Table of Contents
`
`5. ACQUISITIONS
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
`
`GILEAD SCIENCES,INC.
`
`On January 1, 2009, we adopted guidance for recognizing and measuring assets acquired,liabilities assumed and any noncontrolling
`interests in the acquiree in a business combination. The guidance requires, for example, that IPR&D be capitalized at fair value as
`intangible assets at the time of acquisition and acquisition-related expenses and restructuring costs be recognized separately from the
`business combination. We adopted the provisions of this guidance on a prospective basis and applied it to our acquisitions of CGT in 2010
`and CV Therapeutics in 2009, as discussed below.
`
`CGI Pharmaceuticals, Inc.
`
`In June 2010, we entered into an agreement to acquire CGI for up to $120.0 million in cash, consisting of $91.0 million as an upfront
`payment and up to $29.0 million of contingent consideration payable based on the achievementofclinical development milestones. This
`transaction closed on July 8, 2010, at which time CGI became a wholly-owned subsidiary. CGI wasa privately-held developmentstage
`pharmaceutical company based in Branford, Connecticut, primarily focused on small molecule chemistry and protem kinase biology. The
`lead preclinical compound from CGI’s library ofproprietary small molecule kinase inhibitors targets spleen tyrosine kinase (Syk) and
`could have unique applications for the treatment ofserious inflammatory diseases, including rheumatoid arthritis. We believe the
`acquisition provides us with an opportunity to expand our research efforts in an interesting and promising area ofdrug discovery.
`
`[he CGI acquisition was accounted for as a business combination. The results of operations of CGI since July 8, 2010 have been
`included in our Consolidated Statements of Income and were not significant.
`
` The following table summarizesthe fair value of the assets acquired and liabilities assumed at July 8, 2010 (in thousands):
`
`The acquisition-date fair value of the total considerationtransferred to acquire CGI was $102.1 million, and consisted of cash paid at
`or prior to closing of $91.0 million and contingent consideration of $11.1 million.
`
`Intangible assets—IPR&D
`Goodwill
`Deferred tax assets
`Deferred tax liabilities
`Othernetliabilities assumed
`‘lotal consideration transferred
`
`Intangible Assets
`
`$ 26,630
`70,111
`12,656
`(6,313)
`(984)
`$102,100
`
`Intangible assets associated with in-process research and development IPR&D)projects relate to the preclinical Syk product
`candidate. Managementestimated the acquisition-date fair valuc ofintangible asscts related to IPR&D to be $26.6 million. The estimated
`fair value was determined using the income approach, which discounts expected future cash flowsto present value. We estimated the fair
`value using a present value discount rate of 18%, which is based on the estimated weighted-average cost of capital for compamies with
`profiles substantially similar to that of CGI. This is comparable to the estimated internal rate of return for CGI’s operations and represents
`the rate that market participants would use to value the intangible assets. The projected cash flows from the IPR&D project was based on
`key assumptions such as: estimates of revenues and operating profits related to the project considering its slage of development; the time
`and resources needed to complete the development and approval ofthe product candidate; the life of the potential commercialized product
`and
`
`109
`
`REG_NDNY00000114
`Regeneron Exhibit 1227.111
`Regeneron Exhibit 1227.111
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`

`

`Table of Contents
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
`
`GILEAD SCIENCES,INC.
`
`associated risks, including the inherent ditticulties and uncertainties in developing a drug compoundsuch as obtaining marketing approval
`from the FDA and other regulatory agencies; and risks related to the viability of and potential alternative treatments in any future target
`markets. Intangible asscts related to IPR&D projccts are considered to be indefinite-lived until the completion or abandonmentofthe
`associated R&D efforts. During the period the assets are considered indefinite-lived, they will not be amortized but will be tested for
`impairment on an annual basis as well as between annualtests if we become aware ofany cvents occurring or changes1n circumstances
`that would indicate a reduction in the fair value of the IPR&D projects belowtheir respective carrying amounts. If and when development
`is complete, which generally occurs if and when regulatory approval to market a product 1s obtained, the associated assets would be
`deemed [imite-lived and would then be amortized based on their respective estimated useLul lives at that point in ime.
`
`Goodwill
`
`The excess ofthe consideration transferred over the fair values assigned to the assets acquired and liabilities assumed is $70.1
`million, which represents the goodwill amountresulting from the CGI acquisition. Managementbelieves that the goodwill mainly
`represents the synergies expected from combining our research and developmentoperations as well as acquiring CGI’s assembled
`worktorce and other intangible assets that do not quality for separate recognition. We recorded the goodwill as an intangible asset in our
`Consolidated Balance Sheet as ofthe acquisition date. Goodwill is tested for impairment on an annual basis as well as between annual
`tests 1f we become aware ofany events occurring or changes 1n circumstances that would indicate a reduction 1n the fair value ofthe
`goodwill belowits carrying amount. As we haveelectedto treat the CGI acquisition as an asset acquisition for California state tax
`purposes, the goodwill resulting from the acquisition is deductible tor California state income tax purposes, although such amounts are not
`deductible for federal income tax purposes.
`
`We do not consider the CGI acquisition to be a material business combination and therefore have not disclosed the pro formaresults
`of operations as required for material business combinations.
`
`CV Therapeutics, Inc.
`
`On April 15, 2009, we acquired CV Therapeutics through a cash tenderoffer under the terms of an agreement and plan of merger
`entered into in March 2009. CV Therapeutics was a publicly-held biopharmaceutical company based in Palo Alto, California, primarily
`focused onthe discovery, development and commercialization of small molecule drugsfor the treatment of cardiovascular, metabolic and
`pulmonary diseases. CV Therapeutics had two marketed products, Ranexafor the treatment of chronic angina and Lexiscan injection for
`use as a pharmacologic stress agent in radionuclide MPIin patients unable to undergo adequate exercise stress. CV Therapeutics also had
`several product candidates in clinical developmentfor the treatment of cardiovascular, metabolic and pulmonary diseases.
`
`The CV Therapeutics acquisition was accounted for as a business combination. The results of operations of CV Therapeutics since
`April 15, 2009 have been included in our Consolidated Statements of Income. The acquisition date was determined to be April 15, 2009 as
`that is the date on which we acquired approximately 89% ofthe outstanding shares of common stock of CV Therapeutics and obtained
`effective control of the company. The acquisition was completed two days later on April 17, 2009, at which time CV Therapeutics became
`a wholly-owned subsidiary.
`
`The aggregate consideration transferred to acquire CV Therapeutics was $1.39 billion, and consisted of cash paid for common stock
`and other equity instrumentsat or prior to closing of $1.38 billion andthe fair value of vested stock options assumed of $15.7 million.
`
`110
`
`REG_NDNY00000115
`Regeneron Exhibit 1227.112
`Regeneron Exhibit 1227.112
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`

`

`Table of Contents
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
`
`GILEAD SCIENCES,INC.
`
`In accordance with the merger agreement, the number of Gilead stock options and restricted stock units into which assumed CV
`Therapeutics’ stock options and restricted stock units were converted was determined based on an option conversion ratio. This conversion
`ratio was calculated by taking the per share acquisition price of $20.00 and dividing it by the average closing price of our common stock
`for the five consecutive trading days immediately preceding (but not including) the closing date of April 17, 2009, which was $46.24 per
`share. The fair valuc ofstock options assumed wascalculated using a Black-Scholes valuation model with the following assumptions:
`market price of $44.54 per share, which wastheclosing price of our commonstock on the acquisition date; expected term ranging from
`0.1 to 5.2 years; risk-free interest rate ranging from 0.1% to 1.7%; expected volatility ranging trom 37.4% to 43.2%; and no dividend
`yield. The fair value of restricted stock unils assumed was calculated using the acquisiltion-date closing price of $44.54 per share for our
`commonstock.
`
`We included the fair value of vested stock options assumed by us of $15.7 million in the consideration transterred for the acquisition.
`We did not assume any vested restricted stock units. The estimated fair value of unvested stock options and restricted stock units assumed
`by us of $11.2 million was not included in the considcration transtcrred and is being recognized as stock-based compensation expenses
`over the remaining future vesting period of the awards.
`
`The following table summarizes the assets acquired and liabilities assumed at April 15, 2009 (in thousands):
`
`Intangible assets—marketed products
`Intangible assets—IPR&D
`Goodwill
`Deferred tax assets
`Deferred tax liabilities
`Otherassets/liabilities
`
`Cash and cash equivalents
`Marketable securities
`Accounts receivable
`Inventories
`
`Prepaids and other current assets
`Property, plant and equipment
`Other assets
`
`Accounts payable
`Accrued and other current liabilities
`Convertible senior notes
`Otherliabilities
`‘lotal other net labilitics
`Total consideration transferred
`
`$ 951,200
`138,900
`341,910
`413,816
`(426,861)
`
`129.087
`116,363
`9,136
`50,455
`60,671
`11,672
`20,162
`(5,089)
`(87,898)
`(303,060)
`(27,906)
`(26,407)
`
`Intangible Assets
`
`A substantial portion of the assets acquired consisted of intangible asscts related to CV Therapeutics’ two marketed products, Ranexa
`and Lexiscan, and CV Therapeutics’ IPR&D projects. Management determinedthat the estimated acquisition-date fair values of the
`intangible assets related to the marketed products and IPR&D projects were $951.2 million and $138.9 million, respectively.
`
`lll
`
`REG_NDNY00000116
`Regeneron Exhibit 1227.113
`Regeneron Exhibit 1227.113
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`

`

`Table of Contents
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
`
`GILEAD SCIENCES,INC.
`
`Ofthe $951.2 million of intangible assets related to the marketed products, 5688.4 million related to Ranexa and $262.8 million
`related to Lexiscan. We have determinedthat these intangible assets have finite useful lives and will be amortized over their respective
`uscful lives, which we estimated to be the periods over which the associated product patents will expire as those are the periods over
`which the intangible assets are expected to contribute to the future cash flowsofthe related products.
`
`We are amortizing the intangible asset related to Ranexa overits estimated usefullife using an amortization rate derived from our
`forecasted future product sales for Ranexa. We are amortizing the intangible asset related to Lexiscan over its estimated useful life on a
`straight-line basis. Given that current Lexiscan revenues consist of royalties received from a collaboration partner and our lack of ongoing
`access and visibility mto that partner’s future sales forecasts, we cannot make a reasonable estimate of the amortization rate using a
`forecasted product sales approach. The weighted-average amortization period for these intangible assets is approximately ten years.
`
`Of the $138.9 million of intangible assets related to the IPR&Dprojects, $93.4 million related to GS 9667 (formerly CVT-3619), a
`product candidate that was in Phase 1 clinical studies for the treatment of diabetes and hypertriglyceridemia. The remaining balance ofthe
`intangible assets related to IPR&D projects represented various other in-process projects with no single project comprising a significant
`portion ofthe total value. Intangible assets related to IPR&D projects are considered to be mdetinite-lived until the completion or
`abandonmentofthe associated R&D efforts. During the period the assets are considered indefinite-lived, they will not be amortized but
`will be tested for impairment on an annual basis and between annualtests 1f we become aware of any events occurring or changes in
`circumstances that would indicate a reduction in the fair value of the IPR&D projects belowtheir respective carrying amounts. During the
`fourth quarter of 2010, we recorded $136.0 million of impairmentchargesrelated to certain IPR&D asscts acquired from CV ‘Therapeutics
`which wehad no future plans to develop and which were deemed to have no future use to us or other market participants. These charges
`related to the GS 9667, Adentri and tecadenoson programs and were recorded in R&D expense. The majority of the impairment charge
`related to our GS 9667 program, which wasterminated in the fourth quarter of 2010 due to unfavorable results from pharmacokinetics and
`pharmacodynamicstests that demonstrated limited effectiveness of the compoundin patients. Given these results, we do not believe it has
`allernative future uses [or us or other market participants. As of December 31, 2010, we had $2.9 million of IPR&Dassets acquired [rom
`
`CV Therapeutics remaining on our Consolidated Balance Sheet.
`
`Deferred Tax Assets and Deferred Tax Liabilities
`
`The $413.8 million ofdeferred tax assets resulting from the acquisition was primarily related to federal and state net operating loss
`and tax credit carryforwards. The $426.9 million of deferred tax liabilities resulting from the acquisition was primarily related to the
`difference between the book basis and tax basis ofthe intangible assets related to the marketed products and IPR&D projects. We have
`concludedthat it 1s more likely than not that we will not realize the benefit from deferred tax assets related to certain state net operating
`loss carryforwards. As a result, a valuation allowance of $15.1 million was recorded related to those deterred tax assets. For presentation
`purposes, the $426.9 million of deferred tax habilities, all of which is of a noncurrent nature, has been netted against noncurrent deferred
`tax asscts on our Consolidated Balance Shect. As a result of the impairment charges recorded in the fourth quarter of 2010, we reduced the
`deferred tax liabilities related to IPR&D projects by $49.7 million.
`
`Convertible Senior Notes
`
`As aresult ofthe acquisition, we assumed convertible notes from CV Therapeutics consisting of 2.75% senior subordinated
`convertible notes due 2012, 3.25% senior subordinated convertible notes due 2013 and 2.0%
`
`112
`
`REG_NDNY00000117
`Regeneron Exhibit 1227.114
`Regeneron Exhibit 1227.114
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`

`

`Table of Contents
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
`
`GILEAD SCIENCES,INC.
`
`semor subordinated convertible debentures due 2023. All of these convertible notes were recognizedat their fair valuesat the acquisition
`date. In May 2009, we offered to repurchase these convertible notes in consideration for their par value plus accrued interest, as required
`under the termsofthe respective convertible note agreements following the occurrence of a change in control or fundamental change as
`defined in the agreements. As of December 31, 2010, all of these convertible notes have been extinguished.
`
`Goodwill
`
`The excess of the consideration transferred over the fair values assigned to the assets acquired and liabilities assumed was $341.9
`million, which represents the goodwill amountresulting from the acquisition. Management believes that the goodwill mainly represents
`the synergies and economiesofscale expected from combining our operations with CV Therapeutics. None ofthe goodwill 1s expected to
`be deductible for income tax purposes. We recorded the goodwill as an intangible asset in our Consolidated Balance Sheet as ofthe
`acquisition date. Goodwill is tested for impairment on an annual basis and between annualtests if we become aware ofany events
`occurring or changes in circumstances that would indicate a reduction in the fair value of the goodwill belowits carrying amount.
`
`Navitas Assets, LLC
`
`In May 2008, we executed an asset purchase agreement with Navitas Assets, LLC (Navitas) to acquire all of the assets relatedto its
`cicletanine business. We acquired the exclusive nghts to regulatory data and filings for developmentofcicletanine as a monotherapy for
`PAH andfor other indications in the United States. We are evaluating cicletanine, currently in Phase 2 clinical trials, as a potential
`treatment of PAH.
`
`The aggregate consideration transferred for the acquisition was $10.9 million, and consisted primarily of cash paid. In addition,
`Navitas is entitled to potential additional purchase consideration, including payments contingent on future achievementof certain
`development and regulatory milestones. These amounts will be recorded when andif the related contingencies are resolved. The
`considerationtransferred was allocated to IPR&D whichrepresents the purchased IPR&D programfor cicletanine that had not yet reached
`technological feasibility and had no alternative future uses as of the acquisition date, and therefore, was expensed upon acquisition within
`our Consolidated Statement of Income.
`
`6.
`
`RESTRUCTURING
`
`During the second quarter of 2010, we implemented a plan to close our research operations in Durham, North Carolina and
`consolidate our liver disease research activities in Foster City, Califorma. The restructuring plan includes consolidation of the liver disease
`R&D organization and our exit from certain facilities. During the year, we recordedatotal of $14.6 million and $10.4 million in SG&A
`expenses and R&D expenses, respectively, related to emplovee severance andfacilities-related expenses under this plan. In December
`2010, we closed our operations in Durham. We do not expect to incur any additional significant costs in connection with this plan.
`
`During the second quarter of 2009, we approveda planto realize certain synergies as a result of the CV Therapeutics acquisition by
`re-aligning our cardiovascular operations and eliminating redundancies. The restructuring plan included consolidation and re-alignment of
`the cardiovascular R&D organization, our exit from certain facilities and the termination of certain contractual obligations. In 2010, we
`recorded $10.6 million and $3.4 million of restructuring expenses in SG&A and R&D expenses, respectively. Comparatively, in 2009, we
`recorded $26.2 million and $25.7 million in SG&A and R&D expenses, respectively. In both years, the expenses primarily related to
`employee severance, relocation, lease termination costs and other facilities-related
`
`113
`
`REG_NDNY00000118
`Regeneron Exhibit 1227.115
`Regeneron Exhibit 1227.115
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`

`

`Table of Contents
`
`GILEAD SCIENCES,INC.
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
`
`expenses. ‘lotal costs incurred under this plan were $36.8 million and $29.1 million in SG&A and R&D expenses, respectively. We do not
`expect to incur any additional costs in connection with this plan.
`
`The following table summarizesthe restructuring liabilities accrued for and changes in those amounts during the period for the
`restructuring plan related to our cardiovascular operations (in thousands):
`
`Balance at December 31, 2008
`Costs incurred during the period
`Costs paid or settled during the period
`Balance at December31, 2009
`Costs incurred during the period
`Costs paid or settled during the period
`Balance at December 31, 2010
`
`7.
`
`INVENTORIES
`
`Inventories are summarized as follows (in thousands):
`
`Employee
`Severance
`and
`Termination
`Benefits
`—
`33,797
`(24,108)
`9,689
`2,190
`(11,445)
`434
`
`Facilities-
`Related
`Costs
`$ —
`9,880
`
`(545)
`$ 9,335
`927
`(4,529)
`$14,533
`
`
`
`$
`
`$
`
`$
`
`December 31<=rer
`2010
`2009
`
`Rawmaterials
`
`Work in process
`Finished goods
`‘Total inventories
`
`$ 408,015
`454,652
`341,142
`$1,203,809
`
`$ 333,582
`392,042
`326,147
`$1,051,771
`
`
`Asof December 31, 2010 and 2009, the joint ventures formed by Gilead and BMS(see Note 10), which are included in our
`Consolidated Financial Statements, held $811.9 million and $667.8 million in inventory, respectively, of efavirenz active pharmaceutical
`ingredient purchased from BMS at BMS’ estimated net selling price of efavirenz.
`
`114
`
`REG_NDNY00000119
`Regeneron Exhibit 1227.116
`Regeneron Exhibit 1227.116
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`

`

`Table of Contents
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
`
`GILEAD SCIENCES,INC.
`
`8
`
`PROPERTY, PLANT AND EQUIPMENT
`
`Property, plant and equipment are summarized as follows (in thousands):
`
`Property, plant and equipment, net:
`Buildings and improvements (including leasehold improvements)
`Laboratory and manufacturing equipment
`Office and computer equipment
`Capitalized leased equipment
`Construction in progress
`Subtotal
`Less accumulated depreciation and amortization (including $10,451 and $14,999 relating
`to capitalized leased equipment for 2010 and 2009, respectively)
`Subtotal
`
`Land
`
`Total
`
`December 31ee
`2010
`2009
`
`$ 501,401
`168,711
`116,479
`10,865
`82,334
`879,790
`
`(316,367)
`563,423
`137,812
`$ 701,235
`
`$ 490,632
`176,362
`126,375
`15,232
`58,448
`867,049
`
`(304,888)
`562,161]
`137,809
`$ 699,970
`
`In January 2009, we completed the purchase of an office building and approximately 30 acres of land located in Foster City,
`California, for an aggregate purchase price of $140.1 million. Based on the estimated relative fair values, the purchase price wasallocated
`primarily to land of $71.6 million, building of $64.3 million, land improvements of $2.7 million and office furniture and equipment of $1.1
`million.
`
`9.
`
`INTANGIBLE ASSETS
`
`The following table summarizes the carrying amountof our intangible assets (in thousands):
`
`Goodwill
`Finite lived intangible assets
`Indefinite lived intangible assets
`‘Total
`
`The following table summarizes the changes 1n the carrying amount of goodwill Gn thousands):
`
`Balance at December 31, 2009
`Goodwill resulting from the acquisition of CGT
`Balance at December 31, 2010
`
`115
`
`December 31
`
`2010
`
`2009
`
`$ 532,669
`863,393
`29,530
`$1,425,592
`
`$ 462,558
`923,319
`138,900
`$1,524,777
`
`$462,558
`70,111
`$532,669
`
`REG_NDNY00000120
`Regeneron Exhibit 1227.117
`Regeneron Exhibit 1227.117
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`

`

`Table of Contents
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
`
`GILEAD SCIENCES,INC.
`
`‘The following table summarizes our finite-lived intangible assets Gn thousands):
`
`Intangible asset-—Ranexa
`Intangible asset-—Lexiscan
`Other
`
`Total
`
`December 31, 2010
`Gross Carrying
`Accumulated
`Amount
`Amortization
`
`December 31, 2009
`Gross Carrying
`Accumulated
`Amount
`Amortization
`
`$
`
`$
`
`688,400
`262,800
`22,095
`973,295
`
`$
`
`54,795
`43,979
`11,128
`$ 109,902
`
`$
`
`$
`
`688,400
`262,800
`22,095
`973,295
`
`$
`
`$
`
`21,889
`18,235
`9,852
`49,976
`
`Amortization expenserelated to intangible assets was $59.9 million forthe year ended December31, 2010, and wasrecorded in cost
`of goods sold in our Consolidated Statement of Income. Amortization expense related to intangible assets was $43.4 million for the year
`ended December31, 2009 and was recorded primarily in cost of goods sold in our Consolidated Statement of Income. Amortization
`expenserelated to intangible assets was $2.8 million for the year ended December 31, 2008 and was recorded primarily in SG&A
`expenses in our Consolidated Statement of Income. The weighted-average amortization period for these intangible assets 1s approximately
`ten years.
`
`As of December 31, 2010, the estimated future amortization expense associated with our intangible assets for each ofthe five
`succeeding fiscal years 1s as follows (in thousands):
`
`Fiscal Year
`
`2011
`2012
`2013
`2014
`2015
`
`‘Total
`
`Amount
`
`$ 69,324
`75,776
`$2,086
`90,940
`100,647
`$418,773
`
`As of December 31, 2010, we had indefinite-lived intangible assets of $29.5 million, which consisted of $26.6 million and $2.9
`million of purchased IPR&D from our acquisitions of CGI and CV Therapcutics, respectively. During the fourth quarter of 2010, we
`recorded $136.0 million of impairmentchargesrelated to certain IPR&D assets acquired from CV Therapeutics which we had no future
`plans to develop and which were deemedto have no future use to us or other market participants. These charges related to the GS 9667,
`Adentri and tecadenoson programs and were recorded in R&D expense. The majority of the impairment charge related to our GS 9667
`program, a product candidate that was in Phase | clinical studies for the treatment of diabetes and hypertriglyceridemia, which was
`terminated in the fourth quarter of 2010 due to unfavorable results from pharmacokinetics and pharmacodynamicstests that demonstrated
`limited effectiveness of the compound in patients. Given these results, we do not believe it has alternative future uses for us or other
`market participants. As of December31, 2009, we had indefinite-lived intangible assets of $138.9 million related to purchased IPR&D
`from our acquisition of CV Therapeutics.
`
`10. COLLABORATIVE ARRANGEMENTS
`
`As a result of entering into strategic collaborations from time to time, we may hold investments in non-public companies. We review
`our interests in our investee companies for consolidation and/or appropriate disclosure based on applicable guidance. As disclosed in Note
`1, we determined that certain of our investee
`
`116
`
`REG_NDNY00000121
`Regeneron Exhibit 1227.118
`Regeneron Exhibit 1227.118
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`

`

`Table of Contents
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
`
`GILEAD SCIENCES,INC.
`
`companies are variable interest entities; however, other than with respect to our joint ventures with BMS, weare not the primary
`beneficiary and therefore do not consolidate these investees.
`
`Bristol-Myers Squibb Company
`North America
`
`In December 2004, we entered into a collaboration arrangement with BMS in the United States to develop and commercialize a
`single-tablet regimen containing our Truvada and BMS’s Susttva (cfavirenz), which wescll as Atripla. The collaboration is structured as a
`joint venture and operates as a limited liability company named Bristol-Myers Squibb & Gilead Sciences, LLC, which we consolidate. The
`
`ownership interests of the joint venture and thusthe sharing of product revenue and costsreflect the respective economic interests ofBMS
`and Gilead and are based on the proportionsofthe net selling price of Atripla attributable to efavirenz and Truvada. Since the netselling
`price for Truvada may changeovertimerelative to the net selling price of efavirenz, both BMS’s and our respective economic interests 1n
`the joint venture may vary annually.
`
`We share marketing and sales efforts with BMSandboth parties are obligated to provide equivalent sales force efforts for a
`minimum numberofyears. Starting in the second quarter of 2011, except for a limited numberofactivities that will be jomtly managed,
`the parties will no longer coordinate detailing and promotional activities in the United States. The parties will continue to collaborate on
`activitics such as manufacturing, regulatory, compliance and pharmacovigilance. We are responsible for accounting, financial reporting,
`tax reporting, manufacturing and productdistribution for the joint venture. Both parties provide their respective bulk active pharmaceutical
`ingredients to the joint venture at their approximate market values. In July 2006, the joint venture received approval from the FDAtosell
`Atripla in the United States. In September 2006, we and BMS amendedthe joint venture’s collaboration agreementto allowthe joint
`venture to sell Atripla into Canada and in October 2007, the joint venture received approval from Health Canadato sell Atripla in Canada.
`As of December 31, 2010 and 2009, the joint venture held efavirenz active pharmaceutical ingredient which it purchased from BMSat
`BMsS’sestimated net selling price of efavirenz in the U.S. market. These amounts are included in inventories on our Consolidated Balance
`Sheets. As of December 31, 2010 and 2009,total assets held by the joint venture were $1.45 billion and $1.40 billion, respectively, and
`consisted primarily of cash and cash equivalents, accounts recetvable (including intercompany receivables with Gilead) and inventories.
`As of December31, 2010 and 2009, total liabilities held by the joint venture were $759.5 million and $1.03 billion, respectively, and
`consisted primarily of accounts payable (including intercompany payables with Gilead) and other accrued expenses. These asset and
`liability amounts do not reflect the impact of intercompany elimimations that are included in our Consolidated Balance Sheets. Although
`we are the primary beneficiary of the joint venture, the legal structure of the joint venture limits the recourse that its creditors will have
`overour general credit or assets.
`
`
`
`
`
`Europe
`
`In December 2007, Gilead Sciences Limited (GSL), a wholly-owned subsidiary in Ireland, and BMSentered into a collaboration
`arrangement to commercialize and distribute Atripla in the European Union, Iccland, Licchtenstcin, Norway and Switzerland (collectively,
`the European Territory). The parties formed a limited lability company which we consolidate, to manufacture Atripla for distribution in
`the European Territory using cfavirenz that it purchases from BMS at BMS’sestimated net sclling price of efavirenz in the European
`Territory. We are responsible for productdistribution, inventory management and warehousing. Through ourlocal subsidiaries, we have
`primary responsibility for order fulfillment, collection of receivables, customer relations and handling of sales returnsin all the territories
`
`where we co-promote Atripla with BMS. Weare also responsible for accounting,financial reporting and lax reporting for the
`collaboration. In December 2007, the
`
`
`
`117
`
`REG_NDNY00000122
`Regeneron Exhibit 1227.119
`Regeneron Exhibit 1227.119
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`

`

`Table of Contents
`
`NOTES TO CONSOLIDATED FINANCTAL STATEMENTS—(Continued)
`
`GILEAD SCIENCES,INC.
`
`European Commission approved Atripla for sale in the European Union. As of December 31, 2010 and 2009, efavirenz purchased trom
`
`BMSat BMS’s estimated net selling price of efavirenz in the European Territory is included in inventories on our Consolidated Balance
`Shects.
`
`The parties also formed a limited liability company to hold the marketing authorization for Atripla m T’urope. We have primary
`
`responsibility for regulatory activities and we share marketing andsales efforts with BMS. In the major market countries, both parties have
`agreed to provide equivalent sales force efforts. Revenue and cost sharing is based on therelative ratio of the respective net selling prices
`of Truvada and efavirenz.
`
`PARI GmbH
`
`As a result of our acquisition of Corus Pharma, Inc. (Corus) in August 2006, we assumed all rights to the February 2002 development
`agreement between Corus and PARI GmbH (PARI)for the development of Cayston and developmentof an inhalation delivery device
`for this product. Under the termsof the agreement, we are obligated to pay PARIfor services rendered, and subject to the achievement of
`specific milestones, we are obligated to pay certain milestone payments to PARI. In addition, we will make royalty payments based onnet
`sales of Cayston. The agreementalso provided us the right to reduce the royalty rate payable to PARI. In November 2007, we paid PARI
`$13.5 million to reduce the royalty rate under the agreement. As Cayston had not yet been approved for commercializationat the time of
`the payment, we recorded this payment in R&D expenses in our Consolidated Statement of Income. In April 2008, pursuantto the
`February 2002 development agreement, we entered into a commercialization agreement with PARI which provides for the supply and
`manufacture of an inhalation delivery device and accessories for use with Cayston. Underthe termsof this agreement, we are obligated to
`pay royalties on future net sales of