Table of Contents
`
`NOTES TO CONSOLIDATED FINANCTAL STATEMENTS—(Continued)
`
`GILEAD SCIENCES,INC.
`
`Deterred income taxesreflect the net tax eftects of temporary differences between the carrying amountsofassets and liabilities for
`financial reporting purposes and the amounts used for income tax purposes. Significant components ofour deferred tax assets and
`habilitics are as follows (in thousands):
`
`Deferred tax asscts:
`
`Net operating loss carryforwards
`Stock-based compensation
`Reserves and accruals not currently deductible
`Deferred revenue
`Depreciation related
`Research and other credit carryforwards
`Capitalized intangibles
`Other, net
`Total deferred tax assets before valuation allowance
`Valuation allowance
`Total deferred tax assets
`Deferred tax liabilities:
`
`Intangibles
`Unremitted foreign earnings
`Other
`
`Total deferred tax liabilities
`Net deferred tax assets
`
`December 31,
`
`2010
`
`2009
`
`
`
`$ 308,854
`142,242
`109,806
`49,194
`58,875
`25,151
`5,839
`88,669
`788,630
`(13,040)
`775,590
`
`(322,168)
`(15,928)
`(20,774)
`(358,870)
`$ 416,720
`
`$ 377,058
`117,019
`90,760
`67,389
`44,166
`28,980
`12,086
`64,881
`802,339
`(1,078)
`801,261
`
`(384,480)
`(15,928)
`(17,053)
`(417,461)
`$ 383,800
`
`The valuation allowance increased (decreased) by $11.9 million, $1.1 million and $(23.5) millionfor the years ended December31,
`2010, 2009 and 2008, respectively. We have concluded, based on the standard set forth in the FASB Accounting Standards Codification
`related to Income Taxes,that it 1s more likely than not that we will not realize any benefit fromthe deferred tax assets related to certain
`state net operating loss and credit carryforwards.
`
`At December 31, 2010, we had U.S. federal net operating loss carryforwards of approximately $732.5 million. The federal net
`operating loss carryforwards will start to expire in 2016, if not utilized. We also had federal tax credil carry forwards of approximately
`$26.2 million which will start to expire in 2016,if not utilized. In addition, we had state net operating loss and tax credit carryforwards of
`approximately $1.40 billion and $3.3 million, respectively. The state net operating loss and tax credit carry forwards will start to expire in
`2011 and 2016, respectively, if not utilized.
`
`Utilization of net operating losses and tax credits may be subject to an annual limitation due to ownership change limitations
`provided in the Internal Revenue Code of 1986, as amended, and similar slate provisions. This annual limitation may result in the
`expiration ofthe net operating losses (NOLs) and credits before utilization.
`
`Wefile federal, state and foreign incometax returns 1n many jurisdictions in the United States and abroad. For federal income tax
`purposes, the statute of limitations is open for 2003 and onwards. For certain acquired entities, the statute of limitations 1s open forall
`years from inception duc to ourutilization of their NOLs and credits carried over from prior years. For California income tax purposes, the
`statute of limitations remains open for 2002 and onwards.
`
`136
`
`REG_NDNY00000141
`Regeneron Exhibit 1227.138
`Regeneron Exhibit 1227.138
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`

`

`Table of Contents
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
`
`GILEAD SCIENCES,INC.
`
`Our incometax returns are audited by federal, state and foreign tax authorities. We are currently under examination by the Internal
`Revenue Service (IRS) for the 2005, 2006 and 2007 tax years and by variousstate and foreign jurisdictions. There are differing
`interpretations oftax laws and regulations, and as a result, significant disputes may arise with these tax authoritics involving issues ofthe
`timing and amount of deductions and allocations of income among varioustax jurisdictions. We periodically evaluate our exposures
`associated with our tax filing positions.
`
`At December 31, 2010 and 2009,the total gross unrecognized tax benefits were $126.5 million and $106.5 million, respectively. Of
`the total unrecognized tax benefits, $106.5 million and $72.6 million at December 31, 2010 and 2009, respectively, if recognized, would
`reduce oureffective tax rate in the period of recognition. We have continued to classify interest and penalties related to unrecognized tax
`benefits as part of our income tax provision in our Consolidated Statements of Income. As of December 31, 2010 and 2009, we had
`accrued interest and penalties related to unrecognized tax benefits of $12.3 million and $5.4 million, respectively.
`
`As of December 31, 2010, we believe it 1s reasonably possible that our unrecognized tax benefits will decrease by approximately
`$6.0 million in the next 12 months as we expect to have clarification from the tax authorities around certain of our uncertain tax positions.
`With respect to the remaining unrecognized tax benetits, we are currently unable to make a reasonable estimate as to the period of cash
`settlement, if any, with the respective tax authorities.
`
`The following is a rollforward of our total gross unrecognized tax benefit liabilities for the years ended December 31, 2010 and 2009
`(in thousands):
`
`Balance, beginning ofperiod
`
`Tax positionsrelated to current year:
`Additions
`Reductions
`
`
`
`Tax positions related to prior years:
`Additions
`Reductions
`Settlements
`Lapse of statute of limitations
`Balance, end of period
`
`2010
`
`December31,
`2009.
`
`2008
`
`$ 106,506
`
`$121,424
`
`$ 115,087
`
`24,320
`(3,303)
`
`25,036
`(8,380)
`
`37,495
`—
`
`25,581
`(23,474)
`(2,160)
`(954)
`$126,516
`
`37,014
`(36,277)
`(31,517)
`(794)
`$106,506
`
`4,298
`(23,307)
`(10,252)
`(1,897)
`$121,424
`
`18. DEFERRED COMPENSATION PLANS
`
`We maintain a retirement savings plan under which eligible employees may defer compensation for income tax purposes under
`Section 401(k) of the Internal Revenue Code (Gilead Plan). Under the Gilead Plan, employees may contribute up to 60% oftheir eligible
`annual compensation, subject to IRS plan limits. We make matching contributions under the Gilead Plan. In 2010, 2009 and 2008, we
`contributed up to 50% of an employee’s contributions up to an annual maximum match of $5,000. Our total matching contribution expense
`under the Gilead Plan for the years ended December 31, 2010, 2009 and 2008 was $11.2 million, $10.2 million, and $7.8 million,
`respectively.
`
`We maintain a deferred compensation plan under which our directors and key employees may defer compensation for income tax
`purposes. The deferred compensation plan is a non-qualified deferred compensation
`
`137
`
`REG_NDNY00000142
`Regeneron Exhibit 1227.139
`Regeneron Exhibit 1227.139
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`

`

`Table of Contents
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
`
`GILEAD SCIENCES,INC.
`
`plan which is not subject to the qualification requirements under Section 401 (a) ofthe Internal Revenue Code. Compensation deferred
`after December 31, 2004 is subject to the requirements of Section 409A ofthe Internal Revenue Code. Underthe plan, officers and other
`semor grade level employees may contribute up to 70% oftheir annual salarics and up to 100% oftheir annual bonus while directors may
`contribute up to 100% oftheir annual retainer fee. Amounts deferred by participants are deposited in a rabbi trust and are recorded in other
`noncurrent asscts in our Consolidated Balance Shects. Beginning in 2004, directors may also clect to receive all or a portion oftheir
`annual cash retainer in phantom shares, which gives the participant the right to recerve an amount equalto the value ofa specified number
`of shares over a specified period of time and which will be payable in shares of our common stock (with fractional shares paid out in cash)
`as eslablished by the plan administrator. As of December 31, 2010, we had 31,682 phantom shares outstanding. Participants can elect one
`of several distribution dates available under the plan at which they will receive their deferred compensation payment.
`
`19. SUBSEQUENT EVENTS
`
`Stock Repurchase Program
`
`In January 2011, our Board authorized an additional three-year, $5.00 billion stock repurchase program which will commence upon
`the completion ofour existing program authorized in May 2010.
`
`Acquisition ofArresto Biosciences, Inc.
`
`In December 2010, we entered into an agreement to acquire Arresto Biosciences, Inc. (Arresto) for $225 millionplus potential future
`payments based on achievementofcertain sales levels. This transaction closed on January 14, 2011, at which time Arresto became a
`wholly-owned subsidiary. Arresto wasa privately-held, development-stage biotechnology company based in Palo Alto, California, focused
`on developing antibodies for the potential treatmentoffibrotic diseases and cancer. The company’s lead product is GS 6224 (formerly
`AB0024), a humanized monoclonal antibody (mAb) targeting the human lysy1 oxidase-like-2 (,OX1.2) protein. In addition to an ongoing
`Phase 1 study of GS 6224 in patients with advanced solid tumors, a Phase | study had also been initiated to evaluate GS 6224 in patients
`with idiopathic pulmonary fibrosis. We believe that Arresto’s pipeline and research and development expertise are well aligned with
`Gilead’s areas of focus. Given the timing ofthe closing ofthis acquisition, we are currently in the process ofvaluing the assets acquired
`and liabilities assumed in the business combination. As a result, we are unable to provide the amounts recognized as ofthe acquisition date
`for the major classes of assets acquired and liabilities assumed and certain disclosures pertaining to contingent consideration.
`
`Acquisition ofCalistoga Pharmaceuticals, Inc.
`
`In February 2011, we entered into an agreement to acquire Calistoga Pharmaceuticals,Inc. (Calistoga) for $375 million plus potential
`payments of up to $225 million based on the achievement of certain milestones. This transaction is expected to close in the second quarter
`of 2011. Calistoga is a privately-held, biotechnology company based in Seattle, Washington, focused on the development of medicines to
`treat cancer and inflammatory diseases. The company hasa portfolio of proprietary compoundsthat selectively target isoforms of
`phosphoinositide-3 kinase (P13K). Calistoga’s lead product candidate, CAL-101, is a first-in-class specific mhibitor of the P13K delta
`isoform. P13K delta is preferentially expressed in leukocytes involved ina variety ofinflammatory and autormmunediseases and
`hematological cancers.
`
`138
`
`REG_NDNY00000143
`Regeneron Exhibit 1227.140
`Regeneron Exhibit 1227.140
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`

`

`Table of Contents
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
`
`GILEAD SCIENCES,INC.
`
`20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
`
`The following amounts are in thousands, except per share amounts:
`
`20100
`
`1st Quarter
`
`2nd Quarter
`
`3rd Quarter
`
`4th Quarter
`
`‘Total revenues
`Gross profit on product sales
`Net income
`Net incomeattributable to Gilead
`Net incomepershare attributable to Gilead common stockholders
`—hbasic
`
`Net incomepershare attributable to Gilead common stockholders
`—diluted
`
`$2,085,853
`$1,347,633
`$ 852,094
`$ 854,901
`
`$1,927,224
`$1,350,536
`$ 709,127
`$ 712,061
`
`$1,937,656
`$1,387,975
`$ 702,163
`$ 704,876
`
`$1,998,687
`$1,433,901
`$ 626,365
`$ 629,419
`
`$
`
`$
`
`0.95
`
`92
`
`$
`
`$
`
`0.81
`
`0.79
`
`$
`
`$
`
`0.85
`
`0.83
`
`$
`
`$
`
`0.78
`
`0.76
`
`2009
`
`otal revenues
`Gross profit on product sales
`Net income
`Net incomeattributable to Gilead
`Net incomeper share attributable to Gilead common stockholders
`—basic
`
`Net incomeper share attributable to Gilead common stockholders
`—diluted
`
`$1,530,460
`$1,118,166
`$ 586,576
`$ 589,112
`
`$1,647,155
`$1,185,333
`$ 569,145
`$ 571,398
`
`$1,801,389
`$1,239,255
`$ 670,478
`$ 673,033
`
`$2,032,379
`$1,330,999
`$ 799,393
`$ 802,212
`
`$
`
`$
`
`0.65
`
`0.63
`
`$
`
`$
`
`0.63
`
`0.61
`
`$
`
`$
`
`0.75
`
`0.72
`
`$
`
`$
`
`0.89
`
`0.87
`
`¥
`
`During 2010, we recorded $136.0 million of impairment charges in R&D expense,related to certain IPR&D assets acquired from CV
`Therapeutics. See Notes 5 and 9.
`
`139
`
`REG_NDNY00000144
`Regeneron Exhibit 1227.141
`Regeneron Exhibit 1227.141
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`

`

`Table of Contents
`
`GILEAD SCIENCES,INC.
`
`Schedule II: Valuation and Qualifying Accounts
`
`Balance at
`Beginning of
`Period
`
`Additions/
`Charged to
`Expense
`
`Deductions
`
`Balance at
`End of
`Period
`
`Year ended December31, 2010:
`Accounts receivable allowances‘)
`Valuation allowance for deferred tax assets @)
`
`Year ended December 31, 2009:
`Accounts reccivable allowances
`Valuation allowance for deferred tax assets ©
`
`Year ended December31, 2008:
`Accounts receivable allowances
`Valuation allowance for deferred tax assets
`
`$ 132,810
`$
`1,078
`
`$818,132
`$ 12.127
`
`$800,000
`$
`165
`
`iw)
`
`$ 150,94
`
`$ 13,040
`
`$
`$
`
`$
`$
`
`90,694
`—
`
`$606,504
`$ 15,103
`
`$564,388
`$ 14,025
`
`$132,810
`$
`1,078
`
`72,217
`23,498
`
`$500,037
`$
`965
`
`$481,560
`$ 24,463
`
`$ 90,694
`$ —
`
`°
`@)
`
`Allowancesare for doubtful accounts, sales returns, cash discounts and chargebacks.
`Valuation allowance for deferred tax assets includes $9.9 million and $1.1 million as of December31, 2010 and 2009, respectively,
`related to our acquisitions.
`
`140
`
`REG
`_NDNY00000145
`Regeneron Exhibit 1227.142
`Regeneron Exhibit 1227.142
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`

`

`Table of Contents
`
`SIGNATURES
`
`Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
`to be signed on tts behalf by the undersigned, thereunto duly authorized.
`
`GILEAD SCIENCES, INC.
`
`
`By:
`
`/S/
`
`JOHN C. MARTIN
`John C. Martin, Ph.D.
`Chairman and Chief Executive Officer
`
`POWER OF ATTORNEY
`
`
`KNOW ALL PERSONS BY THESE PRESENTS,that each person whose signature appears below constitutes and appoints John C.
`Martin and Gregg H. Alton, and eachof them,as his true and lawful attorneys-in-fact and agents, with full power of substitution and
`resubstitution, for him or her andin his or her name, place, and stead, in any and all capacities, to sign any and all amendmentsto this
`Report, and to file the same, withall exhibits thereto, and other documents in connection therewith, with the Securities and Exchange
`Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every
`act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in
`person, herebyratifying and confirmingthat all said attorneys-in-fact and agents, or any of them ortheir or his substitute or substitutes,
`may lawfully do or cause to be done byvirtue hereof. Pursuant to the requirements ofthe Securities xchange Act of 1934, as amended,
`this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
`
`Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the
`following persons on behalf of the registrant and in the capacities and onthe dates indicated.
`
`Signature
`
`Title
`
`Date
`
`/s/_
`
`JOHN C. MARTIN
`John C. Martin, Ph.D.
`
`Chairman and Chief Executive Officer
`(Principal Executive Officer)
`
`February 28, 2011
`
`February 28, 2011
`
`February 28, 2011
`
`February 28, 2011
`
`February 28, 2011
`
`February 28, 2011
`
`/S/ ROBIN L. WASHINGTON
`Robin L. Washington
`
`/S/_
`
`JAMES M. DENNY
`James M. Denny
`
`/s/_
`
`PAUL BERG
`Paul Berg
`
`/S/_
`
`JOHN F. COGAN
`John F. Cogan
`
`/S/_ ETIENNE F. DAVIGNON
`Etienne F. Davignon
`
`Senior Vice President and Chief Financial
`Officer (Principal Financial and
`Accounting Officer)
`
`Director
`
`
`
`Director
`
`Director
`
`Director
`
`141
`
`REG_NDNY00000146
`Regeneron Exhibit 1227.143
`Regeneron Exhibit 1227.143
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`

`

`Table of Contents
`
`Signature
`
`/Sf CARLA A. HILLS
`Carla A.Hills
`
`/S/ KEVIN E. LOFION
`Kevin E. Lofton
`
`/S/_
`
`JOHN W. MADIGAN
`John W. Madigan
`
`/S/ GORDON UL. MOORE
`Gordon E. Moore
`
`
`
`/Sf NICHOLAS G. MOORE
`Nicholas G. Moore
`
`/S/ RICHARD J. WHITLEY
`Richard J. Whitley
`
`/S/ GAYLE E. WILSON
`Gayle E. Wilson
`
`/S/_ PER WOLD-OLSEN
`Per Wold-Olsen
`
`Title
`
`Director
`
`Director
`
`
` Director
`
`Director
`
`Director
`
`Director
`
`Director
`
`Director
`
`Date
`
`February 28, 201
`
`February 28, 201]
`
`February 28, 201
`
`February 28, 201
`
`Tebruary 28, 201
`
`February 28, 201
`
`February 28, 201
`
`February 28, 201
`
`142
`
`REG_NDNY00000147
`Regeneron Exhibit 1227.144
`Regeneron Exhibit 1227.144
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`