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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
or

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  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  No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer 
Accelerated filer 
Non-accelerated filer 
Smaller reporting company 
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes 
No 
Number of shares outstanding of the issuer’s common stock, par value $0.001 per share, as of July 25, 2014 : 1,511,670,456
GILEAD SCIENCES, INC.
INDEX
PART I.
PART II.
FINANCIAL INFORMATION
2
Item 1.
Condensed Consolidated Financial Statements
2
Condensed Consolidated Balance Sheets at June 30, 2014 (unaudited) and December 31, 2013
2
Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2014 and
2013 (unaudited)
3
Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June
30, 2014 and 2013 (unaudited)
4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013
(unaudited)
5
Notes to Condensed Consolidated Financial Statements (unaudited)
6
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
26
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
35
Item 4.
Controls and Procedures
35
OTHER INFORMATION
36
Item 1.
Legal Proceedings
36
Item 1A.
Risk Factors
41
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
58
Item 3.
Defaults Upon Senior Securities
58
Item 4.
Mine Safety Disclosures
58
Item 5.
Other Information
58
Item 6.
Exhibits
59
SIGNATURES
66
We own or have rights to various trademarks, copyrights and trade names used in our business, including the following: GILEAD ® ,
GILEAD SCIENCES ® , SOVALDI ® , STRIBILD ® , COMPLERA ® , EVIPLERA ® , TRUVADA ® , VIREAD ® , EMTRIVA ® , TYBOST
® , ZYDELIG ® , HEPSERA ® , VITEKTA ® , LETAIRIS ® , RANEXA ® , CAYSTON ® , AMBISOME ® , VOLIBRIS ® and RAPISCAN ® .
ATRIPLA ® is a registered trademark belonging to Bristol-Myers Squibb & Gilead Sciences, LLC. LEXISCAN ® is a registered trademark
belonging to Astellas U.S. LLC. MACUGEN ® is a registered trademark belonging to Eyetech, Inc. SUSTIVA ® is a registered trademark of
Bristol-Myers Squibb Pharma Company. TAMIFLU ® is a registered trademark belonging to Hoffmann-La Roche Inc. This report also
includes other trademarks, service marks and trade names of other companies.
PART I.
ITEM I.
FINANCIAL
INFORMATION
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
June 30, 2014
December 31, 2013
(unaudited)
Assets
Current assets:
Cash and cash equivalents
Short-term marketable securities
Accounts receivable, net
Inventories
Deferred tax assets
Prepaid taxes
Prepaid expenses
Other current assets
Total current assets
Property, plant and equipment, net
Long-term portion of prepaid royalties
Long-term deferred tax assets
Long-term marketable securities
Intangible assets, net
Goodwill
Other long-term assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued government rebates
Accrued compensation and employee benefits
Income taxes payable
Other accrued liabilities
Deferred revenues
Current portion of long-term debt and other obligations, net
Total current liabilities
Long-term debt, net
Long-term income taxes payable
Long-term deferred tax liabilities
Other long-term obligations
Commitments and contingencies
Equity component of currently redeemable convertible notes
Stockholders’ equity:
Preferred stock, par value $0.001 per share; 5,000 shares authorized; none outstanding
Common stock, par value $0.001 per share; shares authorized of 5,600,000; shares issued and
outstanding of 1,526,043 and 1,534,414
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
$
$
$
8,730,522
68,546
3,436,711
2,068,753
386,580
376,716
232,151
199,360
15,499,339
1,380,776
497,502
153,552
782,315
11,508,319
1,171,561
212,800
31,206,164
$
1,162,307
1,606,555
220,093
97,302
1,443,377
126,284
1,572,079
6,227,997
7,932,536
338,238
67,980
174,196
$
$
2,112,806
18,756
2,100,286
2,055,788
330,530
398,010
165,652
91,925
7,273,753
1,166,181
198,766
154,765
439,028
11,900,106
1,169,023
195,163
22,496,785
1,255,914
983,490
243,540
10,855
1,023,938
110,640
2,697,044
6,325,421
3,938,708
162,412
83,286
178,626
35,875
63,831
—
—
1,526
5,930,987
(41,460 )
10,199,576
1,534
5,386,735
(124,446 )
6,105,244
Total Gilead stockholders’ equity
Noncontrolling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
See accompanying notes.
2
16,090,629
338,713
16,429,342
31,206,164
$
11,369,067
375,434
11,744,501
22,496,785
GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
Three Months Ended
June 30,
2014
Revenues:
Product sales
Royalty, contract and other revenues
Total revenues
Costs and expenses:
Cost of goods sold
Research and development
Selling, general and administrative
Total costs and expenses
Income from operations
Interest expense
Other income (expense), net
Income before provision for income taxes
Provision for income taxes
Net income
Net loss attributable to noncontrolling interest
Net income attributable to Gilead
Net income per share attributable to Gilead common
stockholders—basic
$
$
$
Shares used in per share calculation—basic
Net income per share attributable to Gilead common
stockholders—diluted
Shares used in per share calculation—diluted
6,412,937
122,006
6,534,943
924,709
583,924
613,555
2,122,188
4,412,755
(102,004 )
(3,645 )
4,307,106
656,621
3,650,485
5,108
3,655,593
2.39
2013
$
$
$
1,532,723
$
2.20
1,664,415
Six Months Ended
June 30,
2,657,285
110,109
2,767,394
684,663
523,902
404,991
1,613,556
1,153,838
(78,008)
(231)
1,075,599
307,981
767,618
4,987
772,605
0.51
2014
$
$
$
1,526,945
$
0.46
1,694,577
2013
11,283,911
249,988
11,533,899
1,737,914
1,178,902
1,161,678
4,078,494
7,455,405
(178,273)
(21,557)
7,255,575
1,382,503
5,873,072
9,931
5,883,003
3.83
$
$
$
1,534,614
$
3.52
1,672,435
5,050,853
248,176
5,299,029
1,319,111
1,021,534
779,287
3,119,932
2,179,097
(159,795 )
(3,555 )
2,015,747
530,419
1,485,328
9,463
1,494,791
0.98
1,524,174
$
0.89
1,683,269
See accompanying notes.
3
GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(in thousands)
Three Months Ended
June 30,
2014
Net income
Other comprehensive income:
Change in foreign currency translation gain (loss), net of tax
Available-for-sale securities:
Change in net unrealized gains (losses), net of tax impact
of $1,096, $(1,144), $1,178 and $(128)
Reclassifications to net income, net of tax impact of
$(110), $(32), $(224) and $(41)
Net change
Cash flow hedges:
Change in net unrealized gains (losses), net of tax impact
of $(1,906), $1,730, $(174) and $3,579
Reclassifications to net income, net of tax impact of
$(1,072), $(241), $(2,062) and $(252)
Net change
Other comprehensive income
Comprehensive income
Comprehensive loss attributable to noncontrolling interest
Comprehensive income attributable to Gilead
$
3,650,485
2013
$
767,618
2014
$
5,873,072
2013
$
1,485,328
1,186
11,730
6,969
1,679
(2,019 )
1,826
(234 )
(187 )
1,492
(58 )
(2,077 )
(386 )
1,440
(75 )
(309 )
31,621
$
Six Months Ended
June 30,
20,010
51,631
54,309
3,704,794
5,108
3,709,902
5,022
$
(5,110 )
(88 )
9,565
777,183
4,987
782,170
2,774
32,886
$
41,691
74,577
82,986
5,956,058
9,931
5,965,989
79,082
$
(5,561 )
73,521
75,986
1,561,314
9,463
1,570,777
See accompanying notes.
4
GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Six Months Ended
June 30,
2014
Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense
Amortization expense
Stock-based compensation expense
Excess tax benefits from stock-based compensation
Tax benefits from exercise and vesting of stock-based awards
Deferred income taxes
Change in fair value of contingent consideration
Other
Changes in operating assets and liabilities:
Accounts receivable, net
Inventories
Prepaid expenses and other assets
Accounts payable
Income taxes payable
Accrued liabilities
Deferred revenues
Net cash provided by operating activities
$
Investing Activities:
Purchases of marketable securities
Proceeds from sales of marketable securities
Proceeds from maturities of marketable securities
Acquisitions, net of cash acquired
Capital expenditures
Net cash used in investing activities
Financing Activities:
Proceeds from debt financing, net of issuance costs
Proceeds from convertible note hedges
Purchases of convertible note hedges
Proceeds from issuances of common stock
Repurchases of common stock
Repayments of debt and other long-term obligations
Excess tax benefits from stock-based compensation
Contributions from (distributions to) noncontrolling interest
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
See accompanying notes.
$
5,873,072
2013
$
1,485,328
53,479
454,468
165,276
(214,258)
215,826
(53,543)
7,966
21,413
50,091
97,412
117,720
(89,151 )
89,025
9,974
17,442
26,655
(1,332,395)
(20,863)
(521,748)
(89,945)
297,670
877,062
19,831
5,753,311
(181,266 )
(200,856 )
(153,801 )
64,831
42,321
232,193
17,187
1,625,105
(650,151)
238,858
17,592
—
(254,487)
(648,188)
(199,357 )
159,828
39,571
(378,645 )
(84,130 )
(462,733 )
3,965,532
1,312,054
(26,249)
162,918
(1,650,296)
(2,438,882)
214,258
(26,790)
1,512,545
48
6,617,716
2,112,806
8,730,522
—
1,205,956
—
146,342
(82,239 )
(2,135,575 )
89,151
19,716
(756,649 )
(7,241 )
398,482
1,803,694
2,202,176
$
5
1.
GILEAD SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 only of normal
recurring adjustments) that the management of Gilead Sciences, Inc. (Gilead, we 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 our
joint ventures with Bristol-Myers Squibb Company (BMS), for which we are the primary beneficiary. We record a noncontrolling interest in
our Condensed Consolidated Financial Statements to reflect BMS’s interest in the joint ventures. All intercompany transactions have been
eliminated. The Condensed Consolidated Financial Statements include the results of companies acquired by us from the date of each
acquisition for the applicable reporting periods.
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,
2013 , included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission.
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, management evaluates its
significant accounting policies or estimates. We base our estimates on historical experience and on various market specific and other relevant
assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these
estimates.
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.
As of June 30, 2014 , our accounts receivable in Southern Europe, specifically Greece, Italy, Portugal and Spain, totaled approximately
$652.4 million , of which $173.0 million were greater than 120 days past due and $53.6 million were greater than 365 days past due. 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 June 30, 2014 .
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board, jointly with the International Accounting Standards Board, issued a
comprehensive new standard on revenue recognition from contracts with customers. The standard's core principle is that a reporting entity will
recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. In applying this new guidance to contracts within its scope, an entity will: (1)
identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate
the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance
obligation. Additionally, this new guidance will require significantly expanded revenue recognition disclosures. This guidance will become
effective for
6
us beginning in the first quarter of 2017. Early application is not permitted. Entities have the option of using either a full retrospective or a
modified retrospective approach to adopt this new guidance. We are currently evaluating the impact of our pending adoption of this standard on
our Condensed Consolidated Financial Statements.
2.
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 which include quoted prices in active markets for identical assets or liabilities;
•
Level 2 inputs which 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 which 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 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 principally of cash and cash equivalents, marketable securities, accounts receivable, foreign currency
exchange contracts, accounts payable and short-term and long-term debt. Cash and cash equivalents, marketable securities and foreign currency
exchange contracts that hedge accounts receivable and forecasted sales are reported at their respective fair values on our Condensed
Consolidated Balance Sheets. Short-term and long-term debt are reported at their amortized cost on our Condensed Consolidated Balance
Sheets. The remaining financial instruments are reported on our Condensed Consolidated Balances Sheets at amounts that approximate current
fair values.
The fair values of our convertible senior notes and senior unsecured notes were determined using Level 2 inputs based on their quoted
market values. The following table summarizes the carrying values and fair values of our convertible senior notes and senior unsecured notes
(in thousands):
June 30, 2014
Type of Borrowing
Convertible Senior
Convertible Senior
Senior Unsecured
Senior Unsecured
Senior Unsecured
Senior Unsecured
Senior Unsecured
Senior Unsecured
Senior Unsecured
Senior Unsecured
Description
May 2014 Notes
May 2016 Notes
April 2021 Notes
December 2014 Notes
December 2016 Notes
December 2021 Notes
December 2041 Notes
April 2019 Notes
April 2024 Notes
April 2044 Notes
Carrying Value
$
—
822,139
994,210
749,868
699,441
1,247,861
997,923
499,189
1,747,271
1,746,641
7
December 31, 2013
Fair Value
$
—
3,084,363
1,099,010
756,195
734,146
1,375,563
1,171,090
500,985
1,798,843
1,853,028
Carrying Value
$
234,217
1,113,043
993,781
749,710
699,326
1,247,716
997,885
—
—
—
Fair Value
$
783,651
3,871,516
1,075,480
762,637
740,705
1,336,738
1,118,660
—
—
—
The following table summarizes, for assets or liabilities recorded at fair value, the respective fair value and the classification by level of
input within the fair value hierarchy previously defined (in thousands):
June 30, 2014
Level 1
Level 2
December 31, 2013
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets:
Debt securities:
Money market funds $
Corporate debt
securities
U.S. treasury
securities
U.S. government
agencies securities
Residential mortgage
and asset-backed
securities
Municipal debt
securities
5,892,347
$
—
$
—
$
5,892,347
$
1,490,964
$
—
$
—
$
1,490,964
—
347,545
—
347,545
—
220,025
—
220,025
365,061
—
—
365,061
85,403
—
—
85,403
—
41,668
—
41,668
—
93,350
—
93,350
—
87,358
—
87,358
—
46,941
—
46,941
—
9,229
—
9,229
—
12,065
—
12,065
6,257,408
485,800
—
6,743,208
1,576,367
372,381
—
1,948,748
49,827
—
—
49,827
44,461
—
—
44,461
—
22,874
—
22,874
—
13,879
—
13,879
$
6,307,235
$ 508,674
$ 386,260
Contingent consideration $
—
Derivatives
Deferred compensation
plan
—
Total debt securities
Deferred compensation
plan
Derivatives
—
$
6,815,909
$
1,620,828
—
$ 271,726
$
271,726
$
—
40,472
—
$
—
$
2,007,088
—
$ 263,760
$
263,760
99,057
—
$
Liabilities:
$
49,827
$
49,827
$
—
—
40,472
$ 271,726
49,827
$
362,025
$
—
40,472
44,461
$
44,461
$
—
—
99,057
$ 263,760
99,057
44,461
$
407,278
Level 2 Inputs
We estimate the fair values of our government agency securities, corporate debt, residential mortgage and asset-backed securities by
taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models,
including both income- 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 primarily over an 18-month time horizon and all are with
counterparties that have a minimum credit rating of A- or equivalent by Standard & Poor's, Moody's Investors Service, Inc. or Fitch, 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 rates, London Interbank Offered Rates (LIBOR) and swap rates. These inputs, where applicable, are at commonly
quoted intervals.
Level 3 Inputs
As of June 30, 2014 and December 31, 2013 , the only assets or liabilities that were measured using Level 3 inputs were contingent
consideration liabilities. Our policy is to recognize transfers into or out of Level 3 classification as of the actual date of the event or change in
circumstances that caused the transfer.
Contingent Consideration Liabilities
In connection with certain acquisitions, we may be required to pay future consideration that is contingent upon the achievement of
specified development, regulatory approval or sales-based milestone events. We estimate the fair value of the contingent consideration
liabilities on the acquisition date and each reporting period thereafter using a probability-weighted income approach, which reflects the
probability and timing of future payments. This fair value measurement is based on significant Level 3 inputs such as the anticipated timelines
and probability of achieving development, regulatory approval or sales-based milestone events and projected revenues. The resulting
probability-weighted cash flows are discounted using credit-risk adjusted interest rates.
Each reporting period thereafter, we revalue these obligations by performing a review of the assumptions listed above and
8
record increases or decreases in the fair value of these contingent consideration obligations in research and development (R&D) expenses
within our Condensed Consolidated Statements of Income until such time that the related product candidate receives marketing approval. In the
absence of any significant changes in key assumptions, the quarterly determination of fair values of these contingent consideration obligations
would primarily reflect the passage of time.
Significant judgment is employed in determining Level 3 inputs and fair value measurements as of the acquisition date and for each
subsequent period. Updates to assumptions could have a significant impact on our results of operations in any given period and actual results
may differ from estimates. For example, significant increases in the probability of achieving a milestone or projected revenues would result in a
significantly higher fair value measurement while significant decreases in the estimated probability of achieving a milestone or projected
revenues would result in a significantly lower fair value measurement. Significant increases in the discount rate or in the anticipated timelines
would result in a significantly lower fair value measurement while significant decreases in the discount rate or anticipated timelines would
result in a significantly higher fair value measurement.
The potential contingent consideration payments required upon achievement of development or regulatory approval-based milestones
related to our CGI Pharmaceuticals, Inc. and Calistoga Pharmaceuticals, Inc. acquisitions range from no payment if none of the milestones are
achieved to an estimated maximum of $254.0 million (undiscounted), of which we had accrued $225.3 million as of June 30, 2014 and $220.5
million as of December 31, 2013 . The remainder of the contingent consideration liabilities accrual as of June 30, 2014 and December 31, 2013
relates to potential future payments resulting from the acquisition of Arresto Biosciences, Inc. for royalty obligations on future sales once
specified sales-based milestones are achieved.
The following table provides a rollforward of our contingent consideration liabilities, which are recorded as part of other accrued
liabilities and other long-term obligations in our Condensed Consolidated Balance Sheets (in thousands):
Balance at December 31, 2013
Additions from new acquisitions
Net changes in valuation
$
Balance at June 30, 2014
$
3.
263,760
—
7,966
271,726
AVAILABLE-FOR-SALE
SECURITIES
Estimated fair values of available-for-sale securities are generally based on prices obtained from commercial pricing services. The
following table is a summary of available-for-sale debt securities recorded in cash and cash equivalents or marketable securities in our
Condensed Consolidated Balance Sheets (in thousands):
June 30, 2014
Gross
Gross
Unrealized
Unrealized
Gains
Losses
Amortized
Cost
Debt securities:
Money market
funds
Corporate debt
securities
U.S. treasury
securities
U.S. government
agencies
securities
Residential
mortgage and
asset-backed
securities
Municipal debt
securities
Total
$
$
5,892,347
$
—
$
—
Estimated
Fair Value
$
5,892,347
December 31, 2013
Gross
Gross
Unrealized
Unrealized
Gains
Losses
Amortized
Cost
$
1,490,964
$
—
$
—
Estimated
Fair Value
$
1,490,964
346,815
875
(145 )
347,545
219,242
885
(102 )
220,025
364,724
359
(22 )
365,061
85,337
94
(28 )
85,403
41,569
99
—
41,668
93,211
156
(17 )
93,350
87,256
127
(25 )
87,358
46,969
37
(65 )
46,941
9,175
54
—
9,229
12,009
56
—
12,065
6,741,886
$
1,514
$
(192 )
$
9
6,743,208
$
1,947,732
$
1,228
$
(212 )
$
1,948,748
The following table summarizes the classification of the available-for-sale debt securities on our Condensed Consolidated Balance Sheets
(in thousands):
June 30, 2014
Cash and cash equivalents
Short-term marketable securities
Long-term marketable securities
Total
$
December 31, 2013
5,892,347
68,546
782,315
6,743,208
$
$
1,490,964
18,756
439,028
1,948,748
$
Cash and cash equivalents in the table above exclude cash of $2.84 billion as of June 30, 2014 and $621.8 million as of December 31,
2013 .
The following table summarizes our portfolio of available-for-sale debt securities by contractual maturity (in thousands):
June 30, 2014
Amortized Cost
Less than one year
Greater than one year but less than five years
Greater than five years but less than ten years
Greater than ten years
Total
$
Fair Value
5,960,662
773,969
2,449
4,806
6,741,886
$
$
5,960,893
775,051
2,458
4,806
6,743,208
$
The following table summarizes the gross realized gains and losses related to sales of marketable securities (in thousands):
Three Months Ended
Six Months Ended
June 30,
2014
Gross realized gains on sales
Gross realized losses on sales
$
$
363
(66 )
$
$
The cost of securities sold was determined based on the specific identification method.
10
June 30,
2013
2014
201
(111 )
$
$
2013
701
(91 )
$
$
383
(267 )
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 thousands):
Less Than 12 Months
Gross
Unrealized
Estimated
Losses
Fair Value
June 30, 2014
Debt securities:
U.S. treasury securities
Corporate debt securities
Residential mortgage and
asset-backed securities
U.S. government
agencies securities
Total
December 31, 2013
Debt securities:
U.S. treasury securities
Corporate debt securities
Residential mortgage and
asset-backed securities
U.S. government
agencies securities
Total
$
$
$
$
(22 )
(145)
$
42,128
81,950
12 Months or Greater
Gross
Unrealized
Estimated
Losses
Fair Value
$
—
—
$
—
—
Total
Gross
Unrealized
Losses
$
(22 )
(145 )
Estimated
Fair Value
$
42,128
81,950
(8)
27,768
(17 )
909
(25 )
28,677
—
(175 )
—
151,846
—
(17 )
—
909
—
(192 )
—
152,755
(28 )
(102)
$
$
24,562
37,076
$
$
—
—
$
$
—
1,505
$
$
(28 )
(102 )
$
$
24,562
38,581
(38)
19,563
(27 )
6,731
(65 )
26,294
(17)
(185 )
10,858
92,059
—
(27 )
—
8,236
(17 )
(212 )
10,858
100,295
$
$
$
$
$
We held a total of 64 securities as of June 30, 2014 and 40 securities as of December 31, 2013 that were in an unrealized loss position.
Based on our review of these securities, we believe we had no other-than-temporary impairments on these securities as of June 30, 2014 and
December 31, 2013 , because we do not intend to sell these securities and we believe it is not more likely than not that we will be required to
sell these securities before the recovery of their amortized cost basis.
4.
DERIVATIVE FINANCIAL
INSTRUMENTS
We operate in foreign countries, which exposes us to market risk associated with foreign currency exchange rate fluctuations between the
U.S. dollar and various foreign currencies, the most significant of which is 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 foreign
subsidiaries 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.
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 maturity dates
of 18 months or less. Upon executing a hedging contract and quarterly thereafter, we assess prospective hedge effectiveness using a regression
analysis which calculates the change in cash flow as a result of the hedge instrument. On a monthly basis, we assess retrospective hedge
effectiveness using a dollar offset approach. We exclude time value from our effectiveness testing and recognize changes in the time value of
the hedge in other income (expense), net. The effective component of our hedge is recorded as an unrealized gain or loss on the hedging
instrument in accumulated other comprehensive income (OCI) within stockholders' equity. When the hedged forecasted transaction occurs, the
hedge is de-
11
designated and the unrealized gains or losses are reclassified into product sales. The majority of gains and losses related to the hedged
forecasted transactions reported in accumulated OCI at June 30, 2014 will be reclassified to product sales within 12 months.
The cash flow effects of our derivatives contracts for the six months ended June 30, 2014 and 2013 are included within net cash provided
by operating activities in the Condensed Consolidated Statements of Cash Flows.
We had notional amounts on foreign currency exchange contracts outstanding of $4.78 billion at June 30, 2014 and $4.28 billion at
December 31, 2013 .
While all of our derivative contracts allow us the right to offset assets or liabilities, we have presented amounts on a gross basis. Under
the International Swap Dealers Association, Inc. master agreements with the respective counterparties of the foreign currency exchange
contracts, subject to applicable requirements, we are allowed to net settle transactions of the same currency with a single net amount payable by
one party to the other. The following table summarizes the location and fair values of derivative instruments on our Condensed Consolidated
Balance Sheets (in thousands):
June 30, 2014
Asset Derivatives
Liability Derivatives
Fair Value
Classification
Derivatives designated as hedges:
Foreign currency
exchange contracts
Foreign currency
exchange contracts
Total derivatives
designated as hedges
Derivatives not designated as
hedges:
Foreign currency
exchange contracts
Total derivatives not
designated as hedges
Total derivatives
Other current assets
$
Other long-term assets
Classification
15,055
7,812
Other accrued liabilities
Fair Value
$
Other long-term obligations
2,467
22,867
Other current assets
7
$
37,957
40,424
Other accrued liabilities
7
22,874
48
$
48
40,472
December 31, 2013
Asset Derivatives
Liability Derivatives
Fair Value
Classification
Derivatives designated as hedges:
Foreign currency
exchange contracts
Foreign currency
exchange contracts
Total derivatives
designated as hedges
Derivatives not designated as
hedges:
Foreign currency
exchange contracts
Total derivatives not
designated as hedges
Total derivatives
Other current assets
$
Other long-term assets
Classification
12,647
1,229
Other accrued liabilities
Fair Value
$
Other long-term obligations
13,299
13,876
Other current assets
3
$
12
3
13,879
85,541
98,840
Other accrued liabilities
217
$
217
99,057
The following table summarizes the effect of our foreign currency exchange contracts on our Condensed Consolidated Statements of
Income (in thousands):
Three Months Ended
Six Months Ended
June 30,
June 30,
2014
Derivatives designated as hedges:
Gains recognized in OCI (effective portion)
Gains (losses) reclassified from accumulated OCI into product sales
(effective portion)
Gains (losses) recognized in other income (expense), net (ineffective
portion and amounts excluded from effectiveness testing)
Derivatives not designated as hedges:
Gains recognized in other income (expense), net
2013
2014
2013
$
29,715
$
11,801
$
32,712
$
82,661
$
(18,938 )
$
5,351
$
(39,629 )
$
5,813
$
(3,983 )
$
1,908
$
(3,899 )
$
$
8,008
$
9,077
$
9,111
$
(224 )
41,697
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 for the three and six
months ended June 30, 2014 and 2013 as a result of the discontinuance of cash flow hedges.
As of June 30, 2014 and December 31, 2013 , we held one type of financial instrument, 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 thousands):
June 30, 2014
Offsetting of Derivative Assets/Liabilities
Gross Amounts Not Offset
in the Condensed
Consolidated Balance Sheet
Gross Amounts of
Recognized
Assets/Liabilities
Description
Derivative assets
Derivative
liabilities
Gross Amounts
Offset in the
Condensed
Consolidated
Balance Sheet
Amounts of
Assets/Liabilities Presented
in the Condensed
Consolidated
Balance Sheet
Derivative
Financial
Instruments
Cash Collateral
Received/Pledged
Net Amount
(Legal Offset)
$
22,874
$
—
$
22,874
$
(22,475 )
$
—
$
$
(40,472 )
$
—
$
(40,472 )
$
22,475
$
—
$
399
(17,997 )
December 31, 2013
Offsetting of Derivative Assets/Liabilities
Gross Amounts Not Offset
in the Condensed
Consolidated Balance Sheet
Description
Derivative assets
$
Derivative
liabilities
$
5.
INVENTORI
ES
Gross Amounts
Offset in the
Condensed
Consolidated
Balance Sheet
Gross Amounts of
Recognized
Assets/Liabilities
Amounts of
Assets/Liabilities Presented
in the Condensed
Consolidated
Balance Sheet
Derivative
Financial
Instruments
Cash Collateral
Received/Pledged
Net Amount
(Legal Offset)
13,879
$
—
$
13,879
$
(13,879 )
$
—
$
(99,057 )
$
—
$
(99,057 )
$
13,879
$
—
$
—
(85,178 )
Inventories are summarized as follows (in thousands):
June 30, 2014
Raw materials
Work in process
Finished goods
Total
$
$
944,892
563,883
559,978
2,068,753
December 31, 2013
$
$
1,049,403
412,945
593,440
2,055,788
The joint ventures formed by Gilead and BMS (See Note 7, Collaborative Arrangements), which are included in our Condensed
Consolidated Financial Statements, held efavirenz active pharmaceutical ingredient in inventory. This efavirenz
13
inventory was purchased from BMS at BMS's estimated net selling price of efavirenz and totaled $1.24 billion as of June 30, 2014 and $1.28
billion as of December 31, 2013 .
6.
INTANGIBLE ASSETS AND
GOODWILL
Intangible Assets
The following table summarizes the carrying amount of our intangible assets (in thousands):
June 30, 2014
Finite-lived intangible assets
Indefinite-lived intangible assets
Total intangible assets
$
$
10,926,729
581,590
11,508,319
December 31, 2013
$
11,325,751
574,355
11,900,106
$
Finite-Lived Intangible Assets
The following table summarizes our finite-lived intangible assets (in thousands):
June 30, 2014
Gross Carrying
Accumulated
Amount
Amortization
Intangible asset - sofosbuvir
Intangible asset - Ranexa
Other
Total
$
$
10,720,000
688,400
305,795
11,714,195
$
$
407,826
226,081
153,559
787,466
December 31, 2013
Gross Carrying
Accumulated
Amount
Amortization
$
$
10,720,000
688,400
305,795
11,714,195
$
58,261
190,849
139,334
388,444
$
Upon U.S. Food and Drug Administration ( FDA) approval and commercial launch of Sovaldi in December 2013, we reclassified the
in-process R&D related to sofosbuvir to finite-lived intangible assets. Amortization expense related to finite-lived intangible assets included
primarily in cost of goods sold in our Condensed Consolidated Statements of Income totaled $199.5 million and $399.0 million for the three
and six months ended June 30, 2014 and $21.5 million and $43.1 million for the three and six months ended June 30, 2013 . The
weighted-average amortization period for all finite-lived intangible assets is approximately 15 years. As of June 30, 2014 , the estimated future
amortization expense associated with our intangible assets for the remaining six months of 2014 and each of the five succeeding fiscal years is
as follows (in thousands):
Fiscal Year
Amount
2014 (remaining six months)
2015
2016
2017
2018
2019
Total
$
$
399,022
803,496
811,428
815,871
827,980
792,823
4,450,620
Indefinite-Lived Intangible Assets
The following table summarizes our indefinite-lived intangible assets (in thousands):
June 30, 2014
Indefinite-lived intangible asset - momelotinib (formerly CYT387)
Indefinite-lived intangible assets - other
$
Foreign currency translation adjustment
Total
$
14
308,155
266,200
574,355
7,235
581,590
December 31, 2013
$
$
362,700
266,200
628,900
(54,545)
574,355
Goodwill
The following table summarizes the changes in the carrying amount of goodwill (in thousands):
Balance at December 31, 2013
Foreign currency translation adjustment
Balance at June 30, 2014
7.
$
$
1,169,023
2,538
1,171,561
COLLABORATIVE
ARRANGEMENTS
From time to time, as a result of entering into strategic collaborations, we may hold investments in non-public companies. We review our
interests in investee companies for consolidation and/or disclosure based on applicable guidance. For variable interest entities (VIEs), we may
be required to consolidate an entity if the contractual terms of the arrangement essentially provide us with control over the entity, even if we do
not have a majority voting interest. We assess whether we are the primary beneficiary of a VIE 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 June 30, 2014 , we determined that certain of our investee companies are VIEs;
however, other than with respect to our joint ventures with BMS, we are not the primary beneficiary and therefore do not consolidate these
investees.
Bristol-Myers Squibb Company
North America
In 2004, we entered into a collaboration arrangement with BMS to develop and commercialize a single tablet regimen containing our
Truvada and BMS's Sustiva (efavirenz) in the United States. This combination was approved for use in the United States in 2006 and is sold
under the brand name Atripla. We and BMS structured this collaboration as a joint venture that operates as a limited liability company named
Bristol-Myers Squibb & Gilead Sciences, LLC, which we consolidate. We and BMS granted royalty free sublicenses to the joint venture for the
use of our respective company owned technologies and, in return, were granted a license by the joint venture to use any intellectual property
that results from the collaboration. In 2006, we and BMS amended the joint venture's collaboration agreement to allow the joint venture to sell
Atripla in Canada. The economic interests of the joint venture held by us and BMS (including share of revenues and out-of-pocket expenses)
are based on the portion of the net selling price of Atripla attributable to efavirenz and Truvada. Since the net selling price for Truvada may
change over time relative to the net selling price of efavirenz, both our and BMS's respective economic interests in the joint venture may vary
annually.
We and BMS shared marketing and sales efforts. Starting in the second quarter of 2011, except for a limited number of activities that will
be jointly managed, the parties no longer coordinate detailing and promotional activities in the United States, and the parties have begun to
reduce their joint promotional efforts since we launched Complera in August 2011 and Stribild in August 2012. The parties will continue to
collaborate on activities such as manufacturing, regulatory, compliance and pharmacovigilance. The daily operations of the joint venture are
governed by four primary joint committees formed by both BMS and Gilead. We are responsible for accounting, financial reporting, tax
reporting, manufacturing and product distribution for the joint venture. Both parties provide their respective bulk active pharmaceutical
ingredients to the joint venture at their approximate market values. The agreement will continue until terminated by the mutual agreement of
the parties. In addition, either party may terminate the other party's participation in the collaboration within 30 days after the launch of at least
one generic version of such other party's single agent products (or the double agent products). The terminating party then has the right to
continue to sell Atripla and become the continuing party, but will be obligated to pay the terminated party certain royalties for a three-year
period following the effective date of the termination.
As of June 30, 2014 and December 31, 2013 , the joint venture held efavirenz active pharmaceutical ingredient which it purchased from
BMS at BMS's estimated net selling price of efavirenz in the U.S. market. These amounts are included in inventories on our Condensed
Consolidated Balance Sheets. As of June 30, 2014 , total assets held by the joint venture were $2.32 billion and consisted primarily of cash and
cash equivalents of $214.7 million , accounts receivable of $278.1 million and inventories of $1.81 billion ; total liabilities were $1.44 billion
and consisted primarily of accounts payable of $986.2 million and other accrued expenses of $446.8 million . As of December 31, 2013 , total
assets held by the joint venture were $2.24 billion and consisted primarily of cash and cash equivalents of $245.7 million , accounts receivable
of $275.3 million and inventories of $1.72 billion ; total liabilities were $1.26 billion and consisted primarily of accounts payable of $915.4
million and other accrued expenses of $341.2 million . These asset and liability amounts do not reflect the impact of intercompany eliminations
that are included in our Condensed Consolidated Balance Sheets. Although we consolidate the joint venture, the legal structure of the joint
venture limits the recourse that its creditors will have over our general credit or assets. Similarly, the assets held in the joint venture can be used
only to settle obligations of the joint venture.
15
Europe
In 2007, Gilead Sciences Limited, our wholly-owned subsidiary in Ireland, and BMS entered into a collaboration agreement with BMS
which sets forth the terms and conditions under which we and BMS commercialize and distribute Atripla in the European Union, Iceland,
Liechtenstein, Norway and Switzerland (collectively, the European Territory). The parties formed a limited liability company which we
consolidate, to manufacture Atripla for distribution in the European Territory using efavirenz that it purchases from BMS at BMS's estimated
net selling price of efavirenz in the European Territory. We are responsible for manufacturing, product distribution, inventory management and
warehousing. Through our local subsidiaries, we have primary responsibility for order fulfillment, collection of receivables, customer relations
and handling of sales returns in all the territories where we and BMS promote Atripla. In general, the parties share revenues and out-of-pocket
expenses in proportion to the net selling prices of the components of Atripla, Truvada and efavirenz.
Starting in 2012, except for a limited number of activities that will be jointly managed, the parties no longer coordinate detailing and
promotional activities in the region. We are responsible for accounting, financial reporting and tax reporting for the collaboration. As of
June 30, 2014 and December 31, 2013 , efavirenz purchased from BMS at BMS's estimated net selling price of efavirenz in the European
Territory is included in inventories on our Condensed Consolidated Balance Sheets.
The parties also formed a limited liability company to hold the marketing authorization for Atripla in Europe. We have primary
responsibility for regulatory activities. In the major market countries, both parties have agreed to independently continue to use commercially
reasonable efforts to promote Atripla.
The agreement will terminate upon the expiration of the last-to-expire patent which affords market exclusivity to Atripla or one of its
components in the European Territory. In addition, starting December 31, 2013, either party may terminate the agreement for any reason and
such termination will be effective two calendar quarters after notice of termination. The non-terminating party has the right to continue to sell
Atripla and become the continuing party, but will be obligated to pay the terminating party certain royalties for a three-year period following
the effective date of the termination. In the event the continuing party decides not to sell Atripla, the effective date of the termination will be
the date Atripla is withdrawn in each country or the date on which a third party assumes distribution of Atripla, whichever is earlier.
8.
DEBT AND CREDIT
FACILITY
Financing Arrangements
The following table summarizes the carrying amount of our borrowings under various financing arrangements (in thousands):
Type of Borrowing
Convertible Senior
Convertible Senior
Senior Unsecured
Senior Unsecured
Senior Unsecured
Senior Unsecured
Senior Unsecured
Senior Unsecured
Senior Unsecured
Senior Unsecured
Credit Facility
Description
Issue Date
Due Date
Interest Rate
May 2014 Notes
May 2016 Notes
April 2021 Notes
December 2014 Notes
December 2016 Notes
December 2021 Notes
December 2041 Notes
April 2019 Notes
April 2024 Notes
April 2044 Notes
Five-Year Revolver
July 2010
July 2010
March 2011
December 2011
December 2011
December 2011
December 2011
March 2014
March 2014
March 2014
January 2012
May 2014
May 2016
April 2021
December 2014
December 2016
December 2021
December 2041
April 2019
April 2024
April 2044
January 2017
1.00%
1.625%
4.50%
2.40%
3.05%
4.40%
5.65%
2.05%
3.70%
4.80%
Variable
June 30,
2014
$
Total debt, net
Less current portion
—
822,139
994,210
749,868
699,441
1,247,861
997,923
499,189
1,747,271
1,746,641
—
December 31, 2013
$
9,504,543
1,572,007
Total long-term debt, net
$
16
7,932,536
234,217
1,113,043
993,781
749,710
699,326
1,247,716
997,885
—
—
—
600,000
6,635,678
2,696,970
$
3,938,708
Convertible Senior Notes
During the six months ended June 30, 2014 , our convertible senior notes due in May 2014 (May 2014 Notes) matured and a portion of
our convertible senior notes due in May 2016 (May 2016 Notes) (together, the Notes) was converted. During the six months ended June 30,
2014 , we repaid $553.1 million of principal balance relating to the Notes. We also paid $1.29 billion in cash related to the conversion spread of
the Notes, which represents the conversion value in excess of the principal amount, and received $1.29 billion in cash from the convertible note
hedges related to the Notes.
As of June 30, 2014 , the May 2016 Notes were classified as current given that their conversion criteria had been met. As a result, the
related unamortized discount of $35.9 million was classified as equity component of currently redeemable convertible notes on our Condensed
Consolidated Balance Sheet.
There are 55.5 million shares of our common stock underlying our warrants expiring in 2014 (the 2014 Warrants). The 2014 Warrants
have a strike price of $28.38 per share and expire during the 40 trading-day period commencing August 1, 2014 and ending on September 26,
2014. On July 29, 2014, we exercised our option to settle the warrants in cash. As a result, during the third quarter of 2014, we expect to pay
cash to settle the warrants. Because the warrants could have been settled, at our option, in cash or shares of our common stock, and the related
contracts met all of the applicable criteria for equity classification, the settlement will be recorded as a reduction of additional paid-in capital in
our Condensed Consolidated Balance Sheet.
There are 55.1 million shares of our common stock underlying our warrants expiring in 2016 (the 2016 Warrants). The 2016 Warrants
have a strike price of $30.05 per share and are exercisable only on their expiration date. If the market value of our common stock at the time
of the exercise of the warrants exceeds their strike price, we will be required to net settle in cash or shares of our common stock, at our option,
for the value of the warrants in excess of the warrant strike price.
April 2019, 2024 and 2044 Senior Unsecured Notes
In March 2014, we issued senior unsecured notes in a registered offering for a total aggregate principal amount of $4.00 billion . We
issued senior unsecured notes due in April 2019 (April 2019 Notes) for $500.0 million that pay interest at a fixed annual rate of 2.05% , senior
unsecured notes due in April 2024 (April 2024 Notes) for $1.75 billion that pay interest at a fixed annual rate of 3.70% and senior unsecured
notes due in April 2044 (April 2044 Notes) for $1.75 billion that pay interest at a fixed annual rate of 4.80% . Debt issuance costs incurred in
connection with the issuance of this debt totaled approximately $27.5 million and are being amortized to interest expense over the contractual
term of each of the respective notes.
These notes may be redeemed at our option at any time or from time to time, at a redemption price equal to the greater of (i) 100% of the
principal amount of the notes to be redeemed and (ii) the sum, as determined by an independent investment banker, of the present values of the
remaining scheduled payments of principal and interest on the notes to be redeemed (exclusive of interest accrued to the date of redemption)
discounted to the redemption date on a semiannual basis at the Treasury Rate plus 10 basis points in the case of the April 2019 Notes, 15 basis
points in the case of the April 2024 Notes and 20 basis points in the case of the April 2044 Notes plus, in each case, accrued and unpaid interest
on the notes to be redeemed to the date of redemption.
At any time on or after the date that is three months prior to the maturity date of the April 2024 Notes, we may redeem the notes, in
whole or in part, at 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to the date of redemption. At
any time on or after the date that is six months prior to the maturity date of the April 2044 Notes, we may redeem the notes, in whole or in part,
at 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to the date of redemption.
In the event of the occurrence of both a change in control and a downgrade in the rating of a series of notes below an investment grade
rating by Standard & Poor's Ratings Services and Moody's Investors Service, Inc., the holders of such series of notes may require us to
purchase all or a portion of their notes of such series at a price equal to 101% of the aggregate principal amount of the notes repurchased, plus
accrued and unpaid interest.
Credit Facility
During the first quarter of 2014, we repaid the remaining balance of $600.0 million that was outstanding under the revolving credit
facility credit agreement. There were no amounts outstanding under the revolving credit facility credit agreement as of June 30, 2014.
We are required to comply with certain covenants under the credit agreement and note indentures and as of June 30, 2014 , we believe we
were in compliance with all such covenants.
17
9.
COMMITMENTS AND
CONTINGENCIES
Legal Proceedings
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 FDA approval of sofosbuvir, now known
commercially as Sovaldi. We have received a number of contractual and intellectual property claims regarding sofosbuvir. We have carefully
considered these claims both prior to and following the acquisition and believe they are without merit.
Arbitration with F. Hoffman-La Roche Ltd and Hoffman-La Roche Inc. (collectively, Roche)
Gilead (as successor to Pharmasset) is a party to an October 29, 2004 collaboration agreement with Roche. The agreement granted Roche
rights to develop PSI-6130, a cytidine analog, and its prodrugs, for the treatment of HCV infection. The collaborative research efforts under the
agreement ended on December 31, 2006. Roche later asked Pharmasset to consider whether Roche may have contributed to the inventorship of
sofosbuvir and whether Pharmasset has complied with the confidentiality provisions of the collaboration agreement. Pharmasset advised us that
it carefully considered the issues raised by Roche and that it believed any such issues are without merit. We have also considered these issues
and reached the same conclusion. In March 2013, Roche initiated an arbitration against us and Pharmasset, predecessor to Gilead Pharmasset
LLC, regarding the collaboration agreement. In the arbitration demand, Roche asserts that it has an exclusive license to sofosbuvir pursuant to
the collaboration agreement because sofosbuvir, a prodrug of a uridine monophosphate analog, is allegedly a prodrug of PSI-6130, a cytidine
analog. Roche further claims that, because it has exclusive rights to sofosbuvir, it also has an exclusive license to a patent covering sofosbuvir,
and that we will infringe that patent by selling and offering for sale products containing sofosbuvir. Gilead and Gilead Pharmasset LLC filed
their response to Roche's arbitration demand in April 2013. The arbitration hearing was held in New York in June 2014. We expect a decision
in the arbitration by the end of 2014.
Interference Proceedings and Litigation with Idenix Pharmaceuticals, Inc. (Idenix)
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 and Idenix's pending U.S. Patent Application No. 12/131,868. An interference is an
administrative proceeding before the USPTO designed to determine who was the first to invent the subject matter claimed by both parties. Our
patent covers metabolites of sofosbuvir and RG7128, a prodrug of a cytidine nucleoside analog that Pharmasset licensed to Roche. Idenix is
attempting to patent a class of compounds, including these metabolites. The purpose of the First Idenix Interference was to determine who was
first to invent these compounds and therefore who is entitled to the patent claiming these compounds. In March 2013, the USPTO Patent Trials
and Appeal Board (the Board) determined that Idenix is not entitled to the benefit of any of its early application filing dates because none of
those patent applications, including the application that led to Idenix’s U.S. Patent No. 7,608,600 (the ‘600 patent), taught how to make the
compounds in dispute. The Board also determined that because we are entitled to the filing date of our earliest application, we were first to file
the patent application on the compounds in dispute, and we were therefore the “senior party” in the First Idenix Interference. On January 29,
2014, the Board determined that Pharmasset and not Idenix was the first to invent the compounds in dispute and accordingly Gilead prevailed.
In its decision, the Board held that Idenix failed to prove that it was first to conceive of any of the compounds in dispute. Specifically, Idenix
failed to prove that the Idenix inventors had identified the structure, a method of making and a use for any of the disputed compounds. The
Board went on to conclude that Idenix failed to work diligently toward making and testing the compounds in dispute during the relevant time
period. Idenix has appealed the Board’s decisions to the U.S. District Court for the District of Delaware. If either or both of the Board’s
decisions are reversed on appeal and the court determines that Idenix is entitled to their patent claims, and it is determined that we have
infringed those claims, we may be required to obtain a license from and pay royalties to Idenix to commercialize sofosbuvir and RG7128 in the
United States. A decision by the District Court can be appealed by either party to the U.S. Court of Appeals for the Federal Circuit (CAFC).
We believe the claims in the Idenix application involved in the First Idenix Interference, and similar U.S. and foreign patents claiming the
same compounds and metabolites, 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 and the Idenix patent
application that is the subject of the First Idenix Interference. Idenix has now 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 U.S. Patent No. 7,429,572 in the First Idenix
Interference, is invalid.
We filed a similar legal action in Norway in the Oslo District Court seeking to invalidate Idenix's corresponding Norwegian patent. In
September 2013, Idenix filed an invalidation action in the Norwegian proceedings against our Norwegian Patent No. 333700 patent, which
corresponds to our U.S. Patent No. 7,429,572. The trial was held in November 2013. On
18
March 21, 2014, the Norwegian court found all claims in the Idenix Norwegian patent to be invalid and upheld the validity of all claims in the
challenged Gilead patent. Additionally, the Norwegian court ordered Idenix to pay us over $2.0 million in attorney fees as the losing party to
the litigation. On April 30, 2014, Idenix appealed the March 21, 2014 decision to the Norwegian Court of Appeal. Idenix’s obligation to pay
our attorneys’ fees will be stayed during the pendency of the appeal.
In August 2013 and April 2014, Idenix filed two separate requests for invalidation with the Chinese Patent Office of our Chinese Patent
CN ZL200480019148.4, which corresponds to our U.S. Patent No. 7,429,572 patent.
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 sofosbuvir will infringe the Australian patent corresponding to the ‘600 patent.
On March 12, 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 granted, we filed an opposition with the EPO seeking to revoke the ‘489
patent. Also on March 12, 2014, Idenix initiated infringement proceedings against us in the United Kingdom, Germany and France alleging that
the commercialization of Sovaldi in those countries would infringe the respective national counterparts of the ‘489 patent. In the United
Kingdom, the court has ordered an October 2014 trial date to determine the issues of infringement and validity of the Idenix United Kingdom
patent. In Germany, the court in Düsseldorf has ordered a hearing date of December 2, 2014 to determine the issue of infringement of the
Idenix German patent. We do not have a trial date for the French lawsuit.
Idenix has not been awarded patents corresponding to the ‘600 patent in Japan or China. In the event such patents issue, we expect to
challenge them in proceedings similar to those we invoked in Europe, Canada, Norway and Australia. If the courts hearing these proceedings
determine that Idenix is entitled to their patent claims and it is determined that we have infringed those claims, we may be required to obtain a
license from and pay royalties to Idenix to commercialize sofosbuvir and RG7128 in that country.
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 the ‘600 patent. The ‘600 patent includes claims directed to methods of
treating HCV with nucleoside compounds similar to those which were involved in the First Idenix Interference. The Second Idenix Interference
will determine who was first to invent the claimed methods of treating HCV. In the declaration of the Second Idenix Interference, the USPTO
has initially designated Gilead as the junior party based upon the patent application filing dates appearing on the face of the ‘600 patent. We
believe the Board’s determination in the First Idenix Interference that Idenix is not entitled to the benefit of any of its earlier application filing
dates, including the filing date of the ‘600 patent, will be equally applicable to the Second Idenix Interference. If we are correct, the Board may
conclude that Gilead is the senior party in the Second Idenix Interference, consistent with the determination in the First Idenix Interference. In
light of the Board’s conclusion in the First Idenix Interference that the application that led to the ‘600 patent does not teach how to make the
claimed compounds, it is possible that the Board will make the same determination in the Second Idenix Interference and eliminate the need for
the Board to address who was the first to invent the claimed methods of treating HCV. However, if the Board does consider who was the first
to invent the claimed methods of treating HCV and ultimately concludes that Gilead was first, the claims in the ‘600 patent may be revoked. If
the Board determines that Idenix was first to invent and is entitled to these patent claims, and it is determined in other proceedings that we have
infringed those claims, we may be required to obtain a license from and pay royalties to Idenix to commercialize sofosbuvir and RG7128. Any
determination by the Board can be appealed by either party to U.S. federal court.
In December 2013, Idenix, Universita Degli Studi di Cagliari (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. We believe that the claims in the ‘600
patent are invalid and that we have the sole right to commercialize sofosbuvir. However, if the court disagrees with our view and further
determines that the ‘600 patent is infringed, we may be required to obtain a license from and pay royalties to Idenix to commercialize
sofosbuvir. A decision by the District Court can be appealed by either party to the CAFC.
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 and 7,608,597. On June 30, 2014, the court in Massachusetts granted
our request and transferred the Massachusetts litigation to the U.S. District Court for the District of Delaware. We believe that Idenix’s patents
are invalid and would not be infringed by our commercialization of sofosbuvir and that we have the sole right to commercialize sofosbuvir.
However, if the court disagrees with our view and determines that these patents are infringed, we may be required to obtain a license from and
pay royalties to Idenix to commercialize sofosbuvir. A decision by the District Court can be appealed by either party to the CAFC. We have an
expansive patent
19
portfolio covering NS5A inhibitors for the treatment of HCV. Following the disclosure of the structure of Idenix’s NS5A inhibitor, samatasvir
(also known as IDX-719), we are evaluating the compound in light of the claims of our granted U.S. Patent No. 8,669,234.
On June 9, 2014, Merck and Idenix announced that the companies had entered into a definitive agreement under which Merck will
acquire Idenix. While this merger does not change our view of the merits of Merck's and Idenix's claims, Merck has greater resources than
Idenix and may therefore choose to fund the litigation at higher levels than Idenix.
Litigation with Merck & Co., Inc. (Merck)
In August 2013, Merck contacted us requesting that we pay royalties on the sales of sofosbuvir and obtain a license to U.S. Patent Nos.
7,105,499 and 8,481,712, which it co-owns with Isis Pharmaceuticals, Inc. We believe that Merck’s patents are invalid and would not be
infringed by our commercialization of sofosbuvir and that we have the sole right to commercialize sofosbuvir. Accordingly, in August 2013,
we filed a lawsuit in the U.S. District Court for the Northern District of California seeking declaratory judgment that the Merck patents are
invalid and not infringed. Merck’s U.S. Patent Nos. 7,105,499 and 8,481,712 cover compounds which do not include, but may relate to,
sofosbuvir. During patent prosecution, Merck amended its patent application in an attempt to cover compounds related to sofosbuvir and
ultimately extract royalty payments for sofosbuvir’s commercialization, or to exclude it from the market. If the court determines that Merck’s
patents are valid and that we have infringed those claims, we may be required to obtain a license from and pay royalties to Merck to
commercialize sofosbuvir. Either party can appeal a decision by the District Court to the CAFC. The court has set a trial date of March 7, 2016
for this litigation. While this merger does not change our view of the merits of Merck's and Idenix's claims, Merck has greater resources than
Idenix and may therefore choose to fund the litigation at higher levels than Idenix.
Litigation with AbbVie, Inc. (AbbVie)
AbbVie has obtained U.S. Patent Nos. 8,466,159, 8,492,386, 8,680,106 and 8,685,984, which purport to claim the use of a combination of
ledipasvir/sofosbuvir (LDV/SOF) for the treatment of HCV. We own published and pending patent applications directed to the use of
combinations for the treatment of HCV, and, specifically, to combinations of ledipasvir and sofosbuvir. Certain of those applications were filed
before AbbVie’s patents. For this reason and others, we believe AbbVie’s patents are invalid.
Accordingly, in December 2013, we filed a lawsuit in the U.S. District Court for the District of Delaware seeking declaratory judgment
that the AbbVie patents are invalid and unenforceable, as well as other relief. We believe that Abbott Laboratories, Inc. and AbbVie conspired
to eliminate competition in the HCV market by falsely representing to the USPTO that they, and not Gilead, invented methods of treating HCV
using a combination of LDV/SOF. In February and March 2014, AbbVie responded to our lawsuit by filing two lawsuits also in the U.S.
District Court for the District of Delaware alleging that our fixed-dose combination of LDV/SOF will infringe its patents. We do not expect
AbbVie’s patents to block or delay the commercialization of our combination products. If the court determines that AbbVie’s patents are valid
and that we have infringed those claims, we may be required to obtain a license from and pay royalties to AbbVie to commercialize sofosbuvir
combination products. Either party can appeal a decision by the District Court to the CAFC. We are aware that AbbVie is pursuing similar
patents in Europe and other countries.
We cannot predict the ultimate outcome of contractual and intellectual property claims related to sofosbovir, and we may spend
significant resources enforcing and defending these patents. If these parties successfully obtain valid and enforceable patents, and successfully
prove infringement of those patents by sofosbuvir, we could be prevented from selling sofosbuvir unless we were able to obtain a license under
such patents. Such a license may not be available on commercially reasonable terms or at all. Further, if any party is successful in establishing
exclusive rights to sofosbuvir, our expected revenues and earnings from the sale of sofosbuvir would be adversely affected. A range of losses
cannot be estimated at this time.
Litigation with Generic Manufacturers
As part of the approval process for some of our products, the FDA granted us a New Chemical Entity (NCE) exclusivity period during
which other manufacturers' applications for approval of generic versions of our product will not be approved. Generic manufacturers may
challenge the patents protecting products that have been granted NCE exclusivity one year prior to the end of the NCE exclusivity period.
Generic manufacturers have sought and may continue to seek FDA approval for a similar or identical drug through an abbreviated new drug
application (ANDA), the application form typically used by manufacturers seeking approval of a generic drug. We received notices that generic
manufacturers have submitted ANDAs to manufacture a generic version of Atripla, Truvada, Viread, Emtriva, Ranexa and Tamiflu in the
United States and Atripla, Truvada and Viread in Canada. Current legal proceedings of significance with some of our generic manufacturers
include:
Natco
In March 2011, we and F. Hoffmann-La Roche Ltd. (Roche) filed a lawsuit against Natco Pharma Ltd. (Natco) in U.S. District Court for
the District of New Jersey for infringement of one of the patents associated with Tamiflu. In December 2012,
20
the court issued a ruling in favor of Gilead and Roche, that our patent is not invalid for the reasons stated in Natco’s notice letter. Natco has
appealed this decision to the CAFC. In April 2014, the CAFC issued a decision which will allow Natco’s patent invalidity challenge to proceed
if the case is remanded to the District Court of New Jersey for a full trial on the merits. On June 30, 2014, we filed a petition for rehearing en
banc with the CAFC.
Teva
In August 2012, Teva Pharmaceuticals (Teva) filed an Impeachment Action in the Federal Court of Canada seeking invalidation of our
two Canadian patents associated with Viread. In September 2013, a hearing on the consolidated requests for orders of prohibition in connection
with all three of Teva’s abbreviated new drug submission (ANDS) filings to the Canadian Minister of Health (for Teva’s generic versions of
Viread, Truvada, and Atripla) took place. In December 2013, the court issued our requested order prohibiting the Canadian Ministry of Health
from issuing a Notice of Compliance for Teva’s generic versions of our Viread, Truvada, and Atripla products until expiry of our patent in July
2017. Teva appealed the decision of the court prohibiting the Minister of Heath from issuing the Notices of Compliance until expiry of our
patent in July 2017. This decision did not rule on the validity of the patents and accordingly the only issue on appeal is whether the Minister of
Health should be prohibited from issuing the Notices of Compliance for Teva’s products. Separately, the court will determine the validity of the
patents in the pending Impeachment Action. A trial in the Impeachment Action is scheduled for March 2015. If Teva is successful in
invalidating our patents, Teva may be able to launch generic versions of our Viread, Truvada and Atripla products in Canada prior to the expiry
of our patents.
In April 2013, we and Teva reached an agreement to settle the ongoing patent litigation concerning the four patents that protect tenofovir
disoproxil fumarate in our Atripla, Truvada and Viread products. Under the agreement, Teva will be allowed to launch a generic version of
Viread on December 15, 2017. In April 2014, we and Teva entered an agreement to settle the ongoing patent litigation concerning the
emtricitabine patents that protect Atripla and Truvada. The terms of the settlement agreement are confidential.
Lupin
In 2012, we filed lawsuits against Lupin Limited (Lupin) in U.S. District Court for the Southern District of New York for infringement of
our emtricitabine and tenofovir disoproxil patents related to Viread and Truvada. In May 2014, Lupin amended its ANDAs to certify that it is
no longer seeking approval to market generic versions of Truvada and Viread prior to the expiration of the four patents associated with
tenofovir disoproxil fumarate in January 2018 (including pediatric exclusivity). As a result, in May 2014, the court granted Gilead and Lupin's
Joint Motion for Order of Dismissal in our patent infringement lawsuit against Lupin for the tenofovir disoproxil fumarate patents. A trial
relating to Lupin’s ANDA requesting permission to make a generic version of Truvada before the expiry of our patents covering emtricitabine
is scheduled for December 2014.
In August 2013, we and Lupin reached an agreement to settle the patent litigation concerning certain patents that protect Ranexa. Under
the agreement, Lupin would be allowed to launch a generic version of Ranexa on February 27, 2019.
We cannot predict the ultimate outcome of the foregoing actions and other litigation with generic manufacturers, and we may spend
significant resources enforcing and defending these patents. If we are unsuccessful in these lawsuits, some or all of our original claims in the
patents may be narrowed or invalidated and the patent protection for Truvada, Viread, Emtriva and Tamiflu in the United States and Atripla,
Truvada and Viread in Canada could be substantially shortened. Further, if all of the patents covering one or more products are invalidated, the
FDA or Canadian Minister of Health could approve the requests to manufacture a generic version of such products in the United States or
Canada, respectively, prior to the expiration date of those patents. The sale of generic versions of these products earlier than their patent
expiration would have a significant negative effect on our revenues and results of operations.
Department of Justice Investigation
In June 2011, we received a subpoena from the U.S. Attorney's Office for the Northern District of California requesting documents
related to the manufacture, and related quality and distribution practices, of Complera, Atripla, Truvada, Viread, Emtriva, Hepsera and Letairis.
We cooperated with the government’s inquiry. On April 16, 2014, the United States Department of Justice informed us that, following an
investigation, it declined to intervene in a False Claims Act lawsuit filed by two former employees. We have moved to dismiss the complaint.
Other Matters
We are a party to various legal actions that arose in the ordinary course of our business. We do not believe that these other legal actions
will have a material adverse impact on our consolidated business, financial position or results of operations.
21
10.
STOCKHOLDERS’
EQUITY
Stock Repurchase Program
Under our stock repurchase program announced in January 2011 (2011 Program), we repurchased a total of $1.20 billion or 15.2 million
shares of common stock during the three months ended June 30, 2014 , and a total of $1.65 billion or 20.9 million shares of common stock
during the six months ended June 30, 2014 . As of June 30, 2014 , we had $1.70 billion remaining in our 2011 Program, which is expected to
be completed by September 2014. In May 2014, our Board of Directors authorized a new stock repurchase program of up to $5.00 billion of
our common stock.
Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in accumulated OCI (loss) by component, net of tax (in thousands):
Unrealized Gains and
Losses on
Available-for-Sale
Securities
Foreign Currency
Items
Balance at December 31, 2013
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other
comprehensive income (loss)
Net current period other comprehensive income
Balance at June 30, 2014
$
$
(45,860 )
6,969
—
6,969
(38,891 )
$
11,907
1,826
(386 )
1,440
13,347
$
Unrealized Gains
and Losses on
Cash Flow Hedges
$
$
(90,493 )
32,886
41,691
74,577
(15,916 )
Total
$
(124,446 )
41,681
$
41,305
82,986
(41,460 )
Amounts reclassified for gains (losses) on cash flow hedges were recorded as part of product sales on our Condensed Consolidated
Statements of Income. Amounts reclassified for unrealized gains (losses) on available-for-sale securities were recorded as part of other income
(expense), net on our Condensed Consolidated Statements of Income.
11. STOCK-BASED
COMPENSATION
The following table summarizes the stock-based compensation expense included in our Condensed Consolidated Statements of Income
(in thousands):
Three Months Ended
Six Months Ended
June 30,
June 30,
2014
Cost of goods sold
Research and development expenses
Selling, general and administrative expenses
Stock-based compensation expense included in total costs
and expenses
Income tax effect
Stock-based compensation expense, net of tax
12.
$
$
2,565
36,633
43,935
83,133
(10,934 )
72,199
2013
$
$
2,632
24,646
28,675
55,953
(15,574 )
40,379
2014
$
$
5,207
70,983
89,168
165,358
(30,023)
135,335
2013
$
$
4,473
51,521
61,726
117,720
(31,961 )
85,759
NET INCOME PER SHARE ATTRIBUTABLE TO GILEAD COMMON
STOCKHOLDERS
Basic net income per share attributable to Gilead common stockholders is calculated based on the weighted-average number of shares of
our common stock outstanding during the period. Diluted net income per share attributable to Gilead common stockholders is calculated based
on the weighted-average number of shares of our common stock outstanding and other dilutive securities outstanding during the period. The
potential dilutive shares of our common stock resulting from the assumed exercise of outstanding stock options, performance shares and the
assumed exercise of warrants relating to the convertible senior notes due in May 2013 (May 2013 Notes), May 2014 Notes and May 2016
Notes (collectively, the Convertible Notes) are determined under the treasury stock method.
Because the principal amount of the Convertible Notes will be settled in cash, only the conversion spread relating to the Convertible
Notes is included in our calculation of diluted net income per share attributable to Gilead common stockholders. Our common stock resulting
from the assumed settlement of the conversion spread of the May 2016 Notes has a dilutive effect when the average market price of our
common stock during the period exceeds the conversion price of $22.71 for the May
22
2016 Notes. Warrants relating to the May 2016 Notes have a dilutive effect when the average market price of our common stock during the
period exceeds the warrants’ exercise price of $30.05 .
Our May 2013 Notes and May 2014 Notes matured and as a result, we have only included their impact for the period they were
outstanding on our net income per share calculations for the periods shown. Our common stock resulting from the assumed settlement of the
conversion spread of the May 2013 Notes and May 2014 Notes had a dilutive effect when the average market price of our common stock
during the period exceeded the conversion price of $19.05 for the May 2013 Notes and $22.54 for the May 2014 Notes. Warrants related to our
May 2013 Notes settled in August 2013 and as a result, we have only included their impact for the period they were outstanding on our net
income per share calculation for the three and six months ended June 30, 2013 . The related warrants had a dilutive effect when the average
market price of our common stock during the period exceeded the warrants’ exercise price of $26.95 . Warrants relating to the May 2014 Notes
have a dilutive effect when the average market price of our common stock during the period exceeds the warrants’ exercise price of $28.38 .
We have excluded stock options to purchase approximately 1.1 million and 0.9 million weighted-average shares of our common stock
that were outstanding during the three and six months ended June 30, 2014 , and approximately 1.0 million and 1.7 million weighted-average
shares of our common stock that were outstanding during the three and six months ended June 30, 2013 . These shares were excluded in the
computation of diluted net income per share attributable to Gilead common stockholders because their effect was antidilutive.
The following table is a reconciliation of the numerator and denominator used in the calculation of basic and diluted net income per share
attributable to Gilead common stockholders (in thousands):
Three Months Ended
Six Months Ended
June 30,
2014
Numerator:
Net income attributable to Gilead
Denominator:
Weighted-average shares of common stock
outstanding used in the calculation of basic net
income per share attributable to Gilead common
stockholders
Effect of dilutive securities:
Stock options and equivalents
Conversion spread related to the May 2013 Notes
Conversion spread related to the May 2014 Notes
Conversion spread related to the May 2016 Notes
Warrants related to the Convertible Notes
Weighted-average shares of common stock
outstanding used in the calculation of diluted net
income per share attributable to Gilead common
stockholders
13.
$
3,655,593
June 30,
2013
$
772,605
2014
$
5,883,003
2013
$
1,494,791
1,532,723
1,526,945
1,534,614
1,524,174
31,340
—
2,171
29,143
69,038
38,512
3,592
29,627
30,850
65,051
33,513
—
4,586
30,530
69,192
38,437
7,519
28,075
28,418
56,646
1,664,415
1,694,577
1,672,435
1,683,269
SEGMENT
INFORMATION
We operate in one business segment, which primarily focuses on the discovery, development and commercialization of innovative
medicines in areas of unmet medical need. All products are included in one segment, because the majority of our products have similar
economic and other characteristics, including the nature of the products and production processes, type of customers, distribution methods and
regulatory environment. Total product sales on an individual product basis are summarized in the following table (in thousands):
23
Three Months Ended
Six Months Ended
June 30,
June 30,
2014
Antiviral products:
Sovaldi
Atripla
Truvada
Complera/Eviplera
Stribild
Viread
LDV/SOF
Other antiviral products
Total antiviral products
Letairis
Ranexa
AmBisome
Other products
Total product sales
$
$
2013
3,480,326
870,708
806,610
299,464
269,520
260,734
439
24,343
6,012,144
144,716
121,956
94,794
39,327
6,412,937
$
$
2014
—
938,108
807,779
188,683
99,394
250,188
—
29,387
2,313,539
128,257
106,597
75,137
33,755
2,657,285
$
$
2013
5,754,675
1,650,302
1,566,310
550,197
484,791
471,359
439
42,568
10,520,641
267,601
233,574
186,887
75,208
11,283,911
$
$
—
1,815,181
1,508,021
336,872
191,542
460,520
—
62,481
4,374,617
246,364
202,883
160,412
66,577
5,050,853
The following table summarizes revenues from each of our customers who individually accounted for 10% or more of our total revenues
(as a percentage of total revenues):
Three Months Ended
Six Months Ended
June 30,
2014
AmerisourceBergen Corp.
McKesson Corp.
Cardinal Health, Inc.
14.
June 30,
2013
27%
25%
12%
2014
11%
17%
18%
2013
27%
24%
13%
11%
16%
19%
The change in the percentage of total revenues was due primarily to sales of Sovaldi in the United States.
INCOME
TAXES
Our income tax rates of 15.2% and 19.1% for the three and six months ended June 30, 2014 , differed from the U.S. federal statutory rate
of 35% due primarily to certain operating earnings from non-U.S. subsidiaries that are considered indefinitely reinvested and tax credits,
partially offset by state taxes, our portion of the non-tax deductible pharmaceutical excise tax and amortization expense of the intangible asset
related to sofosbuvir for which we receive no tax benefit. We do not provide for U.S. income t axes on undistributed earnings of our foreign
operations that are intended to be indefinitely reinvested in our foreign subsidiaries. The effective tax rate for the three months ended June 30,
2014 includes a cumulative catch up adjustment of 3.9 percentage points to the first quarter tax rate to reduce the year to date effective tax rate
to 19.1% .
We file federal, state and foreign income tax returns in many jurisdictions in the United States and abroad. For federal income tax
purposes, the statute of limitations is open for 2010 and onwards. For certain acquired entities, the statute of limitations is open for all years
from inception due to our utilization of their net operating losses and credits carried over from prior years. For California income tax purposes,
the statute of limitations is open for 2008 and onwards.
Our income tax returns are audited by federal, state and foreign tax authorities. We are currently under examination by the Internal
Revenue Service (IRS) for the 2010, 2011 and 2012 tax years and by various state and foreign jurisdictions. There are differing interpretations
of tax laws and regulations, and as a result, significant disputes may arise with these tax authorities involving issues of the timing and amount
of deductions and allocations of income among various tax jurisdictions. We periodically evaluate our exposures associated with our tax filing
positions.
As of June 30, 2014 , we believe that it is reasonably possible that our unrecognized tax benefits will decrease by approximately $11.0
million in the next 12 months as we expect to have clarification from the IRS and other tax authorities regarding our uncertain tax positions.
With respect to the remaining unrecognized tax benefits, we are currently unable to make a reasonable estimate as to the period of cash
settlement, if any, with the respective tax authorities.
24
We record liabilities related to uncertain tax positions in accordance with the income tax guidance which clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements by prescribing a minimum recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
We do not believe any of our uncertain tax positions will have a material adverse effect on our Condensed Consolidated Financial Statements,
although an adverse resolution of one or more of these uncertain tax positions in any period could have a material impact on the results of
operations for that period.
25
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements regarding future events and our future results that are subject
to the safe harbors created under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. The
forward-looking statements are contained principally in this section entitled “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and “Risk Factors.” Words such as “expect,” “anticipate,” “target,” “goal,” “project,” “hope,” “intend,”
“plan,” “believe,” “seek,” “estimate,” “continue,” “may,” “could,” “should,” “might,” variations of such words and similar expressions
are intended to identify such forward-looking statements. In addition, any statements other than statements of historical fact are
forward-looking statements, including statements regarding overall trends, operating cost and revenue trends, liquidity and capital needs and
other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions. We have based these
forward-looking statements on our current expectations about future events. These statements are not guarantees of future performance and
involve risks, uncertainties and assumptions that are difficult to predict. Our actual results may differ materially from those suggested by these
forward-looking statements for various reasons, including those identified below under “Risk Factors.” Given these risks and uncertainties,
you are cautioned not to place undue reliance on forward-looking statements. The forward-looking statements included in this report are made
only as of the date hereof. Except as required under federal securities laws and the rules and regulations of the Securities and Exchange
Commission, we do not undertake, and specifically decline, any obligation to update any of these statements or to publicly announce the results
of any revisions to any forward-looking statements after the distribution of this report, whether as a result of new information, future events,
changes in assumptions or otherwise. In evaluating our business, you should carefully consider the risks described in the section entitled “Risk
Factors” under Part II, Item 1A below, in addition to the other information in this Quarterly Report on Form 10-Q. Any of the risks contained
herein could materially and adversely affect our business, results of operations and financial condition.
You should read the following management’s discussion and analysis of our financial condition and results of operations in conjunction
with our audited Consolidated Financial Statements and related notes thereto included as part of our Annual Report on Form 10-K for the year
ended December 31, 2013 and our unaudited Condensed Consolidated Financial Statements for the three and six months ended June 30, 2014
and other disclosures (including the disclosures under “Part II. Item 1A. Risk Factors”) included in this Quarterly Report on Form 10-Q. Our
Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles and are
presented in U.S. dollars.
Management Overview
Gilead Sciences, Inc. (Gilead, we or us), incorporated in Delaware on June 22, 1987, is a research-based biopharmaceutical company that
discovers, develops and commercializes innovative medicines in areas of unmet medical need. With each new discovery and investigational
drug candidate, we strive to transform and simplify care for people with life-threatening illnesses around the world. Gilead's primary areas of
focus include human immunodeficiency virus (HIV), liver diseases such as chronic hepatitis B virus (HBV) infection and chronic hepatitis C
virus (HCV) infection, oncology and inflammation, and serious cardiovascular and respiratory conditions. Headquartered in Foster City,
California, we have operations in North and South America, Europe and Asia-Pacific. We continue to add to our existing portfolio of products
through our internal discovery and clinical development programs and through a product acquisition and in-licensing strategy.
Our portfolio of marketed products includes Sovaldi ® , Stribild ® , Complera ® /Eviplera ® , Atripla ® , Truvada ® , Viread ® , Vitekta ® ,
Tybost ® , Zydelig ® , Hepsera ® , Emtriva ® , Letairis ® , Ranexa ® , AmBisome ® , Cayston ® and Tamiflu ® . We have U.S. and international
commercial sales operations, with marketing subsidiaries in North and South America, Europe and Asia-Pacific. We also sell and distribute
certain products through our corporate partners under royalty-paying collaborative agreements.
Business Highlights
During the second quarter of 2014 , we continued to advance our product pipeline across our therapeutic areas. Announcements made
during the quarter include:
Antiviral Program
•
Submission of a New Drug Application (NDA) to Japan’s Pharmaceutical and Medical Devices Agency (PMDA) for approval of
sofosbuvir (SOF), a once-daily nucleotide analog polymerase inhibitor for the treatment of chronic HCV infection. If approved, SOF
would form the basis of the first all-oral, interferon-free treatment regimen for genotype 2 patients in Japan.
•
Positive results from a Phase 3 clinical trial in Japan evaluating the investigational once-daily fixed-dose combination of ledipasvir
(LDV), our NS5A inhibitor, and SOF (LDV/SOF), with and without ribavirin (RBV), for the treatment of
26
genotype 1 chronic HCV infection. Based on these data, we plan to submit an NDA for the fixed-dose combination of LDV/SOF with
the Japanese PMDA by the end of 2014.
•
U.S. Food and Drug Administration (FDA) acceptance of our refiling of two NDAs for cobicistat and elvitegravir. The FDA set target
review dates under the Prescription Drug User Fee Act (PDUFA) of October 3, 2014 for cobicistat and October 4, 2014 for
elvitegravir.
•
Presentations of data on SOF-based regimens in chronic HCV patients included:
•
◦
Positive data from two Phase 2 studies and a compassionate access study in which a regimen containing Sovaldi was
administered for the treatment of chronic HCV infection in patients with advanced liver disease.
◦
Positive data from two Phase 2 studies, evaluating investigational all-oral regimens containing SOF for the treatment of
chronic HCV infection.
◦
Positive results from an open-label clinical trial, evaluating Sovaldi for the retreatment of chronic HCV infection among
patients who failed prior therapy.
Priority review granted by the FDA of the NDA for a once-daily fixed-dose combination of LDV/SOF for the treatment of chronic
HCV genotype 1 infection in adults. The FDA set a target review date under PDUFA of October 10, 2014.
Oncology Program
•
Approval by the FDA of Zydelig (idelalisib) for the treatment of three B-cell blood cancers. Zydelig is indicated in combination with
rituximab for patients with relapsed chronic lymphocytic leukemia (CLL) for whom rituximab alone would be considered appropriate
therapy and as monotherapy for patients with relapsed follicular B-cell non-Hodgkin lymphoma and small lymphocytic lymphoma
who have received at least two prior systemic therapies.
•
Updated interim results of a Phase 2 study evaluating GS-9973, our investigational oral inhibitor of spleen tyrosine kinase (Syk), for
the treatment of patients with relapsed CLL. Based on these data, we plan to initiate new CLL study cohorts to include patients who
have relapsed following treatment with other inhibitors of the B-cell receptor signaling pathway.
Financial Highlights
During the second quarter of 2014 , total revenues increased to $6.53 billion , compared to $2.77 billion in the second quarter of 2013 ,
driven primarily by the launch of Sovaldi. Sales of Sovaldi were $3.48 billion for the three months ended June 30, 2014 . Sovaldi was approved
in the United States in December 2013 and in the European Union in January 2014. Since its launch, we estimate approximately 80,000
patients in the United States and Europe have begun treatment for HCV with Sovaldi.
Research and development (R&D) expenses increased 11% to $583.9 million for the second quarter of 2014 compared to the same period
in 2013 due to increases in headcount and other costs to support expansion of our R&D activities. Selling, general and administrative (SG&A)
expenses increased 51% to $613.6 million for the second quarter of 2014 compared to the same period in 2013 due to increases in headcount
and other costs to support our business expansion related to Sovaldi and pre-launch activities for Zydelig and our fixed-dose combination of
LDV/SOF.
Net income attributable to Gilead for the second quarter of 2014 increased to $3.66 billion or $2.20 per diluted share, compared to the
same period in 2013 , due primarily to the launch of Sovaldi, partially offset by the increase in R&D and SG&A expenses.
As of June 30, 2014 , our cash, cash equivalents and marketable securities totaled $9.58 billion , an increase of $2.72 billion compared to
March 31, 2014. During the second quarter of 2014 , we generated $4.19 billion of operating cash flows, which reflected strong accounts
receivable collections in the quarter and included a larger than normal component related to first quarter sales given the launch of Sovaldi. We
also repurchased $1.20 billion of common stock and repaid $309.7 million in debt, net of convertible note hedges.
As of June 30, 2014 , we had $1.70 billion remaining in our $5.00 billion stock repurchase program announced in January 2011 (2011
Program), which is expected to be completed by September 2014. In May 2014, our Board of Directors authorized an additional repurchase of
up to $5.00 billion of our common stock.
27
Results of Operations
Total Revenues
Total revenues include product sales and royalty, contract and other revenues. Total revenues for the three months ended June 30, 2014
were $6.53 billion , compared to $2.77 billion for the same period in 2013 . Total revenues for the six months ended June 30, 2014 were $11.53
billion , compared to $5.30 billion for the same period in 2013 . Increases in total revenues for both periods were driven by growth in product
sales resulting primarily from the launch of Sovaldi.
Product Sales
Total product sales were $6.41 billion for the three months ended June 30, 2014 , an increase of 141% compared to the same period in
2013 . Total product sales were $11.28 billion for the six months ended June 30, 2014 , an increase of 123% compared to the same period in
2013 . Increases in product sales for both periods were driven by increases in antiviral and cardiovascular product sales. Antiviral product sales,
including Sovaldi, totaled $6.01 billion and $10.52 billion for the three and six months ended June 30, 2014, an increase of 160% and 140% ,
respectively, compared to the same periods in 2013 . Cardiovascular product sales, which include Letairis and Ranexa, totaled $266.7 million
and $501.2 million for the three and six months ended June 30, 2014, an increase of 14% and 12% , respectively, compared to the same periods
in 2013 . During the three and six months ended June 30, 2014, approximately 25% of our product sales were generated outside of the United
States and as a result, we face exposure to adverse movements in foreign currency exchange rates, primarily in Euro. We used foreign currency
exchange contracts to hedge a percentage of our foreign currency exposure. Foreign currency exchange, net of hedges, had a favorable impact
of $37.8 million and $32.7 million on our product sales for the three and six months ended June 30, 2014 , respectively, compared to the same
periods in 2013 .
Product sales in the United States increased by 195% to $4.82 billion and 178% to $8.45 billion for the three and six months ended June
30, 2014 , respectively, compared to the same periods in 2013 , due primarily to sales of Sovaldi, which launched in December 2013, and
increases in sales of Stribild and Complera.
Product sales in Europe increased by 60% to $1.31 billion and 42% to $2.33 billion for the three and six months ended June 30, 2014 ,
respectively, compared to the same periods in 2013 , due primarily to sales of Sovaldi, which launched in January 2014, and increases in sales
of Stribild and Eviplera. In light of the continued fiscal and debt crises experienced by several countries in the European Union, several
governments have announced or implemented measures to manage healthcare expenditures. We continue to experience pricing pressure such as
increases in the amount of discounts required on our products and delayed reimbursement which could negatively impact our future product
sales and results of operations. Foreign currency exchange, net of hedges, had a favorable impact of $45.3 million and $44.0 million on our
European product sales for the three and six months ended June 30, 2014 , respectively, compared to the same periods in 2013 .
The following table summarizes the period over period changes in our product sales:
Three Months Ended
June 30,
(In thousands, except percentages)
Antiviral products:
Sovaldi
Atripla
Truvada
Complera/Eviplera
Stribild
Viread
LDV/SOF
Other antiviral products
Total antiviral products
Letairis
Ranexa
AmBisome
Other products
Total product sales
2014
$
$
3,480,326
870,708
806,610
299,464
269,520
260,734
439
24,343
6,012,144
144,716
121,956
94,794
39,327
6,412,937
Six Months Ended
June 30,
2013
$
$
Change
—
938,108
807,779
188,683
99,394
250,188
—
29,387
2,313,539
128,257
106,597
75,137
33,755
2,657,285
28
—
(7)%
0%
59 %
171 %
4%
—
(17)%
160 %
13 %
14 %
26 %
17 %
141 %
2014
$
$
5,754,675
1,650,302
1,566,310
550,197
484,791
471,359
439
42,568
10,520,641
267,601
233,574
186,887
75,208
11,283,911
2013
$
$
—
1,815,181
1,508,021
336,872
191,542
460,520
—
62,481
4,374,617
246,364
202,883
160,412
66,577
5,050,853
Change
—
(9)%
4%
63 %
153 %
2%
—
(32)%
140 %
9%
15 %
17 %
13 %
123 %
Antiviral Products
Antiviral product sales increased for the three and six months ended June 30, 2014 compared to the same periods in 2013 due primarily to
the launch of Sovaldi, which was approved in the United States in December 2013 and in the European Union in January 2014, and increased
sales of Stribild and Complera/Eviplera. The increase in the six months ended June 30, 2014 was partially offset by a decrease in wholesaler
and sub-wholesaler inventories in the United States associated primarily with our HIV products. Following is additional discussion of our
results by product:
•
Sovaldi
For the three and six months ended June 30, 2014 , sales of Sovaldi were $3.48 billion and $5.75 billion , respectively. Sovaldi
sales accounted for 58% and 55% of our total antiviral product sales for the three and six months ended June 30, 2014 . Sovaldi
sales in the United States were $3.03 billion and $5.13 billion for the three and six months ended June 30, 2014 . Sovaldi sales in
Europe were $400.2 million and $563.9 million for the three and six months ended June 30, 2014 . Since its launch in December
2013, we estimate approximately 80,000 patients in the United States and Europe have begun treatment for HCV with Sovaldi.
While Sovaldi has regulatory approval in the European Union, pricing and reimbursement is obtained on a country-by-country
process, with some countries completing the process more quickly than others. We currently have approved reimbursement in
Germany, Austria, Sweden, Finland, Norway and Denmark. We also sell Sovaldi in France under the Temporary Authorisations for
Use Program.
•
While we believe the sales of Sovaldi for the three and six months ended June 30, 2014 are indicative of significant unmet medical
need, current period results may not be indicative of future results. Future results are difficult to estimate as demand will depend on
a number of factors. For example, we have submitted marketing applications for a once-daily fixed-dose combination of LDV/SOF
for the treatment of HCV. Doctors may choose to wait to treat their genotype 1 HCV-infected patients until the approval of the
fixed-dose combination of LDV/SOF or another competitor’s all-oral regimen. Also, pricing pressures could influence private and
public payers' decisions to list Sovaldi on formulary or limit the types of patients for whom coverage will be provided, thus
impacting future demand for Sovaldi. Product sales related to LDV/SOF in the table above for the three and six months ended June
30, 2014 represent early access sales in Europe as part of a compassionate use program, as the drug is not yet commercially
approved. In the United States, the FDA has set a target review date under PDUFA of October 10, 2014 for the fixed-dose
combination of LDV/SOF.
Atripla
Atripla sales accounted for 14% and 16% of our total antiviral product sales for the three and six months ended June 30, 2014 ,
respectively, and decreased by 7% and 9% compared to the same periods in 2013 , due primarily to declines in volume as doctors
prescribed newer treatments such as Complera/Eviplera and Stribild to patients. The decline for the six months ended June 30, 2014
was also due to declines in wholesaler and sub-wholesaler inventories in the United States. The efavirenz component of Atripla,
which has a gross margin of zero, comprised $318.4 million and $600.9 million of our Atripla sales for the three and six months
ended June 30, 2014 . For the three and six months ended June 30, 2013 , the efavirenz component of Atripla comprised $352.1
million and $680.2 million of our Atripla sales.
•
A generic version of Bristol-Myers Squibb Company's Sustiva (efavirenz), a component of our Atripla, was made available in
Canada and Europe during 2013 and will be made available in the United States in 2015. As a result, while we have observed some
pricing pressure related to the Sustiva component of our Atripla sales, we have not yet observed any meaningful splitting of the
Atripla single tablet regimen.
Truvada
•
Truvada sales accounted for 13% and 15% of our total antiviral product sales for the three and six months ended June 30, 2014 ,
respectively. Truvada sales remained relatively flat for the three months ended June 30, 2014 compared to the same period in 2013
and increased by 4% for the six months ended June 30, 2014 compared to the same period in 2013 , due primarily to an increase in
the average net selling price during the first quarter of 2014.
Complera/Eviplera
•
Complera/Eviplera sales increased by 59% and 63% for the three and six months ended June 30, 2014 , respectively, compared to
the same periods in 2013 , due primarily to increased sales volume in Europe and the United States. Complera/Eviplera was
approved in the United States in August 2011 and in Europe in November 2011.
Stribild
Sales of Stribild increased by 171% and 153% for the three and six months ended June 30, 2014 , respectively, compared to the
same periods in 2013 , due primarily to increased sales volume in the United States and Europe. Stribild was approved in the
United States in August 2012 and in Europe in May 2013.
29
Cardiovascular Products
Cardiovascular product sales, which include Letairis and Ranexa, increased 14% and 12% during the three and six months ended June 30,
2014 , respectively, compared to the same periods in 2013 . During the three and six months ended June 30, 2014 , sales of Letairis increased
by 13% and 9% compared to the same periods in 2013 due primarily to increased sales volume. During the three and six months ended June 30,
2014 , sales of Ranexa increased by 14% and 15% compared to the same periods in 2013 due to an increase in the average net selling price
during the first quarter of 2014 and increased sales volume.
Royalty, Contract and Other Revenues
The following table summarizes the period over period changes in our royalty, contract and other revenues:
Three Months Ended
June 30,
(In thousands, except percentages)
2014
Royalty, contract and other revenues
$
Six Months Ended
June 30,
2013
122,006
$
110,109
Change
11%
2014
$
249,988
2013
$
Change
248,176
1%
Royalty, contract and other revenues increased by 11% and 1% for the three and six months ended June 30, 2014 , respectively,
compared to the same periods in 2013 , due primarily to higher royalty revenues from GlaxoSmithKline, Inc. and Japan Tobacco Inc. as well as
seasonality in the royalty revenues from F. Hoffmann-La Roche Ltd for Tamiflu. The majority of our royalties are recognized in the quarter
following the quarter in which the corresponding product sales occur.
Cost of Goods Sold and Product Gross Margin
The following table summarizes the period over period changes in our product sales, cost of goods sold and product gross margin:
Three Months Ended
June 30,
(In thousands, except percentages)
Total product sales
Cost of goods sold
Product gross margin
2014
$
$
6,412,937
924,709
86%
Six Months Ended
June 30,
2013
$
$
Change
2,657,285
684,663
74%
141%
35%
2014
$
$
11,283,911
1,737,914
85%
2013
$
$
5,050,853
1,319,111
74 %
Change
123%
32%
Product gross margins were 86% and 85% for the three and six months ended June 30, 2014 , respectively, compared to 74% for the
same periods in 2013 . The increases were driven primarily by sales of Sovaldi which impacted product mix, partially offset by amortization of
the intangible asset related to sofosbuvir following the approval and commercial launch of Sovaldi.
Research and Development Expenses
Three Months Ended
June 30,
(In thousands, except percentages)
Research and development expenses
2014
$
583,924
Six Months Ended
June 30,
2013
$
523,902
Change
11%
2014
$
1,178,902
2013
$
1,021,534
Change
15%
We do not track total R&D expenses by product candidate, therapeutic area or development phase. However, we manage our R&D
expenses by identifying the R&D activities we anticipate will be performed during a given period and then prioritizing efforts based on
scientific data, probability of successful development, market potential, available human and capital resources and other considerations. We
continually review our R&D pipeline and the status of development and, as necessary, reallocate resources among the R&D portfolio that we
believe will best support the future growth of our business.
R&D expenses summarized above consist primarily of clinical studies performed by contract research organizations, materials and
supplies, licenses and fees, milestone payments under collaboration arrangements, personnel costs, including salaries, benefits and stock-based
compensation and overhead allocations consisting of various support and facilities-related costs.
R&D expenses for the three months ended June 30, 2014 increased by $60.0 million or 11% compared to the same period in 2013 due
primarily to an increase of $40.4 million in personnel and infrastructure expenses to support the progression of clinical study activity, primarily
in oncology and HIV, geographic expansion and marketed product support.
30
R&D expenses for the six months ended June 30, 2014 increased by $157.4 million or 15% compared to the same period in 2013 due
primarily to $84.7 million related to the progression of clinical study activity, primarily in oncology and HIV, and $82.9 million related to
personnel and infrastructure expenses to support our ongoing clinical study activity, geographic expansion and marketed product support. We
expect R&D expenses to increase through the second half of 2014 to support the expansion of our clinical studies in various therapeutic areas
including HCV, HIV, inflammation and respiratory.
Selling, General and Administrative Expenses
Three Months Ended
June 30,
(In thousands, except percentages)
Selling, general and administrative
expenses
2014
$
613,555
Six Months Ended
June 30,
2013
$
Change
404,991
51%
2014
$
1,161,678
2013
$
779,287
Change
49%
SG&A expenses relate to sales and marketing, finance, human resources, legal and other administrative activities. Expenses are primarily
comprised of facilities and overhead costs, outside marketing, advertising and legal expenses, and other general and administrative costs.
SG&A expenses for the three months ended June 30, 2014 increased by $208.6 million or 51% compared to the same period in 2013 due
primarily to an increase in headcount related and other expenses of $130.4 million to support our ongoing growth, including the expansion of
our business related to Sovaldi and the anticipated launches of Zydelig and our fixed-dose combination of LDV/SOF.
SG&A expenses for the six months ended June 30, 2014 increased by $382.4 million or 49% compared to the same period in 2013
due primarily to an increase in headcount related and other expenses of $244.0 million to support our ongoing growth, including the expansion
of our business related to Sovaldi and the anticipated launches of Zydelig and our fixed-dose combination of LDV/SOF. We expect SG&A
expenses to increase through the second half of 2014 from our continued investments in these areas.
Interest Expense
Interest expense for the three months ended June 30, 2014 was $102.0 million , an increase of $24.0 million compared to the same period
in 2013 . Interest expense for the six months ended June 30, 2014 was $178.3 million , an increase of $18.5 million compared to the same
period in 2013 . The increases for both periods were primarily a result of the March 2014 issuance of our senior unsecured notes due in April
2019 (April 2019 Notes), April 2024 (April 2024 Notes) and April 2044 (April 2044 Notes).
Other Income (Expense), Net
Other income (expense), net was not significant for the three and six months ended June 30, 2014 and 2013 .
Provision for Income Taxes
Our provision for income taxes was $656.6 million and $1.38 billion for the three and six months ended June 30, 2014 , respectively,
compared to $308.0 million and $530.4 million for the same periods in 2013 , respectively. Our effective tax rates were 15.2% and 19.1% for
the three and six months ended June 30, 2014 , respectively, compared to 28.6% and 26.3% for the same periods in 2013 , respectively. The
effective tax rate for the three months ended June 30, 2014 includes a cumulative catch up adjustment of 3.9 percentage points to the first
quarter tax rate to reduce the year to date effective tax rate to 19.1%. The effective tax rates for the three and six months ended June 30, 2014
were lower than the effective tax rates for the same periods in 2013 due primarily to higher earnings from non-U.S. subsidiaries that are
considered indefinitely reinvested, offset by the expiration of the federal research tax credit as of December 31, 2013 and amortization expense
of the intangible asset related to sofosbuvir for which we receive no tax benefit.
The effective tax rates for the three and six months ended June 30, 2014 differed from the U.S. federal statutory rate of 35% due
primarily to certain operating earnings from non-U.S. subsidiaries that are considered indefinitely reinvested and tax credits, partially offset by
state taxes, our portion of the non-tax deductible pharmaceutical excise tax and amortization expense of the intangible asset related to
sofosbuvir for which we receive no tax benefit. We do not provide for U.S. income taxes on undistributed earnings of our foreign operations
that are intended to be indefinitely reinvested in our foreign subsidiaries.
31
Liquidity and Capital Resources
We believe that our existing capital resources, supplemented by our cash flows generated from operating activities will be adequate to
satisfy our capital needs for the foreseeable future. The following table summarizes our cash, cash equivalents and marketable securities, our
working capital and our cash flow activities as of the end of, and for each of, the periods presented:
(In thousands)
June 30, 2014
Cash, cash equivalents and marketable securities
Working capital
$
$
9,581,383
9,271,342
December 31, 2013
$
$
2,570,590
948,332
Six Months Ended
June 30,
(In thousands)
2014
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
$
$
$
5,753,311
(648,188 )
1,512,545
2013
$
$
$
1,625,105
(462,733 )
(756,649 )
Cash, Cash Equivalents and Marketable Securities
As of June 30, 2014 , cash, cash equivalents and marketable securities totaled $9.58 billion , an increase of $7.01 billion or 273% from
December 31, 2013 . During the six months ended June 30, 2014 , we generated $5.75 billion in cash flows from operations, received $3.97
billion from the issuance of senior unsecured notes in March 2014 and repaid $1.15 billion in debt, net of convertible note hedges. During the
six months ended June 30, 2014 , we also repurchased $1.65 billion of common stock.
Of the total cash, cash equivalents and marketable securities at June 30, 2014 , approximately $3.76 billion was generated from operations
in foreign jurisdictions and is intended for use in our foreign operations. We do not rely on unrepatriated earnings as a source of funds for our
domestic business as we expect to have sufficient cash flow and borrowing capacity in the United States to fund our domestic operational and
strategic needs.
Working Capital
Working capital was $9.27 billion at June 30, 2014 . The increase of $8.32 billion in working capital from December 31, 2013 was driven
primarily by an increase in cash and cash equivalents due to the issuance of senior unsecured notes in March 2014, an increase in accounts
receivable, net, driven by increased sales and a decrease in the current portion of long-term debt, net, related to the repayment of our bank debt
and conversions of our convertible senior notes.
Cash Provided by Operating Activities
Cash provided by operating activities was $5.75 billion for the six months ended June 30, 2014 and consisted primarily of net income of
$5.87 billion , adjusted for non-cash items such as $507.9 million of depreciation and amortization expenses. This was partially offset by
$770.4 million of net cash outflow related to changes in operating assets and liabilities.
Cash provided by operating activities was $1.63 billion for the six months ended June 30, 2013 and consisted primarily of net income of
$1.49 billion , adjusted for non-cash items such as $147.5 million of depreciation and amortization expenses and $117.7 million of stock-based
compensation expenses. This was partially offset by $179.4 million of net cash outflow related to changes in operating assets and liabilities.
Cash Used in Investing Activities
Cash used in investing activities for the six months ended June 30, 2014 was $648.2 million , consisting primarily of $393.7 million in
net purchases of marketable securities and $254.5 million in capital expenditures related to the expansion of our business.
Cash used in investing activities for the six months ended June 30, 2013 was $462.7 million , consisting primarily of $378.6 million used
in our acquisition of YM BioSciences Inc., net of the cash acquired.
32
Cash Provided by (Used in) Financing Activities
Cash provided by financing activities for the six months ended June 30, 2014 was $1.51 billion , consisting primarily of $3.97 billion in
net proceeds from the issuance of our April 2019 Notes, April 2024 Notes and April 2044 Notes, partially offset by $1.15 billion used to repay
debt, net of convertible note hedges and $1.65 billion used to repurchase common stock under our stock repurchase program.
Cash used in financing activities for the six months ended June 30, 2013 was $756.6 million , driven primarily by $2.14 billion used to
repay debt financing which included the maturity and conversions of our convertible senior notes, partially offset by net proceeds of $1.21
billion related to our convertible note hedges and proceeds of $146.3 million from issuances of common stock under our employee stock plans.
Long-Term Obligations
The following is a summary of our borrowings under various financing arrangements (in thousands):
Type of Borrowing
Convertible Senior
Convertible Senior
Senior Unsecured
Senior Unsecured
Senior Unsecured
Senior Unsecured
Senior Unsecured
Senior Unsecured
Senior Unsecured
Senior Unsecured
Credit Facility
Description
Issue Date
Due Date
Interest Rate
May 2014 Notes
May 2016 Notes
April 2021 Notes
December 2014 Notes
December 2016 Notes
December 2021 Notes
December 2041 Notes
April 2019 Notes
April 2024 Notes
April 2044 Notes
Five-Year Revolver
July 2010
July 2010
March 2011
December 2011
December 2011
December 2011
December 2011
March 2014
March 2014
March 2014
January 2012
May 2014
May 2016
April 2021
December 2014
December 2016
December 2021
December 2041
April 2019
April 2024
April 2044
January 2017
1.00%
1.625%
4.50%
2.40%
3.05%
4.40%
5.65%
2.05%
3.70%
4.80%
Variable
June 30,
2014
$
Total debt, net
Less current portion
—
822,139
994,210
749,868
699,441
1,247,861
997,923
499,189
1,747,271
1,746,641
—
December 31, 2013
$
9,504,543
1,572,007
Total long-term debt, net
$
7,932,536
234,217
1,113,043
993,781
749,710
699,326
1,247,716
997,885
—
—
—
600,000
6,635,678
2,696,970
$
3,938,708
Debt Financing
In March 2014, we issued senior unsecured notes in a registered offering for a total aggregate principal amount of $4.00 billion . We
issued the April 2019 Notes for $500.0 million which pay interest at a fixed annual rate of 2.05% , the April 2024 Notes for $1.75 billion which
pay interest at a fixed annual rate of 3.70% and the April 2044 Notes for $1.75 billion which pay interest at a fixed annual rate of 4.80% . We
have begun using the net proceeds from this debt financing for general corporate purposes, which may include the repayment of debt and
related payments, working capital and the repurchase of outstanding common stock under our authorized stock repurchase program.
Convertible Senior Notes
During the six months ended June 30, 2014 , our convertible senior notes due in May 2014 (May 2014 Notes) matured and a portion of
our convertible senior notes due in May 2016 (May 2016 Notes) (together, the Notes) was converted. During the six months ended June 30,
2014 , we repaid $553.1 million of principal balance relating to the Notes. We also paid $1.29 billion in cash related to the conversion spread of
the Notes, which represents the conversion value in excess of the principal amount, and received $1.29 billion in cash from the convertible note
hedges related to the Notes.
As of June 30, 2014 , the May 2016 Notes were classified as current given that their conversion criteria had been met. As a result, the
related unamortized discount of $35.9 million was classified as equity component of currently redeemable convertible notes on our Condensed
Consolidated Balance Sheet.
There are 55.5 million shares of our common stock underlying our warrants expiring in 2014 (the 2014 Warrants). The 2014 Warrants
have a strike price of $28.38 per share and expire during the 40 trading-day period commencing August 1, 2014 and ending on September 26,
2014. On July 29, 2014, we exercised our option to settle the warrants in cash. As a result, during the third quarter of 2014, we expect to pay
approximately $3.14 billion to $3.69 billion in cash to settle the warrants. Because the warrants could have been settled, at our option, in cash
or shares of our common stock, and the related contracts met all of the applicable criteria for equity classification, the settlement will be
recorded as a reduction of additional paid-in capital in our Condensed Consolidated Balance Sheet.
33
There are 55.1 million shares of our common stock underlying our warrants expiring in 2016 (the 2016 Warrants). The 2016 Warrants
have a strike price of $30.05 per share and are exercisable only on their expiration date. If the market value of our common stock at the time of
the exercise of the warrants exceeds their strike price, we will be required to net settle in cash or shares of our common stock, at our option, for
the value of the warrants in excess of the warrant strike price.
Credit Facilities
During the first quarter of 2014, we repaid the remaining balance of $600.0 million that was outstanding under the revolving credit
facility credit agreement. There were no amounts outstanding under the revolving credit facility credit agreement as of June 30, 2014.
We are required to comply with certain covenants under the credit agreement and note indentures and as of June 30, 2014 , we believe we
were in compliance with all such covenants.
Stock Repurchase Program
Under our 2011 Program, we repurchased a total of $1.20 billion or 15.2 million shares of common stock during the three months ended
June 30, 2014 , and a total of $1.65 billion or 20.9 million shares of common stock during the six months ended June 30, 2014 . As of June 30,
2014 , we had $1.70 billion remaining in our 2011 Program, which is expected to be completed by September 2014. In May 2014, our Board of
Directors authorized a new stock repurchase program of up to $5.00 billion of our common stock through open market and private block
transactions pursuant to Rule 10b5-1 plans, privately negotiated transactions or other means. This new program expires three years after the
completion of the 2011 Program. We intend to use the additional authorization to repurchase shares opportunistically and to offset the dilution
created by shares issued under employee stock plans.
Critical Accounting Policies, Estimates and Judgments
There have been no material changes in our critical accounting policies, estimates and judgments during the six months ended June 30,
2014 compared to the disclosures in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2013 .
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board, jointly with the International Accounting Standards Board, issued a
comprehensive new standard on revenue recognition from contracts with customers. The standard's core principle is that a reporting entity will
recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. In applying this new guidance to contracts within its scope, an entity will: (1)
identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate
the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance
obligation. Additionally, this new guidance will require significantly expanded revenue recognition disclosures. This guidance will become
effective for us beginning in the first quarter of 2017. Early application is not permitted. Entities have the option of using either a full
retrospective or a modified retrospective approach to adopt this new guidance. We are currently evaluating the impact of our pending adoption
of this standard on our Condensed Consolidated Financial Statements.
34
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
There have been no material changes in our market risk during the six months ended June 30, 2014 compared to the disclosures in Part II,
Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2013 .
As of June 30, 2014 , our accounts receivable in Southern Europe, specifically Greece, Italy, Portugal and Spain, totaled approximately
$652.4 million , of which $173.0 million were past due greater than 120 days and $53.6 million were past due greater than 365 days. 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 June 30, 2014 . However, we will continue to monitor the European economic environment for collectability issues
related to our outstanding receivables.
ITEM 4.
CONTROLS AND
PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation as of June 30, 2014 was carried out under the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of our “disclosure controls and procedures,” which are defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as controls and other procedures of a company that
are designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act
is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and
forms, and that such information is accumulated and communicated to the company’s management, including its Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at June 30, 2014 .
Changes in Internal Control over Financial Reporting
Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated any changes in our internal control
over financial reporting that occurred during the quarter ended June 30, 2014 , and has concluded that there was no change during such quarter
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of
the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that
all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures are designed to provide
reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our Chief Executive
Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that our
disclosure controls and procedures were effective to provide reasonable assurance that the objectives of our disclosure control system were met.
35
PART II.
ITEM 1.
OTHER
INFORMATION
LEGAL
PROCEEDINGS
Litigation Regarding 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 U.S. Food and Drug Administration (FDA)
approval of sofosbuvir, now known commercially as Sovaldi. We have received a number of contractual and intellectual property claims
regarding sofosbuvir. We have carefully considered these claims both prior to and following the acquisition and believe they are without merit.
We own patents that claim sofosbuvir as a chemical entity and its metabolites. However, the existence of patents does not necessarily
guarantee our right to practice the patented technology or commercialize the patented product. Third parties may have, or obtain rights to,
patents that allegedly could be used to prevent or attempt to prevent us from commercializing sofosbuvir. For example, we are aware of patents
and patent applications owned by other parties that may be alleged by such parties to cover the use of sofosbuvir. If these parties successfully
obtain valid and enforceable patents, and successfully prove infringement of those patents by sofosbuvir, we could be prevented from selling
sofosbuvir unless we were able to obtain a license under such patents. Such a license may not be available on commercially reasonable terms or
at all. Further, if any party is successful in establishing exclusive rights to sofosbuvir, our expected revenues and earnings from the sale of
sofosbuvir would be adversely affected.
Arbitration with F. Hoffman-La Roche Ltd and Hoffman-La Roche Inc. (collectively, Roche)
Gilead (as successor to Pharmasset) is a party to an October 29, 2004 collaboration agreement with Roche. The agreement granted Roche
rights to develop PSI-6130, a cytidine analog, and its prodrugs, for the treatment of HCV infection. The collaborative research efforts under the
agreement ended on December 31, 2006. Roche later asked Pharmasset to consider whether Roche may have contributed to the inventorship of
sofosbuvir and whether Pharmasset has complied with the confidentiality provisions of the collaboration agreement. Pharmasset advised us that
it carefully considered the issues raised by Roche and that it believed any such issues are without merit. We have also considered these issues
and reached the same conclusion. In March 2013, Roche initiated an arbitration against us and Pharmasset, predecessor to Gilead Pharmasset
LLC, regarding the collaboration agreement. In the arbitration demand, Roche asserts that it has an exclusive license to sofosbuvir pursuant to
the collaboration agreement because sofosbuvir, a prodrug of a uridine monophosphate analog, is allegedly a prodrug of PSI-6130, a cytidine
analog. Roche further claims that, because it has exclusive rights to sofosbuvir, it also has an exclusive license to a patent covering sofosbuvir,
and that we will infringe that patent by selling and offering for sale products containing sofosbuvir. Gilead and Gilead Pharmasset LLC filed
their response to Roche's arbitration demand in April 2013. The arbitration hearing was held in New York in June 2014. We expect a decision
in the arbitration by the end of 2014.
Interference Proceedings and Litigation with Idenix Pharmaceuticals, Inc. (Idenix)
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 and Idenix's pending U.S. Patent Application No. 12/131,868. An interference is an
administrative proceeding before the USPTO designed to determine who was the first to invent the subject matter claimed by both parties. Our
patent covers metabolites of sofosbuvir and RG7128, a prodrug of a cytidine nucleoside analog that Pharmasset licensed to Roche. Idenix is
attempting to patent a class of compounds, including these metabolites. The purpose of the First Idenix Interference was to determine who was
first to invent these compounds and therefore who is entitled to the patent claiming these compounds. In March 2013, the USPTO Patent Trials
and Appeal Board (the Board) determined that Idenix is not entitled to the benefit of any of its early application filing dates because none of
those patent applications, including the application that led to Idenix’s U.S. Patent No. 7,608,600 (the ‘600 patent), taught how to make the
compounds in dispute. The Board also determined that because we are entitled to the filing date of our earliest application, we were first to file
the patent application on the compounds in dispute, and we were therefore the “senior party” in the First Idenix Interference. On January 29,
2014, the Board determined that Pharmasset and not Idenix was the first to invent the compounds in dispute and accordingly Gilead prevailed.
In its decision, the Board held that Idenix failed to prove that it was first to conceive of any of the compounds in dispute. Specifically, Idenix
failed to prove that the Idenix inventors had identified the structure, a method of making and a use for any of the disputed compounds. The
Board went on to conclude that Idenix failed to work diligently toward making and testing the compounds in dispute during the relevant time
period. Idenix has appealed the Board’s decisions to the U.S. District Court for the District of Delaware. If either or both of the Board’s
decisions are reversed on appeal and the court determines that Idenix is entitled to their patent claims, and it is determined that we have
infringed those claims, we may be required to obtain a license from and pay royalties to Idenix to commercialize sofosbuvir and RG7128 in the
United States. A decision by the District Court can be appealed by either party to the U.S. Court of Appeals for the Federal Circuit (CAFC).
36
We believe the claims in the Idenix application involved in the First Idenix Interference, and similar U.S. and foreign patents claiming the
same compounds and metabolites, 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 and the Idenix patent
application that was the subject of the First Idenix Interference. Idenix has now 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 U.S. Patent No. 7,429,572 in the First Idenix
Interference, is invalid.
We filed a similar legal action in Norway in the Oslo District Court seeking to invalidate Idenix's corresponding Norwegian patent. In
September 2013, Idenix filed an invalidation action in the Norwegian proceedings against our Norwegian Patent No. 333700 patent, which
corresponds to our U.S. Patent No. 7,429,572 patent. The trial was held in November 2013. On March 21, 2014, the Norwegian court found all
claims in the Idenix Norwegian patent to be invalid and upheld the validity of all claims in the challenged Gilead patent. Additionally, the
Norwegian court ordered Idenix to pay us over $2.0 million in attorney fees as the losing party to the litigation. On April 30, 2014, Idenix
appealed the March 21, 2014 decision to the Norwegian Court of Appeal. Idenix’s obligation to pay our attorneys’ fees will be stayed during
the pendency of the appeal.
In August 2013 and April 2014, Idenix filed two separate requests for invalidation with the Chinese Patent Office of our Chinese Patent
CN ZL200480019148.4, which corresponds to our U.S. Patent No. 7,429,572 patent.
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 sofosbuvir will infringe the Australian patent corresponding to the ‘600 patent.
On March 12, 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 granted, we filed an opposition with the EPO seeking to revoke the ‘489
patent. Also on March 12, 2014, Idenix initiated infringement proceedings against Gilead in the United Kingdom, Germany and France
alleging that the commercialization of Sovaldi in those countries would infringe the respective national counterparts of the ‘489 patent. In the
United Kingdom, the court has ordered an October 2014 trial date to determine the issues of infringement and validity of the Idenix United
Kingdom patent. In Germany, the court in Düsseldorf has ordered a hearing date of December 2, 2014 to determine the issue of infringement of
the Idenix German patent. We do not have a trial date for the French lawsuit.
Idenix has not been awarded patents corresponding to the ‘600 patent in Japan or China. In the event such patents issue, we expect to
challenge them in proceedings similar to those we invoked in Europe, Canada, Norway and Australia. If the courts hearing these proceedings
determine that Idenix is entitled to their patent claims and it is determined that we have infringed those claims, we may be required to obtain a
license from and pay royalties to Idenix to commercialize sofosbuvir and RG7128 in that country.
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 the ‘600 patent. The ‘600 patent includes claims directed to methods of
treating HCV with nucleoside compounds similar to those which were involved in the First Idenix Interference. The Second Idenix Interference
will determine who was first to invent the claimed methods of treating HCV. In the declaration of the Second Idenix Interference, the USPTO
has initially designated Gilead as the junior party based upon the patent application filing dates appearing on the face of the ‘600 patent.We
believe the Board’s determination in the First Idenix Interference that Idenix is not entitled to the benefit of any of its earlier application filing
dates, including the filing date of the ‘600 patent, will be equally applicable to the Second Idenix Interference. If we are correct, the Board may
conclude that Gilead is the senior party in the Second Idenix Interference, consistent with the determination in the First Idenix Interference. In
light of the Board’s conclusion in the First Idenix Interference that the application that led to the ‘600 patent does not teach how to make the
claimed compounds, it is possible that the Board will make the same determination in the Second Idenix Interference and eliminate the need for
the Board to address who was the first to invent the claimed methods of treating HCV. However, if the Board does consider who was the first
to invent the claimed methods of treating HCV and ultimately concludes that Gilead was first, the claims in the ‘600 patent may be revoked. If
the Board determines that Idenix was first to invent and is entitled to these patent claims, and it is determined in other proceedings that we have
infringed those claims, we may be required to obtain a license from and pay royalties to Idenix to commercialize sofosbuvir and RG7128. Any
determination by the Board can be appealed by either party to U.S. federal court.
In December 2013, Idenix, Universita Degli Studi di Cagliari (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. We believe that the claims in the ‘600
patent are invalid and that we have the sole right to commercialize sofosbuvir. However, if the court disagrees with our view and further
determines that the ‘600 patent is infringed, we may be required to
37
obtain a license from and pay royalties to Idenix to commercialize sofosbuvir. A decision by the District Court can be appealed by either party
to the CAFC.
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 and 7,608,597. On June 30, 2014, the court in Massachusetts granted
our request and transferred the Massachusetts litigation to the U.S. District Court for the District of Delaware. We believe that Idenix’s patents
are invalid and would not be infringed by our commercialization of sofosbuvir and that we have the sole right to commercialize sofosbuvir.
However, if the court disagrees with our view and determines that these patents are infringed, we may be required to obtain a license from and
pay royalties to Idenix to commercialize sofosbuvir. A decision by the District Court can be appealed by either party to the CAFC.
We have an expansive patent portfolio covering NS5A inhibitors for the treatment of HCV. Following the disclosure of the structure of
Idenix’s NS5A inhibitor, samatasvir (also known as IDX-719), we are evaluating the compound in light of the claims of our granted U.S.
Patent No. 8,669,234.
On June 9, 2014, Merck and Idenix announced that the companies had entered into a definitive agreement under which Merck will
acquire Idenix.
Litigation with Merck & Co., Inc. (Merck)
In August 2013, Merck contacted us requesting that we pay royalties on the sales of sofosbuvir and obtain a license to U.S. Patent Nos.
7,105,499 and 8,481,712, which it co-owns with Isis Pharmaceuticals, Inc. We believe that Merck’s patents are invalid and would not be
infringed by our commercialization of sofosbuvir and that we have the sole right to commercialize sofosbuvir. Accordingly, in August 2013,
we filed a lawsuit in the U.S. District Court for the Northern District of California seeking declaratory judgment that the Merck patents are
invalid and not infringed. Merck’s U.S. Patent Nos. 7,105,499 and 8,481,712 cover compounds which do not include, but may relate to,
sofosbuvir. During patent prosecution, Merck amended its patent application in an attempt to cover compounds related to sofosbuvir and
ultimately extract royalty payments for sofosbuvir’s commercialization, or to exclude it from the market. If the court determines that Merck’s
patents are valid and that we have infringed those claims, we may be required to obtain a license from and pay royalties to Merck to
commercialize sofosbuvir. Either party can appeal a decision by the District Court to the CAFC. The court has set a trial date of March 7, 2016
for this litigation. The court has set a trial date of March 7, 2016 for this litigation. While this merger does not change our view of the merits of
Merck's and Idenix's claims, Merck has greater resources than Idenix and may therefore choose to fund the litigation at higher levels than
Idenix.
Litigation with AbbVie, Inc. (AbbVie)
AbbVie has obtained U.S. Patent Nos. 8,466,159, 8,492,386, 8,680,106, and 8,685,984, which purport to claim the use of a combination
of LDV/SOF for the treatment of HCV. We own published and pending patent applications directed to the use of combinations for the
treatment of HCV, and, specifically, to combinations of ledipasvir and sofosbuvir. Certain of those applications were filed before AbbVie’s
patents. For this reason and others, we believe AbbVie’s patents are invalid.
Accordingly, in December 2013, we filed a lawsuit in the U.S. District Court for the District of Delaware seeking declaratory judgment
that the AbbVie patents are invalid and unenforceable, as well as other relief. We believe that Abbott Laboratories, Inc. and AbbVie conspired
to eliminate competition in the HCV market by falsely representing to the USPTO that they, and not Gilead, invented methods of treating HCV
using a combination of LDV/SOF. In February and March 2014, AbbVie responded to our lawsuit by filing two lawsuits also in the U.S.
District Court for the District of Delaware alleging that our fixed-dose combination of LDV/SOF will infringe its patents. We do not expect
AbbVie’s patents to block or delay the commercialization of our combination products. If the court determines that AbbVie’s patents are valid
and that we have infringed those claims, we may be required to obtain a license from and pay royalties to AbbVie to commercialize sofosbuvir
combination products. Either party can appeal a decision by the District Court to the CAFC. We are aware that AbbVie is pursuing similar
patents in Europe and other countries.
We cannot predict the ultimate outcome of contractual and intellectual property claims related to sofosbovir, and we may spend
significant resources enforcing and defending these patents. If these parties successfully obtain valid and enforceable patents, and successfully
prove infringement of those patents by sofosbuvir, we could be prevented from selling sofosbuvir unless we were able to obtain a license under
such patents. Such a license may not be available on commercially reasonable terms or at all. Further, if any party is successful in establishing
exclusive rights to sofosbuvir, our expected revenues and earnings from the sale of sofosbuvir would be adversely affected.
Litigation with Generic Manufacturers
As part of the approval process for some of our products, the FDA granted us a New Chemical Entity (NCE) exclusivity period during
which other manufacturers' applications for approval of generic versions of our product will not be approved.
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Generic manufacturers may challenge the patents protecting products that have been granted NCE exclusivity one year prior to the end of the
NCE exclusivity period. Generic manufacturers have sought and may continue to seek FDA approval for a similar or identical drug through an
abbreviated new drug application (ANDA), the application form typically used by manufacturers seeking approval of a generic drug.
Tenofovir Disoproxil Fumarate, Emtricitabine and Fixed-Dose Combination of Emtricitabine, Tenofovir Disoproxil Fumarate and Efavirenz
In 2008 and 2009, we received notices that Teva Pharmaceuticals (Teva) submitted an ANDA to the FDA requesting permission to
manufacture and market a generic version of Truvada. In the notices, Teva alleged that patents associated with emtricitabine and tenofovir
disoproxil fumarate are invalid, unenforceable and/or will not be infringed by Teva's manufacture, use or sale of a generic fixed-dose
combination of emtricitabine and tenofovir disoproxil fumarate. In April 2013, we and Teva reached an agreement to settle the ongoing patent
litigation concerning the patents that protect tenofovir disoproxil fumarate in Atripla, Truvada and Viread. Under the agreement, Teva will be
allowed to launch a generic version of Viread on December 15, 2017. On October 1, 2013, the court’s dismissal of the case pursuant to the
settlement agreement between the parties became final. A trial in the lawsuit against Teva related to the U.S. patents protecting emtricitabine in
Atripla and Truvada was held in October 2013. In April 2014, we and Teva entered into an agreement to settle the ongoing patent litigation
concerning the emtricitabine patents that protect Atripla and Truvada.
In November 2011, we received notice that Teva submitted an abbreviated new drug submission (ANDS) to the Canadian Minister of
Health requesting permission to manufacture and market a generic fixed-dose combination of emtricitabine and tenofovir disoproxil fumarate.
In the notice, Teva alleges that three of the patents associated with Truvada are invalid, unenforceable and/or will not be infringed by Teva's
manufacture, use or sale of a generic version of Truvada. In January 2012, we filed a lawsuit against Teva in the Federal Court of Canada
seeking an order of prohibition against approval of this ANDS.
In December 2011, we received notice that Teva submitted an ANDS to the Canadian Minister of Health requesting permission to
manufacture and market a generic fixed-dose combination of emtricitabine, tenofovir disoproxil fumarate and efavirenz. In the notice, Teva
alleges that three of our patents associated with Atripla and two of Merck's patents associated with Atripla are invalid, unenforceable and/or
will not be infringed by Teva's manufacture, use or sale of a generic fixed-dose combination of emtricitabine, tenofovir disoproxil fumarate and
efavirenz. In February 2012, we filed a lawsuit against Teva in the Federal Court of Canada seeking an order of prohibition against approval of
this ANDS. In August 2012, we received notice that Teva submitted an ANDS to the Canadian Minister of Health requesting permission to
manufacture and market a generic version of Viread. In the notice, Teva alleges that two patents associated with tenofovir disoproxil fumarate
are invalid, unenforceable and/or will not be infringed by Teva's manufacture, use or sale of a generic version of Viread, Truvada, and Atripla.
In September 2012, we filed a lawsuit against Teva in the Federal Court of Canada seeking an order of prohibition against approval of this
ANDS. Also in August 2012, Teva filed an Impeachment Action in the Federal Court of Canada seeking invalidation of our two Canadian
patents associated with Viread. We are currently defending that Impeachment Action. The requests for orders of prohibition in connection with
all three of Teva’s ANDS filings (for Teva’s generic versions of Viread, Truvada and Atripla) were consolidated and a hearing on the
consolidated requests for the orders of prohibition took place in September 2013. In December 2013, the court issued our requested order
prohibiting the Canadian Ministry of Health from issuing a Notice of Compliance for Teva’s generic versions of our Viread, Truvada and
Atripla products until expiry of our patent in July 2017. Teva appealed the decision of the court prohibiting the Minister of Heath from issuing
the Notices of Compliance until expiry of our patent in July 2017. This decision did not rule on the validity of the patents and accordingly the
only issue on appeal is whether the Minister of Health should be prohibited from issuing the Notices of Compliance for Teva’s products.
Separately, the court will determine the validity of the patents in the pending Impeachment Action. A trial in the Impeachment Action is
scheduled for March 2015. If Teva is successful in invalidating our patents, Teva may be able to launch generic versions of our Viread,
Truvada and Atripla products in Canada prior to the expiry of our patents.
In July 2012, we received notice that Lupin Limited (Lupin) submitted an ANDA to the FDA requesting permission to manufacture and
market a generic version of Truvada. In the notice, Lupin alleges that four patents associated with emtricitabine and four patents associated
with tenofovir disoproxil fumarate are invalid, unenforceable and/or will not be infringed by Lupin's manufacture, use or sale of a generic
version of a fixed-dose combination of emtricitabine and tenofovir disoproxil fumarate. In August 2012, we filed two lawsuits against Lupin in
U.S. District Court for the Southern District of New York for infringement of our patents. In October 2012, we received notice that Lupin
submitted an ANDA to the FDA requesting permission to manufacture and market a generic version of Viread. In the notice, Lupin alleges that
four patents associated with tenofovir disoproxil fumarate are invalid, unenforceable and/or will not be infringed by Lupin's manufacture, use
or sale of a generic version of tenofovir disoproxil fumarate. In October 2012, we filed a lawsuit against Lupin in U.S. District Court for the
Southern District of New York for infringement of our patents. In May 2014, Lupin amended its ANDAs to certify that it is no longer seeking
approval to market generic versions of Truvada and Viread prior to the expiration of the four patents associated with tenofovir disoproxil
fumarate in January 2018 (including pediatric exclusivity). As a result, on May
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30, 2014, the NY District Court granted Gilead and Lupin's Joint Motion for Order of Dismissal in our patent infringement lawsuit against
Lupin for the tenofovir disoproxil fumarate patents. The District Court has scheduled a trial in the second lawsuit concerning the emtricitabine
patents for December 2014. Either party can appeal a decision by the District Court to the CAFC. If Lupin is successful in invalidating our
patents, Lupin may be able to launch a generic version of our Truvada product in January 2018.
In July 2012, we received notice that Cipla Ltd. (Cipla) submitted an ANDA to the FDA requesting permission to manufacture and
market a generic version of Emtriva and a generic version of Viread. In the notice, Cipla alleges that two patents associated with emtricitabine
are invalid, unenforceable and/or will not be infringed by Cipla's manufacture, use or sale of a generic version of emtricitabine and four patents
associated with tenofovir disoproxil fumarate are invalid, unenforceable and/or will not be infringed by Cipla's manufacture, use or sale of a
generic version of tenofovir disoproxil fumarate. In August 2012, we filed lawsuits against Cipla in U.S. District Court for the Southern District
of New York for infringement of our patents. In July 2014, we and Cipla reached agreement to settle those lawsuits. Terms of the settlement
are confidential.
Either party can appeal a decision by the District Court to the CAFC. If Lupin is successful in invalidating our patents, Lupin may be able
to launch generic version of our Viread product prior to the expiry of our patents.
In April 2014, we received notice that Mylan Inc. (Mylan) submitted an ANDA to the FDA requesting permission to manufacture and
market a generic version of Truvada. In the notice, Mylan alleges that two of the patents associated with emtricitabine and one of our patents
associated with the fixed-dose combination of emtricitabine with tenofovir disoproxil fumarate are invalid, unenforceable and/or will not be
infringed by Mylan's manufacture, use or sale of a generic version of Truvada. In June 2014, we filed a lawsuit against Mylan in U.S. District
Court for the Northern District of West Virginia for infringement of our patents.
In June 2014, we received notice that Mylan Inc. submitted petitions for Inter Partes Review (IPR) to the US Patent Trial and Appeal
Board (the Board) alleging that four patents associated with tenofovir disoproxil fumarate are invalid. We are opposing Mylan’s petitions. We
anticipate that the Board will issue an initiation decision by December 2014. If the Board initiates an IPR, we anticipate a final decision by
December 2015. Either party can appeal a decision of the Board to the CAFC. If Mylan is successful in invalidating our patents, generic
companies will be able to launch a generic version of our Viread product prior to the expiry of our patents.
Ranolazine
In June 2010, we received notice that Lupin submitted an ANDA to the FDA requesting permission to manufacture and market a generic
version of sustained release ranolazine. In the notice, Lupin alleged that ten of the patents associated with Ranexa are invalid, unenforceable
and/or will not be infringed by Lupin's manufacture, use or sale of a generic version of Ranexa. In July 2010, we filed a lawsuit against Lupin
in U.S. District Court for the District of New Jersey for infringement of certain Ranexa patents challenged by Lupin. The trial took place in
April and May 2013. In August 2013, the parties reached agreement to settle the patent litigation prior to issuance of the court’s decision.
Under the agreement, Lupin would be allowed to launch a generic version of Ranexa on February 27, 2019.
Tamiflu
In February 2011, we received notice that Natco Pharma Ltd. (Natco) submitted an ANDA to the FDA requesting permission to
manufacture and market a generic version of Tamiflu. In the notice, Natco alleges that one of the patents associated with oseltamivir phosphate
is invalid, unenforceable and/or will not be infringed by Natco's manufacture, use or sale of a generic version of Tamiflu. In March 2011, we
and Roche filed a lawsuit against Natco in U.S. District Court for the District of New Jersey for infringement of one of the patents associated
with Tamiflu. In December 2012, the court issued a ruling in favor of Gilead and Roche, that our patent is not invalid for the reasons stated in
Natco's notice letter. Natco has appealed this decision to the CAFC. A hearing on Natco’s appeal took place in January 2014. The court issued
a decision on April 22, 2014 which will allow Natco’s patent invalidity challenge to proceed if the case is remanded to the District Court of
New Jersey for a full trial on the merits. On June 30, 2014, we filed a petition for rehearing en banc with the CAFC.
Department of Justice Investigation
In June 2011, we received a subpoena from the U.S. Attorney's Office for the Northern District of California requesting documents
related to the manufacture, and related quality and distribution practices, of Complera, Atripla, Truvada, Viread, Emtriva, Hepsera and Letairis.
We cooperated with the government’s inquiry. On April 16, 2014, the United States Department of Justice informed us that, following an
investigation, it declined to intervene in a False Claims Act lawsuit filed by two former employees. We have moved to dismiss the complaint .
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Other Matters
We are a party to various legal actions that arose in the ordinary course of our business. We do not believe that these other legal actions
will have a material adverse impact on our consolidated business, financial position or results of operations.
ITEM 1A.
RISK FACTORS
In evaluating our business, you should carefully consider the following risks in addition to the other information in this Quarterly Report
on Form 10-Q. A manifestation of any of the following risks could materially and adversely affect our business, results of operations and
financial condition. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. It is not possible to
predict or identify all such factors and, therefore, you should not consider the following risks to be a complete statement of all the potential
risks or uncertainties that we face.
A substantial portion of our revenues is derived from sales of Sovaldi for the treatment of hepatitis C virus infection (HCV) and our
antiviral products, particularly our single tablet regimen human immunodeficiency virus (HIV) products, including Atripla, Stribild
and Complera/Eviplera. If we are unable to maintain or continue increasing sales of these products, our results of operations may be
adversely affected.
During the six months ended June 30, 2014, sales of Sovaldi for the treatment of HCV accounted for approximately 55% of our total
antiviral products sales. Since this is the second full quarter following Sovaldi’s launch, we cannot be certain if these sales are indicative of
future revenue. Demand for Sovaldi depends in part on the amount of patient coverage under private and public insurance programs in the
United States and our ability to obtain and maintain government reimbursement in countries outside the United States. Further, pricing
pressures could influence private and public payers' decisions to list Sovaldi on formulary or limit the types of patients for whom coverage will
be provided, thus impacting the demand for Sovaldi. In addition, we have seen signs that some physicians have begun delaying treatment for
some genotype 1 HCV-infected patients in anticipation of the approval and availability of our fixed-dose combination of ledipasvir/sofosbuvir
(LDV/SOF) and another competitor’s all-oral regimen for the treatment of genotype 1 HCV-infected patients. If we are unable to maintain the
current or expected future sales levels of Sovaldi or obtain approval for our HCV product candidates in the currently anticipated timelines, our
results of operations and stock price could be negatively impacted.
We receive a substantial portion of our revenue from sales of our products for the treatment of HIV infection, particularly our single table
regimen products, including Atripla, Stribild and Complera/Eviplera. During the six months ended June 30, 2014, sales of our HIV products
accounted for more than 40% of our total antiviral products sales. Most of our HIV products contain tenofovir disoproxil fumarate and/or
emtricitabine, which belong to the nucleoside class of antiviral therapeutics. If the treatment paradigm for HIV changes, causing
nucleoside-based therapeutics to fall out of favor, or if we are unable to maintain or continue increasing our HIV product sales, our results of
operations would likely suffer and we would likely need to scale back our operations, including our spending on research and development
(R&D) efforts. We may not be able to sustain or increase the growth rate of sales of our HIV products, especially Atripla, Stribild and
Complera/Eviplera, for any number of reasons including, but not limited to, the following:
•
As our HIV products are used over a longer period of time in many patients and in combination with other products, and additional
studies are conducted, new issues with respect to safety, resistance and interactions with other drugs may arise, which could cause
us to provide additional warnings or contraindications on our labels, narrow our approved indications or halt sales of a product,
each of which could reduce our revenues.
•
As our HIV products mature, private insurers and government payers often reduce the amount they will reimburse patients for
these products, which increases pressure on us to reduce prices.
•
A large part of the market for our HIV products consists of patients who are already taking other HIV drugs. If we are not
successful in encouraging physicians to change patients' regimens to include our HIV products, the sales of our HIV products will
be limited.
•
As generic HIV products are introduced into major markets, our ability to maintain pricing and market share may be affected. For
example, generic versions of Sustiva (efavirenz), a component of our Atripla, are now available in Canada and Europe and we
expect competition from generic efavirenz in the United States in 2015. We have observed some pricing pressure related to the
Sustiva component of our Atripla sales. Tivicay (dolutegravir), an integrase inhibitor, launched in the fourth quarter of 2013 by
ViiV Healthcare (ViiV) could adversely impact sales of our HIV products.
If we fail to commercialize new products or expand the indications for existing products, our prospects for future revenues may be
adversely affected.
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If we do not introduce new products to market or increase sales of our existing products, we will not be able to increase or maintain our
total revenues and continue to expand our R&D efforts. Drug development is inherently risky and many product candidates fail during the drug
development process. For example, in April 2013, we announced our decision to terminate our Phase 3 clinical trial of aztreonam for inhalation
solution for the treatment of bronchiectasis.
In February 2014, we filed a new drug application (NDA) with the U.S. Food and Drug Administration (FDA) for approval of the
fixed-dose combination of LDV/SOF for genotype 1 patients, who represent a majority of patients infected with HCV in the United States and
Europe. If approved, LDV/SOF will likely only require genotype 1 HCV patients to take one pill, once per day for eight or 12 weeks without
ribavirin (RBV) or pegylated interferon (peg-IFN). In February 2014, we filed our marketing application for approval of LDV/SOF in Europe
and our application was validated by the European Medicines Agency (EMA) in March 2014. We have also filed marketing applications for
approval of idelalisib for the treatment of patients with indolent non-Hodgkin’s lymphoma (iNHL) and chronic lymphocytic leukemia in
Europe. In the first half of 2014, we also resubmitted our NDAs for elvitegravir and cobicistat, as standalone agents, for the treatment of HIV
with the FDA. In June 2014, we submitted a NDA with Japan’s Pharmaceutical and Medical Devices Agency (PMDA) for approval of
sofosbuvir for the treatment of HCV. These marking applications may not be approved by the FDA, EMA, the PMDA or other foreign
regulatory authorities on a timely basis, or at all. Even if marketing approval is granted for these products, there may be significant limitations
on their use. Further, we may be unable to file our marketing applications for new products.
Our inability to accurately estimate demand for our products, the uptake of new products or the timing of fluctuations in the
inventories maintained by customers makes it difficult for us to accurately forecast sales and may cause our revenues and earnings to
fluctuate, which could adversely affect our financial results and our stock price.
We are unable to accurately estimate demand for our products, including the uptake of new products, as demand is dependent on a
number of factors. For example, our HCV products, Sovaldi and LDV/SOF, if approved, represent a significant change in the treatment
paradigm for HCV-infected patients due to the shortened duration of treatment and the reduction or elimination of the need for peg-IFN
injection and RBV. Because these products are in a new therapeutic area for us and patient demand is dependent on a number of factors,
revenues from these products in 2014 and beyond are difficult for us and investors to estimate. Since Sovaldi was recently approved and it is
not clear when, or if, LDV/SOF will ultimately be approved, demand for these products will depend in part on the amount of their coverage
under private and public insurance programs in the United States and our ability to obtain and maintain government reimbursement in countries
outside the United States. Pricing pressures could influence private and public payers' decisions to list Sovaldi on formulary or limit the types
of patients for whom coverage will be provided, thus impacting the demand for Sovaldi. In addition, doctors may choose to wait to treat their
genotype 1 HCV-infected patients until later in 2014 or 2015 when they anticipate the approval and availability of LDV/SOF and another
competitor’s all-oral regimen for the treatment of genotype 1 HCV-infected patients. Also, because our HCV products represent a significant
change in the treatment paradigm of HCV infection and are highly anticipated by the medical and patient community, sales levels or
prescription growth rates early in the launch may not be indicative of future results. Because HCV-related revenues are difficult to predict,
investors may have widely varying expectations that may be materially higher or lower than our actual revenues. To the extent Sovaldi
revenues exceed or fall short of these expectations, our stock price may experience significant volatility.
In the quarter ended June 30, 2014, approximately 86% of our product sales in the United States were to three wholesalers,
AmerisourceBergen Corp., McKesson Corp. and Cardinal Health, Inc. The U.S. wholesalers with whom we have entered into inventory
management agreements make estimates to determine end user demand and may not be completely effective in matching their inventory levels
to actual end user demand. As a result, changes in inventory levels held by those wholesalers can cause our operating results to fluctuate
unexpectedly if our sales to these wholesalers do not match end user demand. In addition, inventory is held at retail pharmacies and other
non-wholesaler locations with whom we have no inventory management agreements and no control over buying patterns. Adverse changes in
economic conditions or other factors may cause retail pharmacies to reduce their inventories of our products, which would reduce their orders
from wholesalers and, consequently, the wholesalers' orders from us, even if end user demand has not changed. For example, during the fourth
quarter of 2013, strong wholesaler and sub-wholesaler purchases resulted in inventory draw-down by wholesalers and sub-wholesalers in the
first quarter of 2014. As inventory in the distribution channel fluctuates from quarter to quarter, we may continue to see fluctuations in our
earnings and a mismatch between prescription demand for our products and our revenues.
In addition, the non-retail sector in the United States, which includes government institutions, including state AIDS Drug Assistance
Programs (ADAPs), correctional facilities and large health maintenance organizations, tends to be even less consistent in terms of buying
patterns and often causes quarter over quarter fluctuations that do not necessarily mirror patient demand. Federal and state budget pressures,
including sequestration, as well as the annual grant cycles for federal and state ADAP funds, may cause ADAP purchasing patterns to not
reflect patient demand. For example, in the first quarters of certain prior years, we observed large non-retail purchases by a number of state
ADAPs that exceeded patient demand. We believe
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such purchases were driven by the grant cycle for federal ADAP funds. We expect to continue to experience fluctuations in the purchasing
patterns of our non-retail customers which may result in fluctuations in our product sales, revenues and earnings in the future. In light of the
global economic downturn and budget crises faced by many European countries, we have observed variations in purchasing patterns induced
by cost containment measures in Europe. We believe these measures have caused some government agencies and other purchasers to reduce
inventory of our products in the distribution channels, which has decreased our revenues and caused fluctuations in our product sales and
earnings. We may continue to see this trend in the future.
Our results of operations may be adversely affected by current and potential future healthcare reforms.
Legislative and regulatory changes to government prescription drug procurement and reimbursement programs occur relatively frequently
in the United States and foreign jurisdictions. In March 2010, healthcare reform legislation was adopted in the United States, requiring us to
further rebate or discount products reimbursed or paid for by various public payers, including Medicaid and other entities eligible to purchase
discounted products through the 340B Drug Pricing Program under the Public Health Service Act, such as ADAPs. As a result of the 2010
legislation, the discounts, rebates and fees that impacted us include:
•
our minimum base rebate amount owed to Medicaid on products reimbursed by Medicaid increased by 8%, and the discounts or
rebates we owe to ADAPs and other Public Health Service entities which reimburse or purchase our products also increased by
8%;
•
we are required to extend rebates to patients receiving our products through Medicaid managed care organizations;
•
we are required to provide a 50% discount on products sold to patients while they are in the Medicare Part D “donut hole;” and
•
we, along with other pharmaceutical manufacturers of branded drug products, are required to pay a portion of a new industry fee
(also known as the pharmaceutical excise tax) of $3.0 billion for 2014, calculated based on select government sales during the
2012 calendar year as a percentage of total industry government sales.
The amount of the annual industry fee imposed on the pharmaceutical industry as a whole will be $3.0 billion in 2014 through 2016,
increase to $4.0 billion in 2017, increase to a peak of $4.1 billion in 2018, and then decrease to $2.8 billion in 2019 and thereafter. We expect
our portion of the pharmaceutical excise tax to increase as our revenues grow and as the amount of the annual industry fee increases through
2018 and drug patents expire on major drugs of other companies. We estimate our portion of the pharmaceutical excise tax to be approximately
$150 - $170 million in 2014 compared to approximately $110 million in 2013 and approximately $85 million in 2012. The pharmaceutical
excise tax is not tax deductible. Further, even though not addressed in the healthcare reform legislation, discussions continue at the federal level
on legislation that would either allow or require the federal government to directly negotiate price concessions from pharmaceutical
manufacturers or set minimum requirements for Medicare Part D pricing.
In addition, state Medicaid programs could request additional supplemental rebates on our products as a result of the increase in the
federal base Medicaid rebate. Private insurers could also use the enactment of these increased rebates to exert pricing pressure on our products,
and to the extent that private insurers or managed care programs follow Medicaid coverage and payment developments, the adverse effects may
be magnified by private insurers adopting lower payment schedules.
Our existing products are subject to reimbursement from government agencies and other third parties. Pharmaceutical pricing and
reimbursement pressures may reduce profitability.
Successful commercialization of our products depends, in part, on the availability of governmental and third-party payer reimbursement
for the cost of such products and related treatments. Government health administration authorities, private health insurers and other
organizations generally provide reimbursement. In the United States, the European Union and other significant or potentially significant
markets for our products and product candidates, government authorities and third-party payers are increasingly attempting to limit or regulate
the price of medical products and services, particularly for new and innovative products and therapies, which has resulted in lower average
selling prices.
A significant portion of our sales of the majority of our products are subject to significant discounts from list price and rebate obligations.
In the United States, state ADAPs, which purchase a significant portion of our HIV products, rely on federal, supplemental federal and state
funding to help fund purchases of our products. In recent years, we have experienced a shift in our payer mix as patients previously covered by
private insurance move to public reimbursement programs that require rebates or discounts from us or as patients previously covered by one
public reimbursement program move to another public reimbursement program that requires greater rebates or discounts from us. As a result of
this shift, revenue growth may be lower than prescription growth. If federal and state funds are not available in amounts sufficient to support
the number of patients that rely on ADAPs, sales of our HIV products could be negatively impacted which would reduce our revenues. For
example, during the first quarter of 2011, the state budget crisis in Florida led to a temporary movement of patients who were
43
previously covered by Florida's ADAP into industry-supported patient assistance programs. In prior quarters, because of the insufficiency of
federal and state funds and as many states reduced eligibility criteria, we saw an increase in the number of patients on state ADAP waitlists,
and we may see similar increases in future periods as a result of any reduction in federal and state ADAP support resulting from the
sequestration. Until these patients are enrolled in ADAP, they generally receive product from industry-supported patient assistance programs or
are unable to access treatment. The increased emphasis on managed healthcare in the United States and on country and regional pricing and
reimbursement controls in the European Union will put additional pressure on product pricing, reimbursement and usage, which may adversely
affect our product sales and profitability. These pressures can arise from rules and practices of managed care groups, judicial decisions and
governmental laws and regulations related to Medicare, Medicaid and healthcare reform, pharmaceutical reimbursement policies and pricing in
general.
In July 2014, we received a letter from the U.S. Senate Committee on Finance requesting information and supporting documentation from
us related to Sovaldi and the pricing of Sovaldi in the United States. The letter raised concerns about our approach to pricing Sovaldi, its
affordability and its impact on federal government spending and public health. We are cooperating with the inquiries. It is both costly and
time-consuming for us to comply with these inquiries. We cannot predict the outcome. It is possible that the inquiries could result in negative
publicity or other negative actions that could harm our reputation, reduce demand for Sovaldi or other sofosbuvir containing products and/or
reduce coverage of Sovaldi or sofosbuvir containing products, including by federal health care programs such as Medicare and Medicaid. If any
or all of these events occur, our business and stock price could be materially negatively affected.
In countries outside the United States, the success of our commercialized products, and any other product candidates we may develop,
will depend largely on obtaining and maintaining government reimbursement, because in many countries patients are unlikely to use
prescription drugs that are not reimbursed by their governments. In addition, negotiating prices with certain governmental authorities can delay
commercialization by 12 months or more. Reimbursement policies may adversely affect our ability to sell our products on a profitable basis. In
many international markets, governments control the prices of prescription pharmaceuticals, including through the implementation of reference
pricing, price cuts, rebates, revenue-related taxes, tenders and profit control, and they expect prices of prescription pharmaceuticals to decline
over the life of the product or as volumes increase.
Recently, many countries in the European Union have increased the amount of discounts required on our products, and these efforts could
continue as countries attempt to manage healthcare expenditures, especially in light of the severe fiscal and debt crises experienced by many
countries in the European Union. For example, in June 2010, Spain imposed an incremental discount on all branded drugs. As generic drugs
come to market, we may face price decreases for our products in some countries in the European Union. Further, cost containment pressures in
the European Union, especially in Southern Europe, could lead to delays in the treatment of patients and also delay pricing approval, which
could negatively impact the commercialization of new products. With respect to Sovaldi, we have seen pricing pressure, which could delay
pricing approval in some European countries.
Government agencies also issue regulations and guidelines directly applicable to us and to our products. In addition, from time to time,
professional societies, practice management groups, private health/science foundations and organizations publish guidelines or
recommendations directed to certain health care and patient communities. Such recommendations and guidelines may relate to such matters as
product usage, dosage, route of administration, and use of related or competing therapies and can consequently result in increased or decreased
usage of our products.
Approximately 25% of our product sales occur outside the United States, and currency fluctuations and hedging expenses may cause
our earnings to fluctuate, which could adversely affect our stock price.
Because a significant percentage of our product sales are denominated in foreign currencies, primarily the Euro, we face exposure to
adverse movements in foreign currency exchange rates. When the U.S. dollar strengthens against these foreign currencies, the relative value of
sales made in the respective foreign currency decreases. Conversely, when the U.S. dollar weakens against these currencies, the relative value
of such sales increases. Overall, we are a net receiver of foreign currencies and, therefore, benefit from a weaker U.S. dollar and are adversely
affected by a stronger U.S. dollar relative to those foreign currencies in which we transact significant amounts of business.
We use foreign currency exchange forward and option contracts to hedge a percentage of our forecasted international sales, primarily
those denominated in the Euro. We also hedge certain monetary assets and liabilities denominated in foreign currencies, which reduces but
does not eliminate our exposure to currency fluctuations between the date a transaction is recorded and the date that cash is collected or paid.
We cannot predict future fluctuations in the foreign currency exchange rate of the U.S. dollar. If the U.S. dollar appreciates significantly against
certain currencies and our hedging program does not
44
sufficiently offset the effects of such appreciation, our results of operations will be adversely affected and our stock price may decline.
Additionally, the expenses that we recognize in relation to our hedging activities can also cause our earnings to fluctuate. The level of
hedging expenses that we recognize in a particular period is impacted by the changes in interest rate spreads between the foreign currencies that
we hedge and the U.S. dollar.
We face significant competition.
We face significant competition from large global pharmaceutical and biotechnology companies, specialized pharmaceutical firms and
generic drug manufacturers.
Our HCV product, Sovaldi competes with Janssen R&D Ireland's Olysio (simeprevir) in the United States and to a lesser extent with
direct-acting antivirals, Victrelis (boceprevir) marketed by Merck & Co., Inc. (Merck) and Incivek (telaprevir) marketed by Vertex
Pharmaceuticals Incorporated.
Our HIV products compete primarily with products from a joint venture established by GlaxoSmithKline Inc.(GSK) and Pfizer Inc.
(Pfizer), ViiV, which markets fixed-dose combination products that compete with Stribild, Complera/Eviplera, Atripla and Truvada. For
example, lamivudine, marketed by this joint venture, is competitive with emtricitabine, the active pharmaceutical ingredient of Emtriva and a
component of Complera/Eviplera, Atripla and Truvada. For Tybost, we compete with ritonavir marketed by AbbVie Inc. (AbbVie). In addition,
Tivicay (dolutegravir), an integrase inhibitor, launched in the fourth quarter of 2013 by ViiV, could adversely impact sales of our HIV
products.
We also face competition from generic HIV products. In May 2010, the compound patent covering Epivir (lamivudine) itself expired in
the United States, and generic lamivudine is now available in the United States, Spain, Portugal and Italy. We expect that generic versions of
lamivudine will be launched in other countries within the European Union. In May 2011, a generic version of Combivir (lamivudine and
zidovudine) was approved and was recently launched in the United States. In addition, in late 2011, generic tenofovir also became available in
Turkey, which resulted in an increase in the rebate for Viread in Turkey. Generic versions of Sustiva (efavirenz), a component of our Atripla,
are now available in Canada and Europe and we expect competition from generic efavirenz to be in the United States in 2015. We have
observed some pricing pressure related to the Sustiva component of our Atripla sales.
For Viread and Hepsera for treatment of chronic hepatitis B virus (HBV) infection, we compete primarily with products produced by
GSK, Bristol-Myers Squibb Company (BMS) and Novartis Pharmaceuticals Corporation (Novartis) in the United States, the European Union
and China.
For AmBisome, we compete primarily with products produced by Merck and Pfizer. In addition, we are aware of at least three lipid
formulations that claim similarity to AmBisome becoming available outside of the United States, including the possible entry of such
formulations and Taiwan. These formulations may reduce market demand for AmBisome. Furthermore, the manufacture of lipid formulations
of amphotericin B is very complex and if any of these formulations are found to be unsafe, sales of AmBisome may be negatively impacted by
association.
Letairis competes directly with products produced by Actelion Pharmaceuticals US, Inc. and indirectly with pulmonary arterial
hypertension products from United Therapeutics Corporation and Pfizer.
Ranexa competes predominantly with generic compounds from three distinct classes of drugs, beta-blockers, calcium channel blockers
and long-acting nitrates for the treatment of chronic angina in the United States.
Cayston competes with a product marketed by Novartis.
Tamiflu competes with products sold by GSK and generic competitors.
Zydelig competes with a product marketed by Pharmacyclics, Inc.
In addition, a number of companies are pursuing the development of technologies which are competitive with our existing products or
research programs. These competing companies include specialized pharmaceutical firms and large pharmaceutical companies acting either
independently or together with other pharmaceutical companies. Furthermore, academic institutions, government agencies and other public and
private organizations conducting research may seek patent protection and may establish collaborative arrangements for competitive products or
programs. If any of these competitors gain market share on our products, it could adversely affect our results of operations and stock price.
If significant safety issues arise for our marketed products or our product candidates, our future sales may be reduced, which would
adversely affect our results of operations.
45
The data supporting the marketing approvals for our products and forming the basis for the safety warnings in our product labels were
obtained in controlled clinical trials of limited duration and, in some cases, from post-approval use. As our products are used over longer
periods of time by many patients with underlying health problems, taking numerous other medicines, we expect to continue to find new issues
such as safety, resistance or drug interaction issues, which may require us to provide additional warnings or contraindications on our labels or
narrow our approved indications, each of which could reduce the market acceptance of these products.
Our product Letairis, which was approved by the FDA in June 2007, is a member of a class of compounds called endothelin receptor
antagonists which pose specific risks, including serious risks of birth defects. Because of these risks, Letairis is available only through the
Letairis Education and Access Program (LEAP), a restricted distribution program intended to help physicians and patients learn about the risks
associated with the product and assure appropriate use of the product. As the product is used by additional patients, we may discover new risks
associated with Letairis which may result in changes to the distribution program and additional restrictions on the use of Letairis which may
decrease demand for the product.
Regulatory authorities have been moving towards more active and transparent pharmacovigilance and are making greater amounts of
stand-alone safety information and clinical trial data directly available to the public through websites and other means, e.g. periodic safety
update report summaries, risk management plan summaries and various adverse event data. Safety information, without the appropriate context
and expertise, may be misinterpreted and lead to misperception or legal action which may potentially cause our product sales or stock price to
decline.
Further, if serious safety, resistance or drug interaction issues arise with our marketed products, sales of these products could be limited or
halted by us or by regulatory authorities and our results of operations would be adversely affected.
Our operations depend on compliance with complex FDA and comparable international regulations. Failure to obtain broad approvals
on a timely basis or to maintain compliance could delay or halt commercialization of our products.
The products we develop must be approved for marketing and sale by regulatory authorities and, once approved, are subject to extensive
regulation by the FDA, the EMA and comparable regulatory agencies in other countries. We are continuing clinical trials for Sovaldi, Stribild,
Complera/Eviplera, Atripla, Truvada, Viread, Emtriva, Tybost, Zydelig, Vitekta, Hepsera, Letairis, Ranexa, AmBisome and Cayston for
currently approved and additional uses. We anticipate that we will file for marketing approval in additional countries and for additional
indications and products over the next several years. These products may fail to receive such marketing approvals on a timely basis, or at all.
Further, our marketed products and how we manufacture and sell these products are subject to extensive regulation and review. Discovery
of previously unknown problems with our marketed products or problems with our manufacturing or promotional activities may result in
restrictions on our products, including withdrawal of the products from the market. If we fail to comply with applicable regulatory
requirements, including those related to promotion and manufacturing, we could be subject to penalties including fines, suspensions of
regulatory approvals, product recalls, seizure of products and criminal prosecution.
For example, under FDA rules, we are often required to conduct post-approval clinical studies to assess a known serious risk, signals of
serious risk or to identify an unexpected serious risk and implement a Risk Evaluation and Mitigation Strategy for our products, which could
include a medication guide, patient package insert, a communication plan to healthcare providers or other elements as the FDA deems are
necessary to assure safe use of the drug, which could include imposing certain restrictions on the distribution or use of a product. Failure to
comply with these or other requirements, if imposed on a sponsor by the FDA, could result in significant civil monetary penalties and our
operating results may be adversely affected.
The results and anticipated timelines of our clinical trials are uncertain and may not support continued development of a product
pipeline, which would adversely affect our prospects for future revenue growth.
We are required to demonstrate the safety and efficacy of products that we develop for each intended use through extensive preclinical
studies and clinical trials. The results from preclinical and early clinical studies do not always accurately predict results in later, large-scale
clinical trials. Even successfully completed large-scale clinical trials may not result in marketable products. If any of our product candidates
fails to achieve its primary endpoint in clinical trials, if safety issues arise or if the results from our clinical trials are otherwise inadequate to
support regulatory approval of our product candidates, commercialization of that product candidate could be delayed or halted. For example, in
April 2013, we announced our decision to terminate our Phase 3 clinical trial of aztreonam for inhalation solution for the treatment of
bronchiectasis. In addition, we may also face challenges in clinical trial protocol design. If the clinical trials for any of the product candidates in
our pipeline are delayed or terminated, our prospects for future revenue growth would be adversely impacted. For example, we face numerous
risks and uncertainties with our product candidates, including momelotnib for the treatment of myelofibrosis,
46
ranolazine for the treatment of incomplete revascularization post-percutaneous coronary intervention, our single tablet regimen of tenofovir
alafenamide (TAF)/elvitegravir/cobicistat/emtricitabine, and TAF as a standalone agent, each currently in Phase 3 clinical trials, that could
prevent completion of development of these product candidates. These risks include our ability to enroll patients in clinical trials, the possibility
of unfavorable results of our clinical trials, the need to modify or delay our clinical trials or to perform additional trials and the risk of failing to
obtain FDA and other regulatory body approvals. As a result, our product candidates may never be successfully commercialized. Further, we
may make a strategic decision to discontinue development of our product candidates if, for example, we believe commercialization will be
difficult relative to other opportunities in our pipeline. If these programs and others in our pipeline cannot be completed on a timely basis or at
all, then our prospects for future revenue growth may be adversely impacted. In addition, clinical trials involving our commercial products
could raise new safety issues for our existing products, which could in turn decrease our revenues and harm our business.
Due to our reliance on third-party contract research organizations to conduct our clinical trials, we are unable to directly control the
timing, conduct, expense and quality of our clinical trials.
We extensively outsource our clinical trial activities and usually perform only a small portion of the start-up activities in-house. We rely
on independent third-party contract research organizations (CROs) to perform most of our clinical studies, including document preparation, site
identification, screening and preparation, pre-study visits, training, program management and bioanalytical analysis. Many important aspects of
the services performed for us by the CROs are out of our direct control. If there is any dispute or disruption in our relationship with our CROs,
our clinical trials may be delayed. Moreover, in our regulatory submissions, we rely on the quality and validity of the clinical work performed
by third-party CROs. If any of our CROs' processes, methodologies or results were determined to be invalid or inadequate, our own clinical
data and results and related regulatory approvals could be adversely impacted.
Expenses associated with clinical trials may cause our earnings to fluctuate, which could adversely affect our stock price.
The clinical trials required for regulatory approval of our products, as well as clinical trials we are required to conduct after approval, are
very expensive. It is difficult to accurately predict or control the amount or timing of these expenses from quarter to quarter, and the FDA
and/or other regulatory agencies may require more clinical testing than we originally anticipated. Uneven and unexpected spending on these
programs, including on the clinical trials that will be necessary to advance our other product candidates, may cause our operating results to
fluctuate from quarter to quarter and volatility in our stock price.
We depend on relationships with other companies for sales and marketing performance, development and commercialization of
product candidates and revenues. Failure to maintain these relationships, poor performance by these companies or disputes with these
companies could negatively impact our business.
We rely on a number of significant collaborative relationships with major pharmaceutical companies for our sales and marketing
performance in certain territories. These include collaborations with BMS for Atripla in the United States, Europe and Canada; F. Hoffmann-La
Roche Ltd. (together with Hoffmann-La Roche Inc., Roche) for Tamiflu worldwide; and GSK for ambrisentan in territories outside of the
United States. In some countries, we rely on international distributors for sales of Truvada, Viread, Hepsera, Emtriva and AmBisome. Some of
these relationships also involve the clinical development of these products by our partners. Reliance on collaborative relationships poses a
number of risks, including the risk that:
•
we are unable to control the resources our corporate partners devote to our programs or products;
•
disputes may arise with respect to the ownership of rights to technology developed with our corporate partners;
•
disagreements with our corporate partners could cause delays in, or termination of, the research, development or commercialization
of product candidates or result in litigation or arbitration;
•
contracts with our corporate partners may fail to provide significant protection or may fail to be effectively enforced if one of these
partners fails to perform;
•
our corporate partners have considerable discretion in electing whether to pursue the development of any additional products and
may pursue alternative technologies or products either on their own or in collaboration with our competitors;
•
our corporate partners with marketing rights may choose to pursue competing technologies or to devote fewer resources to the
marketing of our products than they do to products of their own development; and
•
our distributors and our corporate partners may be unable to pay us, particularly in light of current economic conditions.
47
Given these risks, there is a great deal of uncertainty regarding the success of our current and future collaborative efforts. If these efforts
fail, our product development or commercialization of new products could be delayed or revenues from products could decline.
Under our April 2002 licensing agreement with GSK, we gave GSK the right to control clinical and regulatory development and
commercialization of Hepsera in territories in Asia, Africa and Latin America. These include major markets for Hepsera, such as China, Japan,
Taiwan and South Korea. In November 2009, we entered into an agreement with GSK that provided GSK with exclusive commercialization
rights and registration responsibilities for Viread for the treatment of chronic HBV in China. In October 2010, we granted similar rights to GSK
in Japan and Saudi Arabia. The success of Hepsera and Viread for the treatment of chronic HBV in these territories depends almost entirely on
the efforts of GSK. In this regard, GSK promotes Epivir-HBV/Zeffix, a product that competes with Hepsera and Viread for the treatment of
chronic HBV. Consequently, GSK's marketing strategy for Hepsera and Viread for the treatment of chronic HBV may be influenced by its
promotion of Epivir-HBV/Zeffix. We receive royalties from GSK equal to a percentage of GSK's net sales of Hepsera and Viread for the
treatment of chronic HBV as well as net sales of GSK's Epivir-HBV/Zeffix. If GSK fails to devote sufficient resources to, or does not succeed
in developing or commercializing Hepsera or Viread for the treatment of chronic HBV in its territories, our potential revenues in these
territories may be substantially reduced.
In addition, Cayston and Letairis are distributed through third-party specialty pharmacies, which are pharmacies specializing in the
dispensing of medications for complex or chronic conditions that may require a high level of patient education and ongoing counseling. The
use of specialty pharmacies requires significant coordination with our sales and marketing, medical affairs, regulatory affairs, legal and finance
organizations and involves risks, including but not limited to risks that these specialty pharmacies will:
•
not provide us with accurate or timely information regarding their inventories, patient data or safety complaints;
•
not effectively sell or support Cayston or Letairis;
•
not devote the resources necessary to sell Cayston or Letairis in the volumes and within the time frames that we expect;
•
not be able to satisfy their financial obligations to us or others; or
•
cease operations.
We also rely on a third party to administer LEAP, the restricted distribution program designed to support Letairis. This third party
provides information and education to prescribers and patients on the risks of Letairis, confirms insurance coverage and investigates alternative
sources of reimbursement or assistance, ensures fulfillment of the risk management requirements mandated for Letairis by the FDA and
coordinates and controls dispensing to patients through the third-party specialty pharmacies. Failure of this third party or the specialty
pharmacies that distribute Letairis to perform as expected may result in regulatory action from the FDA or decreased Letairis sales, either of
which would harm our business.
Further, Cayston may only be taken by patients using a specific inhalation device that delivers the drug to the lungs of patients. Our
ongoing distribution of Cayston is entirely reliant upon the manufacturer of that device. For example, the manufacturer could encounter other
issues with regulatory agencies related to the device or be unable to supply sufficient quantities of this device. In addition, the manufacturer
may not be able to provide adequate warranty support for the device after it has been distributed to patients. With respect to distribution of the
drug and device to patients, we are reliant on the capabilities of specialty pharmacies. For example, the distribution channel for drug and device
is complicated and requires coordination. The reimbursement approval processes associated with both drug and device are similarly complex. If
the device manufacturer is unable to obtain reimbursement approval or receives approval at a lower-than-expected price, sales of Cayston may
be adversely affected. Any of the previously described issues may limit the sales of Cayston, which would adversely affect our financial results.
Our success will depend to a significant degree on our ability to defend our patents and other intellectual property rights both
domestically and internationally. We may not be able to obtain effective patents to protect our technologies from use by competitors
and patents of other companies could require us to stop using or pay for the use of required technology.
Patents and other proprietary rights are very important to our business. Our success will depend to a significant degree on our ability to:
•
obtain patents and licenses to patent rights;
•
preserve trade secrets;
•
defend against infringement and efforts to invalidate our patents; and
•
operate without infringing on the intellectual property of others.
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If we have a properly drafted and enforceable patent, it can be more difficult for our competitors to use our technology to create
competitive products and more difficult for our competitors to obtain a patent that prevents us from using technology we create. As part of our
business strategy, we actively seek patent protection both in the United States and internationally and file additional patent applications, when
appropriate, to cover improvements in our compounds, products and technology.
We have a number of U.S. and foreign patents, patent applications and rights to patents related to our compounds, products and
technology, but we cannot be certain that issued patents will be enforceable or provide adequate protection or that pending patent applications
will result in issued patents. Patent applications are confidential for a period of time before a patent is issued. As a result, we may not know if
our competitors filed patent applications for technology covered by our pending applications or if we were the first to invent or first to file an
application directed toward the technology that is the subject of our patent applications. Competitors may have filed patent applications or
received patents and may obtain additional patents and proprietary rights that block or compete with our products. In addition, if competitors
file patent applications covering our technology, we may have to participate in litigation, interference or other proceedings to determine the
right to a patent. Litigation, interference or other proceedings are unpredictable and expensive, such that, even if we are ultimately successful,
our results of operations may be adversely affected by such events.
Patents do not cover the ranolazine compound, the active ingredient of Ranexa. Instead, when it was discovered that only a
sustained-release formulation of ranolazine would achieve therapeutic plasma levels, patents were obtained on those formulations and the
characteristic plasma levels they achieve. Patents do not cover the active ingredients in AmBisome. In addition, we do not have patent filings in
China or certain other Asian countries covering all forms of adefovir dipivoxil, the active ingredient in Hepsera. Asia is a major market for
therapies for HBV, the indication for which Hepsera has been developed.
We may obtain patents for certain products many years before marketing approval is obtained for those products. Because patents have a
limited life, which may begin to run prior to the commercial sale of the related product, the commercial value of the patent may be limited.
However, we may be able to apply for patent term extensions or supplementary protection certificates in some countries.
Generic manufacturers have sought, and may continue to seek, FDA approval to market generic versions of our products through an
abbreviated new drug application (ANDA), the application form typically used by manufacturers seeking approval of a generic drug. See a
description of our ANDA litigation in "Legal Proceedings" beginning on page 36 and risk factor entitled "Litigation with generic manufacturers
has reduced and may continue to reduce our earnings. If we are unsuccessful in all or some of these lawsuits, some or all of our claims in the
patents may be narrowed or invalidated and generic versions of our products could be launched prior to our patent expiry." beginning on page
54.
Our success depends in large part on our ability to operate without infringing upon the patents or other proprietary rights of third
parties.
If we infringe the valid patents of third parties, we may be prevented from commercializing products or may be required to obtain licenses
from these third parties. We may not be able to obtain alternative technologies or any required license on reasonable terms or at all. If we fail to
obtain these licenses or alternative technologies, we may be unable to develop or commercialize some or all of our products. For example, we
are aware of patents that may relate to our operation of LEAP, our restricted distribution program designed to support Letairis and we are aware
of patents and patent applications owned by other parties that may claim to cover the use of sofosbuvir. See a description of our litigation
regarding sofosbuvir in the risk factor entitled "If any party is successful in establishing exclusive rights to sofosbuvir, our expected revenues
and earnings from the sale of sofosbuvir could be adversely affected" beginning on page 50.
Furthermore, we also rely on unpatented trade secrets and improvements, unpatented internal know-how and technological innovation. In
particular, a great deal of our liposomal manufacturing expertise, which is a key component of our liposomal technology, is not covered by
patents but is instead protected as a trade secret. We protect these rights mainly through confidentiality agreements with our corporate partners,
employees, consultants and vendors. These agreements provide that all confidential information developed or made known to an individual
during the course of their relationship with us will be kept confidential and will not be used or disclosed to third parties except in specified
circumstances. In the case of employees, the agreements provide that all inventions made by an individual while employed by us will be our
exclusive property. We cannot be certain that these parties will comply with these confidentiality agreements, that we have adequate remedies
for any breach or that our trade secrets will not otherwise become known or be independently discovered by our competitors. Under some of
our R&D agreements, inventions become jointly owned by us and our corporate partner and in other cases become the exclusive property of
one party. In certain circumstances, it can be difficult to determine who owns a particular invention and disputes could arise regarding those
inventions. If our trade secrets or confidential information become known or independently
49
discovered by competitors or if we enter into disputes over ownership of inventions, our business and results of operations could be adversely
affected.
If any party is successful in establishing exclusive rights to sofosbuvir, our expected revenues and earnings from the sale of sofosbuvir
could be adversely affected.
We own patents that claim sofosbuvir as a chemical entity and its metabolites. However, the existence of patents does not necessarily
guarantee our right to practice the patented technology or commercialize the patented product. Third parties may have, or obtain rights to,
patents that allegedly could be used to prevent or attempt to prevent us from commercializing sofosbuvir. For example, we are aware of patents
and patent applications owned by other parties that may be alleged by such parties to cover the use of sofosbuvir. If these parties successfully
obtain valid and enforceable patents, and successfully prove infringement of those patents by sofosbuvir, we could be prevented from selling
sofosbuvir unless we were able to obtain a license under such patents. Such a license may not be available on commercially reasonable terms or
at all. Further, if any party is successful in establishing exclusive rights to sofosbuvir, our expected revenues and earnings from the sale of
sofosbuvir would be adversely affected.
Arbitration with F. Hoffman-La Roche Ltd and Hoffman-La Roche Inc. (collectively, Roche)
Gilead (as successor to Pharmasset) is a party to an October 29, 2004 collaboration agreement with Roche. The agreement granted Roche
rights to develop PSI-6130, a cytidine analog, and its prodrugs, for the treatment of HCV infection. The collaborative research efforts under the
agreement ended on December 31, 2006. Roche later asked Pharmasset to consider whether Roche may have contributed to the inventorship of
sofosbuvir and whether Pharmasset has complied with the confidentiality provisions of the collaboration agreement. Pharmasset advised us that
it carefully considered the issues raised by Roche and that it believed any such issues are without merit. We have also considered these issues
and reached the same conclusion. In March 2013, Roche initiated an arbitration against us and Pharmasset, predecessor to Gilead Pharmasset
LLC, regarding the collaboration agreement. In the arbitration demand, Roche asserts that it has an exclusive license to sofosbuvir pursuant to
the collaboration agreement because sofosbuvir, a prodrug of a uridine monophosphate analog, is allegedly a prodrug of PSI-6130, a cytidine
analog. Roche further claims that, because it has exclusive rights to sofosbuvir, it also has an exclusive license to a patent covering sofosbuvir,
and that we will infringe that patent by selling and offering for sale products containing sofosbuvir. Gilead and Gilead Pharmasset LLC filed
their response to Roche's arbitration demand in April 2013. The arbitration hearing was held in New York in June 2014. We expect a decision
in the arbitration by the end of 2014.
Interference Proceedings and Litigation with Idenix Pharmaceuticals, Inc. (Idenix)
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 and Idenix's pending U.S. Patent Application No. 12/131,868. An interference is an
administrative proceeding before the USPTO designed to determine who was the first to invent the subject matter claimed by both parties. Our
patent covers metabolites of sofosbuvir and RG7128, a prodrug of a cytidine nucleoside analog that Pharmasset licensed to Roche. Idenix is
attempting to patent a class of compounds, including these metabolites. The purpose of the First Idenix Interference was to determine who was
first to invent these compounds and therefore who is entitled to the patent claiming these compounds. In March 2013, the USPTO Patent Trials
and Appeal Board (the Board) determined that Idenix is not entitled to the benefit of any of its early application filing dates because none of
those patent applications, including the application that led to Idenix’s U.S. Patent No. 7,608,600 (the ‘600 patent), taught how to make the
compounds in dispute. The Board also determined that because we are entitled to the filing date of our earliest application, we were first to file
the patent application on the compounds in dispute, and we were therefore the “senior party” in the First Idenix Interference. On January 29,
2014, the Board determined that Pharmasset and not Idenix was the first to invent the compounds in dispute and accordingly Gilead prevailed.
In its decision, the Board held that Idenix failed to prove that it was first to conceive of any of the compounds in dispute. Specifically, Idenix
failed to prove that the Idenix inventors had identified the structure, a method of making and a use for any of the disputed compounds. The
Board went on to conclude that Idenix failed to work diligently toward making and testing the compounds in dispute during the relevant time
period. Idenix has appealed the Board’s decisions to the U.S. District Court for the District of Delaware. If either or both of the Board’s
decisions are reversed on appeal and the court determines that Idenix is entitled to their patent claims, and it is determined that we have
infringed those claims, we may be required to obtain a license from and pay royalties to Idenix to commercialize sofosbuvir and RG7128 in the
United States. A decision by the District Court can be appealed by either party to the U.S. Court of Appeals for the Federal Circuit (CAFC).
We believe the claims in the Idenix application involved in the First Idenix Interference, and similar U.S. and foreign patents claiming the
same compounds and metabolites, 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 and the Idenix patent
application that is the subject of the First Idenix Interference. Idenix has
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now 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 U.S. Patent No. 7,429,572 in the First Idenix Interference, is invalid.
We filed a similar legal action in Norway in the Oslo District Court seeking to invalidate Idenix's corresponding Norwegian patent. In
September 2013, Idenix filed an invalidation action in the Norwegian proceedings against our Norwegian Patent No. 333700 patent, which
corresponds to our U.S. Patent No. 7,429,572. The trial was held in November 2013. On March 21, 2014, the Norwegian court found all claims
in the Idenix Norwegian patent to be invalid and upheld the validity of all claims in the challenged Gilead patent. Additionally, the Norwegian
court ordered Idenix to pay us over $2.0 million in attorney fees as the losing party to the litigation. On April 30, 2014, Idenix appealed the
March 21, 2014 decision to the Norwegian Court of Appeal. Idenix’s obligation to pay our attorneys’ fees will be stayed during the pendency
of the appeal.
In August 2013 and April 2014, Idenix filed two separate requests for invalidation with the Chinese Patent Office of our Chinese Patent
CN ZL200480019148.4, which corresponds to our U.S. Patent No. 7,429,572 patent.
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 sofosbuvir will infringe the Australian patent corresponding to the ‘600 patent.
On March 12, 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 granted, we filed an opposition with the EPO seeking to revoke the ‘489
patent. Also on March 12, 2014, Idenix initiated infringement proceedings against us in the United Kingdom, Germany and France alleging that
the commercialization of Sovaldi in those countries would infringe the respective national counterparts of the ‘489 patent. In the United
Kingdom, the court has ordered an October 2014 trial date to determine the issues of infringement and validity of the Idenix United Kingdom
patent. In Germany, the court in Düsseldorf has ordered a hearing date of December 2, 2014 to determine the issue of infringement of the
Idenix German patent. We do not have a trial date for the French lawsuit.
Idenix has not been awarded patents corresponding to the ‘600 patent in Japan or China. In the event such patents issue, we expect to
challenge them in proceedings similar to those we invoked in Europe, Canada, Norway and Australia. If the courts hearing these proceedings
determine that Idenix is entitled to their patent claims and it is determined that we have infringed those claims, we may be required to obtain a
license from and pay royalties to Idenix to commercialize sofosbuvir and RG7128 in that country.
In December 2013, after receiving Gilead’s 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 the ‘600 patent. The ‘600 patent includes claims directed to methods of
treating HCV with nucleoside compounds similar to those which were involved in the First Idenix Interference. The Second Idenix Interference
will determine who was first to invent the claimed methods of treating HCV. In the declaration of the Second Idenix Interference, the USPTO
has initially designated Gilead as the junior party based upon the patent application filing dates appearing on the face of the ‘600 patent. We
believe the Board’s determination in the First Idenix Interference that Idenix is not entitled the benefit of any of its earlier application filing
dates, including the filing date of the ‘600 patent, will be equally applicable to the Second Idenix Interference. If we are correct, the Board may
conclude that Gilead is the senior party in the Second Idenix Interference, consistent with the determination in the First Idenix Interference. In
light of the Board’s conclusion in the First Idenix Interference that the application that led to the ‘600 patent does not teach how to make the
claimed compounds, it is possible that the Board will make the same determination in the Second Idenix Interference and eliminate the need for
the Board to address who was the first to invent the claimed methods of treating HCV. However, if the Board does consider who was the first
to invent the claimed methods of treating HCV and ultimately concludes that Gilead was first, the claims in the ‘600 patent may be revoked. If
the Board determines that Idenix was first to invent and is entitled to these patent claims, and it is determined in other proceedings that we have
infringed those claims, we may be required to obtain a license from and pay royalties to Idenix to commercialize sofosbuvir and RG7128. Any
determination by the Board can be appealed by either party to U.S. federal court.
In December 2013, Idenix, Universita Degli Studi di Cagliari (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 patent. We believe that the claims in the
‘600 patent are invalid and that we have the sole right to commercialize sofosbuvir. However, if the court disagrees with our view and further
determines that the ‘600 patent is infringed, we may be required to obtain a license from and pay royalties to Idenix to commercialize
sofosbuvir. A decision by the District Court can be appealed by either party to the CAFC.
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 and 7,608,597. On June 30, 2014, the court in
51
Massachusetts granted our request and transferred the Massachusetts litigation to the U.S. District Court for the District of Delaware. We
believe that Idenix’s patents are invalid and would not be infringed by our commercialization of sofosbuvir and that we have the sole right to
commercialize sofosbuvir. However, if the court disagrees with our view and determines that these patents are infringed, we may be required to
obtain a license from and pay royalties to Idenix to commercialize sofosbuvir. A decision by the District Court can be appealed by either party
to the CAFC.
We have an expansive patent portfolio covering NS5A inhibitors for the treatment of HCV. Following the disclosure of the structure of
Idenix’s NS5A inhibitor, samatasvir (also known as IDX-719), we are evaluating the compound in light of the claims of our granted U.S.
Patent No. 8,669,234.
On June 9, 2014, Merck and Idenix announced that the companies had entered into a definitive agreement under which Merck will
acquire Idenix. The court has set a trial date of March 7, 2016 for this litigation. While this merger does not change our view of the merits of
Merck's and Idenix's claims, Merck has greater resources than Idenix and may therefore choose to fund the litigation at higher levels than
Idenix.
Litigation with Merck & Co., Inc. (Merck)
In August 2013, Merck contacted us requesting that we pay royalties on the sales of sofosbuvir and obtain a license to U.S. Patent Nos.
7,105,499 and 8,481,712, which it co-owns with Isis Pharmaceuticals, Inc. We believe that Merck’s patents are invalid and would not be
infringed by our commercialization of sofosbuvir and that we have the sole right to commercialize sofosbuvir. Accordingly, in August 2013,
we filed a lawsuit in the U.S. District Court for the Northern District of California seeking declaratory judgment that the Merck patents are
invalid and not infringed. Merck’s U.S. Patent Nos. 7,105,499 and 8,481,712 cover compounds which do not include, but may relate to,
sofosbuvir. During patent prosecution, Merck amended its patent application in an attempt to cover compounds related to sofosbuvir and
ultimately extract royalty payments for sofosbuvir’s commercialization, or to exclude it from the market. If the court determines that Merck’s
patents are valid and that we have infringed those claims, we may be required to obtain a license from and pay royalties to Merck to
commercialize sofosbuvir. Either party can appeal a decision by the District Court to the CAFC. The court has set a trial date of March 7, 2016
for this litigation.
Litigation with AbbVie
AbbVie has obtained U.S. Patent Nos. 8,466,159, 8,492,386, 8,680,106, and 8,685,984, which purport to claim the use of a combination
of LDV/SOF for the treatment of HCV. We own published and pending patent applications directed to the use of combinations for the
treatment of HCV, and, specifically, to combinations of ledipasvir and sofosbuvir. Certain of those applications were filed before AbbVie’s
patents. For this reason and others, we believe AbbVie’s patents are invalid.
Accordingly, in December 2013, we filed a lawsuit in the U.S. District Court for the District of Delaware seeking declaratory judgment
that the AbbVie patents are invalid and unenforceable, as well as other relief. We believe that Abbott Laboratories, Inc. and AbbVie conspired
to eliminate competition in the HCV market by falsely representing to the USPTO that they, and not Gilead, invented methods of treating HCV
using a combination of LDV/SOF. In February and March 2014, AbbVie responded to our lawsuit by filing two lawsuits also in the U.S.
District Court for the District of Delaware alleging that our fixed-dose combination of LDV/SOF will infringe its patents. We do not expect
AbbVie’s patents to block or delay the commercialization of our combination products. If the court determines that AbbVie’s patents are valid
and that we have infringed those claims, we may be required to obtain a license from and pay royalties to AbbVie to commercialize sofosbuvir
combination products. Either party can appeal a decision by the District Court to the CAFC. We are aware that AbbVie is pursuing similar
patents in Europe and other countries.
We cannot predict the ultimate outcome of contractual and intellectual property claims related to sofosbovir, and we may spend
significant resources enforcing and defending these patents. If these parties successfully obtain valid and enforceable patents, and successfully
prove infringement of those patents by sofosbuvir, we could be prevented from selling sofosbuvir unless we were able to obtain a license under
such patents. Such a license may not be available on commercially reasonable terms or at all. Further, if any party is successful in establishing
exclusive rights to sofosbuvir, our expected revenues and earnings from the sale of sofosbuvir would be adversely affected.
Manufacturing problems, including at our third-party manufacturers and corporate partners, could cause inventory shortages and
delay product shipments and regulatory approvals, which may adversely affect our results of operations.
In order to generate revenue from our products, we must be able to produce sufficient quantities of our products to satisfy demand. Many
of our products are the result of complex manufacturing processes. The manufacturing process for pharmaceutical products is also highly
regulated and regulators may shut down manufacturing facilities that they believe do not comply with regulations.
52
Our products are either manufactured at our own facilities or by third-party manufacturers or corporate partners. We depend on third
parties to perform manufacturing activities effectively and on a timely basis for the majority of our solid dose products. In addition, Roche,
either by itself or through third parties, is responsible for manufacturing Tamiflu. We, our third-party manufacturers and our corporate partners
are subject to current Good Manufacturing Practices (GMP), which are extensive regulations governing manufacturing processes, stability
testing, record keeping and quality standards as defined by the FDA and the EMA. Similar regulations are in effect in other countries.
Our third-party manufacturers and corporate partners are independent entities who are subject to their own unique operational and
financial risks which are out of our control. If we or any of these third-party manufacturers or corporate partners fail to perform as required, this
could impair our ability to deliver our products on a timely basis or receive royalties or cause delays in our clinical trials and applications for
regulatory approval. Further, we may have to write-off the costs of manufacturing any batch that fails to pass quality inspection. To the extent
these risks materialize and affect their performance obligations to us, our financial results may be adversely affected.
In addition, we, our third-party manufacturers and our corporate partners may only be able to produce some of our products at one or a
limited number of facilities and, therefore, have limited manufacturing capacity for certain products. For example, in 2012, due to unexpected
delays both in qualifying two new external sites and with expanding Cayston manufacturing in San Dimas, we were unable to supply enough
Cayston to fulfill our projected demand. From February through September 2012, we suspended access for patients with new prescriptions for
Cayston, subject to certain exceptions where specific medical need existed. As a result of our inability to manufacture sufficient Cayston to
meet demand, the amount of revenues we received from the sale of Cayston was reduced.
Our manufacturing operations are subject to routine inspections by regulatory agencies. For example, in April 2013, the FDA conducted
an inspection of our Foster City facility and issued Form 483 Inspectional Observations, which noted deficiencies in documentation and
validation of certain quality testing procedures and methods. As a result of the observations, the FDA delivered Complete Response Letters
notifying us that it was unable to approve our NDAs for elvitegravir and cobicistat as standalone agents. In mid-October 2013, the FDA
completed its sofosbuvir pre-approval inspection of our Foster City facility. Following that inspection, the FDA issued additional Form 483
Inspectional Observations citing deficiencies related to testing and reconciliation of stability samples, testing protocols, testing of shipping
samples, and procedures for calibrating test equipment. We recently completed and filed our responses to these observations with the FDA. If
we are unable to remedy the deficiencies cited by the FDA in these inspections, our currently marketed products and the timing of regulatory
approval of products in development could be adversely affected. Further, there is risk that regulatory agencies in other countries where
marketing applications are pending will undertake similar additional reviews or apply a heightened standard of review, which could delay the
regulatory approvals for products in those countries. If approval of any of our product candidates, including LDV/SOF or elvitegravir and
cobicistat, as standalone agents, were delayed or if production of our marketed products was interrupted, our anticipated revenues and our stock
price would be adversely affected.
We may not be able to obtain materials or supplies necessary to conduct clinical trials or to manufacture and sell our products, which
would limit our ability to generate revenues.
We need access to certain supplies and products to conduct our clinical trials and to manufacture our products. In light of the global
economic downturn, we have had increased difficulty in purchasing certain of the raw materials used in our manufacturing processes. If we are
unable to purchase sufficient quantities of these materials or find suitable alternate materials in a timely manner, our development efforts for
our product candidates may be delayed or our ability to manufacture our products would be limited, which would limit our ability to generate
revenues.
Suppliers of key components and materials must be named in an NDA filed with the FDA, EMA or other regulatory authority for any
product candidate for which we are seeking marketing approval, and significant delays can occur if the qualification of a new supplier is
required. Even after a manufacturer is qualified by the regulatory authority, the manufacturer must continue to expend time, money and effort
in the area of production and quality control to ensure full compliance with GMP. Manufacturers are subject to regular, periodic inspections by
the regulatory authorities following initial approval. If, as a result of these inspections, a regulatory authority determines that the equipment,
facilities, laboratories or processes do not comply with applicable regulations and conditions of product approval, the regulatory authority may
suspend the manufacturing operations. If the manufacturing operations of any of the single suppliers for our products are suspended, we may be
unable to generate sufficient quantities of commercial or clinical supplies of product to meet market demand, which would in turn decrease our
revenues and harm our business. In addition, if delivery of material from our suppliers were interrupted for any reason, we may be unable to
ship certain of our products for commercial supply or to supply our products in development for clinical trials. In addition, some of our
products and the materials that we utilize in our operations are made at only one facility. For example, we manufacture certain drug product
intermediates utilized in AmBisome exclusively at our facilities in San Dimas, California. In the event of a disaster, including an earthquake,
equipment failure or other difficulty, we
53
may be unable to replace this manufacturing capacity in a timely manner and may be unable to manufacture AmBisome to meet market needs.
In addition, we depend on a single supplier for high-quality cholesterol and active pharmaceutical ingredient, which is used in the
manufacture of AmBisome. We also rely on a single source for the active pharmaceutical ingredient of Letairis. Astellas US LLC, which
markets Lexiscan in the United States, is responsible for the commercial manufacture and supply of product in the United States and is
dependent on a single supplier for the active pharmaceutical ingredient of Lexiscan. Problems with any of the single suppliers we depend on
may negatively impact our development and commercialization efforts.
A significant portion of the raw materials and intermediates used to manufacture our HIV products (Sovaldi, Stribild, Complera/Eviplera,
Atripla, Truvada, Viread, Emtriva and Tybost) are supplied by Chinese-based companies. As a result, an international trade dispute between
China and the United States or any other actions by the Chinese government that would limit or prevent Chinese companies from supplying
these materials would adversely affect our ability to manufacture and supply our HIV products to meet market needs and have a material and
adverse effect on our operating results.
Litigation with generic manufacturers has reduced and may continue to reduce our earnings. If we are unsuccessful in all or some of
these lawsuits, some or all of our claims in the patents may be narrowed or invalidated and generic versions of our products could be
launched prior to our patent expiry.
As part of the approval process for some of our products, the FDA granted us a New Chemical Entity (NCE) exclusivity period during
which other manufacturers' applications for approval of generic versions of our product will not be approved. Generic manufacturers may
challenge the patents protecting products that have been granted NCE exclusivity one year prior to the end of the NCE exclusivity period.
Generic manufacturers have sought and may continue to seek FDA approval for a similar or identical drug through an abbreviated new drug
application (ANDA), the application form typically used by manufacturers seeking approval of a generic drug. Current legal proceedings of
significance with some of our generic manufacturers include:
Natco
In March 2011, we and F. Hoffmann-La Roche Ltd. (Roche) filed a lawsuit against Natco Pharma Ltd. (Natco) in U.S. District Court for
the District of New Jersey for infringement of one of the patents associated with Tamiflu. In December 2012, the court issued a ruling in favor
of Gilead and Roche, that our patent is not invalid for the reasons stated in Natco’s notice letter. Natco has appealed this decision to the CAFC.
In April 2014, the CAFC issued a decision which will allow Natco’s patent invalidity challenge to proceed if the case is remanded to the
District Court of New Jersey for a full trial on the merits. On June 30, 2014, we filed a petition for rehearing en banc with the CAFC.
Teva
In August 2012, Teva Pharmaceuticals (Teva) filed an Impeachment Action in the Federal Court of Canada seeking invalidation of our
two Canadian patents associated with Viread. In September 2013, a hearing on the consolidated requests for orders of prohibition in connection
with all three of Teva’s abbreviated new drug submission (ANDS) filings to the Canadian Minister of Health (for Teva’s generic versions of
Viread, Truvada, and Atripla) took place. In December 2013, the court issued our requested order prohibiting the Canadian Ministry of Health
from issuing a Notice of Compliance for Teva’s generic versions of our Viread, Truvada, and Atripla products until expiry of our patent in July
2017. Teva appealed the decision of the court prohibiting the Minister of Heath from issuing the Notices of Compliance until expiry of our
patent in July 2017. This decision did not rule on the validity of the patents and accordingly the only issue on appeal is whether the Minister of
Health should be prohibited from issuing the Notices of Compliance for Teva’s products. Separately, the court will determine the validity of the
patents in the pending Impeachment Action. A trial in the Impeachment Action is scheduled for March 2015. If Teva is successful in
invalidating our patents, Teva may be able to launch generic versions of our Viread, Truvada and Atripla products in Canada prior to the expiry
of our patents.
In April 2013, we and Teva reached an agreement to settle the ongoing patent litigation concerning the four patents that protect tenofovir
disoproxil fumarate in our Atripla, Truvada and Viread products. Under the agreement, Teva will be allowed to launch a generic version of
Viread on December 15, 2017. In April 2014, we and Teva entered an agreement to settle the ongoing patent litigation concerning the
emtricitabine patents that protect Atripla and Truvada. The terms of the settlement agreement are confidential.
Lupin
In 2012, we filed lawsuits against Lupin Limited (Lupin) in U.S. District Court for the Southern District of New York for infringement of
our emtricitabine and tenofovir disoproxil patents related to Viread and Truvada. In May 2014, Lupin amended its ANDAs to certify that it is
no longer seeking approval to market generic versions of Truvada and Viread prior to the
54
expiration of the four patents associated with tenofovir disoproxil fumarate in January 2018 (including pediatric exclusivity). As a result, in
May 2014, the court granted Gilead and Lupin's Joint Motion for Order of Dismissal in our patent infringement lawsuit against Lupin for the
tenofovir disoproxil fumarate patents. A trial relating to Lupin’s ANDA requesting permission to make a generic version of Truvada before the
expiry of our patents covering emtricitabine is scheduled for December 2014.
In August 2013, we and Lupin reached an agreement to settle the patent litigation concerning certain patents that protect Ranexa. Under
the agreement, Lupin would be allowed to launch a generic version of Ranexa on February 27, 2019.
We cannot predict the ultimate outcome of the foregoing actions and other litigation with generic manufacturers, and we may spend
significant resources enforcing and defending these patents. If we are unsuccessful in these lawsuits, some or all of our original claims in the
patents may be narrowed or invalidated and the patent protection for Truvada, Viread, Emtriva and Tamiflu in the United States and Atripla,
Truvada and Viread in Canada could be substantially shortened. Further, if all of the patents covering one or more products are invalidated, the
FDA or Canadian Minister of Health could approve the requests to manufacture a generic version of such products in the United States or
Canada, respectively, prior to the expiration date of those patents. The sale of generic versions of these products earlier than their patent
expiration would have a significant negative effect on our revenues and results of operations.
We face credit risks from our Southern European customers that may adversely affect our results of operations.
Our European product sales to government-owned or supported customers in Southern Europe, specifically Greece, Italy, Portugal and
Spain have historically been and continue to be subject to significant payment delays due to government funding and reimbursement practices.
This has resulted and may continue to result in days sales outstanding being significantly higher in these countries due to the average length of
time that accounts receivable remain outstanding. As of June 30, 2014 , our accounts receivable in these countries totaled approximately $652.4
million , of which $173.0 million were past due greater than 120 days and $53.6 million were past due greater than 365 days as follows:
June 30, 2014
Greater than
Greater than
120 days past due
365 days past due
(In thousands)
Portugal
Italy
Spain
Greece
Total
$
$
74,001
43,195
46,597
9,245
173,038
$
$
26,033
26,548
428
639
53,648
Historically, receivable balances with certain publicly-owned hospitals accumulate over a period of time and are then subsequently
settled as large lump sum payments. This pattern is also experienced by other pharmaceutical companies that sell directly to hospitals. If
significant changes were to occur in the reimbursement practices of these European governments or if government funding becomes
unavailable, we may not be able to collect on amounts due to us from these customers and our results of operations would be adversely
affected.
Our revenues and gross margin could be reduced by imports from countries where our products are available at lower prices.
Prices for our products are based on local market economics and competition and sometimes differ from country to country. Our sales in
countries with relatively higher prices may be reduced if products can be imported into those or other countries from lower price markets.
There have been cases in which other pharmaceutical products were sold at steeply discounted prices in the developing world and then
re-exported to European countries where they could be re-sold at much higher prices. If this happens with our products, particularly Truvada
and Viread, which we have agreed to make available at substantially reduced prices to more than 125 countries participating in our Gilead
Access Program, or Atripla, which Merck distributes at substantially reduced prices to HIV infected patients in developing countries under our
2006 agreement, our revenues would be adversely affected. In addition, we have established partnerships with Indian generic manufacturers to
distribute high-quality, low-cost generic versions of tenofovir disoproxil fumarate to 112 developing world countries, including India. We
expanded these agreements to include rights to Stribild, Tybost and Vitekta. We also entered into collaborations with certain Indian generic
manufacturers to produce and distribute generic emtricitabine in the developing world, including single tablet regimens containing
emtricitabine and fixed-dose combinations of emtricitabine co-formulated with our other HIV medicines. If generic versions of our medications
under these licenses are then re-exported to the United States, Europe or other markets outside of these 112 countries, our revenues would be
adversely affected. We also also committed to making Sovaldi available in the developing world at discounted prices and recently entered into
an agreement to make Sovaldi available in
55
Egypt, a country that has among the highest HCV prevalence in the world. If the discounted Sovaldi is re-exported from these developing
countries into the United States or other higher price markets, our revenues could be adversely affected.
In addition, purchases of our products in countries where our selling prices are relatively low for resale in countries in which our selling
prices are relatively high may adversely impact our revenues and gross margin and may cause our sales to fluctuate from quarter to quarter. For
example, in the European Union, we are required to permit products purchased in one country to be sold in another country. Purchases of our
products in countries where our selling prices are relatively low for resale in countries in which our selling prices are relatively high can affect
the inventory level held by our wholesalers and can cause the relative sales levels in the various countries to fluctuate from quarter to quarter
and not reflect the actual consumer demand in any given quarter. These quarterly fluctuations may impact our earnings, which could adversely
affect our stock price and harm our business.
Expensive litigation and government investigations have reduced and may continue to reduce our earnings.
We are involved in a number of litigation, investigation and other dispute-related matters that require us to expend substantial internal and
financial resources. We expect these matters will continue to require a high level of internal and financial resources for the foreseeable future.
These matters have reduced and will continue to reduce our earnings. Please see a description of our Litigation Regarding Sofosbuvir,
Litigation with Generic Manufacturers and the Department of Justice investigation; in "Legal Proceedings" beginning on page 36. The outcome
of the lawsuits above, or any other lawsuits that may be brought against us, the investigation or any other investigations that may be initiated,
are inherently uncertain, and adverse developments or outcomes can result in significant expenses, monetary damages, penalties or injunctive
relief against us that could significantly reduce our earnings and cash flows and harm our business.
In some countries, we may be required to grant compulsory licenses for our products or our patents may not be enforced.
In a number of developing countries, government officials and other interested groups have suggested that pharmaceutical companies
should make drugs for HCV or HIV infection available at low cost. Alternatively, governments in those developing countries could require that
we grant compulsory licenses to allow competitors to manufacture and sell their own versions of our products, thereby reducing our product
sales. For example, there is growing attention on the availability of HCV therapies and some activists are advocating for the increased
availability of HCV therapies through means including compulsory licenses. In the past, certain offices of the government of Brazil have
expressed concern over the affordability of our HIV products and declared that they were considering issuing compulsory licenses to permit the
manufacture of otherwise patented products for HIV infection, including Viread. In addition, concerns over the cost and availability of Tamiflu
related to a potential avian flu pandemic and H1N1 influenza generated international discussions over compulsory licensing of our Tamiflu
patents. For example, the Canadian government considered allowing Canadian manufacturers to manufacture and export the active ingredient
in Tamiflu to eligible developing and least developed countries under Canada's Access to Medicines Regime. Furthermore, Roche issued
voluntary licenses to permit third-party manufacturing of Tamiflu. For example, Roche granted a sublicense to Shanghai Pharmaceutical
(Group) Co., Ltd. for China and a sublicense to India's Hetero Drugs Limited for India and certain developing countries. If compulsory licenses
permit generic manufacturing to override our product patents for Sovaldi, our HIV products or Tamiflu, or if we are required to grant
compulsory licenses for these products, it could reduce our earnings and cash flows and harm our business.
In addition, certain countries do not permit enforcement of our patents, and third-party manufacturers are able to sell generic versions of
our products in those countries. For example, in July 2009, the Brazilian patent authority rejected our patent application for tenofovir disoproxil
fumarate, the active pharmaceutical ingredient in Viread. This was the highest level of appeal available to us within the Brazilian patent
authority. Because we do not currently have a patent in Brazil, the Brazilian government now purchases its supply of tenofovir disoproxil
fumarate from generic manufacturers. Sales of generic versions of our products could significantly reduce our sales and adversely affect our
results of operations, particularly if generic versions of our products are imported into territories where we have existing commercial sales.
Changes in royalty revenue disproportionately affect our pre-tax income, earnings per share and gross margins.
A portion of our revenues is derived from royalty revenues recognized from collaboration agreements with third parties. Royalty revenues
impact our pre-tax income, earnings per share and gross margins disproportionately more than their contributions to our revenues. Any increase
or decrease to our royalty revenue could be material and could significantly impact our operating results. For example, Roche's Tamiflu sales
have unpredictable variability due to their strong relationship with seasonal influenza and global pandemic planning efforts. During periods
when our royalty revenue from Tamiflu increase, we will see a disproportionate increase in our pre-tax income, earnings per share and gross
margins. Similarly, during periods when our royalty from Tamiflu decrease, we will see a disproportionate decrease in our pre-tax income,
earnings per share and gross margins.
56
We may face significant liability resulting from our products that may not be covered by insurance and successful claims could
materially reduce our earnings.
The testing, manufacturing, marketing and use of our commercial products, as well as product candidates in development, involve
substantial risk of product liability claims. These claims may be made directly by consumers, healthcare providers, pharmaceutical companies
or others. In recent years, coverage and availability of cost-effective product liability insurance has decreased, so we may be unable to maintain
sufficient coverage for product liabilities that may arise. In addition, the cost to defend lawsuits or pay damages for product liability claims may
exceed our coverage. If we are unable to maintain adequate coverage or if claims exceed our coverage, our financial condition and our ability
to clinically test our product candidates and market our products will be adversely impacted. In addition, negative publicity associated with any
claims, regardless of their merit, may decrease the future demand for our products and impair our financial condition.
Business disruptions from natural or man-made disasters may harm our future revenues.
Our worldwide operations could be subject to business interruptions stemming from natural or man-made disasters for which we may be
self-insured. Our corporate headquarters and Fremont locations, which together house a majority of our R&D activities, and our San Dimas and
Oceanside manufacturing facilities are located in California, a seismically active region. As we do not carry earthquake insurance and
significant recovery time could be required to resume operations, our financial condition and operating results could be materially adversely
affected in the event of a major earthquake.
Changes in our effective income tax rate could reduce our earnings.
Various factors may have favorable or unfavorable effects on our income tax rate. These factors include, but are not limited to,
interpretations of existing tax laws, changes in tax laws and rates, our portion of the non-tax deductible pharmaceutical excise tax, the
accounting for stock options and other share-based payments, mergers and acquisitions, changes in forecasted demand for our HCV products,
the ability to manufacture product in our Cork, Ireland facility, the amortization of certain acquisition related intangibles for which we receive
no tax benefit, expiration of the federal research tax credit, future levels of R&D spending, changes in accounting standards, changes in the mix
of earnings in the various tax jurisdictions in which we operate, changes in overall levels of pre-tax earnings and resolution of federal, state and
foreign income tax audits. The impact on our income tax provision resulting from the above mentioned factors may be significant and could
have a negative impact on our net income.
Our income tax returns are audited by federal, state and foreign tax authorities. We are currently under examination by the Internal
Revenue Service for the 2010, 2011 and 2012 tax years and by various state and foreign jurisdictions. There are differing interpretations of tax
laws and regulations, and as a result, significant disputes may arise with these tax authorities involving issues of the timing and amount of
deductions and allocations of income among various tax jurisdictions. Resolution of one or more of these exposures in any reporting period
could have a material impact on the results of operations for that period.
If we fail to attract and retain highly qualified personnel, we may be unable to successfully develop new product candidates, conduct
our clinical trials and commercialize our product candidates.
Our future success will depend in large part on our continued ability to attract and retain highly qualified scientific, technical and
management personnel, as well as personnel with expertise in clinical testing, governmental regulation and commercialization. We face
competition for personnel from other companies, universities, public and private research institutions, government entities and other
organizations. Competition for qualified personnel in the biopharmaceutical field is intense, and there is a limited pool of qualified potential
employees to recruit. We may not be able to attract and retain quality personnel on acceptable terms. If we are unsuccessful in our recruitment
and retention efforts, our business may be harmed.
57
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
Issuer Purchases of Equity Securities
During the three months ended June 30, 2014 , we repurchased a total of $1.20 billion or 15.2 million shares of common stock under our
January 2011 stock repurchase program (2011 Program). As of June 30, 2014 , we had repurchased $3.30 billion of our common stock under
the 2011 Program and had $1.70 billion remaining in the program, which is expected to be completed by September 2014. In May 2014, our
Board of Directors authorized a new stock repurchase program of up to $5.00 billion of our common stock.
The table below summarizes our stock repurchase activity for the three months ended June 30, 2014 (in thousands, except per share
amounts):
Total Number of
Shares Purchased
April 1 – April 30, 2014
May 1 – May 31, 2014
June 1 – June 30, 2014
Total
(1)
(2)
3,010
6,355
5,975
15,340
Average Price Paid per
Share
(2)
$
$
$
$
71.95
80.43
81.16
79.05
Total Number of
Shares Purchased as
Part of Publicly
Announced Program (1)
2,982
6,251
5,943
15,176
Maximum Fair Value of Shares
that May Yet Be
Purchased Under the Program (1)
$
$
$
2,683,121
2,180,247
1,697,894
(2)
In January 2011, we announced that our Board authorized a $5.00 billion stock repurchase program, which expires in September 2014.
The difference between the total number of shares purchased and the total number of shares purchased as part of publicly announced
programs is due to the equivalent value in shares of common stock withheld by us from restricted stock awards in order to satisfy
applicable tax withholding obligations.
ITEM 3.
DEFAULTS UPON SENIOR
SECURITIES
Not applicable.
ITEM 4.
MINE SAFETY
DISCLOSURES
Not applicable.
ITEM 5.
OTHER
INFORMATION
Not applicable.
58
ITEM 6.
Exhibit
Footnote
EXHIBIT
S
Exhibit Number
Description of Document
(1)
1.1
Underwriting Agreement, dated March 4, 2014, among Registrant and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and J.P. Morgan Securities LLC, as representatives of the several underwriters listed in Schedule 1 thereto
†(2)
2.1
Agreement and Plan of Merger among Registrant, Merger Sub and Pharmasset, Inc., dated as of November 21, 2011
*(3)
3.1
Restated Certificate of Incorporation of Registrant
*(4)
3.2
Amended and Restated Bylaws of Registrant, as amended and restated on May 7, 2014
4.1
Reference is made to Exhibit 3.1, Exhibit 3.2 and Exhibit 3.3
*(5)
4.2
Indenture related to the Convertible Senior Notes due 2013 (2013 Notes), between Registrant and Wells Fargo Bank,
National Association, as trustee (including form of 0.625% Convertible Senior Note due 2013), dated April 25, 2006
*(6)
4.3
Indenture related to the Convertible Senior Notes due 2014 (2014 Notes), between Registrant and Wells Fargo Bank,
National Association, as trustee (including form of 1.00% Convertible Senior Note due 2014), dated July 30, 2010
*(6)
4.4
Indenture related to the Convertible Senior Notes due 2016 (2016 Notes), between Registrant and Wells Fargo Bank,
National Association, as trustee (including form of 1.625% Convertible Senior Note due 2016), dated July 30, 2010
*(7)
4.5
Indenture related to Senior Notes, dated as of March 30, 2011, between Registrant and Wells Fargo, National
Association, as Trustee
*(7)
4.6
First Supplemental Indenture related to Senior Notes, dated as of March 30, 2011, between Registrant and Wells Fargo,
National Association, as Trustee (including form of Senior Notes)
*(8)
4.7
Second Supplemental Indenture related to Senior Notes, dated as of December 13, 2011, between Registrant and Wells
Fargo, National Association, as Trustee (including Form of 2014 Note, Form of 2016 Note, Form of 2021 Note, Form
of 2041 Note)
(1)
4.8
Third Supplemental Indenture related to Senior Notes, dated as of March 7, 2014, between Registrant and Wells Fargo,
National Association, as Trustee (including Form of 2019 Note, Form of 2024 Note, Form of 2044 Note)
*(9)
10.1
Confirmation of OTC Convertible Note Hedge related to 2013 Notes, dated April 19, 2006, as amended and restated as
of April 24, 2006, between Registrant and Bank of America, N.A.
*(9)
10.2
Confirmation of OTC Warrant Transaction, dated April 19, 2006, as amended and restated as of April 24, 2006,
between Registrant and Bank of America, N.A. for warrants expiring in 2013
*(10)
10.3
Confirmation of OTC Convertible Note Hedge related to 2014 Notes, dated July 26, 2010, between Registrant and
Goldman, Sachs & Co.
*(10)
10.4
Confirmation of OTC Convertible Note Hedge related to 2014 Notes, dated July 26, 2010, between Registrant and
JPMorgan Chase Bank, National Association
*(10)
10.5
Confirmation of OTC Convertible Note Hedge related to 2016 Notes, dated July 26, 2010, between Registrant and
Goldman, Sachs & Co.
*(10)
10.6
Confirmation of OTC Convertible Note Hedge related to 2016 Notes, dated July 26, 2010, between Registrant and
JPMorgan Chase Bank, National Association
*(10)
10.7
Confirmation of OTC Warrant Transaction, dated July 26, 2010, between Registrant and Goldman, Sachs & Co. for
warrants expiring in 2014
*(10)
10.8
Confirmation of OTC Warrant Transaction, dated July 26, 2010, between Registrant and JPMorgan Chase Bank,
National Association for warrants expiring in 2014
*(10)
10.9
Confirmation of OTC Warrant Transaction, dated July 26, 2010, between Registrant and Goldman, Sachs & Co. for
warrants expiring in 2016
*(10)
10.10
Confirmation of OTC Warrant Transaction, dated July 26, 2010, between Registrant and JPMorgan Chase Bank,
National Association for warrants expiring in 2016
*(11)
10.11
Confirmation of OTC Additional Convertible Note Hedge related to 2014 Notes, dated August 5, 2010, between
Registrant and Goldman, Sachs & Co.
59
*(11)
10.12
Confirmation of OTC Additional Convertible Note Hedge related to 2014 Notes, dated August 5, 2010, between
Registrant and JPMorgan Chase Bank, National Association
*(11)
10.13
Confirmation of OTC Additional Convertible Note Hedge related to 2016 Notes, dated August 5, 2010, between
Registrant and Goldman, Sachs & Co.
*(11)
10.14
Confirmation of OTC Additional Convertible Note Hedge related to 2016 Notes, dated August 5, 2010, between
Registrant and JPMorgan Chase Bank, National Association
*(11)
10.15
Confirmation of OTC Additional Warrant Transaction, dated August 5, 2010, between Registrant and Goldman, Sachs
& Co. for warrants expiring in 2014
*(11)
10.16
Confirmation of OTC Additional Warrant Transaction, dated August 5, 2010, between Registrant and JPMorgan
Chase Bank, National Association for warrants expiring in 2014
*(11)
10.17
Confirmation of OTC Additional Warrant Transaction, dated August 5, 2010, between Registrant and Goldman, Sachs
& Co. for warrants expiring in 2016
*(11)
10.18
Confirmation of OTC Additional Warrant Transaction, dated August 5, 2010, between Registrant and JPMorgan
Chase Bank, National Association for warrants expiring in 2016
*(11)
10.19
Amendment to Confirmation of OTC Convertible Note Hedge related to 2014 Notes, dated August 30, 2010, between
Registrant and Goldman, Sachs & Co.
*(11)
10.20
Amendment to Confirmation of OTC Convertible Note Hedge related to 2014 Notes, dated August 30, 2010, between
Registrant and JPMorgan Chase Bank, National Association
*(11)
10.21
Amendment to Confirmation of OTC Convertible Note Hedge related to 2016 Notes, dated August 30, 2010, between
Registrant and Goldman, Sachs & Co.
*(11)
10.22
Amendment to Confirmation of OTC Convertible Note Hedge related to 2016 Notes, dated August 30, 2010, between
Registrant and JPMorgan Chase Bank, National Association
*(11)
10.23
Amendment to Confirmation of OTC Additional Convertible Note Hedge related to 2014 Notes, dated August 30,
2010, between Registrant and Goldman, Sachs & Co.
*(11)
10.24
Amendment to Confirmation of OTC Additional Convertible Note Hedge related to 2014 Notes, dated August 30,
2010, between Registrant and JPMorgan Chase Bank, National Association
*(11)
10.25
Amendment to Confirmation of OTC Additional Convertible Note Hedge related to 2016 Notes, dated August 30,
2010, between Registrant and Goldman, Sachs & Co.
*(11)
10.26
Amendment to Confirmation of OTC Additional Convertible Note Hedge related to 2016 Notes, dated August 30,
2010, between Registrant and JPMorgan Chase Bank, National Association
*(12)
10.27
5-Year Revolving Credit Facility Credit Agreement among Registrant and Gilead Biopharmaceutics Ireland
Corporation, as Borrowers, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer,
certain other lenders parties thereto, Barclays Capital, as Syndication Agent, and Goldman Sachs Bank USA,
JPMorgan Chase Bank, N.A., Royal Bank of Canada and Wells Fargo Bank, N.A., as Co-Documentation Agents,
dated as of January 12, 2012
*(12)
10.28
Parent Guaranty Agreement (5-Year Revolving Credit Facility), dated as of January 12, 2012, by Registrant
*(13)
10.29
Gilead Sciences, Inc. 1991 Stock Option Plan, as amended through January 29, 2003
*(14)
10.30
Form of option agreements used under the 1991 Stock Option Plan
*(13)
10.31
Gilead Sciences, Inc. 1995 Non-Employee Directors' Stock Option Plan, as amended through January 30, 2002
*(15)
10.32
Form of option agreement used under the Gilead Sciences, Inc. 1995 Non-Employee Directors' Stock Option Plan
*(3)
10.33
Gilead Sciences, Inc. 2004 Equity Incentive Plan, as amended through May 8, 2013
*(16)
10.34
Form of employee stock option agreement used under 2004 Equity Incentive Plan (for grants prior to February 2008)
*(17)
10.35
Form of employee stock option agreement used under 2004 Equity Incentive Plan (for grants made February 2008
through April 2009)
*(18)
10.36
Form of employee stock option agreement used under 2004 Equity Incentive Plan (for grants commencing in May
2009)
60
*(19)
10.37
Form of employee stock option agreement used under 2004 Equity Incentive Plan (for grants commencing in February
2010)
*(20)
10.38
Form of employee stock option agreement used under 2004 Equity Incentive Plan (for 2011 and subsequent year
grants)
*(17)
10.39
Form of non-employee director stock option agreement used under 2004 Equity Incentive Plan (for grants prior to
2008)
*(17)
10.40
Form of non-employee director option agreement used under 2004 Equity Incentive Plan (for initial grants made in
2008)
*(17)
10.41
Form of non-employee director option agreement used under 2004 Equity Incentive Plan (for annual grants made in
May 2008 and through May 2012)
*(18)
10.42
Form of non-employee director option agreement used under 2004 Equity Incentive Plan (for annual grants
commencing in May 2009 and through May 2012)
*(21)
10.43
Form of non-employee director option agreement used under 2004 Equity Incentive Plan (for annual grants made in
May 2013)
*(21)
10.44
Form of non-employee director option agreement (non-U.S.) used under 2004 Equity Incentive Plan (for annual grants
made in May 2013)
*
10.45
Form of non-employee director option agreement used under 2004 Equity Incentive Plan (for annual grants made in
May 2014)
*(22)
10.46
Form of restricted stock unit issuance agreement used under 2004 Equity Incentive Plan (for annual grants to
non-employee directors in May 2012)
*(18)
10.47
Form of restricted stock award agreement used under 2004 Equity Incentive Plan (for annual grants to certain
non-employee directors prior to May 2012)
*(21)
10.48
Form of restricted stock unit issuance agreement used under 2004 Equity Incentive Plan (for annual grants to
non-employee directors commencing in May 2013)
*
10.49
Form of restricted stock unit issuance agreement used under 2004 Equity Incentive Plan (for annual grants to
non-employee directors commencing in May 2014)
*(21)
10.50
Form of restricted stock unit issuance agreement (non-U.S.) used under 2004 Equity Incentive Plan (for annual grants
to non-employee directors commencing in May 2013)
*(18)
10.51
Form of performance share award agreement used under the 2004 Equity Incentive Plan (for grants to certain
executive officers made in 2009)
*(19)
10.52
Form of performance share award agreement used under the 2004 Equity Incentive Plan (for grants to certain
executive officers made in 2010)
*(20)
10.53
Form of performance share award agreement used under the 2004 Equity Incentive Plan (for grants to certain
executive officers made in 2011)
*(23)
10.54
Form of performance share award agreement used under the 2004 Equity Incentive Plan (for grants to certain
executive officers made in 2012)
*(24)
10.55
Form of performance share award agreement used under the 2004 Equity Incentive Plan (for TSR Goals in 2013 and
2014)
*(24)
10.56
Form of performance share award agreement used under the 2004 Equity Incentive Plan (for Revenue Goals in 2013
and 2014)
*(25)
10.57
Form of restricted stock unit issuance agreement used under the 2004 Equity Incentive Plan (for grants to certain
executive officers made prior to May 2009)
*(18)
10.58
Form of restricted stock unit issuance agreement used under the 2004 Equity Incentive Plan (for grants to certain
executive officers commencing in May 2009)
*(26)
10.59
Form of restricted stock unit issuance agreement used under the 2004 Equity Incentive Plan (service-based vesting for
certain executive officers commencing in November 2009)
*(20)
10.60
Form of restricted stock unit issuance agreement used under the 2004 Equity Incentive Plan (service-based vesting for
certain executive officers commencing in 2011)
*(21)
10.61
Gilead Sciences, Inc. Employee Stock Purchase Plan, amended and restated through May 8, 2013
61
*(27)
10.62
Gilead Sciences, Inc. Deferred Compensation Plan-Basic Plan Document
*(26)
10.63
Gilead Sciences, Inc. Deferred Compensation Plan-Adoption Agreement
*(27)
10.64
Addendum to the Gilead Sciences, Inc. Deferred Compensation Plan
*(28)
10.65
Gilead Sciences, Inc. 2005 Deferred Compensation Plan, as amended and restated on October 23, 2008
*(23)
10.66
Gilead Sciences, Inc. Severance Plan, as amended on January 26, 2012
*(16)
10.67
Gilead Sciences, Inc. Corporate Bonus Plan
*(29)
10.68
Amended and Restated Gilead Sciences, Inc. Code Section 162(m) Bonus Plan
*(30)
10.69
2014 Base Salaries for the Named Executive Officers
*(31)
10.70
Offer Letter dated April 16, 2008 between Registrant and Robin Washington
*(14)
10.71
Form of Indemnity Agreement entered into between Registrant and its directors and executive officers
*(13)
10.72
Form of Employee Proprietary Information and Invention Agreement entered into between Registrant and certain of
its officers and key employees
*(19)
10.73
Form of Employee Proprietary Information and Invention Agreement entered into between Registrant and certain of
its officers and key employees (revised in September 2006)
(32)
10.74
Amended and Restated Collaboration Agreement by and among Registrant, Gilead Holdings, LLC, Bristol-Myers
Squibb Company, E.R. Squibb & Sons, L.L.C., and Bristol-Myers Squibb & Gilead Sciences, LLC, dated
September 28, 2006
(17)
10.75
Commercialization Agreement by and between Gilead Sciences Limited and Bristol-Myers Squibb Company, dated
December 10, 2007
(33)
10.76
Amendment Agreement, dated October 25, 1993, between Registrant, the Institute of Organic Chemistry and
Biochemistry (IOCB) and Rega Stichting v.z.w. (REGA), together with the following exhibits: the License
Agreement, dated December 15, 1991, between Registrant, IOCB and REGA (the 1991 License Agreement), the
License Agreement, dated October 15, 1992, between Registrant, IOCB and REGA (the October 1992 License
Agreement) and the License Agreement, dated December 1, 1992, between Registrant, IOCB and REGA (the
December 1992 License Agreement)
(34)
10.77
Amendment Agreement between Registrant and IOCB/REGA, dated December 27, 2000 amending the 1991 License
Agreement and the December 1992 License Agreement
(32)
10.78
Sixth Amendment Agreement to the License Agreement, between IOCB/REGA and Registrant, dated August 18, 2006
amending the October 1992 License Agreement and the December 1992 License Agreement
+(35)
10.79
Seventh Amendment Agreement to the License Agreement, between IOCB/REGA and Registrant dated July 1, 2013
amending the October 1992 License Agreement and the December 1992 License Agreement
(32)
10.80
Development and License Agreement among Registrant and F. Hoffmann-La Roche Ltd and Hoffmann-La Roche
Inc., dated September 27, 1996
(36)
10.81
First Amendment and Supplement dated November 15, 2005 to the Development and Licensing Agreement between
Registrant, F. Hoffmann-La Roche Ltd and Hoffman-La Roche Inc. dated September 27, 1996
(37)
10.82
Second Amendment dated December 22, 2011 to the Development and Licensing Agreement between Registrant, F.
Hoffmann-La Roche Ltd and Hoffman-La Roche Inc. dated September 27, 1996
+(38)
10.83
Third Amendment dated October 5, 2012 to the Development and Licensing Agreement between Registrant, F.
Hoffmann-La Roche Ltd and Hoffman-La Roche Inc. dated September 27, 1996
(39)
10.84
Exclusive License Agreement between Registrant (as successor to Triangle Pharmaceuticals, Inc.), Glaxo Group
Limited, The Wellcome Foundation Limited, Glaxo Wellcome Inc. and Emory University, dated May 6, 1999
(40)
10.85
Royalty Sale Agreement by and among Registrant, Emory University and Investors Trust & Custodial Services
(Ireland) Limited, solely in its capacity as Trustee of Royalty Pharma, dated July 18, 2005
(40)
10.86
Amended and Restated License Agreement between Registrant, Emory University and Investors Trust & Custodial
Services (Ireland) Limited, solely in its capacity as Trustee of Royalty Pharma, dated July 21, 2005
(41)
10.87
License Agreement between Japan Tobacco Inc. and Registrant, dated March 22, 2005
62
(42)
10.88
First Amendment to License Agreement between Japan Tobacco Inc. and Registrant, dated May 19, 2005
(42)
10.89
Second Amendment to License Agreement between Japan Tobacco Inc. and Registrant, dated May 17, 2010
(42)
10.90
Third Amendment to License Agreement between Japan Tobacco Inc. and Registrant, dated July 5, 2011
(42)
10.91
Fourth Amendment to License Agreement between Japan Tobacco Inc. and Registrant, dated July 5, 2011
(43)
10.92
Fifth Amendment to License Agreement between Japan Tobacco Inc. and Registrant, dated October 10, 2013
(44)
10.93
License Agreement between Registrant (as successor to Myogen, Inc.) and Abbott Deutschland Holding GmbH dated
October 8, 2001
+(45)
10.94
License Agreement between Registrant (as successor to Myogen, Inc.) and Glaxo Group Limited, dated March 3,
2006
(44)
10.95
License Agreement between Registrant (as successor to CV Therapeutics, Inc.) and Roche Palo Alto LLC (successor
in interest by merger to Syntex (U.S.A.) Inc.), dated March 27, 1996
(46)
10.96
First Amendment to License Agreement between Registrant (as successor to CV Therapeutics, Inc.) and Roche Palo
Alto LLC (successor in interest by merger to Syntex (U.S.A.) Inc.), dated July 3, 1997
(46)
10.97
Amendment No. 2 to License Agreement between Registrant (as successor to CV Therapeutics, Inc.) and Roche Palo
Alto LLC (successor in interest by merger to Syntex (U.S.A.) Inc.), dated November 30, 1999
(47)
10.98
Amendment No. 4 to License Agreement with Registrant (as successor to CV Therapeutics, Inc.) and Roche Palo Alto
LLC (successor in interest by merger to Syntex (U.S.A.) Inc.), dated June 20, 2006
(37)
10.99
Amendment No. 5 to License Agreement with Registrant (as successor to CV Therapeutics, Inc.) and Roche Palo Alto
LLC (successor in interest by merger to Syntex (U.S.A.) Inc.), dated December 22, 2011
(48)
10.100
License and Collaboration Agreement by and among Registrant, Gilead Sciences Limited and Janssen R&D Ireland
(formerly Tibotec Pharmaceuticals), dated July 16, 2009
(42)
10.101
Second Amendment to License and Collaboration Agreement by and among Registrant, Gilead Sciences Limited and
Janssen R&D Ireland (formerly Tibotec Pharmaceuticals), dated July 1, 2011
+
10.102
Third Amendment to License and Collaboration Agreement by and among Registrant, Gilead Sciences Limited and
Janssen R&D Ireland (formerly Tibotec Pharmaceuticals), dated June 18, 2014
(24)
10.103
Amended and Restated Second Amendment to License and Collaboration Agreement by and among Registrant,
Gilead Sciences Limited and Janssen R&D Ireland (formerly Tibotec Pharmaceuticals), dated February 7, 2013
(49)
10.104
Master Clinical and Commercial Supply Agreement between Gilead World Markets, Limited, Registrant and Patheon
Inc., dated January 1, 2003
(36)
10.105
Restated and Amended Toll Manufacturing Agreement between Gilead Sciences Limited, Registrant and Takeda
GmbH (formerly Nycomed GmbH and Altana Pharma Oranienburg GmbH), dated November 7, 2005
(50)
10.106
Purchase and Sale Agreement and Joint Escrow Instructions between Electronics for Imaging, Inc. and Registrant,
dated July 18, 2012
(38)
10.107
Amendment No. 1, dated October 30, 2012, to the Purchase and Sale Agreement and Joint Escrow Instructions
between Electronics for Imaging, Inc. and Registrant, dated July 18, 2012
31.1
Certification of Chief Executive Officer, as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
Act of 1934, as amended
31.2
Certification of Chief Financial Officer, as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
Act of 1934, as amended
32.1**
Certifications of Chief Executive Officer and Chief Financial Officer, as required by Rule 13a-14(b) or
Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350)
101***
The following materials from Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2014,
formatted in Extensible Business Reporting Language (XBRL) includes: (i) Condensed Consolidated Balance Sheets
(unaudited), (ii) Condensed Consolidated Statements of Income (unaudited), (iii) Condensed Consolidated Statements
of Comprehensive Income (unaudited), (iv) Condensed Consolidated Statements of Cash Flows (unaudited) and (v)
Notes to Condensed Consolidated Financial Statements (unaudited).
63
(1) Filed as an exhibit to Registrant's Current Report on Form 8-K filed on March 7, 2014, and incorporated herein by reference.
(2)
Filed as an exhibit to Registrant's Current Report on Form 8-K filed on November 25, 2011, and incorporated herein by reference.
(3)
Filed as an exhibit to Registrant's Current Report on Form 8-K filed on May 7, 2014, and incorporated herein by reference.
(4)
Filed as an exhibit to Registrant's Current Report on Form 8-K filed on May 17, 2011, and incorporated herein by reference.
(5)
Filed as an exhibit to Registrant's Current Report on Form 8-K filed on April 25, 2006, and incorporated herein by reference.
(6)
Filed as an exhibit to Registrant's Current Report on Form 8-K filed on August 2, 2010, and incorporated herein by reference.
(7)
Filed as an exhibit to Registrant's Current Report on Form 8-K filed on April 1, 2011, and incorporated herein by reference.
(8)
Filed as an exhibit to Registrant's Current Report on Form 8-K filed on December 13, 2011, and incorporated herein by reference.
(9)
Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference.
(10) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, and incorporated herein by reference.
(11) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, and incorporated herein by reference.
(12) Filed as an exhibit to Registrant's Current Report on Form 8-K filed on January 17, 2012, and incorporated herein by reference.
(13) Filed as an exhibit to Registrant's Registration Statement on Form S-8 (No. 333-102912) filed on January 31, 2003, and incorporated herein by
reference.
(14) Filed as an exhibit to Registrant's Registration Statement on Form S-1 (No. 33-55680), as amended, and incorporated herein by reference.
(15) Filed as an exhibit to Registrant's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1998, and incorporated herein by reference.
(16) Filed as an exhibit to Registrant's Current Report on Form 8-K/A filed on February 22, 2006, and incorporated herein by reference.
(17) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and incorporated herein by reference.
(18) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, and incorporated herein by reference.
(19) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, and incorporated herein by reference.
(20) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, and incorporated herein by reference.
(21) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, and incorporated herein by reference
(22) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, and incorporated herein by reference.
(23) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, and incorporated herein by reference.
(24) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, and incorporated herein by reference.
(25) Filed as an exhibit to Registrant's Current Report on Form 8-K first filed on December 19, 2007, and incorporated herein by reference.
(26) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, and incorporated herein by reference.
(27) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2001, and incorporated herein by reference.
(28) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and incorporated herein by reference.
(29) Filed as an exhibit to Registrant's Current Report on Form 8-K filed on May 13, 2013, and incorporated herein by reference.
(30) Information is included in Registrant's Current Report on Form 8-K filed on January 29, 2014, and incorporated herein by reference.
(31) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, and incorporated herein by reference.
(32) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, and incorporated herein by reference.
(33) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1994, and incorporated herein by reference.
64
(34)
(35)
(36)
(37)
(38)
(39)
(40)
(41)
(42)
(43)
(44)
(45)
(46)
(47)
(48)
(49)
(50)
†
Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, and incorporated herein by reference.
Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, and incorporated herein by reference.
Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2005, and incorporated herein by reference.
Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2011, and incorporated herein by reference.
Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and incorporated herein by reference.
Filed as an exhibit to Triangle Pharmaceuticals, Inc.'s Quarterly Report on Form 10-Q/A filed on November 3, 1999, and incorporated herein by
reference.
Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, and incorporated herein by reference.
Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, and incorporated herein by reference.
Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, and incorporated herein by reference.
Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2013, and incorporated herein by reference.
Filed as an exhibit to Myogen, Inc.'s Registration Statement on Form S-1 (No. 333-108301), as amended, originally filed on August 28, 2003, and
incorporated herein by reference.
Filed as an exhibit to Myogen, Inc.'s Quarterly Report on Form 10-Q filed on May 9, 2006, and incorporated herein by reference.
Filed as an exhibit to CV Therapeutics, Inc.'s Registration Statement on Form S-3 (No. 333-59318), as amended, originally filed on April 20, 2001, and
incorporated herein by reference.
Filed as an exhibit to CV Therapeutics, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by
reference.
Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2009, and incorporated herein by reference.
Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2003, and incorporated herein by reference.
Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, and incorporated herein by reference.
The Agreement and Plan of Merger (the Pharmasset Merger Agreement) contains representations and warranties of Registrant, Merger Sub and
Pharmasset, Inc. made solely to each other as of specific dates. Those representations and warranties were made solely for purposes of the Pharmasset
Merger Agreement and may be subject to important qualifications and limitations agreed to by Registrant, Merger Sub and Pharmasset, Inc. Moreover,
some of those representations and warranties may not be accurate or complete as of any specified date, may be subject to a standard of materiality
provided for in the Pharmasset Merger Agreement and have been used for the purpose of allocating risk among Registrant, Merger Sub and
Pharmasset, Inc. rather than establishing matters as facts.
*
Management contract or compensatory plan or arrangement.
**
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.
***
XBRL information is filed herewith.
+
Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the Mark). This Exhibit has been filed
separately with the Secretary of the Securities and Exchange Commission without the Mark pursuant to Registrant's Application Requesting
Confidential Treatment under Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
65
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
GILEAD SCIENCES, INC.
(Registrant)
Date:
August 4, 2014
Date:
August 4, 2014
/s/
J OHN C. M ARTIN
John C. Martin, Ph.D.
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/
R OBIN L. W ASHINGTON
Robin L. Washington
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
66
Exhibit Index
Exhibit
Footnote
Exhibit Number
Description of Document
(1)
1.1
Underwriting Agreement, dated March 4, 2014, among Registrant and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and J.P. Morgan Securities LLC, as representatives of the several underwriters listed in Schedule 1 thereto
†(2)
2.1
Agreement and Plan of Merger among Registrant, Merger Sub and Pharmasset, Inc., dated as of November 21, 2011
*(3)
3.1
Restated Certificate of Incorporation of Registrant
*(4)
3.2
Amended and Restated Bylaws of Registrant, as amended and restated on May 7, 2014
4.1
Reference is made to Exhibit 3.1, Exhibit 3.2 and Exhibit 3.3
*(5)
4.2
Indenture related to the Convertible Senior Notes due 2013 (2013 Notes), between Registrant and Wells Fargo Bank,
National Association, as trustee (including form of 0.625% Convertible Senior Note due 2013), dated April 25, 2006
*(6)
4.3
Indenture related to the Convertible Senior Notes due 2014 (2014 Notes), between Registrant and Wells Fargo Bank,
National Association, as trustee (including form of 1.00% Convertible Senior Note due 2014), dated July 30, 2010
*(6)
4.4
Indenture related to the Convertible Senior Notes due 2016 (2016 Notes), between Registrant and Wells Fargo Bank,
National Association, as trustee (including form of 1.625% Convertible Senior Note due 2016), dated July 30, 2010
*(7)
4.5
Indenture related to Senior Notes, dated as of March 30, 2011, between Registrant and Wells Fargo, National
Association, as Trustee
*(7)
4.6
First Supplemental Indenture related to Senior Notes, dated as of March 30, 2011, between Registrant and Wells Fargo,
National Association, as Trustee (including form of Senior Notes)
*(8)
4.7
Second Supplemental Indenture related to Senior Notes, dated as of December 13, 2011, between Registrant and Wells
Fargo, National Association, as Trustee (including Form of 2014 Note, Form of 2016 Note, Form of 2021 Note, Form
of 2041 Note)
(1)
4.8
Third Supplemental Indenture related to Senior Notes, dated as of March 7, 2014, between Registrant and Wells Fargo,
National Association, as Trustee (including Form of 2019 Note, Form of 2024 Note, Form of 2044 Note)
*(9)
10.1
Confirmation of OTC Convertible Note Hedge related to 2013 Notes, dated April 19, 2006, as amended and restated as
of April 24, 2006, between Registrant and Bank of America, N.A.
*(9)
10.2
Confirmation of OTC Warrant Transaction, dated April 19, 2006, as amended and restated as of April 24, 2006,
between Registrant and Bank of America, N.A. for warrants expiring in 2013
*(10)
10.3
Confirmation of OTC Convertible Note Hedge related to 2014 Notes, dated July 26, 2010, between Registrant and
Goldman, Sachs & Co.
*(10)
10.4
Confirmation of OTC Convertible Note Hedge related to 2014 Notes, dated July 26, 2010, between Registrant and
JPMorgan Chase Bank, National Association
*(10)
10.5
Confirmation of OTC Convertible Note Hedge related to 2016 Notes, dated July 26, 2010, between Registrant and
Goldman, Sachs & Co.
*(10)
10.6
Confirmation of OTC Convertible Note Hedge related to 2016 Notes, dated July 26, 2010, between Registrant and
JPMorgan Chase Bank, National Association
*(10)
10.7
Confirmation of OTC Warrant Transaction, dated July 26, 2010, between Registrant and Goldman, Sachs & Co. for
warrants expiring in 2014
*(10)
10.8
Confirmation of OTC Warrant Transaction, dated July 26, 2010, between Registrant and JPMorgan Chase Bank,
National Association for warrants expiring in 2014
*(10)
10.9
Confirmation of OTC Warrant Transaction, dated July 26, 2010, between Registrant and Goldman, Sachs & Co. for
warrants expiring in 2016
*(10)
10.10
Confirmation of OTC Warrant Transaction, dated July 26, 2010, between Registrant and JPMorgan Chase Bank,
National Association for warrants expiring in 2016
*(11)
10.11
Confirmation of OTC Additional Convertible Note Hedge related to 2014 Notes, dated August 5, 2010, between
Registrant and Goldman, Sachs & Co.
67
*(11)
10.12
Confirmation of OTC Additional Convertible Note Hedge related to 2014 Notes, dated August 5, 2010, between
Registrant and JPMorgan Chase Bank, National Association
*(11)
10.13
Confirmation of OTC Additional Convertible Note Hedge related to 2016 Notes, dated August 5, 2010, between
Registrant and Goldman, Sachs & Co.
*(11)
10.14
Confirmation of OTC Additional Convertible Note Hedge related to 2016 Notes, dated August 5, 2010, between
Registrant and JPMorgan Chase Bank, National Association
*(11)
10.15
Confirmation of OTC Additional Warrant Transaction, dated August 5, 2010, between Registrant and Goldman, Sachs
& Co. for warrants expiring in 2014
*(11)
10.16
Confirmation of OTC Additional Warrant Transaction, dated August 5, 2010, between Registrant and JPMorgan Chase
Bank, National Association for warrants expiring in 2014
*(11)
10.17
Confirmation of OTC Additional Warrant Transaction, dated August 5, 2010, between Registrant and Goldman, Sachs
& Co. for warrants expiring in 2016
*(11)
10.18
Confirmation of OTC Additional Warrant Transaction, dated August 5, 2010, between Registrant and JPMorgan Chase
Bank, National Association for warrants expiring in 2016
*(11)
10.19
Amendment to Confirmation of OTC Convertible Note Hedge related to 2014 Notes, dated August 30, 2010, between
Registrant and Goldman, Sachs & Co.
*(11)
10.20
Amendment to Confirmation of OTC Convertible Note Hedge related to 2014 Notes, dated August 30, 2010, between
Registrant and JPMorgan Chase Bank, National Association
*(11)
10.21
Amendment to Confirmation of OTC Convertible Note Hedge related to 2016 Notes, dated August 30, 2010, between
Registrant and Goldman, Sachs & Co.
*(11)
10.22
Amendment to Confirmation of OTC Convertible Note Hedge related to 2016 Notes, dated August 30, 2010, between
Registrant and JPMorgan Chase Bank, National Association
*(11)
10.23
Amendment to Confirmation of OTC Additional Convertible Note Hedge related to 2014 Notes, dated August 30,
2010, between Registrant and Goldman, Sachs & Co.
*(11)
10.24
Amendment to Confirmation of OTC Additional Convertible Note Hedge related to 2014 Notes, dated August 30,
2010, between Registrant and JPMorgan Chase Bank, National Association
*(11)
10.25
Amendment to Confirmation of OTC Additional Convertible Note Hedge related to 2016 Notes, dated August 30,
2010, between Registrant and Goldman, Sachs & Co.
*(11)
10.26
Amendment to Confirmation of OTC Additional Convertible Note Hedge related to 2016 Notes, dated August 30,
2010, between Registrant and JPMorgan Chase Bank, National Association
*(12)
10.27
5-Year Revolving Credit Facility Credit Agreement among Registrant and Gilead Biopharmaceutics Ireland
Corporation, as Borrowers, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer,
certain other lenders parties thereto, Barclays Capital, as Syndication Agent, and Goldman Sachs Bank USA,
JPMorgan Chase Bank, N.A., Royal Bank of Canada and Wells Fargo Bank, N.A., as Co-Documentation Agents,
dated as of January 12, 2012
*(12)
10.28
Parent Guaranty Agreement (5-Year Revolving Credit Facility), dated as of January 12, 2012, by Registrant
*(13)
10.29
Gilead Sciences, Inc. 1991 Stock Option Plan, as amended through January 29, 2003
*(14)
10.30
Form of option agreements used under the 1991 Stock Option Plan
*(13)
10.31
Gilead Sciences, Inc. 1995 Non-Employee Directors' Stock Option Plan, as amended through January 30, 2002
*(15)
10.32
Form of option agreement used under the Gilead Sciences, Inc. 1995 Non-Employee Directors' Stock Option Plan
*(3)
10.33
Gilead Sciences, Inc. 2004 Equity Incentive Plan, as amended through May 8, 2013
*(16)
10.34
Form of employee stock option agreement used under 2004 Equity Incentive Plan (for grants prior to February 2008)
*(17)
10.35
Form of employee stock option agreement used under 2004 Equity Incentive Plan (for grants made February 2008
through April 2009)
*(18)
10.36
Form of employee stock option agreement used under 2004 Equity Incentive Plan (for grants commencing in May
2009)
68
*(19)
10.37
Form of employee stock option agreement used under 2004 Equity Incentive Plan (for grants commencing in February
2010)
*(20)
10.38
Form of employee stock option agreement used under 2004 Equity Incentive Plan (for 2011 and subsequent year
grants)
*(17)
10.39
Form of non-employee director stock option agreement used under 2004 Equity Incentive Plan (for grants prior to
2008)
*(17)
10.40
Form of non-employee director option agreement used under 2004 Equity Incentive Plan (for initial grants made in
2008)
*(17)
10.41
Form of non-employee director option agreement used under 2004 Equity Incentive Plan (for annual grants made in
May 2008 and through May 2012)
*(18)
10.42
Form of non-employee director option agreement used under 2004 Equity Incentive Plan (for annual grants
commencing in May 2009 and through May 2012)
*(21)
10.43
Form of non-employee director option agreement used under 2004 Equity Incentive Plan (for annual grants made in
May 2013)
*(21)
10.44
Form of non-employee director option agreement (non-U.S.) used under 2004 Equity Incentive Plan (for annual grants
made in May 2013)
*
10.45
Form of non-employee director option agreement used under 2004 Equity Incentive Plan (for annual grants made in
May 2014)
*(22)
10.46
Form of restricted stock unit issuance agreement used under 2004 Equity Incentive Plan (for annual grants to
non-employee directors in May 2012)
*(18)
10.47
Form of restricted stock award agreement used under 2004 Equity Incentive Plan (for annual grants to certain
non-employee directors prior to May 2012)
*(21)
10.48
Form of restricted stock unit issuance agreement used under 2004 Equity Incentive Plan (for annual grants to
non-employee directors commencing in May 2013)
*
10.49
Form of restricted stock unit issuance agreement used under 2004 Equity Incentive Plan (for annual grants to
non-employee directors commencing in May 2014)
*(21)
10.50
Form of restricted stock unit issuance agreement (non-U.S.) used under 2004 Equity Incentive Plan (for annual grants
to non-employee directors commencing in May 2013)
*(18)
10.51
Form of performance share award agreement used under the 2004 Equity Incentive Plan (for grants to certain
executive officers made in 2009)
*(19)
10.52
Form of performance share award agreement used under the 2004 Equity Incentive Plan (for grants to certain
executive officers made in 2010)
*(20)
10.53
Form of performance share award agreement used under the 2004 Equity Incentive Plan (for grants to certain
executive officers made in 2011)
*(23)
10.54
Form of performance share award agreement used under the 2004 Equity Incentive Plan (for grants to certain
executive officers made in 2012)
*(24)
10.55
Form of performance share award agreement used under the 2004 Equity Incentive Plan (for TSR Goals in 2013 and
2014)
*(24)
10.56
Form of performance share award agreement used under the 2004 Equity Incentive Plan (for Revenue Goals in 2013
and 2014)
*(25)
10.57
Form of restricted stock unit issuance agreement used under the 2004 Equity Incentive Plan (for grants to certain
executive officers made prior to May 2009)
*(18)
10.58
Form of restricted stock unit issuance agreement used under the 2004 Equity Incentive Plan (for grants to certain
executive officers commencing in May 2009)
*(26)
10.59
Form of restricted stock unit issuance agreement used under the 2004 Equity Incentive Plan (service-based vesting for
certain executive officers commencing in November 2009)
*(20)
10.60
Form of restricted stock unit issuance agreement used under the 2004 Equity Incentive Plan (service-based vesting for
certain executive officers commencing in 2011)
*(21)
10.61
Gilead Sciences, Inc. Employee Stock Purchase Plan, amended and restated through May 8, 2013
69
*(27)
10.62
Gilead Sciences, Inc. Deferred Compensation Plan-Basic Plan Document
*(26)
10.63
Gilead Sciences, Inc. Deferred Compensation Plan-Adoption Agreement
*(27)
10.64
Addendum to the Gilead Sciences, Inc. Deferred Compensation Plan
*(28)
10.65
Gilead Sciences, Inc. 2005 Deferred Compensation Plan, as amended and restated on October 23, 2008
*(23)
10.66
Gilead Sciences, Inc. Severance Plan, as amended on January 26, 2012
*(16)
10.67
Gilead Sciences, Inc. Corporate Bonus Plan
*(29)
10.68
Amended and Restated Gilead Sciences, Inc. Code Section 162(m) Bonus Plan
*(30)
10.69
2014 Base Salaries for the Named Executive Officers
*(31)
10.70
Offer Letter dated April 16, 2008 between Registrant and Robin Washington
*(14)
10.71
Form of Indemnity Agreement entered into between Registrant and its directors and executive officers
*(13)
10.72
Form of Employee Proprietary Information and Invention Agreement entered into between Registrant and certain of its
officers and key employees
*(19)
10.73
Form of Employee Proprietary Information and Invention Agreement entered into between Registrant and certain of its
officers and key employees (revised in September 2006)
(32)
10.74
Amended and Restated Collaboration Agreement by and among Registrant, Gilead Holdings, LLC, Bristol-Myers
Squibb Company, E.R. Squibb & Sons, L.L.C., and Bristol-Myers Squibb & Gilead Sciences, LLC, dated
September 28, 2006
(17)
10.75
Commercialization Agreement by and between Gilead Sciences Limited and Bristol-Myers Squibb Company, dated
December 10, 2007
(33)
10.76
Amendment Agreement, dated October 25, 1993, between Registrant, the Institute of Organic Chemistry and
Biochemistry (IOCB) and Rega Stichting v.z.w. (REGA), together with the following exhibits: the License Agreement,
dated December 15, 1991, between Registrant, IOCB and REGA (the 1991 License Agreement), the License
Agreement, dated October 15, 1992, between Registrant, IOCB and REGA (the October 1992 License Agreement) and
the License Agreement, dated December 1, 1992, between Registrant, IOCB and REGA (the December 1992 License
Agreement)
(34)
10.77
Amendment Agreement between Registrant and IOCB/REGA, dated December 27, 2000 amending the 1991 License
Agreement and the December 1992 License Agreement
(32)
10.78
Sixth Amendment Agreement to the License Agreement, between IOCB/REGA and Registrant, dated August 18, 2006
amending the October 1992 License Agreement and the December 1992 License Agreement
+(35)
10.79
Seventh Amendment Agreement to the License Agreement, between IOCB/REGA and Registrant dated July 1, 2013
amending the October 1992 License Agreement and the December 1992 License Agreement
(32)
10.80
Development and License Agreement among Registrant and F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc.,
dated September 27, 1996
(36)
10.81
First Amendment and Supplement dated November 15, 2005 to the Development and Licensing Agreement between
Registrant, F. Hoffmann-La Roche Ltd and Hoffman-La Roche Inc. dated September 27, 1996
(37)
10.82
Second Amendment dated December 22, 2011 to the Development and Licensing Agreement between Registrant, F.
Hoffmann-La Roche Ltd and Hoffman-La Roche Inc. dated September 27, 1996
+(38)
10.83
Third Amendment dated October 5, 2012 to the Development and Licensing Agreement between Registrant, F.
Hoffmann-La Roche Ltd and Hoffman-La Roche Inc. dated September 27, 1996
(39)
10.84
Exclusive License Agreement between Registrant (as successor to Triangle Pharmaceuticals, Inc.), Glaxo Group
Limited, The Wellcome Foundation Limited, Glaxo Wellcome Inc. and Emory University, dated May 6, 1999
(40)
10.85
Royalty Sale Agreement by and among Registrant, Emory University and Investors Trust & Custodial Services
(Ireland) Limited, solely in its capacity as Trustee of Royalty Pharma, dated July 18, 2005
(40)
10.86
Amended and Restated License Agreement between Registrant, Emory University and Investors Trust & Custodial
Services (Ireland) Limited, solely in its capacity as Trustee of Royalty Pharma, dated July 21, 2005
(41)
10.87
License Agreement between Japan Tobacco Inc. and Registrant, dated March 22, 2005
70
(42)
10.88
First Amendment to License Agreement between Japan Tobacco Inc. and Registrant, dated May 19, 2005
(42)
10.89
Second Amendment to License Agreement between Japan Tobacco Inc. and Registrant, dated May 17, 2010
(42)
10.90
Third Amendment to License Agreement between Japan Tobacco Inc. and Registrant, dated July 5, 2011
(42)
10.91
Fourth Amendment to License Agreement between Japan Tobacco Inc. and Registrant, dated July 5, 2011
(43)
10.92
Fifth Amendment to License Agreement between Japan Tobacco Inc. and Registrant, dated October 10, 2013
(44)
10.93
License Agreement between Registrant (as successor to Myogen, Inc.) and Abbott Deutschland Holding GmbH dated
October 8, 2001
+(45)
10.94
License Agreement between Registrant (as successor to Myogen, Inc.) and Glaxo Group Limited, dated March 3,
2006
(44)
10.95
License Agreement between Registrant (as successor to CV Therapeutics, Inc.) and Roche Palo Alto LLC (successor
in interest by merger to Syntex (U.S.A.) Inc.), dated March 27, 1996
(46)
10.96
First Amendment to License Agreement between Registrant (as successor to CV Therapeutics, Inc.) and Roche Palo
Alto LLC (successor in interest by merger to Syntex (U.S.A.) Inc.), dated July 3, 1997
(46)
10.97
Amendment No. 2 to License Agreement between Registrant (as successor to CV Therapeutics, Inc.) and Roche Palo
Alto LLC (successor in interest by merger to Syntex (U.S.A.) Inc.), dated November 30, 1999
(47)
10.98
Amendment No. 4 to License Agreement with Registrant (as successor to CV Therapeutics, Inc.) and Roche Palo Alto
LLC (successor in interest by merger to Syntex (U.S.A.) Inc.), dated June 20, 2006
(37)
10.99
Amendment No. 5 to License Agreement with Registrant (as successor to CV Therapeutics, Inc.) and Roche Palo Alto
LLC (successor in interest by merger to Syntex (U.S.A.) Inc.), dated December 22, 2011
(48)
10.100
License and Collaboration Agreement by and among Registrant, Gilead Sciences Limited and Janssen R&D Ireland
(formerly Tibotec Pharmaceuticals), dated July 16, 2009
(42)
10.101
Second Amendment to License and Collaboration Agreement by and among Registrant, Gilead Sciences Limited and
Janssen R&D Ireland (formerly Tibotec Pharmaceuticals), dated July 1, 2011
+
10.102
Third Amendment to License and Collaboration Agreement by and among Registrant, Gilead Sciences Limited and
Janssen R&D Ireland (formerly Tibotec Pharmaceuticals), dated June 18, 2014
(24)
10.103
Amended and Restated Second Amendment to License and Collaboration Agreement by and among Registrant,
Gilead Sciences Limited and Janssen R&D Ireland (formerly Tibotec Pharmaceuticals), dated February 7, 2013
(49)
10.104
Master Clinical and Commercial Supply Agreement between Gilead World Markets, Limited, Registrant and Patheon
Inc., dated January 1, 2003
(36)
10.105
Restated and Amended Toll Manufacturing Agreement between Gilead Sciences Limited, Registrant and Takeda
GmbH (formerly Nycomed GmbH and Altana Pharma Oranienburg GmbH), dated November 7, 2005
(50)
10.106
Purchase and Sale Agreement and Joint Escrow Instructions between Electronics for Imaging, Inc. and Registrant,
dated July 18, 2012
(38)
10.107
Amendment No. 1, dated October 30, 2012, to the Purchase and Sale Agreement and Joint Escrow Instructions
between Electronics for Imaging, Inc. and Registrant, dated July 18, 2012
31.1
Certification of Chief Executive Officer, as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
Act of 1934, as amended
31.2
Certification of Chief Financial Officer, as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
Act of 1934, as amended
32.1**
Certifications of Chief Executive Officer and Chief Financial Officer, as required by Rule 13a-14(b) or
Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350)
101***
The following materials from Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2014,
formatted in Extensible Business Reporting Language (XBRL) includes: (i) Condensed Consolidated Balance Sheets
(unaudited), (ii) Condensed Consolidated Statements of Income (unaudited), (iii) Condensed Consolidated Statements
of Comprehensive Income (unaudited), (iv) Condensed Consolidated Statements of Cash Flows (unaudited) and (v)
Notes to Condensed Consolidated Financial Statements (unaudited).
71
(1) Filed as an exhibit to Registrant's Current Report on Form 8-K filed on March 7, 2014, and incorporated herein by reference.
(2)
Filed as an exhibit to Registrant's Current Report on Form 8-K filed on November 25, 2011, and incorporated herein by reference.
(3)
Filed as an exhibit to Registrant's Current Report on Form 8-K filed on May 7, 2014, and incorporated herein by reference.
(4)
Filed as an exhibit to Registrant's Current Report on Form 8-K filed on May 17, 2011, and incorporated herein by reference.
(5)
Filed as an exhibit to Registrant's Current Report on Form 8-K filed on April 25, 2006, and incorporated herein by reference.
(6)
Filed as an exhibit to Registrant's Current Report on Form 8-K filed on August 2, 2010, and incorporated herein by reference.
(7)
Filed as an exhibit to Registrant's Current Report on Form 8-K filed on April 1, 2011, and incorporated herein by reference.
(8)
Filed as an exhibit to Registrant's Current Report on Form 8-K filed on December 13, 2011, and incorporated herein by reference.
(9)
Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference.
(10) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, and incorporated herein by reference.
(11) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, and incorporated herein by reference.
(12) Filed as an exhibit to Registrant's Current Report on Form 8-K filed on January 17, 2012, and incorporated herein by reference.
(13) Filed as an exhibit to Registrant's Registration Statement on Form S-8 (No. 333-102912) filed on January 31, 2003, and incorporated herein by
reference.
(14) Filed as an exhibit to Registrant's Registration Statement on Form S-1 (No. 33-55680), as amended, and incorporated herein by reference.
(15) Filed as an exhibit to Registrant's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1998, and incorporated herein by reference.
(16) Filed as an exhibit to Registrant's Current Report on Form 8-K/A filed on February 22, 2006, and incorporated herein by reference.
(17) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and incorporated herein by reference.
(18) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, and incorporated herein by reference.
(19) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, and incorporated herein by reference.
(20) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, and incorporated herein by reference.
(21) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, and incorporated herein by reference
(22) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, and incorporated herein by reference.
(23) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, and incorporated herein by reference.
(24) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, and incorporated herein by reference.
(25) Filed as an exhibit to Registrant's Current Report on Form 8-K first filed on December 19, 2007, and incorporated herein by reference.
(26) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, and incorporated herein by reference.
(27) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2001, and incorporated herein by reference.
(28) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and incorporated herein by reference.
(29) Filed as an exhibit to Registrant's Current Report on Form 8-K filed on May 13, 2013, and incorporated herein by reference.
(30) Information is included in Registrant's Current Report on Form 8-K filed on January 29, 2014, and incorporated herein by reference.
(31) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, and incorporated herein by reference.
(32) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, and incorporated herein by reference.
72
(33)
(34)
(35)
(36)
(37)
(38)
(39)
(40)
(41)
(42)
(43)
(44)
(45)
(46)
(47)
(48)
(49)
(50)
†
Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1994, and incorporated herein by reference.
Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, and incorporated herein by reference.
Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, and incorporated herein by reference.
Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2005, and incorporated herein by reference.
Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2011, and incorporated herein by reference.
Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and incorporated herein by reference.
Filed as an exhibit to Triangle Pharmaceuticals, Inc.'s Quarterly Report on Form 10-Q/A filed on November 3, 1999, and incorporated herein by
reference.
Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, and incorporated herein by reference.
Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, and incorporated herein by reference.
Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, and incorporated herein by reference.
Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2013, and incorporated herein by reference.
Filed as an exhibit to Myogen, Inc.'s Registration Statement on Form S-1 (No. 333-108301), as amended, originally filed on August 28, 2003, and
incorporated herein by reference.
Filed as an exhibit to Myogen, Inc.'s Quarterly Report on Form 10-Q filed on May 9, 2006, and incorporated herein by reference.
Filed as an exhibit to CV Therapeutics, Inc.'s Registration Statement on Form S-3 (No. 333-59318), as amended, originally filed on April 20, 2001, and
incorporated herein by reference.
Filed as an exhibit to CV Therapeutics, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by
reference.
Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2009, and incorporated herein by reference.
Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2003, and incorporated herein by reference.
Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, and incorporated herein by reference.
The Agreement and Plan of Merger (the Pharmasset Merger Agreement) contains representations and warranties of Registrant, Merger Sub and
Pharmasset, Inc. made solely to each other as of specific dates. Those representations and warranties were made solely for purposes of the Pharmasset
Merger Agreement and may be subject to important qualifications and limitations agreed to by Registrant, Merger Sub and Pharmasset, Inc. Moreover,
some of those representations and warranties may not be accurate or complete as of any specified date, may be subject to a standard of materiality
provided for in the Pharmasset Merger Agreement and have been used for the purpose of allocating risk among Registrant, Merger Sub and
Pharmasset, Inc. rather than establishing matters as facts.
*
Management contract or compensatory plan or arrangement.
**
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.
***
XBRL information is filed herewith.
+
Certain confidential portions of this Exhibit were omitted by means of marking such portions with an asterisk (the Mark). This Exhibit has been filed
separately with the Secretary of the Securities and Exchange Commission without the Mark pursuant to Registrant's Application Requesting
Confidential Treatment under Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
73
Exhibit 10.45
NON-EMPLOYEE DIRECTOR AWARD
GILEAD SCIENCES, INC.
STOCK OPTION AGREEMENT
RECITALS
A. Optionee is to render valuable services to the Corporation as a non-employee Director and this Agreement is
executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Corporation’s grant of an option
to Optionee in his or her capacity as a non-employee Director.
B.
All capitalized terms used in this Agreement shall have the meaning assigned to them in the attached Appendix A.
NOW, THEREFORE , the Corporation hereby grants an option to Optionee upon the following terms and
conditions:
1. Grant of Option . The Corporation hereby grants to Optionee, as of the Grant Date, an option to purchase the
Option Shares under the Plan. The number of Option Shares purchasable under the option, the applicable vesting schedule for the
option, the Exercise Price per share and the remaining terms and conditions governing the option shall be as set forth in this
Agreement.
AWARD SUMMARY
Optionee:
Grant Date:
Exercise Price:
Number of Option Shares:
Expiration Date:
Type of Option:
Exercise Schedule:
«FIRST_NAME» «MIDDLE_NAME» «LAST_NAME»
«OPTION_DATE»
«OPTION_PRICE» per share
«SHARES_GRANTED» shares of Common Stock
«EXPIRATION_DATE_PERIOD_1»*
Non-Statutory Stock Option
The option will vest and become exercisable for the Option Shares in four (4) successive
equal quarterly installments upon Optionee’s completion of each quarter of Continuous
Service over the one (1) year period measured from the Grant Date; provided, however,
that if the next regular annual stockholders meeting following the Grant Date occurs prior
to the quarterly vesting date of the last installment, such last installment shall instead vest
on the day immediately preceding such stockholders meeting provided Optionee remains in
Continuous Service through such day.
* The option will in no event remain exercisable beyond the close of business on the last business day immediately prior
to the Expiration Date.
2. Option Term . The term of the option shall commence on the Grant Date and continue to be in effect until the
close of business on the last business day prior to the Expiration Date, unless sooner terminated in accordance with Paragraph 5 or
6 below.
3. Limited Transferability . The following provisions shall govern the transferability of the option:
(a) The option may be assigned in whole or in part during Optionee’s lifetime to one or more members of
Optionee’s Immediate Family or to a trust established for the Optionee and/or one or more Immediate Family members, provided
such assignment constitutes a gratuitous transfer by the Optionee for which no consideration is directly or indirectly received. The
assigned portion may only be exercised by the person who acquires a proprietary interest in the option pursuant to the assignment.
The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents to be executed by the Optionee and the assignee as the Corporation may deem
appropriate.
(b) Optionee may also designate one or more persons as the beneficiary or beneficiaries of the option.
Should Optionee die while holding the option, then the option shall, in accordance with such designation, be automatically
transferred to such beneficiary or beneficiaries upon the Optionee’s death. Such beneficiary or beneficiaries shall take the
transferred option subject to all the terms and conditions of this Agreement, including (without limitation) the limited time period
during which the option may, pursuant to Paragraph 5 below, be exercised following Optionee’s death.
4. Dates of Exercise . The option shall become exercisable for the Option Shares in a series of installments over
Optionee’s period of Continuous Service in accordance with the Exercise Schedule set forth in Paragraph 1 above. As the option
becomes exercisable for such installments, those installments shall accumulate, and the option shall remain exercisable for the
accumulated installments until (i) the close of business on the last business day prior to the Expiration Date or (ii) the sooner
termination of the option term under Paragraph 5 or 6 below.
5. Cessation of Service . The option term specified in Paragraph 2 above shall terminate (and the option shall
cease to be outstanding) prior to the Expiration Date should any of the following provisions become applicable:
(a) Except as otherwise expressly provided in subparagraphs (b) through (d) of this Paragraph 5, should
Optionee cease to remain in Continuous Service for any reason while the option is outstanding, then Optionee shall have until the
close of business on the last business day prior to the expiration of the three-(3) year period measured from the date of such
cessation of Continuous Service during which to exercise the option for any or all of the Option Shares for which the option is at
the time of such cessation of Continuous Service vested and exercisable, but in no event shall the option be exercisable at any time
after the close of business on the last business day prior to the Expiration Date.
(b) Should Optionee’s Continuous Service terminate by reason of his or her death while the option is
outstanding, then the option may be exercised for any or all of the Option Shares at the time subject to the option by (i) the
personal representative of Optionee’s estate, (ii) the person or persons to whom the option is transferred pursuant to Optionee’s
will or the laws of inheritance following Optionee’s death, or (iii) the person or persons to whom the option is transferred during
Optionee’s lifetime pursuant to a permitted transfer under Paragraph 3(a) above, as the case may be. However, if Optionee dies
while holding the option and has a beneficiary designation in effect for the option at the time of his or her death, then the
designated beneficiary or beneficiaries shall have the exclusive right to exercise the option following Optionee’s death. Any such
right to exercise the option shall lapse, and the option shall cease to be outstanding, upon the close of business on the last business
day prior to the earlier of (i) the expiration of the three-(3) year period measured from the date of Optionee’s death or (ii) the
Expiration Date. Upon the expiration of such limited exercise period, the option shall terminate and cease to be outstanding for
any exercisable Option Shares for which the option has not otherwise been exercised.
(c) The applicable period of post-service exercisability in effect pursuant to the foregoing provisions of
this Paragraph 5 shall automatically be extended by an additional period of time equal in duration to any interval within such
post-service exercise period during which the exercise of the option or the immediate sale of the Option Shares acquired under the
option cannot be effected in compliance with applicable federal, state and foreign securities laws, but in no event shall such an
extension result in the continuation of the option beyond the close of business on the last business day prior to the Expiration Date.
(d) Should Optionee’s Continuous Service be terminated for Cause, or should Optionee engage in any
other conduct, while in such service or following cessation of Continuous Service, that is materially detrimental to the business or
affairs of the Corporation (or any Related Entity), as determined in the sole discretion of the Administrator, then the option shall
terminate immediately and cease to be outstanding.
(e) For purposes of the foregoing provisions of this Paragraph 5, Optionee shall not be deemed to cease
Continuous Service if Optionee continues to serve the Corporation as a Director Emeritus immediately following his or her
cessation of service as a Board member without an intervening break in Continuous Service.
(f) During the limited period of post-service exercisability provided under this Paragraph 5, the option
may not be exercised in the aggregate for more than the number of Option Shares for which the option is at the time vested and
exercisable. Except to the extent (if any) specifically authorized by the Administrator pursuant to an express written agreement
with Optionee, the option shall not vest or become exercisable for any additional Option Shares, whether pursuant to the
exercise/vesting schedule set forth in Paragraph 1 above or the special vesting acceleration provisions of Paragraph 6 below,
following Optionee’s cessation of Continuous Service. Upon the expiration of such limited exercise period or (if earlier) upon the
close of business on the last business day prior to the Expiration Date, the option shall terminate and cease to be outstanding for
any exercisable Option Shares for which the option has not otherwise been exercised.
6. Change in Control .
(a) Should Optionee remain in Continuous Service until the effective date of a Change in Control, then
the option, to the extent outstanding at the time but not otherwise fully exercisable, shall automatically accelerate so that the
option shall, immediately prior to the effective date of such Change in Control, become exercisable for all of the Option Shares at
the time subject to the option and may be exercised for any or all of those Option Shares as fully vested shares of Common Stock.
(b) Immediately following the consummation of a Change in Control transaction, the option shall
terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) or otherwise
continued in effect pursuant to the terms of the Change in Control transaction.
(c) If the option is assumed in connection with a Change in Control or otherwise continued in effect, then
the option shall be appropriately adjusted, immediately after such Change in Control, to apply to the number and class of
securities into which the shares of Common Stock subject to the option would have been converted in consummation of such
Change in Control had those shares actually been outstanding at the time. Appropriate adjustments shall also be made to the
Exercise Price, provided the aggregate Exercise Price shall remain the same. To the extent the actual holders of the Corporation’s
outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control, the
successor corporation may, in connection with the assumption or continuation of the option but subject to the Administrator’s
approval, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration
paid per share of Common Stock in such Change in Control, provided such common stock is readily tradable on an established
U.S. securities exchange or market.
(d) This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or
any part of its business or assets.
7. Adjustment in Option Shares . Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of shares, spin-off transaction, or other change affecting
the outstanding Common Stock as a class without the Corporation’s receipt of consideration, or should the value of the
outstanding shares of Common Stock be substantially reduced as a result of a spin-off transaction or an extraordinary dividend or
distribution, or should there occur any merger, consolidation or other reorganization, then equitable and proportional adjustments
shall be made by the Administrator to (i) the total number and/or class of securities subject to the option and (ii) the Exercise
Price. The adjustments shall be made in such manner as the Administrator deems appropriate in order to reflect such change, and
those adjustments shall be final, binding and conclusive upon Optionee and any other person or persons having an interest in the
option. In the event of any Change in Control transaction, the adjustment provisions of Paragraph 6(c) above shall be controlling.
8. Stockholder Rights . The holder of the option shall not have any stockholder rights with respect to the Option
Shares until such person shall have exercised the option, paid the Exercise Price and become a holder of record of the purchased
shares.
9. Manner of Exercising Option .
(a) In order to exercise the option with respect to all or any portion of the Option Shares for which the
option is at the time vested and exercisable, Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) Execute and deliver to the Corporation a Notice of Exercise as to the Option Shares for which
the option is exercised or comply with such other procedures as the Corporation may establish for notifying the
Corporation, directly or through a brokerage firm authorized by the Corporation to effect option exercises, of the exercise
of the option for one or more Option Shares. The applicable Notice of Exercise may be obtained upon request through
[email protected].
(ii) Pay the aggregate Exercise Price for the purchased shares in one or more of the following
forms:
(A) cash or check made payable to the Corporation; or
(B) through a special sale and remittance procedure pursuant to which Optionee (or any
other person or persons exercising the option) shall concurrently provide irrevocable instructions (i) to a
brokerage firm (reasonably satisfactory to the Corporation for purposes of administering such procedure in
accordance with the Corporation’s pre-clearance/pre-notification policies) to effect the immediate sale of all or a
sufficient portion of the purchased shares so that such brokerage firm can remit to the Corporation, on the
settlement date, sufficient funds out of the resulting sale proceeds to cover the aggregate Exercise Price payable
for all the purchased shares plus all applicable Withholding Taxes and (ii) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm on such settlement date.
Except to the extent the sale and remittance procedure is utilized in connection with the option
exercise, payment of the Exercise Price must accompany the Notice of Exercise (or other notification procedure) delivered
to the Corporation in connection with the option exercise.
(iii) Furnish to the Corporation appropriate documentation that the person or persons exercising
the option (if other than Optionee) have the right to exercise the option.
(iv) Make appropriate arrangements with the Corporation (or Related Entity employing or
retaining Optionee) for the satisfaction of all applicable Withholding Taxes.
(b) As soon as practical after the Exercise Date, the Corporation shall issue to or on behalf of Optionee (or
any other person or persons exercising the option) a certificate for the purchased Option Shares (either in paper or electronic
form), with the appropriate legends affixed thereto.
(c) In no event may the option be exercised for any fractional shares.
10. Compliance with Laws and Regulations .
(a) The exercise of the option and the issuance of the Option Shares upon such exercise shall be subject to
compliance by the Corporation and Optionee with all Applicable Laws relating thereto.
(b) The sale of Shares issued under the Plan also must comply with all Applicable Laws relating thereto,
including U.S. securities laws that impose restrictions on insider trading, which may affect Optionee’s ability to sell Shares
acquired under the option. Any restrictions under these laws or regulations are separate from and in addition to any restrictions
that may be imposed under any applicable insider trading policy of the Corporation. Optionee is solely responsible for ensuring
compliance with all Applicable Laws and should consult a legal advisor in this regard.
(c) The inability of the Corporation to obtain approval from any regulatory body having authority deemed
by the Corporation to be necessary to the lawful issuance and sale of any Common Stock pursuant to the option shall relieve the
Corporation of any liability with respect to the non-issuance or sale of the Common Stock as to which such approval shall not
have been obtained. The Corporation, however, shall use its best efforts to obtain all such approvals.
11. Successors and Assigns . Except to the extent otherwise provided in Paragraphs 3 and 6 above, the provisions
of this Agreement shall inure to the benefit of and be binding upon the Corporation and its successors and assigns and Optionee,
Optionee’s assigns, the legal representatives, heirs and legatees of Optionee’s estate and, if the Administrator permits Optionee to
designate beneficiaries of the option, all designated beneficiaries.
12. Notices . Any notice required to be given or delivered to the Corporation under the terms of this Agreement
shall be in writing and addressed to the Corporation at its principal corporate offices. Any notice required to be given or delivered
to Optionee shall be in writing and addressed to Optionee at the most current address then indicated for Optionee on the
Corporation’s records or shall be delivered electronically to Optionee through the Corporation’s electronic mail system. All
notices shall be deemed effective upon personal delivery or electronic delivery as specified above or upon deposit in the U.S. or
local country mail, postage prepaid and properly addressed to the party to be notified.
13. Construction . This Agreement and the option evidenced hereby are made and granted pursuant to the Plan
and are in all respects limited by and subject to the terms of the Plan. In the event of any conflict between the provisions of this
Agreement and the terms of the Plan, the terms of the Plan shall be controlling. All decisions of the Administrator with respect to
any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in
the option.
14. Governing Law and Venue .
(a) The interpretation, performance and enforcement of this Agreement shall be governed by the laws of
the State of Delaware without resort to that State’s conflict-of-laws rules.
(b) For purposes of litigating any dispute that arises directly or indirectly from the relationship of the
parties evidenced by the option and this Agreement, the parties hereby submit to and consent
to the exclusive jurisdiction of the State of California and agree that such litigation shall be conducted only in the courts of San
Mateo County, California, or the federal courts for the Northern District of California, and no other courts where the grant of the
option is made and/or to be performed.
15. Severability . The provisions of this Agreement are severable and if any one or more provisions are
determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding
and enforceable.
16. Waiver . Optionee acknowledges that a waiver by the Corporation of breach of any provision of this
Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach of
this Agreement.
17. Excess Shares . If the Option Shares covered by this Agreement exceed, as of the Grant Date, the number of
shares of Common Stock which may without stockholder approval be issued under the Plan, then the option shall be void with
respect to those excess shares, unless stockholder approval of an amendment sufficiently increasing the number of shares of
Common Stock issuable under the Plan is obtained in accordance with the provisions of the Plan. In no event shall the option be
exercisable with respect to any of the excess Option Shares unless and until such stockholder approval is obtained.
18. No Advice Regarding Grant . The Corporation is not providing any tax, legal or financial advice, nor is the
Corporation making any recommendations regarding Optionee’s participation in the Plan or Optionee’s acquisition or sale of the
Option Shares. Optionee is hereby advised to consult with his or her personal tax, legal and financial advisors regarding his or her
participation in the Plan before taking any action related to the Plan.
19. No Impairment of Rights . This Agreement shall not in any way be construed or interpreted so as to affect
adversely or otherwise impair the right of the Corporation or its stockholders to remove Optionee from the Board at any time in
accordance with the provisions of Applicable Law.
20. Plan Prospectus . The official prospectus for the Plan is attached if the option is the first option made to
Optionee under the Plan. Optionee may obtain an additional printed copy of the prospectus by contacting Stock Plan Services
through the internet at [email protected].
21. Electronic Delivery . The Corporation may, in its sole discretion, decide to deliver any documents related to
current or future participation in the Plan by electronic means. Optionee hereby consents to receive such documents by electronic
delivery.
22. Optionee Acceptance . Optionee must accept the terms and conditions of this Agreement either electronically
through the electronic acceptance procedure established by the Corporation or through a written acceptance delivered to the
Corporation in a form satisfactory to the Corporation. In no event shall the option be exercised in the absence of such acceptance.
23. Appendices B and C . Notwithstanding any provision of this Agreement to the contrary, if Optionee resides
in a country outside the United States or is otherwise subject to the laws of a country other than the United States, the option and
any Option Shares acquired under the Plan shall be subject to the additional terms and conditions set forth in Appendix B to this
Agreement and to any special terms and provisions as set forth in Appendix C for Optionee’s country, if any. Moreover, if
Optionee relocates to one of the countries included in Appendix C, the special terms and conditions for such country will apply to
Optionee, to the extent the Corporation determines that the application of such terms and conditions is necessary or advisable in
order to comply with local law or facilitate the administration of the Plan. Appendices B and C constitute part of this Agreement.
24. Imposition of Other Requirements . The Corporation reserves the right to impose other requirements on
Optionee’s participation in the Plan, on the option and on any shares of Common Stock acquired under the Plan, to the extent the
Corporation determines it is necessary or advisable for legal or administrative
reasons, and to require Optionee to sign any additional agreements or undertakings that may be necessary to accomplish the
foregoing.
IN WITNESS WHEREOF , Gilead Sciences, Inc. has caused this Agreement to be executed on its behalf by its
duly-authorized officer on the day and year first indicated above.
GILEAD SCIENCES, INC.
By:
Title:
SVP Human Resources
OPTIONEE
By:
APPENDIX A
DEFINITIONS
The following definitions shall be in effect under the Agreement:
A. Administrator shall mean the Compensation Committee of the Board (or any subcommittee thereof) acting in
its capacity as administrator of the Plan.
B. Agreement shall mean this Stock Option Agreement.
C. Applicable Laws shall mean the legal requirements related to the Plan and the option under applicable
provisions of the federal securities laws, state corporate and state securities laws, the Code, the rules of any applicable Stock
Exchange on which the Common Stock is listed for trading, and the rules of any non-U.S. jurisdiction applicable to options
granted to residents therein.
D. Board shall mean the Corporation’s Board of Directors.
E. Cause shall mean the termination of Optionee’s Continuous Service as a result of Optionee’s (i) performance
of any act, or failure to perform any act, in bad faith and to the detriment of the Corporation; (ii) dishonesty, intentional
misconduct, material breach of any fiduciary duty owed to the Corporation; (iii) commission of a crime involving dishonesty,
breach of trust, or physical or emotional harm to any person; or (iv) reasons that are comparable to “cause” under labor laws in the
jurisdiction where Optionee is providing service or the terms of Optionee’s service agreement, if any.
F. Change in Control shall mean a change in ownership or control of the Corporation effected through any of the
following transactions:
(i) a merger, consolidation or other reorganization approved by the Corporation’s stockholders, unless
securities representing more than fifty percent (50%) of the total combined voting power of the voting securities of the
successor corporation are immediately thereafter beneficially owned, directly or indirectly and in substantially the same
proportion, by the persons who beneficially owned the Corporation’s outstanding voting securities immediately prior to
such transaction;
(ii) a sale, transfer or other disposition of all or substantially all of the Corporation’s assets;
(iii) the closing of any transaction or series of related transactions pursuant to which any person or any
group of persons comprising a “group” within the meaning of Rule 13d-5(b)(1) of the 1934 Act (other than the
Corporation or a person that, prior to such transaction or series of related transactions, directly or indirectly controls, is
controlled by or is under common control with, the Corporation) becomes directly or indirectly (whether as a result of a
single acquisition or by reason of one or more acquisitions within the twelve - (12) month period ending with the most
recent acquisition) the beneficial owner (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing (or
convertible into or exercisable for securities possessing) more than fifty percent (50%) of the total combined voting power
of the Corporation’s outstanding securities (as measured in terms of the power to vote with respect to the election of
Board members) outstanding immediately after the consummation of such transaction or series of related transactions,
whether such transaction involves a direct issuance from the Corporation or the acquisition of outstanding securities held
by one or more of the Corporation’s existing stockholders; or
(iv) a change in the composition of the Board over a period of twelve (12) consecutive months or less
such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to
be comprised of individuals who either (a) have been Board members continuously since the beginning of such period or
(b) have been elected or nominated for election as Board members during such period by at least a majority of the Board
members described in clause (A) above who were still in office at the time the Board approved such election or
nomination.
In no event, however, shall a Change in Control be deemed to occur upon a merger, consolidation or other
reorganization effected primarily to change the State of the Corporation’s incorporation or to create a holding company structure
pursuant to which the Corporation becomes a wholly-owned subsidiary of an entity whose outstanding voting securities
immediately after its formation are beneficially owned, directly or indirectly, and in substantially the same proportion, by the
persons who beneficially owned the Corporation’s outstanding voting securities immediately prior to the formation of such entity.
G. Code shall mean the U.S. Internal Revenue Code of 1986, as amended.
H. Common Stock shall mean shares of the Corporation’s common stock.
I. Consultant shall mean any person, including an advisor, who is compensated by the Corporation or any
Related Entity for services performed as a non-employee consultant; provided, however, that the term “Consultant” shall not
include non-employee Directors serving in their capacity as Board members. The term “Consultant” shall include (i) a former
Board member during his or her period of service as Director Emeritus immediately following his or her cessation of service as a
Board member, without an intervening break in Continuous Service, or (ii) an individual serving as a member of the board of
directors of a Related Entity.
J. Continuous Service shall mean the performance of services for the Corporation or a Related Entity (whether
now existing or subsequently established) by a person in the capacity of an Employee, Director or Consultant. For purposes of this
Agreement, Optionee shall be deemed to cease Continuous Service immediately upon the occurrence of either of the following
events: (i) Optionee no longer performs services in any of the foregoing capacities for the Corporation or any Related Entity or (ii)
the entity for which Optionee is performing such services ceases to remain a Related Entity of the Corporation, even though
Optionee may subsequently continue to perform services for that entity. The Administrator shall have the exclusive discretion to
determine when Optionee ceases Continuous Service for purposes of the option.
K. Corporation shall mean Gilead Sciences, Inc., a Delaware corporation, and any successor corporation to all or
substantially all of the assets or voting stock of Gilead Sciences, Inc. which shall by appropriate action adopt the Plan.
L. Director shall mean a member of the Board or a Director Emeritus.
M. Domestic Partner shall mean a person who meets and continues to meet all of the criteria detailed in the
Gilead Sciences Affidavit of Domestic Partnership when the Domestic Partnership has been internally registered with the
Corporation by filing with the Corporation an original, properly completed, notarized Gilead Sciences Affidavit of Domestic
Partnership.
N. Employee shall mean an individual who is in the employ of the Corporation (or any Related Entity), subject to
the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.
O. Exercise Date shall mean the date on which the option shall have been exercised in accordance with Paragraph
9 of the Agreement.
P. Exercise Price shall mean the exercise price per Option Share as specified in Paragraph 1 of the Agreement.
Q. Exercise Schedule shall mean the schedule set forth in Paragraph 1 of the Agreement, pursuant to which the
option is to vest and become exercisable for the Option Shares in four (4) successive equal quarterly installments upon Optionee’s
completion of each quarter of Continuous Service over the one (1) year period measured from the Grant Date.
R. Expiration Date shall mean the date specified in Paragraph 1 of the Agreement for measuring the maximum
term for which the option may remain outstanding.
S. Fair Market Value per share of Common Stock on any relevant date shall be the closing price per share of
Common Stock (or the closing bid, if no sales were reported) on that date, as quoted on the Stock Exchange that is at the time
serving as the primary trading market for the Common Stock; provided, however, that if there no reported closing price or closing
bid for that date, then the closing price or closing bid, as applicable, for the last trading date on which such closing price or closing
bid was quoted shall be determinative of such Fair Market Value. The applicable quoted price shall be as reported in The Wall
Street Journal or such other source as the Administrator deems reliable.
T. Grant Date shall mean the date of grant of the option as specified in Paragraph 1 of the Agreement.
U. Immediate Family shall mean, with respect to Optionee, any child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law or sister-in-law including adoptive relationships, Domestic Partner, a trust in which such persons (or person) have
more than fifty percent (50%) of the beneficial interest, a foundation in which such persons (or person) control the management of
such entity’s assets, or any other entity in which such persons (or person) own more than fifty percent (50%) of the voting
interests.
V. 1934 Act shall mean the U.S. Securities Exchange Act of 1934, as amended from time to time.
W. Non-Statutory Option shall mean an option not intended to satisfy the requirements of Code Section 422.
X. Notice of Exercise shall mean the notice of option exercise in the form prescribed by the Corporation.
Y. Option Shares shall mean the number of shares of Common Stock subject to the option as specified in
Paragraph 1 of the Agreement.
Z. Optionee shall mean the person to whom the option is granted pursuant to the Agreement.
AA. Parent shall mean a “parent corporation,” whether now or hereafter established, as defined in Section 424(e)
of the Code.
BB.
Plan shall mean the Corporation’s 2004 Equity Incentive Plan, as amended from time to time.
CC. Related Entity shall mean (i) any Parent or Subsidiary of the Corporation and (ii) any corporation in an
unbroken chain of corporations beginning with the Corporation and ending with the corporation in the chain for which Optionee
provides services as an Employee, Director or Consultant, provided each corporation in such chain owns securities representing at
least twenty percent (20%) of the total outstanding voting power of
the outstanding securities of another corporation or entity in such chain and there is a legitimate non-tax business purpose for
making the option grant to Optionee.
DD. Stock Exchange shall mean the American Stock Exchange, the Nasdaq Global or Global Select Market or
the New York Stock Exchange.
EE. Subsidiary shall mean a “subsidiary corporation,” whether now or hereafter established, as defined in
Section 424(f) of the Code.
FF. Withholding Taxes shall mean any or all U.S. federal, state, local and/or foreign income taxes and
Optionee’s portion of the U.S. federal, state, local and/or foreign employment taxes (including social insurance, payroll tax, fringe
benefits tax, payment on account or other tax-related items), in each case, required to be withheld by the Corporation and/or any
Related Entity in connection with any taxable event relating to the option or Optionee’s participation in the Plan.
APPENDIX B
TERMS AND CONDITIONS FOR NON-U.S. OPTIONEES
The provisions in this Appendix B apply to Optionees that reside in a country outside the United States or who are otherwise
subject to the laws of a country other than the United States and supplement, amend or replace the provisions in the Agreement, as
applicable:
1. Transferability . The following replaces Paragraph 3 of the Agreement in its entirety:
The option shall be neither transferable nor assignable by Optionee other than by will or the laws of inheritance following
Optionee’s death and may be exercised, during Optionee’s lifetime, only by Optionee.
2. Acknowledgment of Nature of Plan and Option . In accepting the option, Optionee acknowledges,
understands and agrees that:
(a) the Plan is established voluntarily by the Corporation, it is discretionary in nature, and it may be
modified, amended, suspended or terminated by the Corporation at any time, to the extent permitted by the Plan;
(b) the option is voluntary and occasional and does not create any contractual or other right to receive
future grants of options, or benefits in lieu of options, even if options have been granted in the past;
(c) all decisions with respect to future options or other grants, if any, will be at the sole discretion of the
Corporation;
(d) Optionee’s participation in the Plan is voluntary;
(e) the option and the Option Shares are for future services only and should not be considered as
compensation for past services for the Corporation (or any Related Entity);
(f) the option and Optionee’s participation in the Plan will not be interpreted to form an employment
relationship with the Corporation (or any Related Entity);
(g) the future value of the Option Shares is unknown, indeterminable and cannot be predicted with any
certainty;
(h) if the Option Shares do not increase in value, the option will have no value;
(i) if Optionee exercises his or her option and obtains Option Shares, the value of those Option Shares
may increase or decrease in value, even below the Exercise Price;
(j) no claim or entitlement to compensation or damages shall arise from forfeiture of the option resulting
from termination of Optionee’s Continuous Service by the Corporation (for any reason whatsoever, whether or not later found to
be invalid or in breach of labor laws in the jurisdiction where Optionee is providing service or the terms of Optionee’s service
agreement, if any), and in consideration of the grant of the option to which Optionee is otherwise not entitled, Optionee
irrevocably agrees never to institute any claim against the Corporation (or any Related Entity), waives his or her ability, if any, to
bring any such claim, and releases the Corporation (or any Related Entity) from any such claim; if, notwithstanding the foregoing,
any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, Optionee shall be deemed
irrevocably
to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal
of such claim;
(k) unless otherwise provided in the Plan or by the Corporation in its discretion, the option and the
benefits evidenced by this Agreement do not create any entitlement to have the option or any such benefits transferred to, or
assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction
affecting the shares of the Corporation; and
(l) neither the Corporation nor any Related Entity shall be liable for any exchange rate fluctuation
between Optionee’s local currency and the United States Dollar that may affect the value of the option or of any amounts due to
Optionee pursuant to the exercise of the option or the subsequent sale of any Option Shares acquired upon exercise.
3. Data Privacy .
(a) Optionee hereby explicitly and unambiguously consents to the collection, use and transfer, in
electronic or other form, of Optionee’s personal data as described in this Agreement and any other option grant materials
(“Data”) by and among, as applicable, the Corporation and any Related Entity for the exclusive purpose of implementing,
administering and managing Optionee’s participation in the Plan.
(b) Optionee understands that the Corporation and any Related Entity may hold certain personal
information about Optionee, including, but not limited to, Optionee’s name, home address and telephone number, date of
birth, social insurance number or other identification number, salary, nationality, job title, any shares of Common Stock or
directorships held in the Corporation, details of all options or any other entitlement to shares of Common Stock awarded,
canceled, exercised, vested, unvested or outstanding in Optionee’s favor, for the exclusive purpose of implementing,
administering and managing the Plan.
(c) Optionee understands that Data may be transferred to E*Trade Financial Services, Inc. or such
other stock plan service provider as may be selected by the Corporation in the future, which is assisting the Corporation with
the implementation, administration and management of the Plan. Optionee understands that the recipients of the Data may be
located in the United States, or elsewhere, and that the recipients’ country (e.g., the United States) may have different data
privacy laws and protections than Optionee’s country. Optionee understands that Optionee may request a list with the names
and addresses of any potential recipients of the Data by contacting Optionee’s local human resources representative. Optionee
authorizes the Corporation, E*Trade Financial Services, Inc. and any other possible recipients which may assist the
Corporation (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use,
retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing
Optionee’s participation in the Plan. Optionee understands that Data will be held only as long as is necessary to implement,
administer and manage Optionee’s participation in the Plan. Optionee understands that Optionee may, at any time, view Data,
request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse
or withdraw the consents herein, in any case without cost, by contacting in writing Optionee’s local human resources
representative. Further, Optionee understands that Optionee is providing the consents herein on a purely voluntary basis. If
Optionee does not consent, or if Optionee later seeks to revoke his or her consent, Optionee’s service status with the
Corporation or Related Entity will not be adversely affected; the only adverse consequence of refusing or withdrawing
Optionee’s consent is that the Corporation would not be able to grant Optionee options or other equity awards or administer or
maintain such awards. Therefore, Optionee understands that refusing or withdrawing Optionee’s consent may affect
Optionee’s ability to participate in the Plan. For more information on the consequences of Optionee’s refusal to consent or
withdrawal of consent, Optionee understands that Optionee may contact Optionee’s local human resources representative .
4. Withholding Taxes .
(a) Regardless of any action the Corporation and/or any Related Entity take with respect to any or all
Withholding Taxes, Optionee acknowledges that the ultimate liability for all Withholding Taxes legally due by Optionee is and
remains Optionee’s responsibility and may exceed the amount actually withheld by the Corporation or any Related Entity.
Optionee further acknowledges that the Corporation and/or any Related Entity (i) make no representations or undertakings
regarding the treatment of any Withholding Taxes in connection with any aspect of the option, including the grant, vesting or
exercise of the options, the subsequent sale of any Option Shares and the receipt of any dividends; and (ii) do not commit to, and
are under no obligation to, structure the terms of the grant or any aspect of the option to reduce or eliminate Optionee’s liability
for Withholding Taxes or achieve any particular tax result. Further, if Optionee has become subject to Withholding Taxes in more
than one jurisdiction, Optionee acknowledges that the Corporation and/or any Related Entity may be required to withhold or
account for Withholding Taxes in more than one jurisdiction.
(b) Prior to any relevant taxable or tax withholding event, as applicable, Optionee shall pay or make
arrangements satisfactory to the Corporation to satisfy all Withholding Taxes, including (without limitation) Optionee’s delivery
of a check payable to the order of the Corporation in the amount of such Withholding Taxes or a wire transfer from Optionee of
sufficient funds to the Corporation to cover the amount of such Withholding Taxes. In this regard, Optionee authorizes the
Corporation, or its agents, at their discretion, to satisfy the obligations with regard to all Withholding Taxes by one or a
combination of the following:
i. withholding from any cash compensation or other remuneration paid to Optionee by the
Corporation; or
ii. withholding from the proceeds of the sale by the Optionee of all or a portion of the Option
Shares effected in a manner similar to the sale and remittance procedure described in Paragraph 9(a)(ii)(B) of this
Agreement.
The Corporation may refuse to issue or deliver the purchased Option Shares or the proceeds of
the sale of shares, if Optionee fails to comply with Optionee’s obligations in connection with the Withholding Taxes.
5. Insider Trading Restrictions/Market Abuse Laws . Depending on Optionee’s country of residence, Optionee
may be subject to insider trading restrictions and/or market abuse laws, which may affect Optionee’s ability to acquire or sell
Option Shares or rights to Option Shares ( e.g. , the option) under the Plan during such times as Optionee is considered to have
“inside information” regarding the Corporation (as defined by the laws in Optionee’s country). Any restrictions under these laws
or regulations are separate from and in addition to any restrictions that may be imposed under any applicable insider trading policy
of the Corporation. Optionee is solely responsible for ensuring compliance with any applicable restrictions and should consult a
legal advisor in this regard.
6. Language . If Optionee has received this Agreement or any other document related to the Plan translated into a
language other than English and if the meaning of the translated version is different than the English version, the English version
will control.
Appendix C
Country-Specific Provisions
Terms and Conditions
This Appendix C includes special terms and conditions that govern the options granted to Optionee if Optionee resides in the
countries listed herein. Capitalized terms used but not defined herein shall have the meanings assigned to them in the Agreement
(of which this Appendix C is a part) and the Plan.
Notifications
This Appendix C may also include information regarding exchange controls and certain other issues of which Optionee should be
aware with respect to Optionee’s participation in the Plan. The information is based on the securities, exchange control and other
laws in effect in the respective countries as of April 2014. Such laws are often complex and change frequently. As a result, the
Corporation strongly recommends that Optionee not rely on the information noted herein as the only source of information
relating to the consequences of Optionee’s participation in the Plan because the information may be out of date at the time
Optionee exercises the options or sells shares of Common Stock he or she acquires under the Plan.
In addition, the information is general in nature and may not apply to Optionee’s particular situation, and the Corporation is not in
a position to assure Optionee of any particular result. Accordingly, Optionee is strongly advised to seek appropriate
professional advice as to how the relevant laws in Optionee’s country apply to his or her specific situation.
If Optionee is a citizen or resident of another country, relocated to another country after the Grant Date, or is considered a
resident of another country for local law purposes, the information contained in this Appendix C may not be applicable to him or
her.
Belgium
Notifications
Foreign Asset/Account Reporting Notification . If Optionee is a Belgian resident, Optionee is required to report any security
(e.g., Option Shares acquired under the Plan), bank or brokerage accounts held outside of Belgium on Optionee’s annual tax
return.
Malta
Terms and Conditions
Securities Law Warning . Optionee acknowledges, understands and agrees that the option, the Agreement, the Plan and all other
materials Optionee may receive regarding his or her participation in the Plan do not constitute advertising or an offering of
securities in Malta and are deemed accepted by Optionee only upon receipt of Optionee’s electronic or written acceptance in the
United States. The issuance of the shares of Common Stock under the Plan has not and will not be registered in Malta and,
therefore, the shares described in any Plan documents may not be offered or placed in public circulation in Malta.
Optionee further acknowledges, understands and agrees that in no event will shares of Common Stock acquired upon exercise of
the option be delivered to Optionee in Malta; all shares acquired upon exercise of the Option will be maintained on Optionee’s
behalf in the United States.
Exhibit 10.49
NON-EMPLOYEE DIRECTOR AWARD
GILEAD SCIENCES, INC.
RESTRICTED STOCK UNIT ISSUANCE AGREEMENT
RECITALS
A.
The Board has adopted the Plan for the purpose of providing incentives to attract, retain and motivate
eligible Employees, Directors and Consultants.
B.
Participant is to render valuable services to the Corporation as a non-employee Director, and this
Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Corporation’s
issuance of shares of Common Stock to Participant thereunder.
C.
All capitalized terms used in this Agreement shall have the meaning assigned to them herein and in the
attached Appendix A.
NOW, THEREFORE , the Corporation hereby awards Restricted Stock Units to Participant upon the following
terms and conditions:
1. Grant of Restricted Stock Units . The Corporation hereby awards to Participant, as of the Award Date
indicated below, Restricted Stock Units under the Plan. Each Restricted Stock Unit that vests hereunder will entitle Participant to
receive one share of Common Stock on the specified issuance date for that unit. The number of Shares subject to the awarded
Restricted Stock Units, the applicable vesting schedule for those Shares, the date or dates on which those vested Shares shall
become issuable to Participant and the remaining terms and conditions governing the Award shall be as set forth in this
Agreement.
AWARD SUMMARY
Participant:
____________________________________
Award Date:
______________________, 20___
Number of Shares Subject
to Award:
______________ Shares
Vesting Schedule:
The Shares shall vest upon the earlier of (i) Participant’s completion of one (1) year of
Continuous Service measured from the Award Date or (ii) the day immediately preceding the
next regular annual stockholders meeting following the Award Date provided Participant
remains in Continuous Service through such day (the earlier of (i) or (ii), the “ Normal
Vesting Date ”). However, the Shares may be subject to accelerated vesting in accordance
with the provisions of Paragraph 5 of this Agreement.
Issuance Schedule:
Unless Participant has made a timely Deferral Election with respect to the Award prior to the
start of the calendar year in which the Award Date occurs, the Shares in which Participant
vests on the Normal Vesting Date shall become issuable immediately upon vesting, and will
be issued no later than the later of (i) the close of the calendar year in which the Normal
Vesting Date occurs or (ii) the fifteenth (15th) day of the third (3rd) calendar month following
the Normal Vesting Date. However, if Participant has made a timely Deferral Election, then
the Shares in which Participant vests on the Normal Vesting Date shall be issued in
accordance with the terms and provisions of such Deferral Election, including the applicable
distribution event and method of distribution. In the event of a Change in Control, the
distribution provisions of Paragraph 5 shall apply.
2. Limited Transferability . Prior to actual receipt of the Shares which vest hereunder, Participant may not
transfer any interest in the Award or the underlying Shares. Any Shares which vest hereunder but which otherwise remain
unissued at the time of Participant’s death may be transferred pursuant to the provisions of Participant’s will or the laws of
inheritance or to Participant’s designated beneficiary or beneficiaries of the Award. Participant may also direct the Corporation to
re-issue the stock certificates (which may be in electronic form) for any Shares which in fact vest and become issuable under the
Award during his or her lifetime to one or more designated members of Participant’s Immediate Family or a trust established for
Participant and/or the members of his or her Immediate Family. However, the actual issuance of such Shares pursuant to the
foregoing provisions of this Paragraph 2 shall be subject to the issuance and distribution provisions of any Deferral Election in
effect for the Award.
3. Cessation of Service . Except as otherwise provided in Paragraph 5 below, should Participant cease
Continuous Service for any reason prior to the Normal Vesting Date, then the Award will be immediately cancelled with respect
to those unvested Shares, and the number of Restricted Stock Units will be reduced accordingly. Participant shall thereupon cease
to have any right or entitlement to receive any Shares under those cancelled units. However, for purposes of this Agreement,
Participant shall not be deemed to cease Continuous Service if Participant continues to serve the Corporation as a Director
Emeritus immediately following his or her cessation of service as a Board member without an intervening break in Continuous
Service.
4. Stockholder Rights and Dividend Equivalents .
(a) The holder of the Award shall not have any stockholder rights, including voting, dividend or
liquidation rights, with respect to the Shares subject to the Award until Participant becomes the record holder of those Shares upon
their actual issuance following the Corporation’s collection of the applicable Withholding Taxes.
(b) Notwithstanding the foregoing, should any dividend or other distribution, whether regular or
extraordinary and whether payable in cash, securities (other than Common Stock) or other property, be declared and paid on the
outstanding Common Stock while one or more Shares remain subject to the Award (i.e., those Shares are not otherwise issued and
outstanding for purposes of entitlement to the dividend or distribution), then a special book account shall be established for
Participant and credited with a phantom dividend equivalent to the actual dividend or distribution which would have been paid on
the Shares at the time subject to the Award had they been issued and outstanding and entitled to that dividend or distribution. As
the Shares subsequently vest hereunder, the phantom dividend equivalents so credited to those Shares in the book account shall
vest and those vested dividend equivalents shall be distributed to Participant (in the same form the actual dividend or distribution
was paid to the holders of the Common Stock entitled to that dividend or distribution or in such other form as the Administrator
deems appropriate under the circumstances) concurrently with the issuance of the vested Shares to which those phantom dividend
equivalents relate, whether those vested Shares are to be issued in accordance with the Issuance Schedule or distribution
provisions set forth in this Agreement or the distribution provisions set forth in Participant’s Deferral Election (if any). Each such
distribution shall be subject to the Corporation’s collection of all applicable Withholding Taxes.
(c) Should Participant cease Continuous Service without vesting in one or more of the Shares subject to
the Award (including any Shares which do not otherwise vest at that time after taking into account any applicable vesting
acceleration provisions set forth in Paragraph 5 of this Agreement), then the phantom dividend equivalents credited to those
unvested Shares shall be cancelled, and Participant shall thereupon cease to have any further right or entitlement to those
cancelled amounts.
5. Change in Control .
(a) Should Participant remain in Continuous Service until the effective date of a Change in Control, then
the Restricted Stock Units at the time subject to the Award will vest immediately prior to the closing of the Change in Control.
The Shares subject to those vested units shall be converted into the right to receive the same consideration per share of Common
Stock payable to the other stockholders of the Corporation in consummation of that Change in Control, and such consideration per
Share shall be distributed to Participant at the same time as such
shareholder payments, but such distribution to Participant shall in all events be completed no later than the later of (i) the close of
the calendar year in which such Change in Control is effected or (ii) the fifteenth (15th) day of the third (3rd) calendar month
following the effective date of that Change in Control. However, if Participant has made a timely Deferral Election with respect to
the Award, then the consideration payable per Share in consummation of the Change in Control shall be distributed to Participant
in accordance with the distribution provisions of that Deferral Election, and those provisions shall supersede anything to the
contrary in this Paragraph 5. Each such issuance shall be subject to the Corporation’s collection of all applicable Withholding
Taxes.
(b) This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or
any part of its business or assets.
6. Adjustment in Shares . Should any change be made to the Common Stock by reason of any stock split, stock
dividend, recapitalization, combination of shares, exchange of shares, spin-off transaction or other change affecting the
outstanding Common Stock as a class without the Corporation’s receipt of consideration, or should the value of the outstanding
shares of Common Stock be substantially reduced as a result of a spin-off transaction or an extraordinary dividend or distribution,
or should there occur any merger, consolidation or other reorganization, then equitable adjustments shall be made by the
Administrator to the total number and/or class of securities issuable pursuant to the Award in order to reflect such change. In
making such adjustments, the Administrator shall take into account any amounts to be credited to Participant’s book account
under Paragraph 4(b) in connection with the transaction, and the determination of the Administrator shall be final, binding and
conclusive. In the event of a Change in Control, the provisions of Paragraph 5 shall be controlling.
7. Issuance of Shares or Other Amounts .
(a) On each date on which one or more Shares are to be issued in accordance with the express provisions
of this Agreement or, if the Administrator permits Participant to file a Deferral Election and Participant files a Deferral Election,
the distribution provisions of Participant’s Deferral Election, which shall have priority over the terms of this Agreement, the
Corporation shall issue to or on behalf of Participant a stock certificate (which may be in electronic form) for those Shares and
shall concurrently distribute to Participant any phantom dividend equivalents with respect to those Shares, subject in each instance
to the Corporation’s collection of the applicable Withholding Taxes. Unless otherwise permitted by the Administrator, only
non-employee Directors in the United States may file a Deferral Election.
(b) Except as otherwise provided in Paragraph 5, the settlement of all Restricted Stock Units which vest
under the Award shall be made solely in Shares. In no event, however, shall any fractional Shares be issued. Accordingly, the total
number of Shares to be issued at the time the Award vests shall, to the extent necessary, be rounded down to the next whole Share
in order to avoid the issuance of a fractional Share.
8. Compliance with Laws and Regulations .
(a) The issuance of Shares pursuant to the Award shall be subject to compliance by the Corporation and
Participant with all Applicable Laws relating thereto.
(b) The sale of the Shares issued under the Plan must comply with all Applicable Laws relating thereto,
including U.S. securities laws that impose restrictions on insider trading, which may affect Participant’s ability to sell Shares
acquired pursuant to the Award. Any restrictions under these laws or regulations are separate from and in addition to any
restrictions that may be imposed under any applicable insider trading policy of the Corporation. Participant is solely responsible
for ensuring compliance with all Applicable Laws and should consult a legal advisor in this regard.
9. Notices . Any notice required to be given or delivered to the Corporation under the terms of this Agreement
shall be in writing and addressed to the Corporation at its principal corporate offices. Any notice required to be given or delivered
to Participant shall be in writing and addressed to Participant at the most current
address then indicated for Participant on the Corporation’s records or shall be delivered electronically to Participant through the
Corporation’s electronic mail system. All notices shall be deemed effective upon personal delivery or delivery through the
Corporation’s electronic mail system or upon deposit in the U.S. or local country mail, postage prepaid and properly addressed to
the party to be notified.
10. Successors and Assigns . Except to the extent otherwise provided in this Agreement, the provisions of this
Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and Participant, the
legal representatives, heirs and legatees of Participant’s estate and, if the Administrator permits Participant to designate
beneficiaries of the Award, all designated beneficiaries.
11. Construction . This Agreement and the Award evidenced hereby are made and granted pursuant to the Plan
and are in all respects limited by and subject to the terms of the Plan. In the event of any conflict between the provisions of this
Agreement and the terms of the Plan, the terms of the Plan shall be controlling. All decisions of the Administrator with respect to
any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in
the Award.
12. Governing Law and Venue .
(a) The interpretation, performance and enforcement of this Agreement shall be governed by the laws of
the State of Delaware without resort to that State’s conflict-of-laws rules.
(b) For purposes of litigating any dispute that arises directly or indirectly from the relationship of the
parties evidenced by the Award and this Agreement, the parties hereby submit to and consent to the exclusive jurisdiction of the
State of California and agree that such litigation shall be conducted only in the courts of San Mateo County, California, or the
federal courts for the Northern District of California, and no other courts where the grant of the Restricted Stock Units is made
and/or to be performed.
13. Severability . The provisions of this Agreement are severable and if any one or more provisions are
determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding
and enforceable.
14. Waiver . Participant acknowledges that a waiver by the Corporation of breach of any provision of this
Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach of
this Agreement.
15. Code Section 409A. If Participant is a U.S. taxpayer, the following provisions apply to Participant’s Award:
(a) It is the intention of the parties that in the absence of a timely-made Deferral Election with respect to
the Award, the provisions of this Agreement shall, to the maximum extent permissible, comply with the requirements of the
short-term deferral exception to Section 409A of the Code and Treasury Regulations Section 1.409A-1(b)(4). Accordingly, to the
extent there is any ambiguity as to whether one or more provisions of this Agreement would otherwise contravene the
requirements or limitations of Code Section 409A applicable to such short-term deferral exception, then those provisions shall be
interpreted and applied in a manner that does not result in a violation of the requirements or limitations of Code Section 409A and
the Treasury Regulations thereunder that apply to such exception.
(b) However, if Participant makes a timely Deferral Election with respect to the Award, then this
Agreement will create a deferred compensation arrangement subject to the requirements of Code Section 409. In that event, the
terms and provisions of this Agreement shall be applied and interpreted in a manner that complies with all applicable requirements
of Code Section 409A and the Treasure Regulations thereunder. Accordingly, to the extent there is any ambiguity as to whether
one or more provisions of this Agreement would otherwise contravene the applicable requirements or limitations of Code Section
409A, then those provisions shall be interpreted and applied in a manner that does not result in a violation of the applicable
requirements or limitations of Code Section 409A and the Treasury Regulations thereunder.
16. No Advice Regarding Grant . The Corporation is not providing any tax, legal or financial advice, nor is the
Corporation making any recommendations regarding Participant’s participation in the Plan or Participant’s acquisition or sale of
the underlying Shares. Participant is hereby advised to consult with his or her personal tax, legal and financial advisors regarding
his or her participation in the Plan before taking any action related to the Plan.
17. No Impairment of Rights . This Agreement shall not in any way be construed or interpreted so as to affect
adversely or otherwise impair the right of the Corporation or its stockholders to remove Participant from the Board at any time in
accordance with the provisions of applicable law.
18. Plan Prospectus . The official prospectus for the Plan is attached if the Award is the first Restricted Stock
Unit award made to Participant under the Plan. Participant may obtain an additional printed copy of the prospectus by contacting
Stock Plan Services through the internet at [email protected].
19. Electronic Delivery and Acceptance . The Corporation may, in its sole discretion, decide to deliver any
documents related to current or future participation in the Plan by electronic means. Participant hereby consents to receive such
documents by electronic delivery.
20. Participant Acceptance . Participant must accept the terms and conditions of this Agreement either
electronically through the electronic acceptance procedure established by the Corporation or through a written acceptance
delivered to the Corporation in a form satisfactory to the Corporation. In no event shall any Shares be issued under this Agreement
in the absence of such acceptance.
21. Appendices B and C . Notwithstanding any provision of this Agreement to the contrary, if Participant resides
in a country outside the United States or is otherwise subject to the laws of a country other than the United States, the Award and
any Shares acquired under the Plan shall be subject to the additional terms and conditions set forth in Appendix B to this
Agreement and to any special terms and provisions as set forth in Appendix C for Participant’s country, if any. Moreover, if
Participant relocates to one of the countries included in Appendix C, the special terms and conditions for such country will apply
to Participant, to the extent the Corporation determines that the application of such terms and conditions is necessary or advisable
in order to comply with local law or facilitate the administration of the Plan. Appendices B and C constitute part of this
Agreement.
22. Imposition of Other Requirements . The Corporation reserves the right to impose other requirements on
Participant’s participation in the Plan, on the Award and on any Shares acquired under the Plan, to the extent the Corporation
determines it is necessary or advisable for legal or administrative reasons, and to require Participant to sign any additional
agreements or undertakings that may be necessary to accomplish the foregoing.
IN WITNESS WHEREOF , Gilead Sciences, Inc. has caused this Agreement to be executed on its behalf by its duly-authorized
officer on the day and year first indicated above.
GILEAD SCIENCES, INC.
By:
Title:
SVP Human Resources
PARTICIPANT
By:
APPENDIX A
DEFINITIONS
The following definitions shall be in effect under the Agreement:
A. Administrator shall mean the Compensation Committee of the Board in its capacity as administrator of the
Plan.
B. Agreement shall mean this Restricted Stock Unit Issuance Agreement.
C. Applicable Laws shall mean the legal requirements related to the Plan and the Award under applicable
provisions of the federal securities laws, state corporate and securities laws, the Code, the rules of any applicable Stock Exchange
on which the Common Stock is listed for trading, and the rules of any non-U.S. jurisdiction applicable to Awards granted to
residents therein.
D. Award shall mean the award of Restricted Stock Units made to Participant pursuant to the terms of this
Agreement.
E. Award Date shall mean the date the Restricted Stock Units are awarded to Participant pursuant to the
Agreement and shall be the date indicated in Paragraph 1 of the Agreement.
F. Board shall mean the Corporation’s Board of Directors.
G. Cause shall mean the termination of Participant’s Continuous Service as a result of his or her (i) performance
of any act, or failure to perform any act, in bad faith and to the detriment of the Corporation; (ii) dishonesty, intentional
misconduct, material breach of any fiduciary duty owed to the Corporation; (iii) commission of a crime involving dishonesty,
breach of trust, or physical or emotional harm to any person; or (iv) reasons that are comparable to “cause” under labor laws in the
jurisdiction where Participant is providing service or the terms of Participant’s service agreement, if any.
H. Change in Control shall mean a change in ownership or control of the Corporation effected through the
consummation of any of the following transactions:
(ii) a merger, consolidation or other reorganization approved by the Corporation’s stockholders, unless
securities representing more than fifty percent (50%) of the total combined voting power of the voting securities of the
successor corporation are immediately thereafter beneficially owned, directly or indirectly and in substantially the same
proportion, by the persons who beneficially owned the Corporation’s outstanding voting securities immediately prior to
such transaction;
(iii) a sale, transfer or other disposition of all or substantially all of the Corporation’s assets;
(iv) the closing of any transaction or series of related transactions pursuant to which any person or any
group of persons comprising a “group” within the meaning of Rule 13d-5(b)(1) of the 1934 Act (other than the
Corporation or a person that, prior to such transaction or series of related transactions, directly or indirectly controls, is
controlled by or is under common control with, the Corporation) becomes directly or indirectly (whether as a result of a
single acquisition or by reason of one or more acquisitions within the twelve (12)-month period ending with the most
recent acquisition) the beneficial owner (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing (or
convertible into or exercisable for securities possessing) more than fifty percent (50%) of the total combined voting power
of the Corporation’s outstanding securities (as measured in terms of the power to vote with respect to the election of
Board members) outstanding immediately after the consummation of such transaction or series of related transactions,
whether such transaction
involves a direct issuance from the Corporation or the acquisition of outstanding securities held by one or more of the
Corporation’s existing stockholders; or
(v) a change in the composition of the Board over a period of twelve (12) consecutive months or less such
that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be
comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B)
have been elected or nominated for election as Board members during such period by at least a majority of the Board
members described in clause (A) who were still in office at the time the Board approved such election or nomination.
In no event, however, shall a Change in Control be deemed to occur upon a merger, consolidation or other
reorganization effected primarily to change the State of the Corporation’s incorporation or to create a holding company structure
pursuant to which the Corporation becomes a wholly-owned subsidiary of an entity whose outstanding voting securities
immediately after its formation are beneficially owned, directly or indirectly and in substantially the same proportion, by the
persons who beneficially owned the Corporation’s outstanding voting securities immediately prior to the formation of such entity.
I. Code shall mean the U.S. Internal Revenue Code of 1986, as amended.
J. Common Stock or Shares shall mean shares of the Corporation’s common stock.
K. Consultant shall mean any person, including an advisor, who is compensated by the Corporation or any
Related Entity for services performed as a non-employee consultant; provided, however , that the term “Consultant” shall not
include non-employee Directors serving in their capacity as Board members. The term “Consultant” shall include (i) a former
Board member during his or her period of service as Director Emeritus immediately following his or her cessation of service as a
Board member, without an intervening break in Continuous Service, or (ii) an individual serving as a member of the board of
directors of a Related Entity.
L. Continuous Service shall mean the performance of services for the Corporation or a Related Entity (whether
now existing or subsequently established) by a person in the capacity of an Employee, Director or Consultant. For purposes of this
Agreement, Participant shall be deemed to cease Continuous Service immediately upon the occurrence of either of the following
events: (i) Participant no longer performs services in any of the foregoing capacities for the Corporation or any Related Entity or
(ii) the entity for which Participant is performing such services ceases to remain a Related Entity of the Corporation, even though
Participant may subsequently continue to perform services for that entity. The Administrator shall have the exclusive discretion to
determine when Participant ceases Continuous Service for purposes of the Award.
M. Corporation shall mean Gilead Sciences, Inc., a Delaware corporation, and any successor corporation to all or
substantially all of the assets or voting stock of Gilead Sciences, Inc. which shall by appropriate action adopt the Plan.
N. Deferral Election shall mean an election filed by Participant with the Corporation prior to the start of the
calendar year in which the Award Date occurs pursuant to which Participant elects, in accordance with the applicable
requirements of Code Section 409A, to defer the issuance of the Shares that vest under this Agreement or the distribution of the
consideration payable per Share in a Change in Control transaction to one or more designated issuance or distribution dates or
events beyond the vesting date for those Shares.
O. Director shall mean a member of the Board or a Director Emeritus.
P. Domestic Partner shall mean a person who meets and continues to meet all of the criteria detailed in the
Gilead Sciences Affidavit of Domestic Partnership when the Domestic Partnership has been internally registered with the
Corporation by filing with the Corporation an original, properly completed, notarized Gilead Sciences Affidavit of Domestic
Partnership.
Q. Employee shall mean any person who is in the employ of the Corporation (or any Related Entity), subject to
the control and direction of the Corporation or Related Entity as to both the work to be performed and the manner and method of
performance.
R. Fair Market Value per share of Common Stock on any relevant date shall be the closing price per share of
Common Stock (or the closing bid, if no sales were reported) on that date, as quoted on the Stock Exchange that is at the time
serving as the primary trading market for the Common Stock; provided, however , that if there is no reported closing price or
closing bid for that date, then the closing price or closing bid, as applicable, for the last trading date on which such closing price or
closing bid was quoted shall be determinative of such Fair Market Value. The applicable quoted price shall be as reported in The
Wall Street Journal or such other source as the Administrator deems reliable.
S. Immediate Family shall mean, with respect to Participant, any child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law or sister-in-law including adoptive relationships, Domestic Partner, a trust in which such persons (or person) have
more than fifty percent (50%) of the beneficial interest, a foundation in which such persons (or person) control the management of
the entity’s assets, or any other entity in which such persons (or person) own more than fifty percent (50%) of the voting interests.
T. 1934 Act shall mean the U.S. Securities Exchange Act of 1934, as amended from time to time.
U. Normal Vesting Date shall mean the date (as set forth in Paragraph 1 of the Agreement) on which the
Restricted Stock Units and the underlying Shares vest.
V. Parent shall mean a “parent corporation,” whether now existing or hereafter established, as defined in Section
424(e) of the Code.
W. Participant shall mean the person to whom the Award is made pursuant to the Agreement.
X. Plan shall mean the Corporation’s 2004 Equity Incentive Plan, as amended and restated from time to time.
Y. Related Entity shall mean (i) any Parent or Subsidiary of the Corporation and (ii) any corporation in an
unbroken chain of corporations beginning with the Corporation and ending with the corporation in the chain for which Participant
provides services as an Employee, Director or Consultant, provided each corporation in such chain owns securities representing at
least twenty percent (20%) of the total outstanding voting power of the outstanding securities of another corporation or entity in
such chain and there is a legitimate non-tax business purpose for making the Award to Participant.
Z. Restricted Stock Unit shall mean the Award in the form of a contractual right to receive Shares under this
Agreement which will entitle Participant to receive one actual share of Common Stock per Restricted Stock Unit upon the
satisfaction of the Continuous Service vesting requirements applicable to such Award.
AA. Share Withholding Method shall mean an automatic Share withholding procedure pursuant to which the
Corporation will withhold, immediately as the Shares are issued under the Award, a portion of those Shares with a Fair Market
Value (measured as of the issuance date) equal to the amount of the applicable Withholding Taxes.
BB. Stock Exchange shall mean the American Stock Exchange, the Nasdaq Global or Global Select Market or
the New York Stock Exchange.
CC. Subsidiary shall mean a “subsidiary corporation,” whether now existing or hereafter established, as
defined in Section 424(f) of the Code.
DD. Withholding Taxes shall mean any and all U.S. federal, state, local and/or foreign income taxes and
Participant’s portion of the federal, state, local and/or foreign employment taxes (including social insurance, payroll tax, fringe
benefits tax, payment on account or other tax-related items), in each case, required to be withheld by the Corporation and/or any
Related Entity in connection with any taxable event attributable to the Award or Participant’s participation in the Plan.
APPENDIX B
TERMS AND CONDITIONS FOR NON-U.S. PARTICIPANTS
The provisions in this Appendix B apply to Participants that reside in a country outside the United States or who are otherwise
subject to the laws of a country other than the United States and supplement, amend or replace the provisions in the Agreement, as
applicable:
1. Transferability. The following replaces Paragraph 2 of the Agreement in its entirety:
Prior to actual receipt of the Shares which vest hereunder, Participant may not transfer any interest in the Award
or the underlying Shares. Any Shares which vest hereunder but which otherwise remain unissued at the time of Participant’s death
may be transferred pursuant to the provisions of Participant’s will or the laws of inheritance.
2. Acknowledgment of Nature of Plan and Award . In accepting the Award, Participant acknowledges,
understands and agrees that:
(a) the Plan is established voluntarily by the Corporation, it is discretionary in nature, and it may be
modified, amended, suspended or terminated by the Corporation at any time, to the extent permitted by the Plan;
(b) the Award is voluntary and occasional and does not create any contractual or other right to receive
future grants of Restricted Stock Units, or benefits in lieu of Restricted Stock Units, even if Restricted Stock Units have been
granted in the past;
(c) all decisions with respect to future Awards or other grants, if any, will be at the sole discretion of the
Corporation;
(d) Participant’s participation in the Plan is voluntary;
(e) the Award and the Shares subject to the Award are for future services and should not be considered as
compensation for, or relating in any way to, past services for the Corporation (or any Related Entity);
(f) the Award and Participant’s participation in the Plan will not be interpreted to form an employment
relationship with the Corporation (or any Related Entity);
(g) the future value of the underlying Shares is unknown, indeterminable and cannot be predicted with
any certainty;
(h) no claim or entitlement to compensation or damages shall arise from forfeiture of the Award resulting
from termination of Participant’s Continuous Service by the Corporation (for any reason whatsoever, whether or not later found to
be invalid or in breach of the terms of Participant’s service agreement, if any), and in consideration of the grant of the Restricted
Stock Units to which Participant is otherwise not entitled, Participant irrevocably agrees never to institute any claim against the
Corporation (or any Related Entity), waives his or her ability, if any, to bring any such claim, and releases the Corporation (or any
Related Entity) from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent
jurisdiction, then, by participating in the Plan, Participant shall be deemed irrevocably to have agreed not to pursue such claim and
to execute any and all documents necessary to request dismissal or withdrawal of such claim;
(i) unless otherwise provided for in the Plan or by the Corporation in its discretion, the grant of Restricted
Stock Units and the benefits evidenced by this Agreement do not create any entitlement to have the Restricted Stock Units or any
such benefits transferred to or assumed by another company nor to be exchanged, cashed out or substituted for in connection with
any corporation transaction affecting the shares of the Corporation; and
(j) neither the Corporation nor any Related Entity shall be liable for any exchange rate fluctuation
between Participant’s local currency and the United States Dollar that may affect the value of the Restricted Stock Units or of any
amounts due to Participant pursuant to the settlement of the Restricted Stock Units or the subsequent sale of any Shares acquired
upon settlement.
3. Data Privacy .
(a) Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in
electronic or other form, of Participant’s personal data as described in this Agreement and any other grant materials (“Data”)
by and among, as applicable, the Corporation and any Related Entity for the exclusive purpose of implementing, administering
and managing Participant’s participation in the Plan.
(b) Participant understands that the Corporation and any Related Entity may hold certain personal
information about Participant, including, but not limited to, Participant’s name, home address and telephone number, date of
birth, social insurance number or other identification number, salary, nationality, job title, any Shares or directorships held in
the Corporation, details of all Restricted Stock Units or any other entitlement to Shares awarded, canceled, exercised, vested,
unvested or outstanding in Participant’s favor, for the exclusive purpose of implementing, administering and managing the
Plan.
(c) Participant understands that Data may be transferred to E*Trade Financial Services, Inc. or such
other stock plan service provider as may be selected by the Corporation in the future, which is assisting the Corporation with
the implementation, administration and management of the Plan. Participant understands that the recipients of the Data may
be located in the United States, or elsewhere, and that the recipients’ country (e.g., the United States) may have different data
privacy laws and protections than Participant’s country. Participant understands that Participant may request a list with the
names and addresses of any potential recipients of the Data by contacting Participant’s local human resources representative.
Participant authorizes the Corporation, E*Trade Financial Services, Inc. and any other possible recipients which may assist
the Corporation (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use,
retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing
Participant’s participation in the Plan. Participant understands that Data will be held only as long as is necessary to
implement, administer and manage Participant’s participation in the Plan. Participant understands that Participant may, at
any time, view Data, request additional information about the storage and processing of Data, require any necessary
amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing Participant’s
local human resources representative. Further, Participant understands that Participant is providing the consents herein on a
purely voluntary basis. If Participant does not consent, or if Participant later revokes his or her consent, Participant’s service
status with the Corporation or Related Entity will not be adversely affected; the only adverse consequence of refusing or
withdrawing Participant’s consent is that the Corporation would not be able to grant Participant Restricted Stock Units or
other equity awards or administer or maintain such awards. Participant understands, however, that refusing or withdrawing
Participant’s consent may affect Participant’s ability to participate in the Plan. For more information on the consequences of
Participant’s refusal to consent or withdrawal of consent, Participant understands that Participant may contact Participant’s
local human resources representative .
4. Responsibility for Taxes .
(a) Regardless of any action the Corporation and/or any Related Entity take with respect to any or all
Withholding Taxes related to Participant’s participation in the Plan and legally applicable to Participant, Participant acknowledges
that the ultimate liability for all Withholding Taxes is and remains Participant’s responsibility and may exceed the amount actually
withheld by the Corporation or any Related Entity. Participant further acknowledges that the Corporation and/or any Related
Entity (i) make no representations or undertakings regarding the treatment of any Withholding Taxes in connection with any
aspect of the Award, including the grant, vesting or settlement of the Award, the issuance of Shares upon settlement of the Award,
the subsequent sale of Shares acquired pursuant to such issuance and the receipt of any dividends and/or phantom dividend
equivalents; and (ii) do not commit to, and are under no obligation to, structure the terms of the grant or any aspect of the Award
to reduce or eliminate
Participant’s liability for Withholding Taxes or achieve any particular tax result. Further, if Participant has become subject to
Withholding Taxes in more than one jurisdiction, Participant acknowledges that the Corporation and/or any Related Entity may be
required to withhold or account for Withholding Taxes in more than one jurisdiction.
(b) Unless Participant elects to remit to the Corporation the amount of Withholding Taxes due in
connection with the Award by submitting the election form to the Corporation within 45 days prior to the Normal Vesting Date,
the Corporation shall collect, and Participant authorizes the Corporation to collect, the Withholding Taxes with respect to the
issued Shares through an automatic Share Withholding Method pursuant to which the Corporation will withhold, immediately as
the Shares are issued under the Award, a portion of those Shares with a Fair Market Value (measured as of the issuance date)
equal to the amount of such Withholding Taxes. Participant shall be notified (in writing or through the Corporation’s electronic
mail system) in the event the Corporation no longer intends to utilize the Share Withholding Method.
(c) Should any Shares become issuable under the Award at a time when the Share Withholding Method is
no longer utilized, then the Withholding Taxes shall be collected from Participant through either of the following alternatives:
• Participant’s delivery of his or her separate check payable to the Corporation in the amount of such
Withholding Taxes or a wire transfer from Participant of sufficient funds to the Corporation to cover the amount of such
Withholding Taxes, or
• the use of the proceeds from a next-day sale of the Shares issued or issuable to Participant, provided and
only if (i) such a sale is permissible under the Corporation’s trading policies governing the sale of Common Stock, (ii)
Participant makes an irrevocable commitment, on or before the issuance date for those Shares, to effect such sale of the
Shares and (iii) the transaction is not otherwise deemed to constitute a prohibited loan under Section 402 of the
Sarbanes-Oxley Act of 2002.
(d) If the Share Withholding Method is to be utilized for the collection of Withholding Taxes, then the
Corporation shall withhold the number of otherwise issuable Shares necessary to satisfy the applicable Withholding Taxes based
on the applicable minimum withholding amount or other applicable withholding rate. Participant shall have no right to the
Common Stock equivalent of any Shares withheld to satisfy the applicable Withholding Taxes. Participant may seek a refund from
the applicable tax authorities for any over-withheld amount. If the obligation for Withholding Taxes is satisfied by using the Share
Withholding Method, for tax purposes, Participant will be deemed to have been issued the full number of Shares subject to the
vested Award, notwithstanding that a number of the Shares are withheld solely for the purpose of paying the Withholding Taxes
due as a result of Participant’s participation in the Plan. Participant shall pay to the Corporation and/or any Related Entity any
amount of Withholding Taxes that the Corporation and/or any Related Entity may be required to withhold or account for as a
result of Participant’s participation in the Plan that cannot be satisfied by the means previously described. The Corporation may
refuse to issue or deliver the Shares or the proceeds of the sale of Shares, if Participant fails to comply with Participant’s
obligations in connection with the Withholding Taxes.
(e) Notwithstanding the above, the Corporation shall collect the Withholding Taxes with respect to the
distributed phantom dividend equivalents by withholding a portion of that distribution equal to the amount of the applicable
Withholding Taxes, with the cash portion of the distribution to be the first portion so withheld.
5. Insider Trading Restrictions/Market Abuse Laws . Depending on Participant’s country of residence,
Participant may be subject to insider trading restrictions and/or market abuse laws, which may affect Participant’s ability to
acquire or sell Shares or rights to Shares ( e.g. , the Award) under the Plan during such times as Participant is considered to have
“inside information” regarding the Corporation (as defined by the laws in Participant’s country). Any restrictions under these laws
or regulations are separate from and in addition to any restrictions that may be imposed under any applicable insider trading policy
of the Corporation. Participant is solely responsible for ensuring compliance with any applicable restrictions and should consult a
legal advisor in this regard.
6. Language . If Participant has received this Agreement or any other document related to the Plan translated into
a language other than English and if the meaning of the translated version is different than the English version, the English version
will control.
Appendix C
Country-Specific Provisions
Terms and Conditions
This Appendix C includes special terms and conditions that govern the Restricted Stock Units granted to Participant if Participant
resides in the countries listed herein. Capitalized terms used but not defined herein shall have the meanings assigned to them in the
Agreement (of which this Appendix C is a part) and the Plan.
Notifications
This Appendix C may also include information regarding exchange controls and certain other issues of which Participant should
be aware with respect to Participant’s participation in the Plan. The information is based on the securities, exchange control and
other laws in effect in the respective countries as of April 2014. Such laws are often complex and change frequently. As a result,
the Corporation strongly recommends that Participant not rely on the information noted herein as the only source of information
relating to the consequences of Participant’s participation in the Plan because the information may be out of date at the time
Participant vests in the Restricted Stock Units or sells Shares he or she acquires under the Plan.
In addition, the information is general in nature and may not apply to Participant’s particular situation, and the Corporation is not
in a position to assure Participant of any particular result. Accordingly, Participant is strongly advised to seek appropriate
professional advice as to how the relevant laws in Participant’s country apply to his or her specific situation.
If Participant is a citizen or resident of another country, relocated to another country after the Award Date, or is considered a
resident of another country for local law purposes, the information contained in this Appendix C may not be applicable to him or
her.
Belgium
Notifications
Foreign Asset/Account Reporting Notification . If Participant is a Belgian resident, Participant is required to report any security
(e.g., Shares acquired under the Plan), bank or brokerage accounts held outside of Belgium on Participant’s annual tax return.
Malta
Terms and Conditions
Securities Law Warning . Participant acknowledges, understands and agrees that the Award, the Agreement, the Plan and all
other materials Participant may receive regarding his or her participation in the Plan do not constitute advertising or an offering of
securities in Malta and are deemed accepted by Participant only upon receipt of Participant’s electronic or written acceptance in
the United States. The issuance of the Shares under the Plan has not and will not be registered in Malta and, therefore, the Shares
described in any Plan documents may not be offered or placed in public circulation in Malta.
Participant further acknowledges, understands and agrees that in no event will Shares acquired upon vesting or settlement of the
Award be delivered to Participant in Malta; all Shares acquired upon vesting or settlement of the Award will be maintained on
Participant’s behalf in the United States.
Exhibit 10.102
[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
THIRD AMENDMENT TO THE
LICENSE AND COLLABORATION AGREEMENT
This Third Amendment to the License and Collaboration Agreement (this “ Third Amendment ”) is made as of
June 18, 2014 (the “ Third Amendment Effective Date ”), by and among Gilead Sciences, Inc., a corporation
organized and existing under the laws of the State of Delaware and having its principal place of business at 333
Lakeside Drive, Foster City, California 94404 (“ Gilead Parent ”), Gilead Sciences Limited, a corporation existing
under the laws of Ireland and wholly-owned subsidiary of Gilead Parent having its principal place of business at IDA
Business & Technology Park, Carrigtohill, Co. Cork, Ireland (“ Gilead Sub ” and, collectively with Gilead Parent, “
Gilead ”) and Janssen R&D Ireland (formerly known as Tibotec Pharmaceuticals), a company organized and existing
under the laws of Ireland, having its principal place of business at Eastgate Village, Eastgate, Little Island, County
Cork, Ireland (“ Janssen ”). Each of Gilead and Janssen is sometimes referred to individually herein as a “ Party ” and
collectively as the “ Parties .”
WHEREAS, Gilead and Janssen previously entered into that certain License and Collaboration Agreement,
dated as of July 16, 2009 (as amended from time to time, the “ Agreement ”);
WHEREAS, Gilead and Janssen previously entered into that certain First Amendment to the Agreement, dated
as of September 14, 2010 (the “ First Amendment ”);
WHEREAS, Gilead and Janssen previously entered into that certain original Second Amendment to the
Agreement, dated as of July 1, 2011 (the “ Original Second Amendment ”);
WHEREAS, Gilead and Janssen previously entered into that certain Amended and Restated Second
Amendment to the Agreement, dated as of February 7, 2013 (the “ A&R Second Amendment ”);
WHEREAS, Gilead and Janssen desire to amend the Agreement to modify the revenue share calculation for the
United States for Triggering Sales on and after July 1, 2013 and for Limited Region A Revenue Share Exceptions
(defined herein), Region B and Region C for Triggering Sales on and after January 1, 2014; and
WHEREAS, Gilead and Janssen further desire to amend certain other provisions of the Agreement as provided
in this Amendment .
NOW THEREFORE, in consideration of the premises and the mutual covenants set forth herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as
follows:
1
SECTION 1. Additional Definitions . The following new definitions shall be inserted into the Agreement:
“ Canada Co-Detailing LOA ” shall mean that certain Letter Agreement, dated as of November 30, 2011, by and
between Gilead Sciences Canada, Inc. and Janssen Inc., setting forth principles for Detailing by Janssen, Inc. in
Canada, as such agreement is amended from time to time.
“ Co-Detailing LOA’s ” shall mean, collectively, the Canada Co-Detailing LOA, the International Co-Detailing LOA
and the U.S. Co-Detailing LOA.
“ Commercialization Election ” shall mean an election by either Party, as provided under Section 6.9(a), to engage in
Commercialization Activities for the Combination Product (either by the Party making the election or through a Third
Party Distributor) in a Non-Assigned Country.
“ Data Sharing LOA ” shall mean, collectively, (a) that certain Letter Agreement, dated as of March 21, 2011, by and
between Tibotec Pharmaceuticals, Gilead Sciences, Inc., and Gilead Sciences Limited, and (b) that certain Letter
Agreement, dated as of November 21, 2011, by and between Tibotec Pharmaceuticals, Gilead Sciences, Inc., and
Gilead Sciences Limited, both (a) and (b), [*], as such agreement is amended from time to time.
“ International Co-Detailing LOA ” shall mean that certain Amended and Restated Letter Agreement, dated as of
November 4, 2013, by and between Janssen R&D Ireland and Gilead Sciences, Inc., which sets forth Detailing
principles for the Co-Detailing Territory (defined therein), as such agreement is amended from time to time.
“ Limited Region A Revenue Share Exceptions ” shall mean [*].
“ NCP Exclusion LOA ” shall mean that certain Letter Agreement, dated as of May 1, 2014, by and between Janssen
R&D Ireland and Gilead Sciences, Inc., which sets forth certain inclusions and exclusions to the Net Component Price
for certain countries.
“ Revaluation Pre-Conversion Invoice ” shall mean the invoice or credit note for revaluation of Pre-Conversion
Invoices in accordance with Annex DD.
“ Revenue Share Effective Date ” shall mean the commencement date for application of the modifications to the
calculation of the parties’ respective revenue shares made under this Third Amendment, which date shall be: (a) in the
case of Triggering Sales in the United States, July 1, 2013 and (b) in the case of Triggering Sales in Region B, Region
C, and the Limited Region A Revenue Share Exceptions, January 1, 2014.
“ Revenue Share Effective Period ” shall mean the period beginning on the Revenue Share Effective Date for the
United States and ending on the last day of the month prior to the month when data described in Annex X, [*] is made
available to the Parties. For example,
2
if data described in Annex X relevant for the United States, which indicates that [*] immediately prior to when such
data was made available.
“ Second Amendment Effective Date ” shall mean July 1, 2011.
“ Tender Rules and Procedures Agreement ” shall mean that certain agreement, dated as of November 25, 2011, by
and between Tibotec Pharmaceuticals and Gilead Sciences, Inc., developed pursuant to Section 7.4(a)(ii)(D) of this
Agreement.
“ Third Amendment ” shall mean that certain amendment to the Agreement dated as of the Third Amendment
Effective Date.
“ Third Amendment Effective Date ” shall mean June 18, 2014.
“ US Co-Detailing LOA ” shall mean that certain Letter Agreement, dated as of August 16, 2011, by and between
Gilead Sciences, Inc. and Janssen Products, LP, acting through its Janssen Therapeutics Division, setting forth
Detailing responsibilities for Janssen Therapeutics Division in the United States, as such agreement is amended from
time to time.
SECTION 2. Expanded Existing Region Definition . The definition of “Expanded Existing Region” is hereby
replaced in its entirety with the following:
“ Expanded Existing Region ” shall mean the Existing Region, Russia and Mexico.
SECTION 3. Limited Region A Definition . The definition of “Limited Region A” is hereby replaced in its entirety
with the following:
“ Limited Region A ” shall mean Region A, excluding Russia and Mexico.
SECTION 4. Final TMC278 Invoice Definition . The definition of “Final TMC278 Invoice” is hereby replaced in
its entirety with the following:
“ Final TMC278 Invoice ” shall mean the invoice or credit note issued to Gilead or its designated Affiliate in
accordance with this Agreement at the end of the applicable Calendar Year for the [*] as set forth in Annex N.
SECTION 5. Ancillary Agreement . The definition of “Ancillary Agreement” is hereby replaced in its entirety with
the following:
“ Ancillary Agreements ” shall mean, collectively, any Janssen Distributor Agreement, the SDEA, the Quality
Agreement(s) (provided that the Quality Agreement(s) shall be deemed to be Ancillary Agreements solely for the
purpose of Sections 15 and 4.3(c)), the TMC278 Supply Agreement, the Co-Detailing LOA’s, the Data Sharing LOA,
the NCP Exclusion LOA, the Tender Rules and Procedures Agreement, and any other agreement that is now or in the
future designated in writing to be an Ancillary Agreement by the Parties.
SECTION 6.
Access Territory .
3
The definition of “Access Territory” in the Agreement, and Section 2.6 and Annex D of the Agreement are hereby
deleted in their entirety.
SECTION 7.
Actual Annual Yield Rate Definition .
The definition of “Actual Annual Yield Rate” in the Agreement is hereby deleted in its entirety.
SECTION 8.
Aided Physician Awareness Definition .
The definition of “Aided Physician Awareness” in the Agreement is hereby deleted in its entirety.
SECTION 9. MA Holder . The second sentence of Section 4.4(a) of the Agreement is hereby replaced in its entirety
with the following:
Notwithstanding the foregoing, the Parties have agreed that Janssen, or its designated Affiliate or Third Party
Distributor, will hold the marketing authorization with respect to the Combination Product in the Janssen Countries for
which Annex AA specifies Janssen as the holder of the marketing authorization, or as otherwise provided by the mutual
written agreement of the Parties.
SECTION 10. Pre-Approval Order Fulfillment in Janssen Countries . Section 6.1 is hereby amended by inserting
the following as Sub-Section 6.1(e):
Pre-Approval Order Fulfillment in Janssen Countries . Notwithstanding anything in this Section 6.1 to the contrary, in
any country where Janssen is the Selling Party and Approval of the Combination Product has not yet been obtained,
subject to the Parties’ mutual agreement in accordance with this Section 6.1(e), Gilead shall have the right to fulfill
orders for the Territory Combination Product from such country made by certain Customers (including tenders and
other government purchases) using Territory Combination Product with an appropriate label suitable for importation
into such country. For the first such order in a given country, the Parties shall negotiate in good faith to agree in writing
on all material terms therefor (the “ Initial Pre-Approval Order Agreement ”). For all subsequent orders in such
country (whether or not such orders are placed by the same Customer as concerns the Initial Pre-Approval Order
Agreement in such country) that are placed prior to the time that Approval of the Combination Product in such country
is obtained and prior to delivery by Janssen of a Non-Commercialization Notice for such country pursuant to Section
6.9(a) (after which Section 6.9 shall apply), Gilead shall promptly notify Janssen’s Alliance Manager of such orders.
Gilead may fulfill such orders for the Territory Combination Product according to the terms of the Initial Pre-Approval
Order Agreement; provided, however, [*]. Notwithstanding the foregoing, Gilead shall set the price of all orders that it
is permitted to fill under this Section 6.1(e) in its sole discretion and, unless the Parties agree otherwise as provided by
this Section 6.1(e), revenue shall be shared from all such orders in accordance with Annex N, including [*] set forth
therein; provided that for all such orders in a Janssen Country in Region A, upon the request of Gilead, [*] which shall
be used to determine the
4
Parties’ respective revenue shares from such orders in accordance with Section C of Annex N in the same manner as if
such country were a Gilead Country. For the avoidance of doubt, however, Janssen shall remain the Selling Party for
such country and Gilead shall not have any liability hereunder for a failure to fill such an order.
SECTION 11. Specific Commercialization Obligations .
(a)
Section 6.2(b)(ii) is hereby replaced in its entirety with the following:
Reserved
(b)
The second sentence of Section 6.2(b)(iii) is hereby replaced in its entirety with the following:
Gilead shall [*] that may impact the ability of Gilead to fulfill such obligation.
(c) Section 6.2(b)(iv) is hereby amended by replacing the words “subsections (i) through (iii)” with “subsections (i)
and (iii)”.
(d) Section 6.2(b)(v)(A) is hereby amended by inserting the word “and” at the end of such Section.
(e) Section 6.2(b)(v)(B) is hereby deleted in its entirety.
SECTION 12. Detailing in the Co-Detailing Territory . Section 6.2 is hereby amended by inserting the following
as Sub-Section 6.2(d):
The Parties acknowledge and agree that the Parties (or their Affiliates) currently have (or may in the future have)
certain additional rights and obligations with respect to the Detailing of the Combination Product, as set forth in the
Co-Detailing LOA’s for the applicable countries in each Co-Detailing LOA, or as may be set forth from time to time by
other separate written agreements between the Parties.
SECTION 13. Marketing Materials .
(a) Local Promotional Materials . The first sentence of Section 6.7(b) is hereby
following:
replaced in its entirety with the
Except as otherwise provided in the Co-Detailing LOA’s, all advertising and promotional materials, if any, to be used
in connection with the marketing and promotion, including Detailing, of the Territory Combination Product in a given
country in the Territory (such advertising and promotional materials for each such country, the “ Local Promotional
Materials ”) shall be developed by the Party using such materials at its cost and expense and shall be (i) consistent
with the Key Selling Messages (if any), (ii) consistent with the Product Label and Insert for the Combination Product
approved by the applicable Regulatory Authority, (iii) consistent with Applicable Law, and (iv) in the case of Janssen,
consistent
5
with the branding guidance provided by Gilead from time to time, with deviation solely to the extent required by
Applicable Law.
(b) Regulatory Approval for Promotional Materials . Section 6.7(c) is hereby
following:
replaced in its entirety with the
For clarity, in any interactions with a Regulatory Authority with respect to the Local Promotional Materials, the
allocation of the Parties’ rights and responsibilities shall be as set forth in Section 4.4, except as otherwise provided in
the Co-Detailing LOA’s, or in any other written agreement between the Parties.
SECTION 14. Abandonment of Countries . Section 6.9 is hereby replaced in its entirety with the following:
(a) Abandonment of Countries . Without limiting the obligations of the Selling Party pursuant to Sections 6.2 and
6.6 (and without limiting any rights or remedies the non-Selling Party may have in connection with a failure of the
Selling Party to comply with such obligations), in the event the Selling Party determines, in its sole discretion, to
abandon all Commercialization Activities (or not to file for Approval in the Field) for the Combination Product in a
country in the Territory, the Selling Party shall promptly notify the other Party of such determination in writing, which
notice shall include a reasonable description (including, supporting data, if applicable) of the justifications for such
determination (each, a “ Non-Commercialization Notice ”). Upon such notification, such country shall be deemed a “
Non-Assigned Country ” and neither Party shall be deemed the Selling Party with respect to such country. This right
to abandon all Commercialization Activities (or not to file for Approval of the Combination Product in the Field) shall
not apply to any Major Market. Thereafter, the non-Selling Party shall have the right, but not the obligation, to make a
Commercialization Election with respect to such country by delivery of written notice to the other Party within [*] after
receipt of the applicable Non-Commercialization Notice or thereafter as described below. For any Commercialization
Election under this Section 6.9(a) by Janssen, Gilead shall have the right to consent to any designation of Janssen as the
Selling Party, such consent not to be unreasonably withheld (unless the country requested by Janssen is a Designated
Country, in which case, Gilead may withhold its consent in its sole discretion); and provided, however, that if such
Designated Country is in the European Union and the Combination Product has been launched in such country, then the
Parties shall discuss in good faith the conditions under which Janssen (or its Affiliates) might assume responsibility for
Commercialization Activities in such country. Subject to such consent right, in the event a Party makes the
Commercialization Election for a country, then for purposes of this Agreement (and any Ancillary Agreement), such
Party shall thereafter be deemed to be the Selling Party with respect to such country, such country shall no longer be
deemed a Non-Assigned Country and shall be deemed a Gilead Country or a Janssen Country, as applicable, and in
each case, to the extent applicable, the Parties shall work together in good faith to effectuate the transfer of
responsibilities in connection with the foregoing to the other Party or a Third Party Distributor. For any Non-Assigned
Country, the original non-Selling Party shall have the exclusive right to make the Commercialization
6
Election within the [*] period specified above in this Section 6.9(a). If the original non-Selling Party does not provide
notice of such Commercialization Election during such [*] period or provides written notice to the other Party that it
does not wish to make the Commercialization Election in such country, then either Party shall have the right, but not
the obligation, to make the Commercialization Election for such Non-Assigned Country; provided, however, that, in
this case, if the original non-Selling Party for such country provides such Commercialization Election notice, then the
original Selling Party shall, for [*] following its receipt of such notice, have the first right to make the
Commercialization Election and be deemed the Selling Party, and otherwise the original non-Selling Party shall
become the Selling Party under this Agreement. For purposes of this Section 6.9(a), the original Selling Party is
indicated in the second column of Annex AA and the original non-Selling Party shall be the Party that is not indicated
to be the original Selling Party.
(b) Order Fulfillment in Non-Assigned Countries . If Janssen delivers a Non-Commercialization Notice for a country
for which it is the Selling Party as provided in Section 6.9(a), for the period that such country is a Non-Assigned
Country, Gilead shall have the right to fulfill orders for the Territory Combination Product from such country made by
certain Customers (including tenders and other government purchases) using Territory Combination Product with an
appropriate label suitable for importation into such country and at a price set by Gilead. Unless the Parties agree
otherwise, revenue shall be shared from all orders under this Section 6.9(b) in accordance with Annex N, including the
true-up provisions set forth therein; provided that for all such orders in a Janssen Country in Region A, upon the
request of Gilead, Janssen shall convey to the Discount Committee the [*] which shall be used to determine the Parties’
respective revenue shares from such orders in accordance with Section C of Annex N in the same manner as if such
country were a Gilead Country. For the avoidance of doubt, however, Gilead shall not have any liability hereunder for a
failure to fill such an order.
SECTION 15. Price Approval Countries .
(a)
Minimum Target Price . The last sentence of Section 7.3(c)(i) is hereby replaced in its entirety with
the following:
At Launch and thereafter, unless modified as below, the Country Price for the Territory Combination Product shall be
the Approved Price for Price Approval Countries.
(b)
Base Price Setting . Section 7.4(a)(i) is hereby amended by inserting the following sentence at the end
of such Section:
If the Approved Price for the Territory Combination Product is different than the Base Price in a Price Approval
Country, then notwithstanding the other provisions of this Section 7.4(a)(i), the Selling Party shall sell at such
Approved Price, unless a discount is permitted pursuant to this Agreement or an Ancillary Agreement. For purposes of
a Price Approval Country, a Discounted Price shall mean any price that is lower than the Approved Price for the
Territory Combination Product. For purposes of Annex R, for Price Approval Countries, references to the “Base Price”
shall be references to the “Approved Price”.
7
SECTION 16. Financial Records and Audit . The first sentence of Section 12.2(b) is hereby replaced in its
entirety with the following:
Unless otherwise agreed by the Parties in writing, the Parties shall engage an Independent Accounting Expert to
confirm, for each Calendar Year during the term of this Agreement, the accuracy of (i) any calculation by the Discount
Committee, (ii) any pricing or discounting information provided to the Discount Committee or to either Party by the
other Party pursuant to Section 7.4 or Annex R, (iii) any information of a Party or its Affiliates that is required to
determine that the DCPs provided by such Party comply with the terms of this Agreement (including, for any Calendar
Quarter up to and including the [*]), (iv) the calculation of the TCP Final Supply Price for Major Market Combination
Product Delivered for the Janssen Countries [*]), (v) the calculation of the Limited Region A TMC278 Annual True Up
for Territory Combination Product with respect to the applicable Gilead Countries in the Limited Region A and the
component calculations thereof, including the determination of the [*] for such Gilead Countries, (vi) the calculation of
the [*], (vii) the calculation of the Post-Conversion Supply Price for the Gilead Countries in all Regions and (viii) the
calculation of the TCP Actual Supply Price for the Janssen Countries in Region B and Region C; provided, however ,
that the foregoing shall not permit either Party to audit any Third Party Component Distributor, such audit being
permitted solely as and to the extent provided in Section 12.2(c).
SECTION 17. Audit; Independent Accounting Expert .
(a) Consequences of Inaccurate DCPs and Component Prices . Section 12.2(e)(i) is hereby replaced in its entirety
with the following:
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IN THE CASE OF THE EXPANDED
EXISTING REGION, OTHER THAN THE UNITED STATES WITH RESPECT TO THE NET SELLING PRICE OF
THE STAND-ALONE PRODUCTS DURING THE REVENUE SHARE EFFECTIVE PERIOD, (A) NEITHER
PARTY SHALL HAVE ANY LIABILITY TO THE OTHER PARTY FOR DAMAGES AND (B) NO
ADJUSTMENTS SHALL BE MADE PURSUANT TO SECTION 12.2(i), IN EITHER CASE DUE TO THE
PROVISION OF INACCURATE PRICING OR DISCOUNT INFORMATION TO THE DISCOUNT COMMITTEE
(OR, FOR ANY CALENDAR QUARTER UP TO AND INCLUDING THE [*]), EXCEPT TO THE EXTENT THAT
SUCH BREACH OR LACK OF COMPLIANCE AROSE FROM THE GROSS NEGLIGENCE OR INTENTIONAL
MISCONDUCT OF SUCH PARTY OR ITS AFFILIATES.
(b) Consequences of Inaccurate DCPs and Component Prices . Section 12.2(e)(ii) is hereby replaced in its entirety
with the following:
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IN THE CASE OF LIMITED REGION A
(EXCLUDING THE LIMITED REGION A REVENUE SHARE EXCEPTIONS ON AND AFTER THE REVENUE
SHARE EFFECTIVE DATE THEREFOR) AND, PRIOR TO THE REVENUE SHARE EFFECTIVE DATE
8
THEREFOR, REGION B AND REGION C, (A) THE SELLING PARTY SHALL HAVE NO LIABILITY TO THE
NON-SELLING PARTY FOR DAMAGES AND (B) [*].
(c)
Adjustments . The first sentence of Section 12.2(i)(i) is hereby replaced in its entirety with the following:
The following shall apply to the Expanded Existing Region, excluding the United States during the Revenue Share
Effective Period: Except as otherwise provided in Section 12.2(e), in the event that the Independent Accounting Expert
determines, pursuant to this Section 12.2, that any Party provided any inaccurate information, the Parties shall
coordinate to recalculate any amounts due hereunder or under any Ancillary Agreement based on the corrected data, as
provided by the Independent Accounting Expert, and to make any payments that may be required to ensure that costs
and expenses and revenues are shared in accordance with such recalculations (and the other applicable terms of this
Agreement or such Ancillary Agreement); provided, however, that if either Party provided inaccurate pricing or
discount information to the Discount Committee (or, for any Calendar Quarter up to and including the [*] due to its or
any of its Affiliates’ gross negligence or intentional misconduct, and such inaccurate information (or non-compliant
DCP) resulted in a higher selling price for the Combination Product than would have been permitted hereunder had the
proper information (or DCP) been provided, then with respect to any Triggering Sales of Combination Product that
were sold at a higher price that reflected such inaccurate price information of such Party (or non-compliant DCP), the
Parties’ respective revenue shares shall be adjusted as follows: the Selling Party shall determine, for the Units of
Combination Product sold in such Triggering Sales (the “ At-Issue Units ”), (a) [*]).
(d)
Adjustments . Section 12.2(i)(ii) is hereby replaced in its entirety with the following:
The following shall apply to the United States during the Revenue Share Effective Period, Limited Region A, Region B
and Region C: Except as otherwise provided in Section 12.2(e), in the event that it is determined, pursuant to this
Section 12.2, that any Party provided any inaccurate information, including that with regards to the Net Selling Price of
the Party’s Stand-Alone Product in the United States, the Parties shall coordinate to recalculate any amounts due
hereunder or under any Ancillary Agreement based on the corrected data, as has been determined pursuant to this
Section 12.2, and to make any payments that may be required to ensure that costs and expenses and revenues are shared
in accordance with such recalculations (and the other applicable terms of this Agreement or such Ancillary
Agreement).
SECTION 18. Medicaid .
(a)
Revenue Share . Section 7.4(a)(ii)(C)(6) of the Agreement is hereby replaced in its entirety with the following:
Revenue Share . For the avoidance of doubt, each Party’s share of revenues from Medicaid Sales to a Customer that is
a Medicaid entity shall be determined in accordance with Section A of Annex N.
9
(b) Rebates to Medicaid Customers . Section 7.4(a)(ii)(C)(4) of the Agreement is hereby replaced in its entirety
with the following:
Rebates to Medicaid Customers . Gilead shall provide to Customers that are Medicaid entities any required Medicaid
discounts for the Combination Product.
(c) [*] . Section 7.4(a)(ii)(C)(5) of the Agreement is hereby replaced in its entirety with the following:
[*]
SECTION 19. Modified Pricing . Section 7.4(f) of the Agreement is hereby replaced in its entirety with the
following:
(f)
Shared Revenue Reduction Events .
With respect to Triggering Sales for which the Parties’ respective shares of revenue hereunder is based on the
Parties’ respective DCPs (i.e., the Expanded Existing Region, but excluding the United States during the Revenue
Share Effective Period), this clause (f) shall apply: In the event and to the extent that (i) any Mandatory Reduction
occurs as contemplated by Section 7.3(c)(iv), or (ii) a government purchaser imposes a purchase price for the Territory
Combination Product that is lower than the Base Price with respect to such purchaser pursuant to Section 7.4(e) (each,
a “ Revenue Reduction Event ”), then each Party’s DCP for Territory Combination Product sales affected by the
Revenue Reduction Event shall be [*]
SECTION 20. Annex G. Calculation of Net Sales and Net Selling Prices . The third sentence in Paragraph 1 of
Annex G is hereby replaced in its entirety with the following:
Any of the deductions listed above that involves a payment by such Party shall not be taken as a deduction prior to the
date accrued in accordance with GAAP.
SECTION 21. Annex EE. Letter Agreement Regarding Marketing Authorization for Combination Product .
Annex EE of the Agreement is hereby deleted in its entirety.
SECTION 22. Annexes A-1, A-2, F, L, M, N, P, Q, V, Y, AA, BB, CC and DD . Each of Annexes A-1, A-2, F, L,
M, N, P, Q, V, Y, AA, BB, CC and DD are hereby replaced in their entirety with the attached Exhibits A-1, A-2, F, L,
M, N, P, Q, V, Y, AA, BB, CC and DD, respectively.
SECTION 23. Definitions . All capitalized terms used, but not defined, in this Third Amendment shall have their
respective meanings set forth in the Agreement.
10
SECTION 24. Construction . The principles set forth in Section 20.12 of the Agreement shall apply to this Third
Amendment.
SECTION 25. Effective Date; Incorporation of Terms; Continuing Effect . Except to the extent otherwise
expressly provided in this Third Amendment, this Third Amendment shall be deemed effective for all purposes as of
the Third Amendment Effective Date. The amendment set forth in this Third Amendment shall be deemed to be
incorporated in, and made a part of, the Agreement, and the Agreement and this Third Amendment shall be read, taken
and construed as one and the same agreement (including with respect to the provisions set forth in Section 20 (General
Provisions) of the Agreement which shall, as applicable, be deemed to apply to this Third Amendment (including with
respect to the governing law)). Except as otherwise expressly amended by this Third Amendment, the Agreement shall
remain in full force and effect in accordance with its terms and conditions.
SECTION 26. Entire Agreement . The Agreement, as expressly amended by this Third Amendment, shall
constitute the entire agreement, and supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of the Agreement, except that the Parties agree that no letter agreements
between the Parties relating to the Agreement are intended to be superseded except (a) the letter dated July 23, 2013
relating to certain revenue sharing issues and (b) the letter agreement dated February 7, 2013 relating to the holder of
the marketing authorization for Territory Combination Product, both of which are hereby superseded.
SECTION 27. Counterparts . This Third Amendment may be executed in any number of counterparts, each of
which shall be deemed to be an original, and all of which, taken together, shall constitute one and the same instrument.
[ Remainder of page intentionally left blank ]
11
IN WITNESS WHEREOF, the parties, intending to be bound, have caused this Third Amendment to be
executed on their behalf by their duly authorized agent as of the day and year first above written.
JANSSEN R&D IRELAND
By:
/s/ Margaret Dulea
Name: Margaret Dunlea
Date:
Title: Managing Director
June 18, 2014
Signature Page to the Third Amendment
GILEAD SCIENCES, INC.
By:
/s/ John F. Milligan
Name: John F. Milligan, Ph.D.
Title: President and Chief Operating Officer
Date:
June 18, 2014
GILEAD SCIENCES LIMITED
By:
/s/ John F. Milligan
Name: John F. Milligan, Ph.D.
Title: Director
Date:
June 18, 2014
Signature Page to the Third Amendment
Exhibit A-1
Annex A-1: Gilead Licensed Trademarks
Janssen Countries
COUNTRY
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Annex A-1 Page 1
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Annex A-1 Page 2
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*A European Union trademark registration is fully enforceable in all 28 member countries of the European Union, that is, Austria, Belgium,
Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania,
Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Sweden and United Kingdom
Annex A-1 Page 3
Exhibit A-2
Annex A-2: Janssen Licensed Trademarks
Gilead Countries
EDURANT
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Annex A-2 Page 1
EDURANT
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Annex A-2 Page 2
EDURANT
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Annex A-2 Page 3
Exhibit F
Annex F: Required Minimum Details
Capitalized terms not defined in this Annex shall have the meanings set forth in the agreement to which this Annex is
attached (the “ Agreement ”).
Required Minimum Details
1. Minimum Details . For each Major Market, for each applicable Detailing Year, through the Calendar Quarter that
includes the last day of the Launch Period, Gilead shall perform the number of Details of the Combination Product in
such Major Market as set forth below (which amounts shall be prorated for any partial Detailing Year):
i. United States
[*]
ii. France
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iii. Germany
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iv. Italy
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v. Spain
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vi. United Kingdom
[*]
The Minimum Details obligations set forth in this Section for the following countries shall apply retroactively to
periods prior to the Third Amendment Effective Date: (a) for [*], the Minimum Details obligation of [*] shall apply
retroactively beginning with the first Calendar Quarter of 2014; prior to that, a Minimum Details obligation of [*]
applied retroactively beginning with the fourth Calendar Quarter of 2012; and (b) for [*], the Minimum Details
obligation shall apply retroactively beginning with the first Calendar Quarter of 2012.
2. Records and Reports . Gilead shall require its sales representatives who Detail the Combination Product to keep
records of their Detailing efforts in accordance with industry standards for the applicable Major Market and sufficient
to determine whether or not the required number of Details are achieved and that the requirements of Section 6.2(b)(iii)
are satisfied. Within thirty (30) days after the end of each Detailing Year, Gilead shall provide Janssen with a written
report stating the number of Details for each Major Market.
3. Audit . Notwithstanding any provision of Section 12 to the contrary, with reasonable advance notice and not more
often than once each Calendar Year for each Major Market, Janssen may audit Gilead’s records in order to verify (a)
the number of Details in each Calendar Quarter of a Detailing Year made by Gilead in a Major Market applicable to
meeting the requirements of this Annex F and (b) whether or not the other requirements of Section 6.2(b)(iii) are
satisfied. Any such audit shall be conducted during normal business hours at Gilead’s facilities by a reputable
independent Third Party selected by Janssen and reasonably acceptable to Gilead (the “Auditor”). Such Auditor shall
sign a confidentiality agreement in a form reasonably satisfactory to Gilead, and shall not disclose to Janssen or any
other person any information, except the number of Details made by Gilead per Major Market for each applicable
quarter of a Detailing
Annex F Page 1
Year determined by such audit, and the Auditor’s findings as to whether or not the other requirements of Section
6.2(b)(iii) are satisfied. Such audit shall be at Janssen’s expense, unless the Auditor determines (absent manifest error
on the part of the Auditor) that Gilead incorrectly over-reported (i) the number of Details made by Gilead for a
particular Major Market and Detailing Year and did not meet the number of Details required for such Major Market
and Detailing Year, and/or (ii) meeting the requirements of Section 6.2(b)(iii), in either of which cases Gilead shall be
responsible for reimbursing Janssen for the fees and expenses charged by the Auditor in connection with such audit that
are applicable to such Major Market and Detailing Year.
Annex F Page 2
CONFIDENTIAL
Exhibit L
Annex L: Annual Adjustments to Account for Actual Yield
Section 1 of this Annex L shall apply retroactively to the Effective Date. Capitalized terms not defined in this Annex
shall have the meanings set forth in the agreement to which this Annex is attached (the “ Agreement ”).
1. At the end of each Calendar Year, Gilead shall determine the [*]. Gilead shall use reasonable efforts to provide
such determinations to Janssen by February 15 after the end of the applicable Calendar Year and shall provide such
determinations no later than March 1 after the end of such Calendar Year.
2. For each Calendar Year, no later than thirty (30) days after the applicable notification is provided pursuant to
Paragraph 1 of this Annex L, (a) Gilead shall adjust its balance sheet ( e.g. , inventory of Supplied TMC278 and
accounts payable) and (b) Janssen shall adjust its balance sheet ( e.g. , accounts receivable and deferred revenue),
in each case (a) and (b), to reflect the Quantity Differential moved into or out of Gilead’s inventory multiplied by
the Pre-Conversion Supply Price for the Calendar Year then-ended.
3. For clarification, there shall be no Post-Conversion Invoice issued and no Additional Supply Price paid by Gilead
with respect to Combination Product sold in the Janssen Countries.
Annex L Page
1
CONFIDENTIAL
Exhibit M
Annex M: Payment Terms for TMC278 Invoices
Capitalized terms not defined in this Annex shall have the meanings set forth in the agreement to which this Annex is
attached (the “ Agreement ”). The payment terms for each of the Regions, for the applicable Party are as follow:
A. Gilead Countries in the Expanded Existing Region
For the avoidance of doubt, references to the Region in this Section A are deemed to mean the Gilead Countries in the
Expanded Existing Region.
A.1.
Determination of the Annual Forecast Payment Term
No later than November 15th of each Calendar Year (in conjunction with the establishment of the Pre-Conversion
Supply Price), Gilead shall propose, for the upcoming Calendar Year with respect to the Gilead Countries of the Region
a payment term for the payment of TMC278 Invoices (the “ Annual Forecast Payment Term ”) in the Region. Gilead
shall provide Janssen with a basis for its proposed payment term, which shall reflect [*]
Annex M Page 1
CONFIDENTIAL
B.
Limited Region A Gilead Countries, Excluding Limited Region A Revenue
i.
Share Exceptions
The term “Region” as used in this Section B shall refer to the Gilead Countries in Limited Region A, excluding
Limited Region A Revenue Share Exceptions on and after the Revenue Share Effective Date therefor. [*]
An example of the calculation of the payment term with respect to the Gilead Countries in the Region is included
below:
Annex M Page 2
CONFIDENTIAL
[*]
Annex M Page 3
CONFIDENTIAL
C.
Region B and Region C Gilead Countries and Limited Region A Revenue Share
Exceptions
The term “Region” as used in this Section C shall refer, on and after the Revenue Share Effective Date therefor, to the
Gilead Countries in both Region B and Region C and the Limited Region A Revenue Share Exceptions, collectively.
[*]
D.
Region A Janssen Countries and, Prior to the Revenue Share Effective Date,
Janssen Countries
Region B and Region C
The term “Region” as used in this Section D shall collectively refer to the Janssen Countries in Region A and, prior to
the Revenue Share Effective Date therefor, the Janssen Countries in both Region B and Region C. [*]
Such Pre-Conversion Invoice due date shall be [*]
For the avoidance of doubt, there shall be no Post-Conversion Invoices issued and no Additional Supply Price paid by
Gilead with respect to Combination Product sold, in accordance with the terms of this Agreement, in the Region A
Janssen Countries and, prior to the Revenue Share Effective Date, the Region B and Region C Janssen Countries.
E.
Region B and Region C Janssen Countries (on and after the Revenue Share
Effective Date therefor)
The term “Region” as used in this Section E shall collectively refer to, on and after the Revenue Share Effective Date
therefor, the Janssen Countries in both Region B and Region C. [*]
For the avoidance of doubt, there shall be no Post-Conversion Invoices issued and no Additional Supply Price paid by
Gilead with respect to Combination Product sold, in accordance with the terms of this Agreement, in the Region B or
Region C Janssen Countries on and after the Revenue Share Effective Date therefor.
Annex M Page 9
CONFIDENTIAL
Exhibit N
Annex N: Post-Conversion Supply Price
Capitalized terms not defined in this Annex shall have the meanings set forth in the agreement to which this Annex is
attached (the “ Agreement ”). The Post-Conversion Supply Price for the applicable Region and Selling Party shall be
as follows:
This amended Exhibit N applies to all Triggering Sales on or after the applicable Revenue Share Effective Date for the
applicable Region or Country; the prior Exhibit N shall apply for any Triggering Sales prior to such date.
A.
The Gilead Countries in the Expanded Existing Region
For purposes of this Section A, Region shall mean the Gilead Countries in the Expanded Existing Region.
A.1.
Post-Conversion Supply Price
The Post-Conversion Supply Price for a given month (per kilogram of Supplied TMC278) with respect to the Region
shall equal:
[*]
[*]
[*]
Annex N Page 1
CONFIDENTIAL
[*]
Annex N Page 2
CONFIDENTIAL
A.2.
Calculation of [*]
[*]
Annex N Page 3
CONFIDENTIAL
An example of the calculation of the [*] in the Limited Region A Revenue Share Exceptions and Gilead Countries in
Region B and Region C is below.
[*]
Annex N Page 4
CONFIDENTIAL
B.
Janssen Countries
For the avoidance of doubt, [*].
C.
Gilead Countries in Limited Region A
C.1.
Post-Conversion Supply Price
The term “Region” as used in this Section C.1 shall refer to the Gilead Countries in Limited Region A, except that such
term shall not include the Limited Region A Revenue Share Exceptions on and after the Revenue Share Effective Date
therefor.
The Post-Conversion Supply Price for a given Calendar Year (per kilogram of Supplied TMC278) with respect to the
Region shall equal:
[*]
[*]
[*]
An example of the calculation of the Post-Conversion Supply Price based on certain estimates with respect to TMC278
in the Gilead Countries in the Limited Region A is included below.
Annex N Page 5
CONFIDENTIAL
[*]
Annex N Page 6
CONFIDENTIAL
C.2. Limited Region A TMC278 Annual True Up; Pre Revenue Share Effective Date True Up for Regions
B and C.
The following adjustment (the “Limited Region A TMC278 Annual True Up”) shall be performed separately for (i) the
Gilead Countries in Limited Region A (excluding the Limited Region A Revenue Share Exceptions) for all periods and
(ii) solely for the purpose of conducting a true up for Triggering Sales of Territory Combination Product therein prior
to the Revenue Share Effective Date therefor, the Gilead Countries in Region B and Region C and the Limited Region
A Revenue Share Exceptions (each of (i) and (ii), a “Region” for purposes of this Section).
[*]
Annex N Page 7
CONFIDENTIAL
An example of the calculation of the Limited Region A TMC278 Annual True Up in the Limited Region A is included
below.
[*]
Annex N Page 8
CONFIDENTIAL
D.
Gilead Countries in Region B and Region C and Limited Region A Revenue Share
Exceptions
The term “Region” as used in this Section D shall refer to the Gilead Countries in both Region B and Region C and the
Limited Region A Revenue Share Exceptions, on and after the Revenue Share Effective Date therefor, collectively. For
clarity, the Post-Conversion Supply Price and the US TMC278 Ratio True Up for the Region shall be calculated for all
Gilead Countries in the Region collectively.
D.1.
Post-Conversion Supply Price
The Post-Conversion Supply Price for a given month (per kilogram of Supplied TMC278) with respect to the
applicable Gilead Country shall equal:
[*]
[*]
[*]
Annex N Page 9
CONFIDENTIAL
An example of the calculation of the Post-Conversion Supply Price and the Additional Supply Price, provided for
illustrative purposes only, is set forth below.
[*]
Annex N Page 10
CONFIDENTIAL
D.2.
Calculation of [*]
[*]
Annex N Page 11
Exhibit P
Annex P: Yield Rates
Capitalized terms not defined in this Annex shall have the meanings set forth in the agreement to which this Annex is
attached (the “ Agreement ”).
Estimated Yield Rate
The Estimated Yield Rate with respect to Supplied TMC278 for a given Calendar Year shall be as mutually agreed by
the Parties, taking into account relevant factors, including [*]. If the Parties are unable to agree on an Estimated Yield
Rate for a given Calendar Year by the preceding September 30, the dispute shall be referred for resolution to the
Manufacturing Executives (as defined below). If the Manufacturing Executives are unable to reach agreement on such
Estimated Yield Rate within ten (10) Business Days after such referral, then such dispute shall constitute an Arbitration
Matter and the arbitrator shall determine the Estimated Yield Rate for such Calendar Year based on the foregoing
principles and following any such determination the Estimated Yield Rate determined by the arbitrator shall be binding
on the Parties for such Calendar Year.
The Estimated Yield Rate shall be used in the calculation of the Post-Conversion Supply Price for such Calendar Year.
“ Manufacturing Executives ” shall mean (a) with respect to Janssen, a Senior Vice President of Pharmaceutical
Manufacturing or any direct report designated by the foregoing and (b) with respect to Gilead, Gilead Parent’s Senior
Vice President of Manufacturing or any direct report designated by the foregoing.
Annual Yield Rate
[*]
Annex P – Page 1
Exhibit Q
Annex Q: Additional Financial Reporting
Capitalized terms used in this Annex and not defined herein shall have the meaning set forth in the agreement to which
this Annex is attached (the “ Agreement ”). Section references used in this Annex shall refer to Sections in the
Agreement except as otherwise provided.
I. Review of Calculations . Without limitation of a Party’s audit rights under Sections 12.2(b) and (c) of the
Agreement, each Party may review any calculation provided by the other Party under this Annex Q with respect to the
Limited Region A, Region B and Region C. If the reviewing Party disagrees with the other Party’s calculations, the
reviewing Party shall promptly notify the other Party and the Parties’ respective finance representatives shall confer to
discuss such disagreement. If they are unable to resolve such dispute within ten (10) Business Days, to the extent such
dispute regards the calculation itself (rather than a dispute regarding an interpretation of the Agreement (including this
Annex or any other Annexes) or those matters covered by Section 12.2(b) or (c)), then the reviewing Party may refer
such dispute to an Independent Accounting Expert. The determination of such Independent Accounting Expert shall be
deemed binding upon the Parties absent an agreement to the contrary. For clarity, any dispute regarding the
interpretation of the Agreement (including this Annex or any other Annexes) shall be subject to the dispute resolution
provisions set forth in the Agreement. For the avoidance of doubt, this provision is intended to apply only to review of
the calculations performed pursuant to this Annex Q, and shall not entitle either Party to audit the underlying
information utilized in such calculations, which audit right is exclusively provided pursuant to Section 12.2(b) and (c)
of the Agreement.
II. Expanded Existing Region . This Section II applies only with respect to the Expanded Existing Region. The
Parties shall exchange information as follows:
Each Party shall provide the other Party with the following information at the times set forth below. Reporting pursuant
to Section II of this Annex Q shall be on a country-by-country basis and, where appropriate in light of the calculations
to be made under the Agreement or any Ancillary Agreements, in the aggregate for all countries reported by the
applicable Party in the Expanded Existing Region. Furthermore, to the extent applicable to the reporting contemplated
in Section II of this Annex Q, the Parties shall coordinate in good faith to establish categories into which the reporting
Party may group Customers based on discounts and other factors deemed relevant by the Parties (“ Customer Groups
”) in order to limit the level of administrative burden to the Selling Party, and such Customer Groups may change from
time to time as the result of changes in Customers’ respective discounts or changes in such other factors. Once agreed
by the Parties, such Customer Groups may be used by Gilead for purposes of determining the Post-Conversion Supply
Price pursuant to Annex N for the Expanded Existing Region.
A.
[*]
Annex Q – Page 1
[*]
Annex Q – Page 2
An example of the revenue share report for the United States provided for illustrative purposes only, is set forth below.
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
Annex Q – Page 3
Exhibit V
[*]
[*]
Annex V Page
1
[*]
Annex V Page
2
[*]
Annex V Page
3
[*]
Annex V Page
4
Annex V Page
5
[*]
Annex V Page
6
Exhibit Y
Annex Y: Limited Region A, Region B and Region C Pricing and Discounts
Capitalized terms not defined in this Annex shall have the meanings set forth in the agreement to which this Annex is
attached (the “ Agreement ”).
A.
Generally.
The provisions set forth in this Annex Y shall apply to the pricing of Territory Combination Product sold by the Selling
Party or any of its applicable Affiliates to any Third Party, including a Third Party Distributor, in any country outside
the Expanded Existing Region. For clarity, the Discount Committee described in Section 7 of the Agreement shall not
govern the pricing activities under this Annex Y.
B.
Pricing Principles Outside the Expanded Existing Region.
1. The Selling Party shall have discretion as to the price that it offers to sell the Territory Combination Product
unless otherwise specifically provided in this Annex Y. Except as otherwise agreed by the Parties in writing,
with respect to any Price Approval Country, the Selling Party shall be responsible for managing the negotiation
with the applicable authority(ies) in each such country in the Territory to obtain and maintain pricing approval.
2. Upon request of one Party, the other Party shall make available to such requesting Party, solely to the extent
allowed by Applicable Law, such information Controlled by such other Party and its Affiliates as is required in
order to obtain pricing and reimbursement approvals for the Territory Combination Product.
3. The following shall apply to Price Approval Countries in Limited Region A other than Limited Region A
Revenue Share Exceptions. If, following the Launch of the Territory Combination Product in any such country,
[*]
4. As between the Parties (and their respective Affiliates), the Selling Party (and its Affiliates) (or its Third Party
Distributor) shall have sole responsibility for conducting pricing and discounting negotiations (and all other
contracting matters) with respect to the Territory Combination Product with Customers in the applicable
country in the Territory in accordance with this Annex Y.
5. Gilead and Janssen shall each retain sole discretion with respect to price-setting and discounts for its respective
Single Agent Products and Double Agent Product. Notwithstanding the foregoing, [*].
Annex Y – Page 1
C.
Disputes.
In the event that interpretation or application of this Annex Y is necessary to implement the provisions of this Annex Y,
the Alliance Managers shall discuss the matter and attempt to resolve the matter by consensus.
To the extent any of the above procedures is not permitted by Applicable Law, the Parties shall promptly agree on
alternative procedures to replace such procedures.
Annex Y – Page 2
Exhibit AA
Annex AA: Selling Party and Country List for Region A, Region B and Region C
This list shall automatically include any country that is derived from the territory of a country listed below (for
example, the independent country of Southern Sudan from Sudan). For clarity, the column entitled “Janssen as Holder
of Marketing Authorization” indicates for each country whether Janssen holds the Marketing Authorization in
accordance with Section 4.4(a) of the Agreement.
Region A
Country
Albania
Argentina
Bahrain
Bosnia-Herzegovina
Chile
Colombia
Costa Rica
FYR Macedonia
Hong Kong
Israel
Japan
Kosovo
Kuwait
Lebanon
Macau
Malaysia
Mexico
Montenegro
Oman
Qatar
Russia
Saudi Arabia
Serbia
Singapore
South Korea
Taiwan
United Arab Emirates
Uruguay
Venezuela
Selling Party
Original Selling Party (As of April 25, 2014 and as Janssen as Holder of
(Prior to April 25. 2014)
of the Third Amendment
Marketing
Effective Date)
Authorization
Gilead
Gilead
No
Gilead
Gilead
No
Janssen
Non-Assigned
No
Gilead
Gilead
No
Gilead
Gilead
No
Gilead
Gilead
No
Gilead
Gilead
No
Gilead
Gilead
No
Janssen
Janssen
Yes
Janssen
Janssen
Yes
Janssen
Janssen
Yes
Gilead
Gilead
No
Janssen
Non-Assigned
No
Janssen
Janssen
Yes
Janssen
Janssen
Yes
Janssen
Janssen
Yes
Janssen
Janssen
Yes
Gilead
Gilead
No
Janssen
Non-Assigned
No
Janssen
Non-Assigned
No
Janssen
Janssen
No
Janssen
Non-Assigned
No
Gilead
Gilead
No
Janssen
Janssen
Yes
Janssen
Janssen
Yes
Janssen
Janssen
Yes
Janssen
Non-Assigned
No
Gilead
Gilead
No
Gilead
Gilead
No
Annex AA – Page 1
Region B
Country
Algeria
Azerbaijan
Belarus
Cayman Islands
Curacao
China (Mainland)
Egypt
Iran
Iraq
Jordan
Libya
Morocco
Panama
Paraguay
Peru
Philippines
Sint Maarten
Tunisia
Ukraine
Original Selling
Party
(Prior to April 25.
2014)
Janssen
Janssen
Janssen
Gilead
Gilead
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Gilead
Gilead
Gilead
Janssen
Gilead
Janssen
Janssen
Selling Party
(As of April 25, 2014
and as of the Third
Amendment Effective
Date)
Janssen
Janssen
Janssen
Gilead
Gilead
Janssen
Janssen
Non-Assigned
Non-Assigned
Janssen
Janssen
Non-Assigned
Gilead
Gilead
Gilead
Janssen
Gilead
Non-Assigned
Janssen
Annex AA – Page 2
Janssen as
Holder of
Marketing
Authorization
Yes
Yes
Yes
No
No
No
Yes
No
No
Yes
Yes
No
No
No
No
Yes
No
No
Yes
Region C
Country
Afghanistan
Angola
Anguilla
Antigua and Barbuda
Armenia
Aruba
Bahamas
Bangladesh
Barbados
Belize
Benin
Bhutan
Bolivia
Botswana
British Virgin Islands
Burkina Faso
Burundi
Cambodia
Cameroon
Cape Verde
Central African Republic
Chad
Comoros
Congo
Congo, Dem. Rep. of the
Cote d'Ivoire
Cuba
Djibouti
Dominica
Dominican Republic
Ecuador
El Salvador
Equatorial Guinea
Eritrea
Ethiopia
Fiji
Original Selling
Party
(Prior to April 25.
2014)
Janssen
Janssen
Gilead
Gilead
Janssen
Gilead
Gilead
Janssen
Gilead
Gilead
Janssen
Janssen
Gilead
Janssen
Gilead
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Gilead
Janssen
Gilead
Gilead
Gilead
Gilead
Janssen
Janssen
Janssen
Janssen
Selling Party
(As of April 25, 2014
and as of the Third
Amendment Effective
Date)
Non-Assigned
Non-Assigned
Gilead
Gilead
Janssen
Gilead
Gilead
Non-Assigned
Gilead
Gilead
Non-Assigned
Non-Assigned
Gilead
Gilead
Gilead
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Gilead
Non-Assigned
Gilead
Gilead
Gilead
Gilead
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Annex AA – Page 3
Janssen as
Holder of
Marketing
Authorization
No
No
No
No
Yes
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
Gabon
Gambia
Georgia
Ghana
Grenada
Guatemala
Guinea
Guinea-Bissau
Guyana
Haiti
Honduras
India
Indonesia
Jamaica
Kazakhstan
Kenya
Kiribati
Korea, Dem. People’s Rep of
Kyrgyzstan
Lao, People’s Dem. Rep.
Lesotho
Liberia
Madagascar
Malawi
Maldives
Mali
Mauritania
Mauritius
Moldova, Rep. of
Mongolia
Montserrat
Mozambique
Myanmar
Namibia
Nauru
Nepal
Nicaragua
Niger
Nigeria
Pakistan
Janssen
Janssen
Janssen
Janssen
Gilead
Gilead
Janssen
Janssen
Gilead
Gilead
Gilead
Janssen
Janssen
Gilead
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Gilead
Janssen
Janssen
Janssen
Janssen
Janssen
Gilead
Janssen
Janssen
Janssen
Annex AA – Page 4
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Gilead
Gilead
Non-Assigned
Non-Assigned
Gilead
Gilead
Gilead
Non-Assigned
Non-Assigned
Gilead
Janssen
Non-Assigned
Non-Assigned
Non-Assigned
Janssen
Non-Assigned
Gilead
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Gilead
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Gilead
Non-Assigned
Non-Assigned
Non-Assigned
No
No
No
No
No
No
No
No
No
No
No
No
No
No
Yes
No
No
No
Yes
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
Palau
Papua New Guinea
Rwanda
Saint Kitts and Nevis
Saint Lucia
Saint Vincent and the
Grenadines
Samoa
Sao Tome and Principe
Senegal
Seychelles
Sierra Leone
Solomon Islands
Somalia
South Africa
South Sudan
Sri Lanka
Sudan
Suriname
Swaziland
Syria
Tajikistan
Tanzania, U. Rep. of
Thailand
Timor-Leste
Togo
Tonga
Trinidad and Tobago
Turkmenistan
Turks and Caicos
Tuvalu
Uganda
Uzbekistan
Vanuatu
Vietnam
Yemen
Zambia
Zimbabwe
Janssen
Janssen
Janssen
Gilead
Gilead
Gilead
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Gilead
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Gilead
Janssen
Gilead
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Janssen
Annex AA – Page 5
Non-Assigned
Non-Assigned
Non-Assigned
Gilead
Gilead
Gilead
No
No
No
No
No
No
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Gilead
Non-Assigned
Non-Assigned
Non-Assigned
Gilead
Gilead
Non-Assigned
Janssen
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Gilead
Non-Assigned
Gilead
Non-Assigned
Non-Assigned
Janssen
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
Non-Assigned
No
No
No
No
No
No
No
No
No
No
No
No
No
No
Yes
No
No
No
No
No
No
No
No
No
No
Yes
No
No
No
No
No
Exhibit BB
Annex BB: Invoice and Payment Terms for Territory Combination Product in Janssen Countries
Capitalized terms not defined in this Annex shall have the meanings set forth in the agreement to which this Annex is
attached (the “ Agreement ”).
With respect to Region A Janssen Countries, including Japan, Gilead shall issue to Janssen an Interim TCP Invoice for
the TCP Interim Supply Price upon shipment of Territory Combination Product pursuant to the Janssen Distributor
Agreement.
With respect to Region B and Region C Janssen Countries, Gilead shall issue to Janssen an Interim TCP Invoice for the
TCP Interim Supply Price upon shipment of Territory Combination Product pursuant to the Janssen Distributor
Agreement, and Gilead shall issue to Janssen a Final TCP Invoice within [*] Each such Interim TCP Invoice or Final
TCP Invoice shall state the invoiced amount and quantity of Territory Combination Product covered by such invoice.
Janssen shall pay each such invoice in accordance with the payment terms and calculations set forth in this Annex BB
of the Agreement.
[*]
A.
Janssen Country Territory Combination Product Invoicing
All TCP Invoices shall be issued and paid in U.S. Dollars on the date set forth below.
A.2.
Invoicing and Payment in Region A Janssen Countries
The Janssen Countries in Region A are collectively the “Region” for purposes of this Section A.1, such that there shall
be a single Average Janssen Region Payment Term for all of the Janssen Countries in Region A.
[*]
An example of the calculation of the payment term with respect to the Janssen Countries in Region A is included
below.
Annex BB – Page 1
[*]
Annex BB – Page 2
[*]
B.
Janssen Country Territory Combination Product Interim Supply Price
[*]
An example of the calculation of the TCP Interim Supply Price with respect to Territory Combination Product in
Region A Janssen Countries (excluding [*]) is included below.
Annex BB – Page 3
[*]
Annex BB – Page 4
B.1.
Region B and Region C Janssen Countries
Subject to the true up described in Section C.2 of this Annex BB, Gilead shall supply each Unit of Branded Region B/C
Combination Product to Janssen or its designated Affiliate at [*] (collectively, the Janssen Countries of Region B and
Region C shall constitute a single “Region” for purposes of this Section B.2). The invoiced amount for the Final TCP
Invoice for a given month shall equal the product of: [*]
Annex BB – Page 5
[*]
Annex BB – Page 6
B.3
[*]
[*]
Annex BB – Page 7
[*]
Annex BB – Page 8
C.
Janssen Country Territory Combination Product True Ups
C.1.
Region A Janssen Countries Excluding [*]
Within ninety (90) days following the end of each Calendar Year, Gilead shall provide Janssen with a Final TCP
Invoice with respect to each Interim TCP Invoice (or portion thereof) for the Janssen Countries in Region A (excluding
Japan) (collectively, the “Region” for purposes of this Section C.1). [*]
An example of the calculation of the TCP Annual True Up amount is included below.
Annex BB – Page 9
[*]
Annex BB – Page 10
[*]
Annex BB – Page 11
C.2
Region B and Region C: Calculation of [*]
[*]
Annex BB – Page 12
[*]
Annex BB – Page 13
C.3
[*]
[*]
Annex BB – Page 14
CONFIDENTIAL
Exhibit CC
Annex CC: Exchange Rates and Currency Conversion True Up Principles
Capitalized terms not defined in this Annex shall have the meanings set forth in the agreement to which this Annex is
attached (the “ Agreement ”).
A.
Estimated Net Selling Price and TCP Interim Supply Price Currency Conversions
With respect to the calculation of the TMC278 Post-Conversion Supply Price in Annex N with respect to the Limited
Region A and the TCP Interim Supply Price in Annex BB with respect to the Janssen Countries in Region A (including
[*]) and the calculations associated therewith, the conversion of currency values used in such calculations with respect
to a country from the local currency into U.S. Dollars shall be calculated utilizing the applicable Intra-Year Conversion
Rate for such country during such Calendar Year.
“ Intra-Year Conversion Rate ” shall mean, with respect to a Calendar Year and a country, the daily exchange rate
between the applicable country’s currency and U.S. Dollars reported by the Bloomberg Professional <R> service
application on the last Business Day during the month of October in the previous Calendar Year.
B.
Limited Region A TMC278 Annual True Up and TCP Annual True Up
Notwithstanding Section 10.9(a) of the Agreement and except as otherwise specified in Annex BB Section C.1 with
regard to the DCP and Combination Product Actual Net Selling Price values in Mexico and Russia, with respect to the
calculation of the Limited Region A TMC278 Annual True Up in Annex N and the TCP Annual True Up in Annex BB
with respect to Region A (including Japan), the conversion of currency values used in such calculations with respect to
a country from the local currency into U.S. Dollars shall be calculated utilizing the applicable Final Year Conversion
Rate for such country for such Calendar Year with respect to which the applicable true up is being calculated.
“ Final Year Conversion Rate ” shall mean, with respect to a Calendar Year and a country, the weighted average of
the applicable country’s Monthly Average Exchange Rate for each of the months in such Calendar Year, weighted by
the corresponding Actual Unit Sales, as applicable, with respect to such country for such calendar month.
“ Monthly Average Exchange Rate ” shall mean, with respect to a country and a calendar month, the actual average
daily exchange rate for such month for converting the applicable country’s currency into U.S. Dollars, as such rate is
reported in Bloomberg Professional <R> service application.
“ Actual Unit Sales ” shall mean, with respect to a country and a calendar month, the actual number of Units of
Territory Combination Product for which a Triggering Sale by Gilead and its
Annex CC - 1
CONFIDENTIAL
Affiliates or Janssen and its Affiliates, as applicable, has occurred in such country for such calendar month.
An example of the calculation of the Final Year Conversion Rate for the TCP Annual True Up in the Janssen Countries
is included below.
Annex CC - 2
CONFIDENTIAL
[*]
Annex CC - 3
CONFIDENTIAL
Exhibit DD
Annex DD: Calendar Year End Revaluation Invoice Adjustments
A.
Combination Product for Janssen Countries
For purposes of this Section A of Annex DD, “Region” shall be deemed to mean each of (a) Region A (excluding [*]),
(b) Region B and Region C collectively (such that there shall be one calculation for all Janssen Countries in Region B
and Region C) and (c) [*]
An example of the calculation of the Revaluation TCP Invoice with respect to the Janssen Countries is included below.
Annex DD - 1
CONFIDENTIAL
[Note: Example was updated by the A&R Second Amendment]
Annex DD - 2
CONFIDENTIAL
[*]
Annex DD - 3
CONFIDENTIAL
B.
TMC278 Invoices
Section B of this Annex DD shall apply retroactively to the Effective Date. [*]
Annex DD - 4
Exhibit 31.1
CERTIFICATION
I, John C. Martin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Gilead Sciences, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: August 4, 2014
/s/
J OHN C. M ARTIN
John C. Martin, Ph.D.
Chairman and Chief Executive
Officer
Exhibit 31.2
CERTIFICATION
I, Robin L. Washington, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Gilead Sciences, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: August 4, 2014
/S/
R OBIN L. W ASHINGTON
Robin L. Washington
Executive Vice President and Chief Financial
Officer
Exhibit 32.1
CERTIFICATIONS
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350, as adopted), John C. Martin, Ph.D., the Chairman and
Chief Executive Officer of Gilead Sciences, Inc. (the Company), and Robin L. Washington, the Executive Vice President and Chief Financial
Officer of the Company, each hereby certifies that, to the best of his or her knowledge:
1. The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2014 , to which this Certification is attached as
Exhibit 32 (the Periodic Report), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934, as amended; and
2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition of the Company
at the end of the periods covered by the Periodic Report and results of operations of the Company for the periods covered by the Periodic
Report.
Dated: August 4, 2014
/s/
J OHN C. M ARTIN
John C. Martin, Ph.D.
Chairman and Chief Executive Officer
/s/
R OBIN L. W ASHINGTON
Robin L. Washington
Executive Vice President and Chief Financial Officer
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the SEC and is not to be incorporated by
reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended
(whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.