance Sheets (in millions):
 
March 31, 2018
 
December 31, 2017
Cash and cash equivalents
$
4,674

 
$
4,714

Prepaid and other current assets
681

 
637

Other long-term assets
125

 
114

        Total
$
5,480

 
$
5,465

For the three months ended March 31, 2018, changes in the estimated fair values of the marketable equity securities resulted in unrealized gains of $45 million, which were included in Other income (expense), net, on our Condensed Consolidated Statements of Income.
Cash and cash equivalents in the table above excludes cash of $2.8 billion and $2.4 billion, respectively, and cash equivalents of $195 million and $481 million as of March 31, 2018 and December 31, 2017, respectively.
Level 2 Inputs
We estimate the fair values of Level 2 instruments 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 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.
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 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 short-term and long-term debt, determined using Level 2 inputs based on their quoted market values, were approximately $29.9 billion and $35.5 billion at March 31, 2018 and December 31, 2017, respectively, and the carrying values were $29.1 billion and $33.5 billion at March 31, 2018 and December 31, 2017, respectively.
4.
AVAILABLE-FOR-SALE DEBT SECURITIES
The following table summarizes our available-for-sale debt securities (in millions):
 
 
March 31, 2018
 
December 31, 2017
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value 
Corporate debt securities
 
$
12,044

 
$
2

 
$
(74
)
 
$
11,972

 
$
14,790

 
$
3

 
$
(46
)
 
$
14,747

U.S. treasury securities
 
3,912

 

 
(28
)
 
3,884

 
4,090

 

 
(29
)
 
4,061

Residential mortgage and asset-backed securities
 
3,427

 

 
(21
)
 
3,406

 
4,072

 
1

 
(15
)
 
4,058

U.S. government agencies securities
 
934

 

 
(9
)
 
925

 
934

 

 
(8
)
 
926

Certificates of deposit
 
3,908

 

 

 
3,908

 
5,131

 

 

 
5,131

Non-U.S. government securities
 
563

 

 
(4
)
 
559

 
668

 

 
(4
)
 
664

Total
 
$
24,788

 
$
2

 
$
(136
)
 
$
24,654

 
$
29,685

 
$
4

 
$
(102
)
 
$
29,587

The following table summarizes the classification of our available-for-sale debt securities on our Condensed Consolidated Balance Sheets (in millions):
 
 
March 31, 2018
 
December 31, 2017
Cash and cash equivalents
 
$
195

 
$
481

Short-term marketable securities
 
16,355

 
17,922

Long-term marketable securities
 
8,104

 
11,184

Total
 
$
24,654

 
$
29,587


11



The following table summarizes our available-for-sale debt securities by contractual maturity (in millions):
 
 
March 31, 2018
 
 
Amortized Cost
 
Fair Value
Within one year
 
$
16,591

 
$
16,550

After one year through five years
 
8,094

 
8,003

After five years through ten years
 
76

 
74

After ten years
 
27

 
27

Total
 
$
24,788

 
$
24,654

The following table summarizes our available-for-sale debt securities that were in a continuous unrealized loss position, but were not deemed to be other-than-temporarily impaired (in millions):
 
 
Less Than 12 Months
 
12 Months or Greater
 
Total
 
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities
 
$
(25
)
 
$
6,256

 
$
(48
)
 
$
3,604

 
$
(73
)
 
$
9,860

U.S. treasury securities
 
(2
)
 
547

 
(27
)
 
3,337

 
(29
)
 
3,884

Residential mortgage and asset-backed securities
 
(7
)
 
1,682

 
(15
)
 
1,289

 
(22
)
 
2,971

U.S. government agencies securities
 
(1
)
 
182

 
(8
)
 
723

 
(9
)
 
905

Non-U.S. government securities
 

 
145

 
(3
)
 
413

 
(3
)
 
558

Total
 
$
(35
)
 
$
8,812

 
$
(101
)
 
$
9,366

 
$
(136
)
 
$
18,178

 
 
 

 
 

 
 

 
 

 
 

 
 

December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities
 
$
(14
)
 
$
7,674

 
$
(32
)
 
$
3,561

 
$
(46
)
 
$
11,235

U.S. treasury securities
 
(2
)
 
821

 
(27
)
 
3,240

 
(29
)
 
4,061

Residential mortgage and asset-backed securities
 
(4
)
 
2,245

 
(11
)
 
1,206

 
(15
)
 
3,451

U.S. government agencies securities
 
(1
)
 
206

 
(7
)
 
700

 
(8
)
 
906

Non-U.S. government securities
 
(1
)
 
203

 
(3
)
 
461

 
(4
)
 
664

Total
 
$
(22
)
 
$
11,149

 
$
(80
)
 
$
9,168

 
$
(102
)
 
$
20,317

We held a total of 2,588 and 2,957 positions as of March 31, 2018 and December 31, 2017, respectively, that were in an unrealized loss position.
Based on our review of these securities, we believe we had no other-than-temporary impairments as of March 31, 2018 and December 31, 2017, because we do not intend to sell these securities nor do we believe that we will be required to sell these securities before the recovery of their amortized cost basis. Gross realized gains and gross realized losses were not material for the three months ended March 31, 2018 and 2017.
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. In order 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 unrecognized 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 of our entities 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 Condensed Consolidated Statements of Income.

12



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 quarterly thereafter, we assess hedge effectiveness using regression analysis. Prior to January 2018, we excluded time value from our effectiveness testing and recognized changes in the time value of the hedge in Other income (expense), net, on our Condensed Consolidated Statements of Income. Starting in January 2018, we include time value in our effectiveness testing and the entire change in the value of hedge contract is recorded as unrealized gains or losses in AOCI within Stockholders’ equity on our Condensed Consolidated Balance Sheets. The unrealized gains or losses in AOCI are reclassified into product sales when the respective hedged transactions affect earnings. The majority of gains and losses related to the hedged forecasted transactions reported in AOCI at March 31, 2018 are expected to be reclassified to product sales within 12 months.
The cash flow effects of our derivative contracts for the three months ended March 31, 2018 and 2017 are included within Net cash provided by operating activities on our Condensed Consolidated Statements of Cash Flows.
We had notional amounts on foreign currency exchange contracts outstanding of $2.5 billion and $2.8 billion at March 31, 2018 and December 31, 2017, respectively.
While all of 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 on our Condensed Consolidated Balance Sheets (in millions):
 
 
March 31, 2018
 
 
Asset Derivatives
 
Liability Derivatives
 
 
Classification
 
Fair Value
 
Classification
 
Fair Value
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
Other current assets
 
$
2

 
Other accrued liabilities
 
$
(104
)
Foreign currency exchange contracts
 
Other long-term assets
 
1

 
Other long-term obligations
 
(5
)
Total derivatives designated as hedges
 
 
 
3

 
 
 
(109
)
Derivatives not designated as hedges:
 
 
 
 

 
 
 
 

Foreign currency exchange contracts
 
Other current assets
 
1

 
Other accrued liabilities
 
(1
)
Total derivatives not designated as hedges
 
 
 
1

 
 
 
(1
)
Total derivatives
 
 
 
$
4

 
 
 
$
(110
)
 
 
December 31, 2017
 
 
Asset Derivatives
 
Liability Derivatives
 
 
Classification
 
Fair Value
 
Classification
 
Fair Value
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
Other current assets
 
$
2

 
Other accrued liabilities
 
$
(89
)
Foreign currency exchange contracts
 
Other long-term assets
 
1

 
Other long-term obligations
 
(3
)
Total derivatives designated as hedges
 
 
 
3

 
 
 
(92
)
Derivatives not designated as hedges:
 
 
 
 

 
 
 
 

Foreign currency exchange contracts
 
Other current assets
 
10

 
Other accrued liabilities
 
(1
)
Total derivatives not designated as hedges
 
 
 
10

 
 
 
(1
)
Total derivatives
 
 
 
$
13

 
 
 
$
(93
)

13



The following table summarizes the effect of our foreign currency exchange contracts on our Condensed Consolidated Financial Statements (in millions):
 
 
Three Months Ended
 
 
March 31,
 
 
2018
 
2017
Derivatives designated as hedges:
 
 
 
 
Losses recognized in AOCI
 
$
(61
)
 
$
(94
)
Gains (losses) reclassified from AOCI into product sales
 
$
(48
)
 
$
43

Gains recognized in Other income (expense), net
 
$

 
$
13

Derivatives not designated as hedges:
 
 
 
 
Losses recognized in Other income (expense), net
 
$
(14
)
 
$
(135
)
From time to time, we may discontinue cash flow hedges and, as a result, record related amounts in Other income (expense), net, on our Condensed Consolidated Statements of Income. There were no material amounts recorded in Other income (expense), net, on our Condensed Consolidated Statements of Income for the three months ended March 31, 2018 and 2017 as a result of the discontinuance of cash flow hedges.
As of March 31, 2018 and December 31, 2017, we held one type of financial instrument, which was derivative contracts related to foreign currency exchange contracts. The following table summarizes the potential effect of offsetting derivatives by type of financial instrument on our Condensed Consolidated Balance Sheets (in millions):
 
 
 
 
 
 
 
 
Gross Amounts Not Offset
on our Condensed
Consolidated Balance Sheets
 
 
Description
 
Gross Amounts
 of Recognized
Assets/Liabilities
 
Gross Amounts
 Offset on our
Condensed
Consolidated
Balance Sheets
 
Amounts of Assets/Liabilities Presented
 on our Condensed Consolidated
Balance Sheets
 
Derivative
Financial
Instruments
 
Cash Collateral
Received/
Pledged
 
Net Amount
 (Legal Offset)
As of March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
$
4

 
$

 
$
4

 
$
(4
)
 
$

 
$

Derivative liabilities
 
$
(110
)
 
$

 
$
(110
)
 
$
4

 
$

 
$
(106
)
As of December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
$
13

 
$

 
$
13

 
$
(8
)
 
$

 
$
5

Derivative liabilities
 
$
(93
)
 
$

 
$
(93
)
 
$
8

 
$

 
$
(85
)
6.
ACQUISITION
On October 3, 2017 (the acquisition date), we completed a tender offer for all of the outstanding common stock of Kite Pharma, Inc. (Kite) for $180 per share in cash. As a result, Kite became our wholly-owned subsidiary. The acquisition of Kite helps establish our foundation for improving the treatment of hematological malignancies and solid tumors.
The consideration transferred for the acquisition was $11,155 million, consisting of $10,420 million in cash to the outstanding Kite common stockholders, $645 million cash payment to vested equity award holders, $15 million to warrant holders and $75 million representing the portion of the replaced stock-based awards attributable to the pre-combination period. In addition, $733 million was excluded from the consideration transferred, representing the portion of the replaced stock-based awards attributable to the post combination period, which is expected to be recognized through 2021.
The acquisition of Kite was accounted for as a business combination using the acquisition method of accounting. This method requires, among other things, that assets acquired and liabilities assumed be recognized at fair value as of the acquisition date. The fair value estimates for the assets acquired and liabilities assumed in the acquisition have not yet been finalized as of March 31, 2018 and we did not make any measurement period adjustments to the preliminary acquisition date fair value estimates during the three months ended March 31, 2018.

14



The following table summarizes the preliminary acquisition date fair values of assets acquired and liabilities assumed, and the consideration transferred (in millions):
Cash and cash equivalents
 
$
652

Identifiable intangible assets:
 
 
  Indefinite-lived intangible assets - IPR&D
 
8,950

  Outlicense acquired
 
91

Deferred income taxes
 
(1,606
)
Other assets acquired (liabilities assumed), net
 
81

Total identifiable net assets
 
8,168

Goodwill
 
2,987

Total consideration transferred
 
$
11,155

We will be able to complete our valuation when we obtain additional information, primarily related to certain forecast assumptions used to perform our preliminary valuation of intangibles and estimates to record the benefit of certain tax attributes. Changes to these assumptions and estimates could cause an impact to the valuation of assets acquired, including intangible assets, goodwill and the related tax impacts of the acquisition. We expect to finalize these amounts as soon as possible but no later than one year from the acquisition date.
7.
OTHER FINANCIAL INFORMATION
Inventories
Inventories are summarized as follows (in millions):
 
 
March 31, 2018
 
December 31, 2017
Raw materials
 
$
1,865

 
$
1,880

Work in process
 
306

 
352

Finished goods
 
707

 
670

Total
 
$
2,878

 
$
2,902

 
 
 
 
 
Reported as:
 
 
 
 
Inventories
 
$
885

 
$
801

Other long-term assets
 
1,993

 
2,101

Total
 
$
2,878

 
$
2,902

Amounts reported as other long-term assets primarily consisted of raw materials as of March 31, 2018 and December 31, 2017.
Other Accrued Liabilities
The components of other accrued liabilities are summarized as follows (in millions):
 
 
March 31, 2018
 
December 31, 2017
Income taxes payable
 
$
66

 
$
713

Compensation and employee benefits
 
324

 
455

Branded prescription drug fee
 
313

 
284

Other accrued expenses
 
1,711

 
1,918

Total
 
$
2,414

 
$
3,370

 
 
 
 
 

15



8.
INTANGIBLE ASSETS
The following table summarizes the carrying amount of our intangible assets, net (in millions):
 
 
March 31, 2018
 
December 31, 2017
Finite-lived intangible assets
 
$
14,053

 
$
14,350

Indefinite-lived intangible assets
 
2,750

 
2,750

Total intangible assets
 
$
16,803

 
$
17,100

The following table summarizes our finite-lived intangible assets (in millions):
 
 
March 31, 2018
 
December 31, 2017
 
 
Gross 
Carrying
Amount
 
Accumulated
Amortization
 
Foreign Currency Translation Adjustment
 
Net Carrying Amount
 
Gross 
Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying Amount
Intangible asset - sofosbuvir
 
$
10,720

 
$
(3,030
)
 
$

 
$
7,690

 
$
10,720

 
$
(2,855
)
 
$
7,865

Intangible asset - axicabtagene ciloleucel (DLBCL)
 
6,200

 
(158
)
 

 
6,042

 
6,200

 
(72
)
 
6,128

Intangible asset - Ranexa
 
688

 
(594
)
 

 
94

 
688

 
(566
)
 
122

Other
 
546

 
(323
)
 
4

 
227

 
546

 
(311
)
 
235

Total
 
$
18,154

 
$
(4,105
)
 
$
4

 
$
14,053

 
$
18,154

 
$
(3,804
)
 
$
14,350

Amortization expense related to finite-lived intangible assets, included in Cost of goods sold on our Condensed Consolidated Statements of Income, totaled $301 million for the three months ended March 31, 2018 and $210 million for the three months ended March 31, 2017. As of March 31, 2018, estimated future amortization expense associated with our finite-lived intangible assets is as follows (in millions):
Fiscal Year
 
Amount
2018 (remaining nine months)
 
$
902

2019
 
1,089

2020
 
1,064

2021
 
1,064

2022
 
1,064

Thereafter
 
8,870

Total
 
$
14,053


16



9.
DEBT AND CREDIT FACILITIES
The following table summarizes our borrowings under various financing arrangements (in millions):
 
 
 
 
 
 
 
 
Carrying Amount
Type of Borrowing
 
Issue Date
 
Due Date
 
Interest Rate
 
March 31, 2018
 
December 31, 2017
Senior Unsecured
 
September 2015
 
September 2018
 
1.85%
 
$
999

 
$
999

Senior Unsecured
 
September 2017
 
September 2018
 
3-month LIBOR + 0.17%
 
749

 
749

Term Loan
 
October 2017
 
October 2018
 
Variable
 

 
999

Senior Unsecured
 
September 2017
 
March 2019
 
3-month LIBOR + 0.22%
 
749

 
748

Senior Unsecured
 
March 2014
 
April 2019
 
2.05%
 
499

 
499

Senior Unsecured
 
September 2017
 
September 2019
 
1.85%
 
997

 
997

Senior Unsecured
 
September 2017
 
September 2019
 
3-month LIBOR + 0.25%
 
499

 
499

Senior Unsecured
 
November 2014
 
February 2020
 
2.35%
 
499

 
499

Senior Unsecured
 
September 2015
 
September 2020
 
2.55%
 
1,994

 
1,994

Term Loan
 
October 2017
 
October 2020
 
Variable
 

 
998

Senior Unsecured
 
March 2011
 
April 2021
 
4.50%
 
996

 
995

Senior Unsecured
 
December 2011
 
December 2021
 
4.40%
 
1,247

 
1,246

Senior Unsecured
 
September 2016
 
March 2022
 
1.95%
 
498

 
497

Senior Unsecured
 
September 2015
 
September 2022
 
3.25%
 
996

 
996

Term Loan
 
October 2017
 
October 2022
 
Variable
 

 
2,497

Senior Unsecured
 
September 2016
 
September 2023
 
2.50%
 
745

 
745

Senior Unsecured
 
March 2014
 
April 2024
 
3.70%
 
1,743

 
1,742

Senior Unsecured
 
November 2014
 
February 2025
 
3.50%
 
1,744

 
1,744

Senior Unsecured
 
September 2015
 
March 2026
 
3.65%
 
2,729

 
2,729

Senior Unsecured
 
September 2016
 
March 2027
 
2.95%
 
1,244

 
1,244

Senior Unsecured
 
September 2015
 
September 2035
 
4.60%
 
990

 
990

Senior Unsecured
 
September 2016
 
September 2036
 
4.00%
 
740

 
740

Senior Unsecured
 
December 2011
 
December 2041
 
5.65%
 
995

 
995

Senior Unsecured
 
March 2014
 
April 2044
 
4.80%
 
1,733

 
1,733

Senior Unsecured
 
November 2014
 
February 2045
 
4.50%
 
1,730

 
1,730

Senior Unsecured
 
September 2015
 
March 2046
 
4.75%
 
2,215

 
2,215

Senior Unsecured
 
September 2016
 
March 2047
 
4.15%
 
1,724

 
1,723

Total debt, net
 
29,054

 
33,542

Less current portion
 
2,497

 
2,747

Total long-term debt, net
 
$
26,557

 
$
30,795

 
 
 
 
 
 
 
 
 
 
 
In March 2018, we fully repaid the $4.5 billion outstanding debt under our term loan facility credit agreement, at which time the term loan facility credit agreement terminated.
We are required to comply with certain covenants under our credit agreement and note indentures governing our senior notes. As of March 31, 2018, we were not in violation of any covenants. Additionally, as of March 31, 2018, there were no amounts outstanding under our revolving credit facility.
10.
COMMITMENTS AND CONTINGENCIES
We are a party to various legal actions. The most significant of these are described below. We recognize accruals for such actions to the extent that we conclude that a loss is both probable and reasonably estimable. We accrue for the best estimate of a loss within a range; however, if no estimate in the range is better than any other, then we accrue the minimum amount in the range. If we determine that a loss is reasonably possible and the loss or range of loss can be estimated, we disclose the possible loss.

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Unless otherwise noted, it is not possible to determine the outcome of these matters, and we cannot reasonably estimate the maximum potential exposure or the range of possible loss.
We did not recognize any accruals for the actions described below on our Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017, as we did not believe losses were probable.
Litigation Related to Sofosbuvir
In January 2012, we acquired Pharmasset, Inc. (Pharmasset). Through the acquisition, we acquired sofosbuvir, a nucleotide analog that acts to inhibit the replication of the hepatitis C virus (HCV). In December 2013, we received approval from U.S. Food and Drug Administration (FDA) for sofosbuvir, now known commercially as Sovaldi. Sofosbuvir is also included in all of our marketed HCV products. We have received a number of contractual and intellectual property claims regarding sofosbuvir. While we have carefully considered these claims both prior to and following the acquisition and believe they are without merit, we cannot predict the ultimate outcome of such claims or range of loss, except where stated otherwise herein.
We are aware of patents and patent applications owned by third parties that have been or may in the future be alleged by such parties to cover the use of our HCV products. If third parties obtain valid and enforceable patents, and successfully prove infringement of those patents by our HCV products, we could be required to pay significant monetary damages. We cannot predict the ultimate outcome of intellectual property claims related to our HCV products. We have spent, and will continue to spend, significant resources defending against these claims.
Interference Proceedings and Litigation with Idenix Pharmaceuticals, Inc. (Idenix), Universita Degli Studi di Cagliari (UDSG), Centre National de la Recherche Scientifique and L‘Universite Montpellier II
In February 2012, we received notice that the U.S. Patent and Trademark Office (USPTO) had declared Interference No. 105,871 (First Idenix Interference) between our U.S. Patent No. 7,429,572 (the ‘572 patent) and Idenix’s pending U.S. Patent Application No. 12/131,868 to determine who was the first to invent certain nucleoside compounds. In January 2014, the USPTO Patent Trial and Appeal Board (PTAB) determined that Pharmasset and not Idenix was the first to invent the compounds. Idenix was acquired by Merck & Co. Inc. (Merck) in August 2014. Idenix has appealed the PTAB’s decisions to the U.S. District Court for the District of Delaware, which has stayed that appeal pending the outcome of the appeal of the interference involving Idenix’s U.S. Patent No. 7,608,600 (the ‘600 patent) as described below. In light of the decision in the Second Idenix Interference in our favor (as described below), we believe that the District Court will dismiss the First Idenix Interference with prejudice or enter judgment against Idenix and in our favor.
In December 2013, after receiving our request to do so, the USPTO declared Interference No. 105,981 (Second Idenix Interference) between our pending U.S. Patent Application No. 11/854,218 and Idenix’s ‘600 patent. The ‘600 patent includes claims directed to methods of treating HCV with nucleoside compounds. In March 2015, the PTAB determined that Pharmasset and not Idenix was the first to invent the claimed methods of treating HCV. Idenix appealed this decision in both the U.S. District Court for the District of Delaware and the U.S. Court of Appeals for the Federal Circuit (CAFC). The CAFC heard oral arguments in September 2016 and affirmed the PTAB decision in June 2017. In November 2017, the CAFC denied Idenix’s petition for a rehearing. Idenix filed a Petition for Writ of Certiorari to the Supreme Court of the United States (U.S. Supreme Court) in March 2018. In April 2018, the U.S. Supreme Court denied certiorari; accordingly, the decision finding that Idenix is not entitled to the ‘600 patent is now final. We filed a motion to dismiss Idenix’s simultaneous appeal in the U.S. District Court for the District of Delaware, which was granted. Idenix appealed the dismissal to the CAFC, and that court has stayed this other appeal pending a decision from the U.S. Supreme Court. We believe that any pending actions concerning the ’600 patent will be dismissed.
We believe that the Idenix claims involved in the First and Second Idenix Interferences, and similar U.S. and foreign patents claiming the same compounds, metabolites and uses thereof, are invalid. As a result, we filed an Impeachment Action in the Federal Court of Canada to invalidate Idenix Canadian Patent No. 2,490,191 (the ‘191 patent), which is the Canadian patent that corresponds to the ‘600 patent. Idenix asserted that the commercialization of Sovaldi in Canada will infringe its ‘191 patent and that our Canadian Patent No. 2,527,657, corresponding to our ‘572 patent, is invalid. In November 2015, the Canadian court held that Idenix’s patent is invalid and that our patent is valid. Idenix appealed the decision to the Canadian Federal Court of Appeal in November 2015. In July 2017, the Canadian Federal Appeal Court affirmed the lower court’s decision in our favor. In September 2017, Idenix appealed the decision to the Supreme Court of Canada. In April 2018, the Supreme Court of Canada refused to hear Idenix’s appeal. The decision invalidating Idenix’s Canadian patent is now final.
In January 2013, we filed a legal action in the Federal Court of Australia seeking to invalidate Idenix’s Australian patent corresponding to the ‘600 patent. In April 2013, Idenix asserted that the commercialization of Sovaldi in Australia infringes its Australian patent corresponding to the ‘600 patent. In March 2016, the Australian court revoked Idenix’s Australian patent. Idenix appealed this decision, and in December 2017, the Federal Court of Australia dismissed Idenix’s appeal. In January 2018, Idenix applied for Special Leave to Appeal to the High Court of Australia and, in April 2018, the High Court of Australia refused to hear Idenix’s appeal. The decision revoking Idenix’s Australian patent is now final.

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In March 2014, the European Patent Office (EPO) granted Idenix European Patent No. 1 523 489 (the ‘489 patent), which corresponds to the ‘600 patent. The same day that the ‘489 patent was granted, we filed an opposition with the EPO seeking to revoke the ‘489 patent. An opposition hearing was held in February 2016, and the EPO ruled in our favor and revoked the ‘489 patent. Idenix has appealed. In March 2014, Idenix also initiated infringement proceedings against us in the United Kingdom (UK), Germany and France alleging that the commercialization of Sovaldi would infringe the UK, German and French counterparts of the ‘489 patent. A trial was held in the UK in October 2014. In December 2014, the High Court of Justice of England and Wales (UK Court) invalidated all challenged claims of the ‘489 patent on multiple grounds. Idenix appealed. In November 2016, the appeals court affirmed the UK Court’s decision invalidating Idenix’s patent, and in April 2017, the UK Supreme Court refused Idenix’s application for permission to appeal. In March 2015, the German court in Düsseldorf determined that the Idenix patent was highly likely to be invalid and stayed the infringement proceedings pending the outcome of the opposition hearing held by the EPO in February 2016. Idenix has not appealed this decision of the German court staying the proceedings. Upon Idenix’s request, the French proceedings have been stayed.
In December 2013, Idenix, UDSG, Centre National de la Recherche Scientifique and L’Université Montpellier II sued us in U.S. District Court for the District of Delaware alleging that the commercialization of sofosbuvir will infringe the ‘600 patent and that an interference exists between the ‘600 patent and our U.S. Patent No. 8,415,322. Also in December 2013, Idenix and UDSG sued us in the U.S. District Court for the District of Massachusetts alleging that the commercialization of sofosbuvir will infringe U.S. Patent Nos. 6,914,054 (the ‘054 patent) and 7,608,597 (the ‘597 patent). In June 2014, the court transferred the Massachusetts litigation to the U.S. District Court for the District of Delaware.
Prior to trial in December 2016, Idenix committed to give us a covenant not to sue with respect to any claims arising out of the ‘054 patent related to sofosbuvir and withdrew that patent from the trial. In addition, Idenix declined to litigate the ‘600 patent infringement action at trial in light of the appeal then pending at the CAFC regarding who was the first to invent the subject matter claimed in the ‘600 patent. In January 2017, the District Court stayed Idenix’s infringement claim on the ‘600 patent pending the outcome of the appeal of the Second Idenix Interference. Since the U.S. Supreme Court denied Idenix’s petition for certiorari in the Second Idenix Interference, we will ask for dismissal of, or for judgment to be entered against Idenix on, the ‘600 infringement and interference claims. A jury trial was held in December 2016 on the ‘597 patent. In December 2016, the jury found that we willfully infringed the asserted claims of the ‘597 patent and awarded Idenix $2.54 billion in past damages. In September 2017, the judge invalidated Idenix’s ‘597 patent and vacated the jury’s award of $2.54 billion in past damages. Idenix has appealed this decision to the CAFC. We believe the Delaware court’s decision correctly found that, as a matter of law, the ‘597 patent is invalid, and we remain confident in the merits of our case on appeal. We believe that the possibility of a material adverse outcome on this matter is remote.
Litigation with Merck