GILEAD SCIENCES, INC. (GILD)

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

The following discussion and analysis is intended to provide material information around events and uncertainties known to management that are relevant to an assessment of the financial condition and results of operations of Gilead and should therefore be read in conjunction with our audited Consolidated Financial Statements and the related notes thereto and other disclosures included as part of this Annual Report on Form 10-K (including the disclosures under Part I, Item 1A. Risk Factors). Additional information related to the comparison of our results of operations and liquidity and capital resources between the years 2023 and 2022 is included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2023 Form 10-K filed with U.S. Securities and Exchange Commission.

Management Overview

Gilead Sciences, Inc. (including its consolidated subsidiaries, referred to as “Gilead,” the “company,” “we,” “our” or “us”) is a biopharmaceutical company that has pursued and achieved breakthroughs in medicine for more than three decades, with the goal of creating a healthier world for all people. We are committed to advancing innovative medicines to prevent and treat life-threatening diseases, including HIV, viral hepatitis, coronavirus disease 2019 (“COVID-19”), cancer and inflammation. We operate in more than 35 countries worldwide, with headquarters in Foster City, California.

Our strategic ambitions are to (i) bring 10+ transformative therapies to patients by 2030 (tracking since 2020); (ii) be a biotech employer and partner of choice; and (iii) deliver shareholder value in a sustainable and responsible manner. Our strategic priorities to deliver on these ambitions include: (i) maximize near-term revenue growth; (ii) maximize impact of long-acting HIV therapies; and (iii) expand and deliver on oncology programs.

Year in Review

During 2024, we delivered growth in our HIV, Oncology and Liver Disease product sales and continued to invest in our business and research and development (“R&D”) pipeline through advancement of our portfolio and broadening of available therapies, including through acquisitions and collaborations. Meanwhile, we maintained our financial position through repayment of senior notes coming due and the issuance of new senior notes, and provided shareholder returns through dividends and share repurchases. The following represents a summary of notable business updates and events during 2024, including certain items from our press releases, which readers are encouraged to review in full as available on our website at www.gilead.com. The content on the referenced website does not constitute a part of and is not incorporated by reference into this Annual Report on Form 10-K.

Virology

•Completed the New Drug Application submissions to U.S. Food and Drug Administration (“FDA”) for twice-yearly lenacapavir for HIV prevention.

•Announced results of PURPOSE 2, the second Phase 3 study of twice-yearly lenacapavir for HIV prevention, with data presented at the HIV Research for Prevention Conference. In the lenacapavir group, 99.9% of participants did not acquire HIV infection, with two incident cases among 2,179 participants. Lenacapavir reduced HIV infections by 96% compared to background HIV incidence in cisgender men and gender-diverse people, and additionally demonstrated superiority to daily Truvada (89% relative risk reduction). Lenacapavir was generally well-tolerated and no significant or new safety concerns were identified. The use of lenacapavir for the prevention of HIV is investigational.

Oncology

•Received Breakthrough Therapy Designation from FDA to Trodelvy for the treatment of adult patients with extensive-stage small cell lung cancer (“ES-SCLC”) whose disease has progressed on or after platinum-based chemotherapy. The use of Trodelvy in ES-SCLC is investigational.

•Announced plans to voluntarily withdraw the U.S. accelerated approval of Trodelvy for use in pre-treated adult patients with locally advanced or metastatic urothelial cancer, following the results of the Phase 3 TROPiCS-04 trial announced in May 2024.

•Incurred partial impairment charges related to in-process research and development (“IPR&D”) assets acquired by Gilead from Immunomedics, Inc. in 2020 as a result of our evaluation of the Phase 3 EVOKE-01 study data and a strategic decision to discontinue our clinical development program in metastatic non-small cell lung cancer (“NSCLC”) for Trodelvy in the second-line indication (see further information in “Results of Operations; In-Process Research and Development Impairments” below).

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Inflammation

•Received a positive opinion from the European Medicines Agency’s (“EMA”) Committee for Medicinal Products for Human Use recommending seladelpar for the treatment of primary biliary cholangitis (“PBC”) in combination with ursodeoxycholic acid (“UDCA”) in adults who have an inadequate response to UDCA alone, or as monotherapy in those unable to tolerate UDCA.

•Received accelerated approval from FDA for Livdelzi for the treatment of primary biliary cholangitis in combination with UDCA in adults who have had an inadequate response to UDCA, or as monotherapy in patients unable to tolerate UDCA.

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

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

Other

•Announced the appointment of Dietmar Berger, MD, PhD, as Chief Medical Officer effective January 2025.

The following table summarizes our key financial results for the year and period-over-period changes:

Total revenues increased 6% to $28.8 billion in 2024, compared to 2023, primarily due to higher sales in HIV, Oncology and Liver Disease, partially offset by lower sales of Veklury.

Net income attributable to Gilead was $480 million and diluted earnings per share attributable to Gilead was $0.38 in 2024, compared to net income attributable to Gilead of $5.7 billion and $4.50 diluted earnings per share attributable to Gilead in 2023. The decrease was primarily due to:

•A pre-tax IPR&D partial impairment charge of $4.2 billion related to Trodelvy IPR&D assets; and

•Higher acquired IPR&D expenses, primarily $3.8 billion related to the acquisition of CymaBay; partially offset by

•Higher product sales; and

•Lower income tax expense.

Please refer to “Results of Operations” below for further information on 2024 results.

Outlook

As we look to 2025, we expect to see continued increases in demand for our products overall, bolstered by the growth of our HIV business. We look forward to the regulatory decisions for twice-yearly lenacapavir for HIV prevention in the U.S. under priority review as well as in the EU where we submitted a marketing authorization application in early 2025. We anticipate that strong, demand-led volume growth in 2025 will be offset by: (i) the effects of the Inflation Reduction Act, which is expected to increase our payment obligations under the redesigned Medicare Part D discount program; (ii) an expected decrease in our Veklury product sales reflecting lower rates of COVID-19-related hospitalizations; and (iii) the impact of the U.S. dollar strengthening against major foreign currencies.

Our R&D portfolio includes over 100 pre-clinical and clinical-stage programs across our core therapeutic areas. We plan to continue investing in our business and R&D pipeline both internally and externally through partnerships and select business development transactions. For example, we entered into an agreement with LEO Pharma A/S in early 2025 to develop and commercialize their pre-clinical oral signal transducer and activator of transcription 6 programs for the potential treatment of inflammatory diseases. In addition, as part of our overall investment approach to fund the advancement of our pipeline and commercialization of our products, we will continue to focus on disciplined operating expense management.

Our ability to deliver on our strategy and 2025 objectives is subject to a number of uncertainties. Please refer to Part I, Item 1A. Risk Factors of this Annual Report on Form 10-K for a listing of risk factors that could materially and adversely affect our results of operations and financial condition.

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Results of Operations

Revenues

The following table summarizes our Total revenues and period-over-period changes:

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(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”). See Note 7. Collaborations and Other Arrangements of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

(2)    Includes Atripla, Complera/Eviplera, Emtriva, Stribild, Sunlenca, Truvada and Tybost.

(3)    Includes Epclusa and the authorized generic version of Epclusa sold by Gilead’s separate subsidiary, Asegua Therapeutics LLC (“Asegua”).

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

(5)    Includes Cayston, Jyseleca, Letairis, Ranexa and Zydelig.

HIV

HIV product sales increased 8% to $19.6 billion in 2024, compared to 2023, primarily due to higher demand and higher average realized price. In particular:

•Biktarvy sales increased primarily due to higher demand, including patients switching from Genvoya and other Gilead HIV products. To a lesser extent, the increase was also due to higher average realized price.

•Descovy sales increased primarily due to higher demand, partially offset by lower average realized price.

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Liver Disease

Liver Disease product sales increased 9% to $3.0 billion in 2024, compared to 2023, primarily due to higher demand in products for chronic hepatitis C virus, HBV and, in Europe, chronic hepatitis delta virus, as well as the launch of Livdelzi for treatment of PBC.

Veklury

Veklury product sales decreased 18% to $1.8 billion in 2024, compared to 2023, primarily due to decreased rates of COVID-19-related hospitalizations.

Oncology

Cell Therapy

Cell Therapy product sales increased 6% to $2.0 billion in 2024, compared to 2023, primarily due to increased demand outside the U.S. for Yescarta and Tecartus and higher average realized price, partially offset by lower demand in the U.S.

Trodelvy

Trodelvy product sales increased 24% to $1.3 billion in 2024, compared to 2023, primarily due to higher demand across all regions.

Gross-to-Net Deductions

A substantial portion of our product sales is subject to significant discounts from list price, including government and commercial rebates and chargebacks, as well as other deductions, including patient co-pay assistance, cash discounts for prompt payment, distributor fees, and sales return provisions. These deductions to product sales are generally referred to as gross-to-net deductions and are primarily a function of product sales volume, product mix, contractual or statutory discounts and estimated payer mix.

Rebates and chargebacks are based on contractual arrangements or statutory requirements and include amounts due to payers and healthcare providers under various programs. These amounts may vary by product, payer and individual plans. Providers qualified under certain programs can purchase our products through wholesalers or other distributors at a discount. The wholesalers or distributors then charge the discount back to us.

Other gross-to-net deductions include patient co-pay assistance, cash discounts for prompt payment, distributor fees that we pay under our inventory management agreements with our significant U.S. wholesalers and are based on contractually-determined fixed percentage of sales, and sales return provisions.

Our gross-to-net deductions totaled $17.8 billion, or 38%, of gross product sales in 2024, compared to $16.4 billion, or 38%, of gross product sales in 2023. Of the $17.8 billion in 2024, $15.5 billion, or 33%, of gross product sales was related to rebates and chargebacks, and $2.3 billion, or 5%, was related to other gross-to-net deductions. Of the $16.4 billion in 2023, $14.3 billion, or 33%, of gross product sales was related to rebates and chargebacks, and $2.2 billion, or 5%, was related to other gross-to-net deductions.

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

Foreign Currency Exchange Impact

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.

Approximately 27% and 26% of our product sales were denominated in foreign currencies during 2024 and 2023, respectively. Foreign currency exchange, net of hedges, had an unfavorable impact on our total product sales of $163 million in 2024, based on a comparison using foreign currency exchange rates from 2023.

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Costs and Expenses

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

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NM - Not Meaningful

Product Gross Margin

Product gross margin increased to 78.2% in 2024, compared to 2023, primarily due to prior year restructuring expenses related to changes in our manufacturing strategy, which resulted in write-offs of certain manufacturing facilities, related inventories and other costs totaling $479 million.

Research and Development Expenses

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

We manage our R&D expenses by identifying the R&D activities we expect to be performed during a given period and then prioritizing efforts based on scientific data, probability of successful technical development and regulatory approval, market potential, available human and capital resources and other considerations. We regularly review our R&D activities based on unmet medical need and, as necessary, reallocate resources among our internal R&D portfolio and external opportunities that we believe will best support the long-term growth of our business. We do not track total R&D expenses by product candidate, therapeutic area or development phase.

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

Research and development expenses increased 3% to $5.9 billion in 2024, compared to 2023.

Personnel, infrastructure and other support costs increased mainly due to higher compensation expenses, increases in restructuring costs, and stock-based compensation expenses and other integration costs related to the acquisition of CymaBay.

Clinical studies and other costs decreased mainly due to timing of clinical activities, including the wind-down of studies for magrolimab and obeldesivir for treatment of COVID-19, and higher R&D reimbursements, partially offset by increases related to the progression of other studies.

Acquired In-Process Research and Development Expenses

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

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Acquired in-process research and development expenses were $4.7 billion in 2024, primarily related to the following transactions:

•$3.8 billion CymaBay acquisition;

•$320 million Janssen Pharmaceutica NV future royalty obligation extinguishment related to seladelpar;

•$100 million Arcus Biosciences, Inc. collaboration continuation fee;

•$68 million Arcellx, Inc. (“Arcellx”) collaboration milestones met; and

•$47 million Tmunity Therapeutics, Inc. (“Tmunity”) acquisition milestones met.

Acquired in-process research and development expenses were $1.2 billion in 2023, primarily related to the following transactions:

•$313 million Arcellx collaboration;

•$269 million Tmunity acquisition;

•$218 million XinThera, Inc. acquisition;

•$97 million Assembly Biosciences, Inc. collaboration; and

•$60 million Compugen Ltd. licensing agreement.

See Note 6. Acquisitions and Note 7. Collaborations and Other Arrangements of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

In-Process Research and Development Impairments

As of December 31, 2023, our indefinite-lived IPR&D intangible asset related to Trodelvy for metastatic NSCLC was approximately $5.9 billion. In addition to NSCLC, Trodelvy is being explored for potential investigational use in a range of tumor types where Trop-2 is highly expressed. Gilead’s clinical development program in metastatic NSCLC includes ongoing Phase 2 and registrational Phase 3 studies for Trodelvy as a first- or second-line indication.

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

In September 2024, based on discussions with regulators and external opinion leaders and the completed evaluation of the Phase 3 EVOKE-01 study data, we made a strategic decision to discontinue our clinical development program in metastatic NSCLC for Trodelvy in the second-line indication. This decision triggered a review for potential impairment of the NSCLC IPR&D intangible asset. Based on our evaluation, and in connection with the preparation of the financial statements for the third quarter, we performed an interim impairment test and determined that the revised estimated fair value of the NSCLC IPR&D intangible asset was below its carrying value. As a result, we recognized a partial impairment charge of $1.8 billion in In-process research and development impairments on our Consolidated Statements of Operations during the third quarter of 2024.

To arrive at the revised estimated fair value, we used a probability-weighted income approach that discounts expected future cash flows to present value, which requires the use of Level 3 fair value measurements and inputs, including critical estimated inputs, such as: revenues and operating profits related to the planned utilization of SG in NSCLC, which, include inputs such as addressable patient population, projected market share, treatment duration, and the life of the potential commercialized product; the probability of technical and regulatory success; the time and resources needed to complete the development and approval of SG in NSCLC; an appropriate discount rate based on the estimated weighted-average cost of capital for companies with profiles similar to our profile; and risks related to the viability of and potential alternative treatments in any future target markets. Our revised discounted cash flows for the March 31, 2024 fair value estimation primarily reflected the smaller addressable market that Trodelvy could serve among metastatic NSCLC patients and a delay in expected launch timing for second-line plus patients. Our revised discounted cash flows for the September 30, 2024 fair value estimation primarily reflected the removal of cash flows associated with second-line plus patients.

There were no IPR&D impairment charges in the three months ended December 31, 2024. Therefore, total In-process research and development impairments on our Consolidated Statements of Operations were $4.2 billion in 2024, and the revised estimated fair value of the NSCLC IPR&D intangible asset was $1.8 billion as of December 31, 2024, which reflects Trodelvy’s opportunity as a combination therapy in first-line metastatic NSCLC patients supported by its ongoing Phase 3 clinical trial in this patient population.

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

If future events result in adverse changes in the key assumptions used in determining fair value, including the timing of product launches, information on the competitive landscape of treatments in this indication, changes to the probability of technical or regulatory success, failure to obtain anticipated regulatory approval or discount rate, among others, additional impairments may be recorded and could be material to our financial statements.

Selling, General and Administrative Expenses

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

The following table summarizes our Selling, general and administrative expenses and period-over-period changes:

Selling, general and administrative expenses were $6.1 billion and remained relatively flat in 2024, compared to 2023.

Selling and marketing expenses increased mainly due to:

•media spend across multiple therapeutic areas, including launch preparation activities for lenacapavir for the investigational use of HIV PrEP as well as for Livdelzi;

•integration costs related to the acquisition of CymaBay; and

•higher restructuring costs; partially offset by

•a decrease in our allocation of the branded prescription drug fee.

General and administrative expenses decreased mainly due to lower expenses related to legal matters, partially offset by stock-based compensation expenses and other integration costs related to the acquisition of CymaBay, and higher restructuring costs.

Interest Expense and Other (Income) Expense, Net

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

Interest expense increased 3% to $977 million in 2024, compared to 2023, primarily due to a higher average interest rate on long-term debt. See Note 11. 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 on our long-term debt and related interest rates.

Unfavorable movements in Other (income) expense, net in 2024, compared to 2023, primarily related to higher net losses from equity securities and lower interest income due to lower average cash balances.

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Income Taxes

The following table summarizes our Income tax expense and period-over-period changes:

Our effective tax rate increased in 2024, compared to 2023, primarily due to:

•The non-deductible acquired IPR&D expense recorded in connection with our first quarter 2024 acquisition of CymaBay;

•A decrease in unrecognized tax benefits as a result of reaching agreement with a tax authority on certain tax positions in 2023; partially offset by

•A non-recurring tax benefit associated with a legal entity restructuring;

•A decrease in state deferred tax liabilities associated with the $4.2 billion NSCLC IPR&D intangible asset impairment charge;

•Settlements with tax authorities in 2024; and

•Remeasurement of certain deferred tax liabilities related to acquired intangible assets.

The Organisation for Economic Co-operation and Development has a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as Pillar Two), with certain aspects effective January 1, 2024 and other aspects effective January 1, 2025. Certain countries in which we operate have adopted Pillar Two legislation and other countries are in the process of introducing legislation to implement Pillar Two. We do not expect Pillar Two to have a material impact on our results of operations, liquidity or capital resources.

Liquidity and Capital Resources

We regularly analyze our ability to generate and obtain adequate amounts of cash to meet our short-term and long-term requirements and plans. Our capital priorities include: (i) investing in our business and R&D pipeline, (ii) continuing select partnerships and business development transactions, (iii) growing our dividend over time, and (iv) repurchasing shares to offset dilution and opportunistically reduce share count. Based on our evaluation of our current position of liquidity, available capital resources and our material cash requirements, we believe that we can satisfy our capital needs for the next 12 months and the foreseeable future.

Liquidity

Cash and cash equivalents were $10.0 billion as of December 31, 2024. The table below summarizes our cash flow activities, followed by our analysis of changes and trends:

Operating Activities

Net cash provided by operating activities is our primary source of funds, driven mainly by collections on product sales, partially offset by operating spend. Changes in working capital balances, generally associated with the timing of collections and payments, as well as unanticipated payments related to litigation, taxes or other matters, may create some variation in any given year. Net cash provided by operating activities increased in 2024 mainly due to higher collections on sales and lower income tax and operating payments. Net cash provided by operating activities included $0.5 billion in HIV antitrust litigation settlement payments in 2023, as well as transition tax payments associated with the 2017 Tax Cuts and Jobs Act of $1.2 billion and $0.9 billion in 2024 and 2023, respectively.

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We expect Net cash provided by operating activities in 2025 to include the effect of an approximately $1.3 billion transition tax payment.

Investing Activities

Net cash used in investing activities was notably higher in 2024 primarily related to the $3.9 billion net cash payment for the CymaBay acquisition, partially offset by proceeds from the liquidation of marketable debt securities to fund that acquisition. Net cash used in investing activities may vary in any given year depending on the favorability of strategic opportunities for the business.

Financing Activities

Net cash used in financing activities in 2024 was primarily the result of $2.0 billion for debt repayments, $3.9 billion for dividend payments and $1.2 billion for common stock repurchases, partially offset by $3.5 billion in net proceeds from the issuance of senior unsecured notes in November 2024. In 2023, we utilized cash of $2.3 billion for debt repayments, $3.8 billion for dividend payments and $1.0 billion for common stock repurchases, partially offset by $2.0 billion in net proceeds from the issuance of senior unsecured notes in September 2023. The year-over-year changes were due mostly to higher cash provided by new debt issuances. Net cash used in financing activities may vary in any given year depending primarily on the timing of debt repayments and proceeds from debt offerings and the amount of common stock repurchases.

Subsequently, in February 2025, we repaid $1.75 billion of principal balance related to our senior unsecured notes due February 2025. Also, on February 11, 2025, we announced that our Board of Directors declared a quarterly dividend of $0.79 per share of our common stock, with a payment date of March 28, 2025 to all stockholders of record as of the close of business on March 14, 2025. Future dividends are subject to declaration by our Board of Directors.

Capital Resources

As of December 31, 2024, our material cash requirements for the operations of our business consisted primarily of the current and long-term liabilities noted on our Consolidated Balance Sheets as well as other commitments, including the following notable items:

•payments of outstanding borrowings, including interest on long-term debt (see Note 11. Debt and Credit Facilities);

•income tax payments, including the remaining obligations for the one-time repatriation transition tax from the Tax Cuts and Jobs Act, as well as potential payments related to uncertain tax positions (see Note 16. Income Taxes);

•payments of operating lease obligations (see Note 12. Leases);

•payments related to certain unconditional inventory purchase obligations and capital expenditures. There were no changes to such commitments in the current year that would have a material impact on our ability to meet short- or long-term cash requirements;

•payments related to our acquisitions, including contingent consideration (see Notes 3. Fair Value Measurements and 6. Acquisitions); and

•milestone and other payments related to collaboration agreements (see Note 7. Collaborations and Other Arrangements). We are contractually obligated to make payments to our collaboration partners upon the achievement of various development, regulatory and commercial milestones as well as royalty payments. These payments are contingent upon the occurrence of various future events, substantially all of which have a high degree of uncertainty of occurring. If milestones for multiple products covered by these arrangements happen to be reached in the same reporting period, the aggregate cash requirement could be material. It is not possible to predict with reasonable certainty whether these milestones will be achieved or the timing for achievement. As such, these obligations are not recorded on our Consolidated Balance Sheets until the events triggering milestone payments occur.

Our anticipated sources of funds to satisfy the above material cash requirements for the short- and long-term include our current balances of cash and cash equivalents as well as future cash flows from operations. If needed, we also have the ability to utilize our $2.5 billion revolving credit facility (see Note 11. Debt and Credit Facilities) and access other external capital through future debt or equity offerings.

While we are not aware of any trends at this time that are reasonably likely to materially impact our future cash requirements and sources of funds, such requirements and funds 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 and those of our collaboration partners, including preclinical studies and clinical trials;

•the cost, timing and outcome of regulatory reviews;

•the expansion of our sales and marketing capabilities;

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•the acquisition of additional manufacturing capabilities or office facilities on acceptable terms;

•the acquisition of other companies or new products on acceptable terms;

•the issuance of new debt or equity in the market on acceptable terms;

•the favorability of repaying certain long-term debt obligations prior to maturity dates;

•future dividends subject to declaration by our Board of Directors (see “Dividends” in Part II, Item 5 of this 10-K);

•the favorability of repurchasing shares (see “Issuer Purchases of Equity Securities” in Part II, Item 5 of this 10-K);

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

•costs associated with the defense, settlement and adverse results of government investigations and litigation (see Note 13. Commitments and Contingencies).

Critical Accounting Estimates

See Note 1. Summary of Business and Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for information about our significant accounting policies and how estimates are involved in the preparation of our financial statements. We believe the following reflect the critical accounting estimates used in the preparation of our Consolidated Financial Statements.

Rebates and Chargebacks

Rebates and chargebacks are determined using a complex estimation process which requires significant judgment by management in part due to the lag between the date of the product sales and the date the related rebates or chargeback claims are settled. Rebates and chargebacks are based on contractual arrangements or statutory requirements and include amounts due to payers and healthcare providers under various programs. These amounts may vary by product, payer and individual plans. Rebates and chargebacks are estimated primarily based on product sales, and expected payer mix and discount rates, which require significant estimates and judgment. In developing our estimates of rebates and chargebacks, we consider the following:

•product sales, including product mix and pricing;

•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 rebates and chargebacks accounts, including adjustments made relating to previous years’ sales as a result of changes in estimates:

We assess and update our estimates each reporting period to reflect actual claims and other current information. Historically, our actual rebates and chargebacks claimed for prior years have varied by less than 5% from our estimates. However, historical results are not indicative of future results.

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Valuation of Intangible Assets

Determining the fair values of intangible assets, whether as part of a business combination or impairment assessment, involves the use of a probability-weighted income approach that discounts expected future cash flows to present value and requires the use of critical estimated inputs, including:

•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, which, for example, include significant inputs such as addressable patient population, treatment duration and projected market share;

•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;

•an appropriate discount rate based on the estimated weighted-average cost of capital for companies with profiles similar to our profile, representing the rate that market participants would use to value the intangible assets;

•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.

These estimates are subject to uncertainty due to the high rate of failure inherent in the discovery and development of new products; delays that can occur in development, approval and product launch processes; unanticipated decisions made by regulatory agencies; advent of competing products; unexpected changes in U.S. and global financial markets and other unanticipated events and circumstances. If future events result in adverse changes in the critical assumptions used in determining fair value, impairment charges on our intangible assets may be recorded and could be material to our financial statements. For example, in 2024, upon receiving data from our Phase 3 EVOKE-01 study of Trodelvy, which indicated the study did not meet its primary endpoint, and further discussions with regulators and external opinion leaders and completion of the evaluation of the trial data which led to the strategic decision to end the second-line indication program, we recognized in aggregate $4.2 billion in impairment charges related to our NSCLC IPR&D intangible asset, reflecting, amongst other changes, the removal of expected future cash flows associated with second-line plus patients from our valuation model.

Legal Contingencies

We are a party to various legal actions. Certain significant matters are described in Note 13. Commitments and Contingencies of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Critical inputs to the accruals recorded and disclosures provided in relation to these matters include the probability of a certain outcome of the case, the determination as to whether an exposure is reasonably estimable and the amount of potential exposure. These inputs are subject to uncertainty due to changes in the legal facts and circumstances of the case, status of the proceedings, applicable law, the views of legal counsel and the views of any judges or jury involved in the case. 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. For example, in the second quarter of 2023, we recorded an accrual of $525 million in Other current liabilities on our Consolidated Balance Sheets for settlements with certain plaintiffs in the HIV antitrust litigation, which we paid in the second half of 2023. Also, we accrued approximately $200 million for a potential settlement with the U.S. Attorney’s Office for the Southern District of New York, on our Consolidated Balance Sheets as of December 31, 2024.

Income Taxes

We are subject to income taxes in the U.S. and various foreign jurisdictions, including Ireland. Critical inputs in determining our provision for income taxes and related tax balances include forecasts of our future income and expenses, potential tax planning strategies and determination of the probability of certain tax positions being sustained upon examination by tax authorities. These inputs are subject to uncertainty due to potential changes in facts and circumstances, economic and political conditions, changes to existing tax laws and new regulations or interpretations by tax authorities. Changes in these conditions could have a material adverse impact on our results of operations and financial position. See Note 16. Income Taxes of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

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

The following discussion and analysis is intended to provide material information around events and uncertainties known to management that are relevant to an assessment of the financial condition and results of operations of Gilead and should therefore be read in conjunction with our audited Consolidated Financial Statements and the related notes thereto and other disclosures included as part of this Annual Report on Form 10-K (including the disclosures under Part I, Item 1A. Risk Factors). Additional information related to the comparison of our results of operations between the years 2022 and 2021 is included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2022 Form 10-K filed with U.S. Securities and Exchange Commission.

Management Overview

Gilead Sciences, Inc. (including its consolidated subsidiaries, referred to as “Gilead,” the “company,” “we,” “our” or “us”) is a biopharmaceutical company that has pursued and achieved breakthroughs in medicine for more than three decades, with the goal of creating a healthier world for all people. We are committed to advancing innovative medicines to prevent and treat life-threatening diseases, including HIV, viral hepatitis, coronavirus disease 2019 (“COVID-19”) and cancer. We operate in more than 35 countries worldwide, with headquarters in Foster City, California.

During 2023, we continued to advance our portfolio and broaden available therapies while delivering continued growth in our HIV and Oncology product sales. In terms of capital resources, we continued to invest in our business and research and development (“R&D”) pipeline through acquisitions and collaborations. We also continued to provide shareholder returns through dividends and share repurchases.

Key Business Updates

The following updates are based on press releases issued since our last annual report. Readers are encouraged to review all press releases available on our website at www.gilead.com. The content on the referenced website does not constitute a part of and is not incorporated by reference into this Annual Report on Form 10-K.

Virology

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

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

•Announced a collaboration with Assembly Biosciences, Inc. (“Assembly”) to advance the research and development of novel antiviral therapies, including for herpesviruses, chronic hepatitis B virus (“HBV”) and chronic hepatitis delta virus (“HDV”).

•Received full marketing authorization from EC for Hepcludex (bulevirtide) for the treatment of adults with HDV and compensated liver disease. Hepcludex was initially granted conditional marketing authorization in July 2020. Bulevirtide remains the only approved treatment for HDV in the European Union (“EU”) and is not approved in the U.S.

Oncology

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

•Announced that the Phase 3 EVOKE-01 study of Trodelvy versus docetaxel in previously treated metastatic non-small cell lung cancer did not meet its primary endpoint of overall survival. While not statistically powered, we observed an encouraging trend in a subgroup of patients non-responsive to prior anti-PD-(L)1 immunotherapy, that we may potentially explore further.

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

•Received FDA approval of a manufacturing process change resulting in reduced median turnaround time for Yescarta in the U.S. to an anticipated 14 days (from 16 days previously).

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•Entered into a strategic collaboration with Arcellx, Inc. (“Arcellx”) to co-develop and co-commercialize CART-ddBCMA, a late-stage clinical asset in development for the treatment of patients with relapsed or refractory multiple myeloma, and later announced expansion of the Arcellx collaboration to include exercising an option for the ARC-SparX ACLX-001 program in multiple myeloma, expanding the scope of the existing anito-cel collaboration to include lymphomas, and a further equity investment.

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

•Announced a collaboration with Tentarix Biotherapeutics Inc. (“Tentarix”) to discover and develop novel therapies across oncology and inflammation, using Tentarix’s proprietary Tentacles platform.

•Received EC approval for Trodelvy as monotherapy for the treatment of adult patients with unresectable or metastatic hormone receptor-positive, human epidermal growth factor receptor 2-negative (“HR+/HER2-”) breast cancer who have received endocrine-based therapy, and at least two additional systemic therapies in the advanced setting.

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

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

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

•Completed the acquisition of Tmunity Therapeutics, Inc. (“Tmunity”), a clinical stage private biotech company, which provides preclinical and clinical programs. This includes an “armored” CAR T technology platform that has the potential to be applied to a variety of CAR Ts to enhance anti-tumor activity, as well as rapid manufacturing processes.

•Received FDA approval of Trodelvy for the treatment of adult patients with unresectable locally advanced or metastatic HR+/HER2- breast cancer who have received endocrine-based therapy and at least two additional systemic therapies in the metastatic setting.

Inflammation

•Announced that we entered into a definitive agreement to acquire all of the outstanding common stock of CymaBay Therapeutics, Inc. (“CymaBay”) and its lead product candidate, seladelpar, which is an investigational treatment for primary biliary cholangitis.

•Announced an amendment expanding the collaboration agreement with Arcus Biosciences, Inc. (“Arcus”), including research programs in inflammatory diseases, an update to the domvanalimab collaboration program, and an additional equity investment.

•Exercised an option to license investigational targeted protein degrader molecule NX‑0479 (“GS-6791”) from Nurix Therapeutics, Inc. GS-6791 is a potent, selective, oral IRAK4 degrader with potential applications in the treatment of rheumatoid arthritis and other inflammatory diseases.

Other

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

Key Financial Results

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

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Net income attributable to Gilead was $5.7 billion and diluted earnings per share attributable to Gilead was $4.50 in 2023, compared to $4.6 billion and $3.64 diluted earnings per share attributable to Gilead in 2022. The increase was primarily due to lower in-process research and development (“IPR&D”) impairment expenses, lower net unrealized losses on equity investments and higher interest income, partially offset by higher costs of goods sold and operating expenses, and lower revenues.

Results of Operations

Revenues

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

________________________________

See Note 2. Revenues of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further disaggregation of revenue by product.

(1)    Chronic hepatitis C virus (“HCV”)

HIV

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

_______________________________

(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”). See Note 7. Collaborations and Other Arrangements of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

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

HIV product sales increased 6% to $18.2 billion in 2023, compared to 2022, primarily due to higher demand across treatment and prevention, in addition to higher average realized price and favorable channel inventory dynamics. In particular, Biktarvy sales increased primarily reflecting higher demand, including patients switching from other Gilead HIV products, as well as higher average realized price. Also, Descovy sales increased primarily driven by favorable channel inventory dynamics and higher demand.

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Oncology

Cell Therapy

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

Trodelvy

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

Liver Disease

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

Veklury

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

Other

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

Gross-to-Net Deductions

A substantial portion of our product sales is subject to significant discounts from list price, including government and commercial rebates and chargebacks, as well as other deductions, including patient co-pay assistance, cash discounts for prompt payment, distributor fees, and sales return provisions. These deductions to product sales are generally referred to as gross-to-net deductions and are primarily a function of product sales volume, product mix, contractual or statutory discounts and estimated payer mix.

Rebates and chargebacks are based on contractual arrangements or statutory requirements and include amounts due to payers and healthcare providers under various programs. These amounts may vary by product, payer and individual plans. Providers qualified under certain programs can purchase our products through wholesalers or other distributors at a discount. The wholesalers or distributors then charge the discount back to us.

Other gross-to-net deductions include patient co-pay assistance, cash discounts for prompt payment, distributor fees that we pay under our inventory management agreements with our significant U.S. wholesalers and are based on contractually-determined fixed percentage of sales, and sales return provisions.

Our gross-to-net deductions totaled $16.4 billion, or 38% of gross product sales in 2023, compared to $14.6 billion, or 35% of gross product sales in 2022. The increase to 38% was primarily due to changes in product mix, where decreases in Veklury product sales in all regions were offset by increased sales in HIV and oncology products, and changes in payer mix. Of the $16.4 billion in 2023, $14.3 billion or 33% of gross product sales was related to rebates and chargebacks, $2.2 billion or 5% was primarily related to patient co-pay assistance, cash discounts for prompt payment, distributor fees, and sales return provisions. Of the $14.6 billion in 2022, $12.6 billion or 30% of gross product sales was related to rebates and chargebacks, $2.0 billion or 5% was primarily related to patient co-pay assistance, cash discounts for prompt payment, distributor fees, and sales return provisions.

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

Foreign Currency Exchange Impact

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.

Approximately 26% and 29% of our product sales were denominated in foreign currencies during 2023 and 2022, respectively. Foreign currency exchange, net of hedges, had an unfavorable impact on our total product sales of $224 million in 2023, based on a comparison using foreign currency exchange rates from 2022.

Royalty, Contract and Other Revenues

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

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Costs and Expenses

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

Product Gross Margin

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

Research and Development Expenses

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

We manage our R&D expenses by identifying the R&D activities we expect to be performed during a given period and then prioritizing efforts based on scientific data, probability of successful technical development and regulatory approval, market potential, available human and capital resources and other considerations. We regularly review our R&D activities based on unmet medical need and, as necessary, reallocate resources among our internal R&D portfolio and external opportunities that we believe will best support the long-term growth of our business. We do not track total R&D expenses by product candidate, therapeutic area or development phase.

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

Research and development expenses increased $741 million in 2023, compared to 2022. Personnel, infrastructure and other support costs as well as Clinical studies and other costs both increased due to clinical activities primarily related to oncology and virology, including progression and acceleration of trials, as well as new study launches.

Acquired In-Process Research and Development Expenses

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

Acquired in-process research and development expenses were $1.2 billion in 2023, primarily comprised of $313 million associated with the Arcellx collaboration, $269 million associated with the Tmunity acquisition, $218 million associated with the XinThera acquisition, $97 million associated with the Assembly collaboration and $60 million associated with the Compugen licensing agreement. Acquired in-process research and development expenses were $944 million in 2022, primarily comprised of $389 million associated with the acquisition of MiroBio Ltd, $315 million associated with the collaboration with Dragonfly Therapeutics, Inc., $82 million associated with the collaboration with Jounce Therapeutics, Inc. and acquisition of GS-1811, and $60 million associated with the collaboration with MacroGenics, Inc. See Note 6. Acquisitions and Note 7. Collaborations and Other Arrangements of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

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In-Process Research and Development Impairments

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

As of December 31, 2023, approximately $5.9 billion was assigned to an indefinite-lived IPR&D intangible asset related to Trodelvy for metastatic non-small cell lung cancer (“NSCLC”). In addition to NSCLC, Trodelvy is being explored for potential investigational use in a range of tumor types where Trop-2 is highly expressed. Gilead’s clinical development program in metastatic NSCLC includes multiple ongoing registrational Phase 3 studies and several ongoing Phase 2 studies for Trodelvy as a first- or second-line indication.

In January 2024, we announced that our Phase 3 EVOKE-01 study of Trodelvy evaluating sacituzumab govitecan-hziy (“SG”) did not meet its primary endpoint of overall survival (“OS”) in previously treated NSCLC. However, a numerical improvement in OS favoring SG was observed in the study, including in patients with both squamous and non-squamous histology. The safety profile for Trodelvy was consistent with prior studies. In addition, a more than three-month difference in median OS favoring SG was observed in a sub-group of patients non-responsive to last prior anti-PD-(L)1 therapy, representing over 60% of the trial population. This analysis was pre-specified in the protocol, but not alpha-controlled for formal statistical testing and we are continuing to analyze this data. Gilead intends to explore potential pathways to further understand the role SG may have in these patients. We plan to discuss this data with regulators and key opinion leaders to determine the most appropriate next steps.

We believe that this new information represents an indicator of potential impairment in the first quarter of 2024 and, as a result, the fair value of the indefinite-lived IPR&D intangible asset related to Trodelvy may be below its carrying value. We expect to complete an interim impairment assessment of the related IPR&D intangible asset during the first quarter of 2024. To the extent that the estimated fair value is less than the carrying value of the asset, we will be required to record an impairment charge on our Consolidated Statements of Income during the three months ended March 31, 2024. Any such impairment charge, which we are unable to reasonably estimate at this time, could have a material impact on our consolidated results of operations.

Selling, General and Administrative Expenses

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

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

Interest Expense and Other Income (Expense), Net

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

_______________________________

NM - Not Meaningful

Interest expense remained relatively flat in 2023 compared to 2022. See Note 11. Debt and Credit Facilities of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

Other income (expense), net in 2023 included $376 million of interest income, partially offset by $167 million of net unrealized losses on equity investments. Other income (expense), net in 2022 included $657 million of net unrealized losses on equity investments, partially offset by $106 million of interest income.

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Income Taxes

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

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

The Organisation for Economic Co-operation and Development has a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as Pillar Two), with certain aspects effective January 1, 2024 and other aspects effective January 1, 2025. Certain countries in which we operate have adopted Pillar Two legislation and other countries are in the process of introducing legislation to implement Pillar Two. We do not expect Pillar Two to have a material impact on our results of operations, liquidity or capital resources.

Liquidity and Capital Resources

We regularly evaluate our liquidity and capital resources, including our access to external capital, to ensure that we can adequately and efficiently finance our operations.

Liquidity

Cash, cash equivalents, and marketable debt securities were $8.4 billion and $7.6 billion as of December 31, 2023 and 2022, respectively. Cash and cash equivalents increased by $673 million from December 31, 2022 to December 31, 2023.

The following table summarizes our cash flow activities:

Operating Activities

Net cash provided by operating activities is derived by adjusting our net income for non-cash items and changes in operating assets and liabilities. Net cash provided by operating activities was $8.0 billion in 2023, compared to $9.1 billion in 2022. The change was primarily due to higher income tax payments and higher inventory and operating spend, which includes HIV antitrust litigation settlement payments, in 2023, reduced by the effect of a non-recurring payment of a $1.25 billion settlement related to bictegravir litigation in 2022 and higher collections in 2023.

Investing Activities

Net cash used in investing activities was $2.3 billion in 2023, compared to $2.5 billion in 2022. The change was primarily due to a decrease in acquisition spend, including acquired IPR&D, and capital expenditures, partially offset by higher net purchases of marketable debt and equity securities.

Financing Activities

Net cash used in financing activities was $5.1 billion in 2023, compared to $6.5 billion in 2022. In 2023, we utilized cash of $2.3 billion for debt repayments, $3.8 billion for dividend payments and $1.0 billion for common stock repurchases. These were partially offset by $2.0 billion in proceeds from the issuance of senior unsecured notes in September 2023, net of issuance costs. In 2022, we utilized cash of $1.5 billion for debt repayments, $3.7 billion for dividend payments, and $1.4 billion for common stock repurchases.

Capital Resources

We believe our existing capital resources, including cash and cash equivalents, marketable debt securities and our revolving credit facility, supplemented by cash flows generated from our operations, will be adequate to satisfy our capital needs for the foreseeable future.

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As of December 31, 2023, our material cash requirements consisted primarily of the repayment of outstanding borrowings, income tax payments, including the remaining obligations for the one-time repatriation transition tax from the Tax Cuts and Jobs Act, purchases of inventory, operating lease obligations, capital expenditures and milestone and other payments related to our collaborative agreements. See Notes 6. Acquisitions, 7. Collaborations and Other Arrangements, 11. Debt and Credit Facilities, 12. Leases, 13. Commitments and Contingencies and 16. 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 enter into certain unconditional purchase obligations, capital expenditure projects and other commitments in the normal course of business. There have been no changes to these commitments during the year that would have a material impact on the company’s ability to meet either short-term or long-term cash requirements.

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;

•future dividends subject to declaration by our Board of Directors;

•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. 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.

Critical Accounting Estimates

See Note 1. Organization and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for information about our significant accounting policies and how estimates are involved in the preparation of our financial statements. We believe the following reflect the critical accounting estimates used in the preparation of our Consolidated Financial Statements.

Rebates and Chargebacks

Rebates and chargebacks are determined using a complex estimation process which requires significant judgment by management in part due to the lag between the date of the product sales and the date the related rebates or chargeback claims are settled. Rebates and chargebacks are based on contractual arrangements or statutory requirements and include amounts due to payers and healthcare providers under various programs. These amounts may vary by product, payer and individual plans. Rebates and chargebacks are estimated primarily based on product sales, and expected payer mix and discount rates, which require significant estimates and judgment. In developing our estimates of rebates and chargebacks, we consider the following:

•product sales, including product mix and pricing;

•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 rebates and chargebacks accounts, including adjustments made relating to previous years’ sales as a result of changes in estimates:

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We assess and update our estimates each reporting period to reflect actual claims and other current information. Historically, our actual rebates and chargebacks claimed for prior years have varied by less than 5% from our estimates. However, historical results are not indicative of future results.

Valuation of Intangible Assets

Determining the fair values of intangible assets, whether as part of a business combination or impairment assessment, involves the use of a probability-weighted income approach that discounts expected future cash flows to present value and requires the use of critical estimated inputs, including:

•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, which, for example, include significant inputs such as addressable patient population, treatment duration and projected market share;

•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;

•an appropriate discount rate based on the estimated weighted-average cost of capital for companies with profiles similar to our profile, representing the rate that market participants would use to value the intangible assets;

•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.

These estimates are subject to uncertainty due to the high rate of failure inherent in the discovery and development of new products; delays that can occur in development, approval and product launch processes; unanticipated decisions made by regulatory agencies; advent of competing products; unexpected changes in U.S. and global financial markets and other unanticipated events and circumstances. If future events result in adverse changes in the critical assumptions used in determining fair value, impairment charges on our intangible assets may be recorded and could be material to our financial statements. For example, in 2022, we recognized a $2.7 billion impairment charge related to our HR+/HER2- IPR&D intangible asset related to an expected delay in launch timing which caused a decrease in our market share assumptions based on the expected competitive environment.

Legal Contingencies

We are a party to various legal actions. Certain significant matters are described in Note 13. Commitments and Contingencies of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Critical inputs to the accruals recorded and disclosures provided in relation to these matters include the probability of a certain outcome of the case, the determination as to whether an exposure is reasonably estimable and the amount of potential exposure. These inputs are subject to uncertainty due to changes in the legal facts and circumstances of the case, status of the proceedings, applicable law, the views of legal counsel and the views of any judges or jury involved in the case. 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. For example, in the second quarter of 2023, we recorded an accrual of $525 million in Other current liabilities on our Consolidated Balance Sheets for settlements with certain plaintiffs in the HIV antitrust litigation, which we paid in the second half of 2023.

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Income Taxes

We are subject to income taxes in the U.S. and various foreign jurisdictions, including Ireland. Critical inputs in determining our provision for income taxes and related tax balances include forecasts of our future income and expenses, potential tax planning strategies and determination of the probability of certain tax positions being sustained upon examination by tax authorities. These inputs are subject to uncertainty due to potential changes in facts and circumstances, economic and political conditions, changes to existing tax laws and new regulations or interpretations by tax authorities. Changes in these conditions could have a material adverse impact on our results of operations and financial position. See Note 16. Income Taxes of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

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

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

to management relevant to an assessment of the financial condition and results of operations of Gilead and should therefore be read in conjunction with our audited Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements and other disclosures included in this Annual Report on Form 10-K (including the disclosures under Part I, Item 1A. Risk Factors) where other material events and uncertainties not otherwise discussed below are disclosed. Certain amounts and percentages herein may not sum or recalculate due to rounding. Additional information related to the comparison of our results of operations between the years 2021 and 2020 is included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2021 Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”).

Management Overview

Strategy and Outlook

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

Since 2019, our strategic ambitions have been to (i) bring 10+ transformative therapies to patients by 2030; (ii) be the biotech employer and partner of choice; and (iii) deliver shareholder value in a sustainable and responsible manner. Our strategic priorities for 2023 and beyond, reflecting how we plan to deliver those ambitions, are: (i) maximize near-term revenue growth; (ii) maximize impact of long-active HIV; (iii) expand and deliver on oncology programs; (iv) champion an environment of inclusion and employee growth; and (v) remove barriers to speed in execution.

We plan to provide consistent execution on a portfolio with quality, depth and breadth, including continued growth in our leading HIV portfolio, which is poised to shape the long-acting market following our first lenacapavir approvals, as well as strong commercial performance and clinical momentum for our fast-growing oncology business.

Key Business Updates

During 2022, we continued to advance our portfolio, receiving approvals across various therapeutic areas, indications and geographies. We ended the year with Sunlenca receiving its first approval in the U.S. for heavily-treatment experienced individuals, following the first European market approval by the European Commission (“EC”). This is the first twice-yearly, subcutaneous HIV medicine to be approved. We also continued to broaden therapies available in oncology, receiving approvals for additional indications of Yescarta and Tecartus, and the 2023 approval of Trodelvy for the treatment of adult patients with unresectable locally advanced or metastatic hormone receptor-positive, human epidermal growth factor receptor 2-negative (“HR+/HER2-”) breast cancer who have received endocrine-based therapy and at least two additional systemic therapies in the metastatic setting.

In terms of capital resources, we continued to invest in our business and research and development (“R&D”) pipeline through acquisitions and collaborations. We also continued to provide shareholder returns in the form of dividends and share repurchases.

The following highlights are taken from press releases recently issued. Readers are encouraged to review all press releases available on our website at www.gilead.com. The content on the referenced website does not constitute a part of and is not incorporated by reference into this Annual Report on Form 10-K.

Virology

•In December 2022, we announced U.S. Food and Drug Administration (“FDA”) approval of Sunlenca, in combination with other antiretroviral(s), for the treatment of HIV-1 infection in heavily treatment-experienced adults with multi-drug resistant HIV-1 infection.

•In November 2022, we announced the EC authorized an extended indication and line extension for a low-dosage tablet form of Biktarvy for the treatment of HIV in virologically suppressed children who are at least 2 years of age and weigh at least 14 kg.

•In November 2022, we announced FDA approval of Vemlidy for the treatment of chronic hepatitis B virus (“HBV”) infection in pediatric patients 12 years and older with compensated liver disease.

•In October 2022, we announced that Merck & Co., Inc. (“Merck”) and Gilead plan to resume their Phase 2 study under an amended protocol. The study will evaluate an investigational once-weekly oral combination treatment regimen of Merck’s islatravir at a lower weekly dose and Gilead’s lenacapavir.

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•In August 2022, we announced that EC has granted marketing authorization for Sunlenca (lenacapavir) for the treatment of HIV infection, in combination with other antiretroviral(s), in adults with multi-drug resistant HIV infection for whom it is otherwise not possible to construct a suppressive antiviral regimen.

•In July 2022, we received a positive opinion from European Medicines Agency’s (“EMA”) Committee for Medicinal Products for Human Use (“CHMP”) for Veklury to be granted full marketing authorization for the treatment of coronavirus disease 2019 (“COVID-19”) in adults and adolescents with pneumonia requiring supplemental oxygen and adults who do not require supplemental oxygen and are at increased risk of developing severe COVID-19.

•In May 2022, we announced FDA lifted the clinical hold placed on the Investigational New Drug Application to evaluate injectable lenacapavir for HIV treatment and pre-exposure prophylaxis following the agency’s review of the storage and compatibility data of lenacapavir injection with an alternate vial made from aluminosilicate glass.

•In April 2022, FDA approved a supplemental new drug application for Veklury for the treatment of pediatric patients under 12 years of age for the treatment of COVID-19.

Oncology

Cell Therapy

•In December 2022, we entered into an agreement to acquire Tmunity Therapeutics Inc. (“Tmunity”), a clinical stage private biotech company, which will provide us with preclinical and clinical programs, including an “armored” CAR T technology platform that has the potential to be applied to a variety of CAR Ts to enhance anti-tumor activity, as well as rapid manufacturing processes. The transaction closed in February 2023.

•In December 2022, we entered into a strategic collaboration with Arcellx, Inc. (“Arcellx”) to co-develop and co-commercialize CART-ddBCMA, a late-stage clinical asset in development for the treatment of multiple myeloma. The transaction closed in January 2023.

•In December 2022, we announced the transfer of the marketing authorization for Yescarta in Japan from Daiichi Sankyo Co., Ltd. to Gilead K.K. in 2023.

•In December 2022, we received approval from the Ministry of Health, Labour and Welfare in Japan for Yescarta for the initial treatment of relapsed or refractory (“R/R”) large B-cell lymphoma (“LBCL”).

•In October 2022, we received European marketing authorization for Yescarta use in adults with second-line diffuse LBCL. Additionally, EC granted marketing authorization for Tecartus for the treatment of adult R/R B-cell precursor acute lymphoblastic leukemia (“ALL”), and in Canada, we received conditional marketing authorization for Yescarta for R/R follicular lymphoma (“FL”) after two or more lines of systemic therapy.

•In July 2022, we received a positive opinion from EMA’s CHMP for Tecartus for the treatment of adult patients 26 years of age and above with R/R B-cell precursor ALL.

•In June 2022, EC approved Yescarta for the treatment of adult patients with R/R FL after three or more lines of systemic therapy.

•In April 2022, FDA approved commercial production at our new CAR T-cell therapy manufacturing facility in Frederick, Maryland.

•In April 2022, FDA granted approval to Yescarta as initial treatment for adults with LBCL that is refractory to or relapses within 12 months of first-line chemoimmunotherapy.

Other

•In February 2023, we announced that FDA has approved Trodelvy for the treatment of adult patients with unresectable locally advanced or metastatic HR+/HER2- breast cancer who have received endocrine-based therapy and at least two additional systemic therapies in the metastatic setting.

•In January 2023, we announced that EMA has validated a Type II variation of the Marketing Authorization Application for Trodelvy for the treatment of adult patients unresectable or metastatic HR+/HER2- breast cancer who have received endocrine-based therapy and at least two additional systemic therapies in the metastatic setting.

•In December 2022, we acquired the remaining rights to GS-1811, an anti-CCR8 antibody developed by Jounce Therapeutics, Inc. (“Jounce”) for the treatment of solid tumors.

•In October 2022, we announced a strategic collaboration with MacroGenics, Inc. (“MacroGenics”) to develop bispecific antibodies to treat various cancers. The agreement includes an upfront payment by us of $60 million to MacroGenics and an exclusive option granted to us on MGD024, an investigational CD123 and CD3 bispecific.

•In August 2022, we announced an agreement with Everest Medicines (“Everest”) to transfer all development and commercialization rights to Gilead for Trodelvy in Greater China, South Korea, and other Asian markets.

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•In April 2022, we entered into a strategic research collaboration agreement with Dragonfly Therapeutics, Inc. (“Dragonfly”) to develop natural killer cell engager-based immunotherapies for oncology and inflammation indications.

•In March 2022, we announced results from the Phase 3 TROPiCS-02 study evaluating Trodelvy in patients with HR+/HER2- mBC who received prior endocrine therapy, cyclin-dependent kinase (“CDK”) 4/6 inhibitors and two to four lines of chemotherapy.

Inflammation

•In January 2023, we announced a collaboration and licensing agreement with EVOQ Therapeutics, Inc. (“EVOQ”) to advance EVOQ’s proprietary NanoDisc technology for the treatment of rheumatoid arthritis and lupus.

•In September 2022, we completed the acquisition of MiroBio Ltd. (“MiroBio”) for $414 million in cash. MiroBio is a U.K.-based biotechnology company focused on restoring immune balance with agonists targeting immune inhibitory receptors.

Key Financial Results

Total revenues were $27.3 billion in 2022 and remained relatively flat compared to 2021, primarily due to increased sales in HIV, cell therapy and Trodelvy, offset by lower sales of Veklury.

Net income attributable to Gilead was $4.6 billion or $3.64 diluted earnings per share attributable to Gilead in 2022, compared to $6.2 billion or $4.93 diluted earnings per share attributable to Gilead in 2021. The decrease was primarily due to the following items net of their related tax effect: a partial in-process research and development (“IPR&D”) impairment charge of $2.7 billion during the three months ended March 31, 2022 related to assets we acquired from Immunomedics, Inc. (“Immunomedics”) in 2020, a $406 million charge related to the termination of the Trodelvy collaboration agreement with Everest and higher R&D expenses, partially offset by a $1.25 billion charge for a settlement related to bictegravir litigation in the fourth quarter of 2021 that did not repeat in 2022.

Results of Operations

Revenues