NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
1. Summary of significant accounting policies
Business
Amgen Inc. (including its subsidiaries, referred to as “Amgen,” “the Company,” “we,” “our” or “us”) is a global biotechnology pioneer that discovers, develops, manufactures and delivers innovative human therapeutics. We operate in one business segment: human therapeutics.
Principles of consolidation
The consolidated financial statements include the accounts of Amgen as well as its majority-owned subsidiaries. In determining whether we are the primary beneficiary of a variable interest entity, we consider whether we have both the power to direct activities of the entity that most significantly impact the entity’s economic performance and the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity. We do not have any significant interests in any variable interest entities of which we are the primary beneficiary. All material intercompany transactions and balances have been eliminated in consolidation.
Use of estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates.
Revenues
Product sales and sales deductions
Revenue from product sales is recognized upon transfer of control of a product to a customer, generally upon delivery, based on an amount that reflects the consideration to which we expect to be entitled, net of accruals for estimated rebates, wholesaler chargebacks, discounts and other deductions (collectively, sales deductions) and returns established at the time of sale.
We analyze the adequacy of our accruals for sales deductions quarterly. Amounts accrued for sales deductions are adjusted when trends or significant events indicate that an adjustment is appropriate. Accruals are also adjusted to reflect actual results. Accruals for sales deductions are based primarily on estimates of the amounts earned or to be claimed on the related sales. These estimates take into consideration current contractual and statutory requirements, specific known market events and trends, internal and external historical data and forecasted customer buying patterns. Sales deductions are substantially product specific and therefore, for any given period, can be affected by the mix of products sold. Included in sales deductions are immaterial net adjustments related to prior-period sales due to changes in estimates.
Returns are estimated through comparison of historical return data with their related sales on a production lot basis. Historical rates of return are determined for each product and are adjusted for known or expected changes in the marketplace specific to each product, when appropriate. Historically, sales return provisions have amounted to less than 1% of gross product sales. Changes in estimates for prior-period sales return provisions have historically been immaterial.
Our payment terms vary by types and locations of customers and by products or services offered. Payment terms differ by jurisdiction and customer, but payment is generally required in a term ranging from 30 to 120 days from date of shipment or satisfaction of the performance obligation. For certain products or services and certain customer types, we may require payment before products are delivered or services are rendered to customers.
Indirect taxes collected from customers and remitted to government authorities that are related to sales of the Company’s products, primarily in Europe, are excluded from revenues.
As a practical expedient, sales commissions are expensed when incurred because the amortization period would have been one year or less. These costs are recorded in SG&A expense in the Consolidated Statements of Income.
Other revenues
Other revenues consist primarily of royalty income and corporate partner revenues. Royalties from licensees are based on third-party sales of licensed products and are recorded when the related third-party product sale occurs. Royalty income is estimated based on historical and forecasted sales trends. Corporate partner revenues are composed mainly of license fees and milestones earned and our share of commercial profits generated from collaborations. See Arrangements with multiple-performance obligations, discussed below.
Arrangements with multiple-performance obligations
From time to time, we enter into arrangements for the R&D, manufacture and/or commercialization of products and product candidates. Such arrangements may require us to deliver various rights, services and/or goods, including intellectual property rights/licenses, R&D services, manufacturing services and/or commercialization services. The underlying terms of these arrangements generally provide for consideration to Amgen in the form of nonrefundable, upfront license fees; development and commercial-performance milestone payments; royalty payments; and/or profit sharing.
In arrangements involving more than one performance obligation, each required performance obligation is evaluated to determine whether it qualifies as a distinct performance obligation based on whether (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available and (ii) the good or service is separately identifiable from other promises in the contract. The consideration under the arrangement is then allocated to each separate distinct performance obligation based on its respective relative stand-alone selling price. The estimated selling price of each deliverable reflects our best estimate of what the selling price would be if the deliverable was regularly sold by us on a stand-alone basis or by using an adjusted market assessment approach if selling price on a stand-alone basis is not available.
The consideration allocated to each distinct performance obligation is recognized as revenue when control of the related goods or services is transferred. Consideration associated with at-risk substantive performance milestones is recognized as revenue when it is probable that a significant reversal of the cumulative revenue recognized will not occur. We utilize the sales- and usage-based royalty exception in arrangements that resulted from the license of intellectual property, recognizing revenues generated from royalties or profit sharing as the underlying sales occur.
Research and development costs
R&D costs are expensed as incurred and primarily include salaries, benefits and other staff-related costs; facilities and overhead costs; clinical trial and related clinical manufacturing costs; contract services and other outside costs; information systems’ costs; and amortization of acquired technology used in R&D with alternative future uses. R&D expenses also include costs and cost recoveries associated with third-party R&D arrangements, including upfront fees and milestones paid to third parties in connection with technologies that had not reached technological feasibility and did not have an alternative future use. Net payment or reimbursement of R&D costs is recognized when the obligations are incurred or as we become entitled to the cost recovery. See Note 8, Collaborations.
Selling, general and administrative costs
SG&A costs are primarily composed of salaries, benefits and other staff-related costs associated with sales and marketing, finance, legal and other administrative personnel; facilities and overhead costs; outside marketing, advertising and legal expenses; the U.S. healthcare reform federal excise fee on Branded Prescription Pharmaceutical Manufacturers and Importers; and other general and administrative costs. Advertising costs are expensed as incurred and were $841 million, $843 million and $962 million during the years ended December 31, 2022, 2021 and 2020, respectively. SG&A expenses also include costs and cost recoveries associated with marketing and promotion efforts under certain collaborative arrangements. Net payment or reimbursement of SG&A costs is recognized when the obligations are incurred or we become entitled to the cost recovery. See Note 8, Collaborations.
Leases
At inception of a contract, we determine whether an arrangement is or contains a lease. For all leases, we determine the classification as either operating or financing. Operating leases are included in Other noncurrent assets, Accrued liabilities and Other noncurrent liabilities in our Consolidated Balance Sheets.
ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments under the lease. Lease recognition occurs at the commencement date, and lease liability amounts are based on the present value of lease payments made during the lease term. Our lease terms may include options to extend or terminate a lease when it is reasonably certain that we will exercise that option. Because most of our leases do not provide information to determine an implicit interest rate, we use our incremental borrowing rate in determining the present value of lease payments. ROU assets also include any lease payments made prior to the commencement date less lease incentives received. Operating lease expense is recognized on a straight-line basis over the lease term.
We have lease agreements with both lease and nonlease components, which are generally accounted for together as a single lease component. In addition, for certain vehicle and equipment leases, we apply a portfolio approach to determine the lease term and discount rate.
Stock-based compensation
We have stock-based compensation plans under which various types of equity-based awards are granted, including RSUs, performance units and stock options. The fair values of RSUs and stock option awards, which are subject only to service conditions with graded vesting, are recognized as compensation expense, generally on a straight-line basis over the service period, net of estimated forfeitures. The fair values of performance unit awards are recognized as compensation expense, generally on a straight-line basis from the grant date to the end of the performance period. See Note 4, Stock-based compensation.
Income taxes
We provide for income taxes based on pretax income and applicable tax rates in the various jurisdictions in which we operate. Significant judgment is required in determining our provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws. Deferred income taxes are recorded for the expected tax consequences of temporary differences between the bases of assets and liabilities, as well as for loss and tax credit carryforwards for financial reporting purposes and amounts recognized for income tax purposes. We record a valuation allowance to reduce our deferred tax assets to the amount of future tax benefit that is more likely than not to be realized.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by tax authorities based on the technical merits of the position. The tax benefit recognized in the consolidated financial statements for a particular tax position is based on the largest benefit that is more likely than not to be realized. The amount of UTBs is adjusted as appropriate for changes in facts and circumstances, such as significant amendments to existing tax law, new regulations or interpretations by tax authorities, new information obtained during a tax examination or resolution of an examination. We recognize both accrued interest and penalties, when appropriate, related to UTBs in income tax expense. See Note 6, Income taxes.
Acquisitions
We first determine whether a set of assets acquired constitute a business and should be accounted for as a business combination. If the assets acquired do not constitute a business, we account for the transaction as an asset acquisition. Business combinations are accounted for by means of the acquisition method of accounting. Under the acquisition method, assets acquired, including IPR&D projects, and liabilities assumed are recorded at their respective fair values as of the acquisition date in our consolidated financial statements. The excess of the fair value of consideration transferred over the fair value of the net assets acquired is recorded as goodwill. Contingent consideration obligations incurred in connection with a business combination (including the assumption of an acquiree’s liability arising from an acquisition it consummated prior to our acquisition) are recorded at their fair values on the acquisition date and remeasured at their fair values each subsequent reporting period until the related contingencies have been resolved. The resulting changes in fair values are recorded in earnings. In contrast, asset acquisitions are accounted for by using a cost accumulation and allocation model. Under this model, the cost of the acquisition is allocated to the assets acquired and liabilities assumed. IPR&D projects with no alternative future use are recorded in R&D expense upon acquisition, and contingent consideration obligations incurred in connection with an asset acquisition are recorded when it is probable that they will occur and they can be reasonably estimated. See Note 2, Acquisitions and divestitures, and Note 17, Fair value measurement.
Cash equivalents
We consider cash equivalents to be only those investments that are highly liquid, that are readily convertible to cash and that mature within three months from the date of purchase.
Interest-bearing securities
We consider our interest-bearing securities investment portfolio as available-for-sale, and accordingly, these investments are recorded at fair value, with unrealized gains and losses recorded in AOCI. Investments with maturities beyond one year may be classified as short-term marketable securities in the Consolidated Balance Sheets due to their highly liquid nature and because they represent the Company’s investments that are available for current operations. See Note 9, Investments, and Note 17, Fair value measurement.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost, which includes amounts related to materials, labor and overhead, is determined in a manner that approximates the first-in, first-out method. Net realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. See Note 10, Inventories.
Derivatives
We recognize all of our derivative instruments as either assets or liabilities at fair value in the Consolidated Balance Sheets. The accounting for changes in the fair value of a derivative instrument depends on whether the derivative has been formally designated and qualifies as part of a hedging relationship under the applicable accounting standards and, further, on the type of hedging relationship. For derivatives formally designated as hedges, we assess both at inception and quarterly thereafter whether the hedging derivatives are highly effective in offsetting changes in either the fair value or cash flows of the hedged item. Our derivatives that are not designated and do not qualify as hedges are adjusted to fair value through current earnings. See Note 17, Fair value measurement, and Note 18, Derivative instruments.
Property, plant and equipment, net
Property, plant and equipment is recorded at historical cost, net of accumulated depreciation, amortization and, if applicable, impairment charges. We review our property, plant and equipment assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Depreciation is recorded over the assets’ useful lives on a straight-line basis. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or lease terms. See Note 11, Property, plant and equipment.
Goodwill and other intangible assets
Finite-lived intangible assets are recorded at cost, net of accumulated amortization, and, if applicable, impairment charges. Amortization of finite-lived intangible assets is recorded over the assets’ estimated useful lives on a straight-line basis or based on the pattern in which economic benefits are consumed, if reliably determinable. We review our finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. See Note 12, Goodwill and other intangible assets.
The fair values of IPR&D projects acquired in a business combination that are not complete are capitalized and accounted for as indefinite-lived intangible assets until completion or abandonment of the related R&D efforts. Upon successful completion of the project, the capitalized amount is amortized over its estimated useful life. If a project is abandoned, all remaining capitalized amounts are written off immediately. Major risks and uncertainties are often associated with IPR&D projects because we are required to obtain regulatory approvals before marketing the resulting products. Such approvals require completing clinical trials that demonstrate a product candidate is safe and effective. Consequently, the eventual realized value of the acquired IPR&D project may vary from its fair value at the date of acquisition, and IPR&D impairment charges may occur in future periods.
Capitalized IPR&D projects are tested for impairment annually and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We consider various factors for potential impairment, including the current legal and regulatory environment and the competitive landscape. Adverse clinical trial results, significant delays in obtaining marketing approval, the inability to bring a product to market and the introduction or advancement of competitors’ products could result in partial or full impairment of the related intangible assets.
We perform an impairment test of goodwill annually and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. To date, an impairment of goodwill has not been recorded. See Note 12, Goodwill and other intangible assets.
Contingencies
In the ordinary course of business, we are involved in various legal proceedings, government investigations and other matters that are complex in nature and have outcomes that are difficult to predict. Certain of these proceedings are discussed in Note 19, Contingencies and commitments. We record accruals for loss contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. We evaluate, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that has been accrued previously.
Foreign currency translation
The net assets of international subsidiaries whose functional currencies are not in U.S. dollars are translated into U.S. dollars using current exchange rates. The U.S. dollar effects that arise from translation of the net assets of these subsidiaries at changing rates are recognized in AOCI. The subsidiaries’ earnings are translated into U.S. dollars by using average exchange rates.
Equity investments
Marketable and nonmarketable equity securities
Investments in publicly traded equity securities with readily determinable fair values are recorded at quoted market prices for identical securities, with changes in fair value recorded in Other (expense) income, net, in the Consolidated Statements of Income. Investments in equity securities without readily determinable fair values are recorded at cost minus impairment, if any, adjusted for changes resulting from observable price changes in orderly transactions for identical or similar securities. Such adjustments are recorded in Other (expense) income, net, in the Consolidated Statements of Income.
Equity method investments
Equity investments that give us the ability to exert significant influence, but not control, over an investee for which we have not elected the fair value option are accounted for under the equity method of accounting. In concluding whether we have the ability to exercise significant influence over an investee, we consider factors such as our ownership percentage, voting and other shareholder rights, board of directors representation and the existence of other collaborative or business relationships. The equity method of accounting requires us to allocate the difference between the fair value of securities acquired and our proportionate share of the carrying value of the underlying assets (the basis difference) to various items and amortize such differences over their useful lives. Our share of investees’ earnings or losses and amortization of basis differences, if any, are recorded one quarter in arrears in Other (expense) income, net, in the Consolidated Statements of Income. We record impairment losses on our equity method investments if we deem the impairment to be other-than-temporary. We deem an impairment to be other-than-temporary based on various factors, including but not limited to, the length of time the fair value is below the carrying value, volatility of the security price and our intent and ability to retain the investment to allow for a recovery in fair value.
For equity method investments for which we have elected the fair value option, changes in fair value are recorded in Other (expense) income, net, in the Consolidated Statements of Income.
Additionally, we hold investments in limited partnerships, which primarily invest in early-stage biotechnology companies. As a practical expedient, such limited partnership investments are measured by using our proportionate share of the net asset values of the underlying investments held by the limited partnerships, with such changes included in Other (expense) income, net, in the Consolidated Statements of Income.
Recent accounting pronouncements
In March 2020, the FASB issued a new accounting standard to ease the financial reporting burdens caused by the expected market transition from the LIBOR and other interbank offered rates to alternative reference rates, commonly referred to as reference rate reform. The new standard provides temporary optional expedients and exceptions to current GAAP guidance on contract modifications and hedge accounting. Specifically, a modification to transition to an alternative reference rate is treated as an event that does not require contract remeasurement or reassessment of a previous accounting treatment. Moreover, for all types of hedging relationships, an entity is permitted to change the reference rate without having to dedesignate the hedging relationship. In January 2021, the FASB issued a new accounting standard to expand the scope of the original March 2020 standard to include derivative instruments on discounting transactions. The provisions of these standards have not had and are not expected to have a material impact on our consolidated financial statements.
In November 2021, the FASB issued a new accounting standard around the recognition and measurement of contract assets and contract liabilities from revenue contracts with customers acquired in a business combination. The new standard clarifies that contract assets and contract liabilities acquired in a business combination from an acquiree should initially be recognized by applying revenue recognition principles and not at fair value. The standard is effective for interim and annual periods beginning on January 1, 2023, and early adoption is permitted. The impact of this standard will depend on the facts and circumstances of future transactions.
2. Acquisitions and divestitures
Proposed acquisition of Horizon Therapeutics plc
On December 12, 2022, we announced that we entered into a transaction agreement under which Amgen will acquire all shares of Horizon for $116.50 per share in cash for a transaction equity value of approximately $27.8 billion. Horizon is a global biotechnology company headquartered in Dublin, Ireland and is focused on the discovery, development and commercialization of medicines that address critical needs for people impacted by rare, autoimmune and severe inflammatory diseases. Horizon has 12 marketed medicines and a pipeline with more than 20 development programs. The closing of this transaction is contingent upon satisfaction of certain regulatory (including FTC review) and other customary closing conditions.
In connection with the proposed acquisition of Horizon, Amgen entered into a 364-day bridge credit agreement with a syndicated group of banks for an aggregate amount of $28.5 billion on December 12, 2022. On December 22, 2022, we entered into a term loan credit agreement with an aggregate principal amount of $4.0 billion which provides for two equally sized tranches of term loans, one with an 18-month term and one with a three-year term. Accordingly, the bridge credit agreement was reduced by the amount of the term loan credit agreement to $24.5 billion. As of December 31, 2022, no amounts have been drawn under the bridge credit agreement or the term loan credit agreement. In connection with these credit agreements, Amgen incurred approximately $97 million of financing costs, which was capitalized primarily in Other current assets in our Consolidated Balance Sheets and is being amortized to Interest expense, net, in our Consolidated Statements of Income over the terms of the agreements. Additionally, we have agreed to maintain a cash balance of $2.96 billion that, together with any borrowings under the bridge credit agreement and term loan credit agreement, represents sources of funds available to finance the acquisition.
On January 30, 2023, the Company and Horizon each received a request for additional information and documentary materials (Second Request) from the FTC in connection with the FTC’s review of the Company’s proposed acquisition of Horizon. The effect of the Second Request is to extend the waiting period imposed by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, until 30 days after the Company and Horizon have substantially complied with the Second Request, unless that period is extended voluntarily by the Company and Horizon or terminated sooner by the FTC.
Acquisition of ChemoCentryx, Inc.
On October 20, 2022, we acquired all the outstanding stock of ChemoCentryx, a publicly traded biotechnology company focused on orally-administered therapeutics to treat autoimmune diseases, inflammatory disorders and cancer, for $52.00 per share in cash, representing a total consideration of $3.9 billion. The acquisition, which was accounted for as a business combination, includes TAVNEOS, an orally administered selective complement 5a receptor inhibitor that was approved by the U.S. FDA in October 2021 as an adjunctive therapy for adults with severe active anti-neutrophil cytoplasmic autoantibody-associated vasculitis (ANCA-associated vasculitis). TAVNEOS is commercialized by us in the United States; for markets outside the United States, TAVNEOS is commercialized by a collaboration partner, and Amgen is entitled to royalties and milestones based off future sales of the product. Upon its acquisition, ChemoCentryx became a wholly owned subsidiary of Amgen, and its operations have been included in our consolidated financial statements commencing on the acquisition date.
During the three months ended December 31, 2022, the Company incurred approximately $106 million of costs directly related to the acquisition of ChemoCentryx, consisting of share-based payments to settle non-vested equity awards attributable to post-combination services, severance and other transaction costs. These costs were included primarily in SG&A expense in the Consolidated Statements of Income.
The following table summarizes the total consideration and allocated acquisition date fair values of assets acquired and liabilities assumed (in millions):
| | | | | | | | |
| | Amounts |
| Cash and cash equivalents | | $ | 86 | |
| Marketable securities | | 235 | |
| Inventories | | 41 | |
| Finite-lived intangible assets – developed-product-technology rights | | 3,497 | |
| Goodwill | | 667 | |
| Other liabilities, net | | (85) | |
| Deferred tax liability, net | | (516) | |
| Total assets acquired, net | | $ | 3,925 | |
The $3.9 billion total consideration consisted of (i) a $3.7 billion cash payment to outstanding common stockholders of ChemoCentryx and (ii) a $181 million cash payment to equity award holders of ChemoCentryx for services rendered prior to the acquisition date of October 20, 2022, under the ChemoCentryx equity award plans.
The developed-product-technology rights acquired relates to TAVNEOS, which is approved in the United States and EU for ANCA-associated vasculitis. The estimated fair values of $3.5 billion were determined by using a multi-period excess earnings income approach that discounts expected future cash flows to present value by applying a discount rate that represents the estimated rate that market participants would use to value the intangible assets. The developed-product-technology rights are being amortized on a straight-line basis over a weighted-average period of approximately 11 years using the straight-line method.
The estimated fair value of the acquired inventory of $41 million was determined using the comparative sales method, which uses actual or expected selling prices of inventory as the base amount to which adjustments for selling effort and a profit on the buyer’s effort are applied. The inventory fair value adjustment is being amortized as inventory turns over, which we estimate to be approximately 13 months.
A net deferred tax liability of $516 million was recognized on the temporary differences related to the book bases and tax bases of the acquired identifiable assets and assumed liabilities, primarily driven by the intangible assets acquired.
The excess of the acquisition date consideration over the fair values assigned to the assets acquired and the liabilities assumed of $667 million was recorded as goodwill, which is not deductible for tax purposes. The goodwill value is primarily attributable to the expected synergies from the TAVNEOS asset.
Our accounting for this acquisition is preliminary and will be finalized upon completion of our analysis to determine the acquisition date fair values of certain assets acquired, liabilities assumed and tax-related items as we obtain additional information during the measurement period of up to one year from the acquisition date.
Acquisition of Teneobio, Inc.
On October 19, 2021, we acquired all of the outstanding stock of Teneobio, a privately held, clinical-stage biotechnology company developing a new class of biologics called human heavy-chain antibodies, which are single-chain antibodies composed of the human heavy-chain domain. The transaction, which was accounted for as a business combination, includes Teneobio’s proprietary bispecific and multispecific antibody technologies, which complement Amgen’s existing antibody capabilities and bispecific T-cell engager BiTE® platform and will enable significant acceleration and efficiency in the discovery and development of new molecules to treat diseases across Amgen’s core therapeutic areas. Upon its acquisition, Teneobio became a wholly owned subsidiary of Amgen, and its operations have been included in our consolidated financial statements commencing on the acquisition date.
Measurement period adjustments for the year ended December 31, 2022, included changes to the purchase price allocation and total consideration, resulting in a net increase of $22 million to goodwill. The measurement period adjustments resulted primarily from valuation inputs pertaining to certain acquired assets based on facts and circumstances that existed as of the acquisition date and did not result from events subsequent to the acquisition date. These adjustments did not have a significant impact on Amgen’s results of operations during the year ended December 31, 2022, and would not have had a significant impact on prior-period results if these adjustments had been made as of the acquisition date. The following table summarizes the final total consideration and allocated acquisition date fair values of assets acquired and liabilities assumed, inclusive of measurement period adjustments (in millions):
| | | | | | | | |
| | Amounts |
| Cash purchase price | | $ | 993 | |
| Contingent consideration | | 299 | |
| Total consideration | | $ | 1,292 | |
| | |
| Cash and cash equivalents | | $ | 100 | |
| IPR&D | | 991 | |
| Finite-lived intangible asset – R&D technology rights | | 115 | |
| Finite-lived intangible assets – licensing rights | | 41 | |
| Goodwill | | 273 | |
| Other assets, net | | 16 | |
| Deferred tax liability | | (244) | |
| Total assets acquired, net | | $ | 1,292 | |
Consideration for this transaction comprised of (i) an upfront cash payment of $993 million, which included a working-capital adjustment, and (ii) future contingent milestone payments to Teneobio’s former equity holders of up to $1.6 billion in cash, based on the achievement of various development and regulatory milestones with regard to the leading asset (AMG 340, formerly TNB-585) and to various development milestones for other drug candidates. The estimated fair values of the contingent consideration obligations aggregated $299 million as of the acquisition date and were determined using a probability-weighted expected return methodology. The assumptions in this method include the probability of achieving the milestones and the expected payment dates, with such amounts discounted to present value based on our pretax cost of debt. See Note 17, Fair value measurement, for information regarding the estimated fair value of these obligations as of December 31, 2022.
The estimated fair values of acquired IPR&D assets totaled $991 million, of which $784 million relates to AMG 340, that is in a Phase 1 clinical trial for the treatment of metastatic castration-resistant prostate cancer (mCRPC), and the balance relates to four separate preclinical oncology programs. The R&D technology rights of $115 million relate to Teneobio’s proprietary bispecific and multispecific antibody technologies; the amount is being amortized over 10 years by using the straight-line method. Teneobio has also licensed its technology and certain identified targets to various third parties, representing contractual agreements valued at $41 million. The estimated fair values for these intangible assets were determined using a multi-period excess earnings income approach that discounts expected future cash flows to present value by applying a discount rate that represents the estimated rate that market participants would use to value the intangible assets. The projected cash flows were based on certain assumptions attributable to the respective intangible asset, including estimates of future revenues and expenses, the time and resources needed to complete development and the probabilities of obtaining marketing approval from the FDA and other regulatory agencies.
A deferred tax liability of $244 million was recognized on temporary differences related to the book bases and tax bases of the acquired identifiable assets and assumed liabilities, primarily driven by the intangible assets acquired.
The excess of the acquisition date consideration over the fair values assigned to the assets acquired and the liabilities assumed of $273 million was recorded as goodwill, which is not deductible for tax purposes. The goodwill value represents expected synergies from both AMG 340 and the technologies acquired.
Acquisition of Five Prime Therapeutics, Inc.
On April 16, 2021, Amgen completed its acquisition of Five Prime for a total cash consideration of $1.6 billion, net of cash acquired. The purchase price was funded with cash on hand. This transaction was accounted for as an asset acquisition because substantially all the value of the assets acquired was concentrated in the intellectual property rights of bemarituzumab, a Phase 3 first-in-class program for gastric cancer. Five Prime’s operations have been included in our consolidated financial statements commencing after the acquisition date.
We allocated the consideration to acquire Five Prime to the bemarituzumab IPR&D program of $1.5 billion, which was expensed immediately in Acquired IPR&D expense in the Consolidated Statements of Income; deferred tax assets of $177 million; and other net liabilities of $47 million. The acquired IPR&D expense was not tax deductible.
Divestiture of Gensenta İlaç Sanayi ve Ticaret A.Ş.
On November 2, 2022, we sold our shares in Gensenta, a subsidiary in Turkey, to Eczacıbaşı for net cash proceeds of approximately $130 million. The transaction was accounted for as a sale of a business and did not meet the criteria to be classified as discontinued operations. Upon closing of this transaction, net assets related to Gensenta of $86 million were divested, and during the year ended December 31, 2022, we recognized a loss on divestiture of $567 million recorded in Other operating expenses in the Consolidated Statements of Income, primarily due to the reclassification of $615 million of cumulative foreign currency translation losses from AOCI into earnings. See Note 16, Stockholders’ equity.
3. Revenues
We operate in one business segment: human therapeutics. Therefore, results of our operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting. Revenues by product and by geographic area, based on customers’ locations, are presented below. The majority of ROW revenues relates to products sold in Europe.
Revenues were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, 2022 | | Year ended December 31, 2021 | | Year ended December 31, 2020 |
| | U.S. | | ROW | | Total | | U.S. | | ROW | | Total | | U.S. | | ROW | | Total |
| ENBREL | | $ | 4,044 | | | $ | 73 | | | $ | 4,117 | | | $ | 4,352 | | | $ | 113 | | | $ | 4,465 | | | $ | 4,855 | | | $ | 141 | | | $ | 4,996 | |
| Prolia | | 2,465 | | | 1,163 | | | 3,628 | | | 2,150 | | | 1,098 | | | 3,248 | | | 1,830 | | | 933 | | | 2,763 | |
| Otezla | | 1,886 | | | 402 | | | 2,288 | | | 1,804 | | | 445 | | | 2,249 | | | 1,790 | | | 405 | | | 2,195 | |
| XGEVA | | 1,480 | | | 534 | | | 2,014 | | | 1,434 | | | 584 | | | 2,018 | | | 1,405 | | | 494 | | | 1,899 | |
| Aranesp | | 521 | | | 900 | | | 1,421 | | | 537 | | | 943 | | | 1,480 | | | 629 | | | 939 | | | 1,568 | |
| Nplate | | 848 | | | 459 | | | 1,307 | | | 566 | | | 461 | | | 1,027 | | | 485 | | | 365 | | | 850 | |
Repatha | | 608 | | | 688 | | | 1,296 | | | 557 | | | 560 | | | 1,117 | | | 459 | | | 428 | | | 887 | |
| KYPROLIS | | 850 | | | 397 | | | 1,247 | | | 736 | | | 372 | | | 1,108 | | | 710 | | | 355 | | | 1,065 | |
| Neulasta | | 959 | | | 167 | | | 1,126 | | | 1,514 | | | 220 | | | 1,734 | | | 2,001 | | | 292 | | | 2,293 | |
| EVENITY | | 533 | | | 254 | | | 787 | | | 331 | | | 199 | | | 530 | | | 191 | | | 159 | | | 350 | |
Other products(1) | | 3,549 | | | 2,021 | | | 5,570 | | | 3,305 | | | 2,016 | | | 5,321 | | | 3,630 | | | 1,744 | | | 5,374 | |
Total product sales(2) | | 17,743 | | | 7,058 | | | 24,801 | | | 17,286 | | | 7,011 | | | 24,297 | | | 17,985 | | | 6,255 | | | 24,240 | |
| Other revenues | | 852 | | | 670 | | | 1,522 | | | 908 | | | 774 | | | 1,682 | | | 511 | | | 673 | | | 1,184 | |
| Total revenues | | $ | 18,595 | | | $ | 7,728 | | | $ | 26,323 | | | $ | 18,194 | | | $ | 7,785 | | | $ | 25,979 | | | $ | 18,496 | | | $ | 6,928 | | | $ | 25,424 | |
____________
(1) Consists of product sales of our non-principal products, as well as our Gensenta and Bergamo subsidiaries.
(2) Hedging gains and losses, which are included in product sales, were not material for the years ended December 31, 2022, 2021 and 2020.
In the United States, we sell primarily to pharmaceutical wholesale distributors that we use as the principal means of distributing our products to healthcare providers. Outside the United States, we sell principally to healthcare providers and/or pharmaceutical wholesale distributors depending on the distribution practice in each country. We monitor the financial condition of our larger customers and limit our credit exposure by setting credit limits and, in certain circumstances, by requiring letters of credit or obtaining credit insurance.
We had product sales to three customers that individually accounted for more than 10% of total revenues for each of the years ended December 31, 2022, 2021 and 2020. For the year ended December 31, 2022, on a combined basis, these customers accounted for 82% of total gross revenues as shown in the following table. Certain information with respect to these customers was as follows (dollar amounts in millions):
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2022 | | 2021 | | 2020 |
| McKesson Corporation: | | | | | |
| Gross product sales | $ | 17,305 | | | $ | 15,187 | | | $ | 13,779 | |
| % of total gross revenues | 35 | % | | 33 | % | | 32 | % |
| AmerisourceBergen Corporation: | | | | | |
| Gross product sales | $ | 15,443 | | | $ | 14,783 | | | $ | 14,743 | |
| % of total gross revenues | 31 | % | | 32 | % | | 34 | % |
| Cardinal Health, Inc.: | | | | | |
| Gross product sales | $ | 8,319 | | | $ | 7,681 | | | $ | 7,332 | |
| % of total gross revenues | 16 | % | | 17 | % | | 17 | % |
As of December 31, 2022 and 2021, amounts due from these three customers each exceeded 10% of gross trade receivables and accounted for 75% and 73%, respectively, of net trade receivables on a combined basis. As of December 31, 2022 and 2021, 26% and 27%, respectively, of net trade receivables were due from customers located outside the United States, the majority of which were from Europe. Our total allowance for doubtful accounts as of December 31, 2022 and 2021, was not material.
4. Stock-based compensation
Our Amended 2009 Plan authorizes for issuance to employees of Amgen and nonemployee members of our Board of Directors shares of our common stock pursuant to grants of equity-based awards, including RSUs, stock options and performance units. The pool of shares available under the Amended 2009 Plan is reduced by one share for each stock option granted and by 1.9 shares for other types of awards granted, including full-value awards. In general, if any shares subject to an award granted under the Amended 2009 Plan expire or become forfeited, terminated or canceled without the issuance of shares, the shares subject to such awards are added back into the authorized pool on the same basis that they were removed. In addition, under the Amended 2009 Plan, shares withheld to pay for minimum statutory tax obligations with respect to full-value awards are added back into the authorized pool on the basis of 1.9 shares. As of December 31, 2022, the Amended 2009 Plan provides for future grants and/or issuances of up to approximately 15 million shares of our common stock. Stock-based awards under our employee compensation plans are made with newly issued shares reserved for this purpose.
The following table reflects the components of stock-based compensation expense recognized in our Consolidated Statements of Income (in millions):
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2022 | | 2021 | | 2020 |
| RSUs | $ | 227 | | | $ | 183 | | | $ | 178 | |
| Performance units | 132 | | | 121 | | | 118 | |
| Stock options | 42 | | | 37 | | | 34 | |
| Total stock-based compensation expense, pretax | 401 | | | 341 | | | 330 | |
| Tax benefit from stock-based compensation expense | (86) | | | (74) | | | (72) | |
| Total stock-based compensation expense, net of tax | $ | 315 | | | $ | 267 | | | $ | 258 | |
Restricted stock units and stock options
Eligible employees generally receive an annual grant of RSUs and, for certain executive-level employees, stock options, with the size and type of award generally determined by the employee’s salary grade and performance level. Certain management and professional-level employees typically receive RSU grants upon commencement of employment. Nonemployee members of our Board of Directors also receive an annual grant of RSUs.
Our RSU and stock option grants provide for accelerated or continued vesting in certain circumstances as defined in the plans and related grant agreements, including upon death, disability, termination in connection with a change in control and the retirement of employees who meet certain service and/or age requirements. RSUs and stock options generally vest in equal amounts on the second, third and fourth anniversaries of the grant date. RSUs accrue dividend equivalents, which are typically payable in shares only when and to the extent the underlying RSUs vest and are issued to the recipient.
Restricted stock units
The grant date fair value of an RSU equals the closing price of our common stock on the grant date, as RSUs accrue dividend equivalents during their vesting period. The weighted-average grant date fair values per unit of RSUs granted during the years ended December 31, 2022, 2021 and 2020, were $234.47, $233.10 and $235.63, respectively.
The following table summarizes information regarding our RSUs:
| | | | | | | | | | | |
| Year ended December 31, 2022 |
| Units
(in millions) | | Weighted-average
grant date
fair value |
Balance nonvested as of December 31, 2021 | 3.0 | | | $ | 217.95 | |
| Granted | 1.0 | | | $ | 234.47 | |
| Vested | (0.9) | | | $ | 201.47 | |
| Forfeited | (0.3) | | | $ | 226.15 | |
Balance nonvested as of December 31, 2022 | 2.8 | | | $ | 228.71 | |
The total grant date fair values of RSUs that vested during the years ended December 31, 2022, 2021 and 2020, were $192 million, $166 million and $161 million, respectively.
Stock options
The exercise price of stock options is set as the closing price of our common stock on the grant date, and the related number of shares granted is fixed at that point in time. Awards expire 10 years from the date of grant. We use the Black–Scholes option valuation model to estimate the grant date fair value of stock options.
The weighted-average assumptions used in the option valuation model and the resulting weighted-average grant date fair values of stock options granted were as follows:
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2022 | | 2021 | | 2020 |
| Closing price of our common stock on grant date | $ | 230.92 | | $ | 237.17 | | | $ | 236.36 | |
| Expected volatility (average of implied and historical volatility) | 24.5 | % | | 25.6 | % | | 28.1 | % |
| Expected life (in years) | 5.7 | | 5.7 | | 5.8 |
| Risk-free interest rate | 2.8 | % | | 1.0 | % | | 0.4 | % |
| Expected dividend yield | 3.3 | % | | 2.9 | % | | 3.0 | % |
| Fair value of stock options granted | $ | 42.43 | | $ | 40.43 | | | $ | 42.34 | |
The following table summarizes information regarding our stock options:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2022 |
| Options
(in millions) | | Weighted-
average
exercise price | | Weighted-
average
remaining
contractual
life (in years) | | Aggregate
intrinsic
value
(in millions) |
| Balance unexercised as of December 31, 2021 | 5.1 | | | $ | 197.27 | | | | | |
| Granted | 1.1 | | | $ | 230.92 | | | | | |
| Exercised | (0.7) | | | $ | 167.44 | | | | | |
| Expired/forfeited | (0.2) | | | $ | 226.35 | | | | | |
Balance unexercised as of December 31, 2022 | 5.3 | | | $ | 207.29 | | | 7.0 | | $ | 295 | |
Vested or expected to vest as of December 31, 2022 | 5.2 | | | $ | 206.47 | | | 7.0 | | $ | 290 | |
Exercisable as of December 31, 2022 | 2.2 | | | $ | 177.48 | | | 5.3 | | $ | 187 | |
The total intrinsic values of options exercised during the years ended December 31, 2022, 2021 and 2020, were $67 million, $56 million and $98 million, respectively. The actual tax benefits realized from tax deductions from option exercises during the years ended December 31, 2022, 2021 and 2020, were $14 million, $12 million and $21 million, respectively.
As of December 31, 2022, $362 million of unrecognized compensation cost was related to nonvested RSUs and unvested stock options, which is expected to be recognized over a weighted-average period of 1.7 years.
Performance units
Certain management-level employees also receive annual grants of performance units, which give the recipient the right to receive common stock that is contingent upon achievement of specified preestablished goals over the performance period, which is generally three years. The performance goals for the units granted during the years ended December 31, 2022, 2021 and 2020, which are accounted for as equity awards, are based on (i) Amgen’s stockholder return compared with a comparator group of companies, which are considered market conditions and are therefore reflected in the grant date fair values of the units, and (ii) Amgen’s stand-alone financial performance measures, which are considered performance conditions. The expense recognized for awards is based on the grant date fair value of a unit multiplied by the number of units expected to be earned with respect to the related performance conditions, net of estimated forfeitures. Depending on the outcome of these performance goals, a recipient may ultimately earn a number of units greater or less than the number of units granted. Shares of our common stock are issued on a one-for-one basis for each performance unit earned. In general, performance unit awards vest at the end of the performance period. The performance award program provides for accelerated or continued vesting in certain circumstances as defined in the plan, including upon death, disability, a change in control and retirement of employees who meet certain service and/or age requirements. Performance units accrue dividend equivalents that are typically payable in shares only when and to the extent the underlying performance units vest and are issued to the recipient, including with respect to market and performance conditions that affect the number of performance units earned.
We use a payout simulation model to estimate the grant date fair value of performance units. The weighted-average assumptions used in the payout simulation model and the resulting weighted-average grant date fair values of performance units granted were as follows:
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2022 | | 2021 | | 2020 |
| Closing price of our common stock on grant date | $ | 230.92 | | | $ | 239.64 | | | $ | 236.36 | |
| Volatility | 28.1 | % | | 29.3 | % | | 27.5 | % |
| Risk-free interest rate | 0.3 | % | | 0.3 | % | | 0.2 | % |
| Fair value of units granted | $ | 247.48 | | | $ | 254.68 | | | $ | 249.07 | |
The payout simulation model assumes correlations of returns of the stock prices of our common stock and the common stocks of the comparator groups of companies and stock price volatilities of the comparator groups of companies to simulate stockholder returns over the performance periods and their resulting impact on the payout percentages based on the contractual terms of the performance units.
As of both December 31, 2022 and 2021, 1.6 million performance units were outstanding, with weighted-average grant date fair values per unit of $250.27 and $229.39 per unit, respectively. During the year ended December 31, 2022, 0.6 million performance units with a weighted-average grant date fair value per unit of $247.48 were granted, and 0.1 million performance units with a weighted-average grant date fair value per unit of $250.94 were forfeited.
The total fair values of performance units paid during the years ended December 31, 2022, 2021 and 2020, were $150 million, $149 million and $230 million, respectively, based on the number of performance units earned multiplied by the closing stock price of our common stock on the last day of the performance period.
As of December 31, 2022, $132 million of unrecognized compensation cost was related to nonvested performance units, which is expected to be recognized over a weighted-average period of one year.
5. Defined contribution plan
The Company has defined contribution plans to which certain employees of the Company and participating subsidiaries may defer compensation for income tax purposes. Participants are eligible to receive matching contributions based on their contributions, in addition to other Company contributions. Defined contribution plan expenses were $243 million, $279 million and $231 million for the years ended December 31, 2022, 2021 and 2020, respectively.
6. Income taxes
Income before income taxes included the following (in millions):
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2022 | | 2021 | | 2020 |
| Domestic | $ | 3,026 | | | $ | 1,850 | | | $ | 4,087 | |
| Foreign | 4,320 | | | 4,851 | | | 4,046 | |
| Total income before income taxes | $ | 7,346 | | | $ | 6,701 | | | $ | 8,133 | |
The provision for income taxes included the following (in millions):
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2022 | | 2021 | | 2020 |
| Current provision: | | | | | |
| Federal | $ | 1,721 | | | $ | 865 | | | $ | 921 | |
| State | 44 | | | 18 | | | 34 | |
| Foreign | 304 | | | 359 | | | 277 | |
| Total current provision | 2,069 | | | 1,242 | | | 1,232 | |
| Deferred benefit: | | | | | |
| Federal | (1,185) | | | (308) | | | (321) | |
| State | (27) | | | (9) | | | 9 | |
| Foreign | (63) | | | (117) | | | (51) | |
| Total deferred benefit | (1,275) | | | (434) | | | (363) | |
| Total provision for income taxes | $ | 794 | | | $ | 808 | | | $ | 869 | |
Deferred income taxes reflect the tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, tax credit carryforwards and the tax effects of NOL carryforwards. As of December 31, 2022, we elected to establish deferred taxes with respect to the U.S. minimum tax on the earnings of our foreign subsidiaries for the reversal of temporary items in future years. Significant components of our deferred tax assets and liabilities were as follows (in millions):
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Deferred income tax assets: | | | |
| NOL and credit carryforwards | $ | 1,344 | | | $ | 1,065 | |
| Accrued expenses | 584 | | | 600 | |
| Capitalized research and development expenses | 515 | | | — | |
| Investments | 270 | | | — | |
| Expenses capitalized for tax | 211 | | | 244 | |
| Earnings of foreign subsidiaries | 192 | | | — | |
| Stock-based compensation | 104 | | | 96 | |
| Other | 317 | | | 326 | |
| Total deferred income tax assets | 3,537 | | | 2,331 | |
| Valuation allowance | (718) | | | (663) | |
| Net deferred income tax assets | 2,819 | | | 1,668 | |
| | | |
| Deferred income tax liabilities: | | | |
| Acquired intangible assets | (1,238) | | | (824) | |
| Debt | (272) | | | (275) | |
| Fixed assets | (112) | | | (129) | |
| Other | (254) | | | (221) | |
| Total deferred income tax liabilities | (1,876) | | | (1,449) | |
| Total deferred income taxes, net | $ | 943 | | | $ | 219 | |
Valuation allowances are provided to reduce the amounts of our deferred tax assets to an amount that is more likely than not to be realized based on an assessment of positive and negative evidence, including estimates of future taxable income necessary to realize future deductible amounts.
The valuation allowance increased in 2022, primarily driven by the Company’s expectation that certain state R&D credits will expire unused.
As of December 31, 2022, we had $170 million of federal tax credit carryforwards available to reduce future federal income taxes and have provided a valuation allowance for $6 million of those federal tax credit carryforwards. The federal tax credit carryforwards expire between 2023 and 2042. We had $896 million of state tax credit carryforwards available to reduce future state income taxes and have provided a valuation allowance for $813 million of those state tax credit carryforwards. We had $51 million of tax credit carryforwards related to our foreign jurisdictions available to offset future foreign income taxes for which we have provided no valuation allowance.
As of December 31, 2022, we had $1.3 billion of federal NOL carryforwards available to reduce future federal income taxes and have provided no valuation allowance on those federal NOL carryforwards. Additionally, $1.0 billion of those federal NOL carryforwards have no expiration; the remainder begin to expire between 2023 and 2037. We had $536 million of state NOL carryforwards available to reduce future state income taxes and have provided a valuation allowance for $415 million of those state NOL carryforwards. We had $1.9 billion of foreign NOL carryforwards available to reduce future foreign income taxes and have provided a valuation allowance for $186 million of those foreign NOL carryforwards. For the foreign NOLs with no valuation allowance provided, $640 million have no expiration; and the remainder will expire between 2023 and 2051.
The reconciliations of the total gross amounts of UTBs were as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2022 | | 2021 | | 2020 |
| Beginning balance | $ | 3,546 | | | $ | 3,352 | | | $ | 3,287 | |
| Additions based on tax positions related to the current year | 151 | | | 171 | | | 165 | |
| Additions based on tax positions related to prior years | 90 | | | 35 | | | 3 | |
| Reductions for tax positions of prior years | (14) | | | (4) | | | (35) | |
| Reductions for expiration of statute of limitations | (3) | | | — | | | — | |
| Settlements | — | | | (8) | | | (68) | |
| Ending balance | $ | 3,770 | | | $ | 3,546 | | | $ | 3,352 | |
Substantially all of the UTBs as of December 31, 2022, if recognized, would affect our effective tax rate. During the year ended December 31, 2020, we effectively settled certain issues with the IRS. As a result, we remeasured our UTBs accordingly.
Interest and penalties related to UTBs are included in our provision for income taxes. During the years ended December 31, 2022, 2021 and 2020, we recognized $189 million, $98 million and $116 million, respectively, of interest and penalties through the income tax provision in the Consolidated Statements of Income. The increase in interest expense for the year ended December 31, 2022, was primarily due to higher interest rates during 2022. As of December 31, 2022 and 2021, accrued interest and penalties associated with UTBs were $1.1 billion and $881 million, respectively.
The reconciliations between the federal statutory tax rate applied to income before income taxes and our effective tax rate were as follows:
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2022 | | 2021 | | 2020 |
| Federal statutory tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| Foreign earnings | (5.6) | % | | (7.8) | % | | (4.7) | % |
| Foreign-derived intangible income | (1.3) | % | | (1.0) | % | | (0.7) | % |
| Credits, Puerto Rico excise tax | (2.8) | % | | (3.4) | % | | (2.9) | % |
| | | | | |
| Interest on uncertain tax positions | 1.9 | % | | 1.1 | % | | 1.1 | % |
| Credits, primarily federal R&D | (2.0) | % | | (2.1) | % | | (1.4) | % |
| Acquisition IPR&D | — | % | | 4.9 | % | | — | % |
| Audit settlements | — | % | | — | % | | (1.0) | % |
| Other, net | (0.4) | % | | (0.6) | % | | (0.7) | % |
| Effective tax rate | 10.8 | % | | 12.1 | % | | 10.7 | % |
The effective tax rates for the years ended December 31, 2022, 2021 and 2020, differ from the federal statutory rate primarily due to impacts of the jurisdictional mix of income and expenses. Substantially all of the benefit to our effective tax rate from foreign earnings results from the Company’s operations in Puerto Rico, a territory of the United States that is treated as a foreign jurisdiction for U.S. tax purposes. Our operations in Puerto Rico are subject to tax incentive grants through 2050. Additionally, the Company’s operations conducted in Singapore are subject to a tax incentive grant through 2034. Our foreign earnings are also subject to U.S. tax at a reduced rate of 10.5%.
The U.S. territory of Puerto Rico imposes a 4% excise tax on the gross intercompany purchase price of goods and services from our manufacturer in Puerto Rico effective through December 31, 2022. For 2022, we account for the excise tax as a manufacturing cost that is capitalized in Inventories and expensed in Cost of sales when the related products are sold. For U.S. income tax purposes, the excise tax results in foreign tax credits that are generally recognized in our provision for income taxes when the excise tax is incurred.
Income taxes paid during the years ended December 31, 2022, 2021 and 2020, were $2.4 billion, $1.9 billion and $1.4 billion, respectively.
One or more of our legal entities file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and certain foreign jurisdictions. Our income tax returns are routinely examined by tax authorities in those jurisdictions. Significant disputes can and have arisen with tax authorities involving issues regarding the timing and amount of deductions, the use of tax credits and allocations of income and expenses among various tax jurisdictions because of differing interpretations of tax laws, regulations and relevant facts. Tax authorities, including the IRS, are becoming more aggressive and are particularly focused on such matters.
In 2017, we received an RAR and a modified RAR from the IRS for the years 2010–2012, proposing significant adjustments that primarily relate to the allocation of profits between certain of our entities in the United States and the U.S. territory of Puerto Rico. We disagreed with the proposed adjustments and calculations and pursued resolution with the IRS appeals office but were unable to reach resolution. In July 2021, we filed a petition in the U.S. Tax Court to contest two duplicate Statutory Notices of Deficiency (Notices) for the years 2010–2012 that we received in May and July 2021, which seek to increase our U.S. taxable income for the years 2010–2012 by an amount that would result in additional federal tax of approximately $3.6 billion plus interest. Any additional tax that could be imposed for the years 2010–2012 would be reduced by up to approximately $900 million of repatriation tax previously accrued on our foreign earnings.
In 2020, we received an RAR and a modified RAR from the IRS for the years 2013–2015, also proposing significant adjustments that primarily relate to the allocation of profits between certain of our entities in the United States and the U.S. territory of Puerto Rico similar to those proposed for the years 2010–2012. We disagreed with the proposed adjustments and calculations and pursued resolution with the IRS appeals office but were unable to reach resolution. In July 2022, we filed a petition in the U.S. Tax Court to contest a Notice for the years 2013–2015 that we previously reported receiving in April 2022 that seeks to increase our U.S. taxable income for the years 2013–2015 by an amount that would result in additional federal tax of approximately $5.1 billion, plus interest. In addition, the Notice asserts penalties of approximately $2.0 billion. Any additional tax that could be imposed for the years 2013–2015 would be reduced by up to approximately $2.2 billion of repatriation tax previously accrued on our foreign earnings.
We firmly believe that the IRS positions set forth in the 2010–2012 and 2013–2015 Notices are without merit. We are contesting the 2010–2012 and 2013–2015 Notices through the judicial process. The two cases were consolidated in U.S. Tax Court on December 19, 2022.
We are currently under examination by the IRS for the years 2016–2018 with respect to issues similar to those for the 2010 through 2015 period. In addition, we are under examination by a number of state and foreign tax jurisdictions.
Final resolution of these complex matters is not likely within the next 12 months. We continue to believe our accrual for income tax liabilities is appropriate based on past experience, interpretations of tax law, application of the tax law to our facts and judgments about potential actions by tax authorities; however, due to the complexity of the provision for income taxes and uncertain resolution of these matters, the ultimate outcome of any tax matters may result in payments substantially greater than amounts accrued and could have a material adverse impact on our consolidated financial statements.
We are no longer subject to U.S. federal income tax examinations for years ended on or before December 31, 2009.
7. Earnings per share
The computation of basic EPS is based on the weighted-average number of our common shares outstanding. The computation of diluted EPS is based on the weighted-average number of our common shares outstanding and dilutive potential common shares, which primarily include shares that may be issued under our stock option, restricted stock and performance unit award programs (collectively, dilutive securities), as determined by using the treasury stock method.
The computations for basic and diluted EPS were as follows (in millions, except per-share data):
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2022 | | 2021 | | 2020 |
| Income (Numerator): | | | | | |
| Net income for basic and diluted EPS | $ | 6,552 | | | $ | 5,893 | | | $ | 7,264 | |
| | | | | |
| Shares (Denominator): | | | | | |
| Weighted-average shares for basic EPS | 538 | | | 570 | | | 586 | |
| Effect of dilutive securities | 3 | | | 3 | | | 4 | |
| Weighted-average shares for diluted EPS | 541 | | | 573 | | | 590 | |
| | | | | |
| Basic EPS | $ | 12.18 | | | $ | 10.34 | | | $ | 12.40 | |
| Diluted EPS | $ | 12.11 | | | $ | 10.28 | | | $ | 12.31 | |
For each of the three years ended December 31, 2022, the number of antidilutive employee stock-based awards excluded from the computation of diluted EPS was not significant.
8. Collaborations
A collaborative arrangement is a contractual arrangement that involves a joint operating activity. Such arrangements involve two or more parties that are both (i) active participants in the activity and (ii) exposed to significant risks and rewards dependent on the commercial success of the activity.
From time to time, we enter into collaborative arrangements for the R&D, manufacture and/or commercialization of products and/or product candidates. These collaborations generally provide for nonrefundable upfront license fees, development and commercial-performance milestone payments, cost sharing, royalties and/or profit sharing. Our collaboration arrangements are performed with no guarantee of either technological or commercial success, and each arrangement is unique in nature. See Note 1, Summary of significant accounting policies, for additional discussion of revenues recognized under these types of arrangements. Operating expenses for costs incurred pursuant to these arrangements are reported in their respective expense line items in the Consolidated Statements of Income, net of any payments due to or reimbursements due from our collaboration partners, with such reimbursements being recognized at the time the party becomes obligated to pay. Our significant arrangements are discussed below.
BeiGene, Ltd.
In January 2020, we acquired an equity stake in BeiGene for approximately $2.8 billion in cash as part of a collaboration to expand our oncology presence in China. For additional information regarding our equity investment in BeiGene, see Note 9, Investments. Under the collaboration, BeiGene began selling XGEVA in 2020, BLINCYTO in 2021 and KYPROLIS in 2022 in China, and Amgen shares profits and losses equally during the initial product-specific commercialization periods; thereafter, product rights may revert to Amgen, and Amgen will pay royalties to BeiGene on sales in China of such products for a specified period. Amgen manufactures and supplies the collaboration products to BeiGene.
In addition, we jointly develop a portion of our oncology portfolio with BeiGene, which shares in global R&D costs by providing cash and development services of up to $1.25 billion. Upon regulatory approval, BeiGene will assume commercialization rights in China for a specified period, and Amgen and BeiGene will share profits equally until certain of these product rights revert to Amgen. Upon return of the product rights, Amgen will pay royalties to BeiGene on sales in China for a specified period. For product sales outside China, Amgen will also pay royalties to BeiGene.
During the years ended December 31, 2022, 2021 and 2020, net costs recovered from BeiGene for oncology product candidates were $199 million, $220 million and $225 million, respectively, and were recorded as an offset to R&D expense in the Consolidated Statements of Income. During the years ended December 31, 2022 and 2021, product sales from Amgen to
BeiGene under the collaboration were $64 million and $72 million, respectively, and were recorded in Product sales in the Consolidated Statements of Income. During the years ended December 31, 2022 and 2021, profit and loss share expenses related to the initial product-specific commercialization period were $53 million and $64 million, respectively, and were recorded in SG&A expense in the Consolidated Statements of Income. Product sales from Amgen to BeiGene and profit and loss share expenses were not material during the year ended December 31, 2020. Amounts owed from BeiGene for product sales were $6 million and $21 million as of December 31, 2022 and 2021, respectively, which are included in Trade receivables, net, in the Consolidated Balance Sheets. Net amounts owed from BeiGene for cost recoveries and profit and loss share payments were $47 million and $61 million as of December 31, 2022 and 2021, respectively, which are included in Other current assets in the Consolidated Balance Sheets.
AstraZeneca plc
We are in a collaboration with AstraZeneca for the development and commercialization of TEZSPIRE. Under our collaboration, both companies share global costs, profits and losses equally after payment by AstraZeneca of a mid-single-digit royalty to Amgen. AstraZeneca leads global development, and both Amgen and AstraZeneca jointly commercialize TEZSPIRE in North America. In North America, Amgen, as the principal, recognizes product sales of TEZSPIRE in the United States, and AstraZeneca, as the principal, recognizes product sales of TEZSPIRE in Canada. AstraZeneca leads commercialization for TEZSPIRE outside North America. Amgen manufactures and supplies TEZSPIRE worldwide.
During the years ended December 31, 2022, 2021 and 2020, net costs due to AstraZeneca for global development were $74 million, $49 million and $52 million, respectively, and were recorded in R&D Expense in the Consolidated Statements of Income. During the years ended December 31, 2022, 2021 and 2020, net costs due to AstraZeneca for global commercialization were $60 million, $39 million and $16 million, respectively, and were recorded in SG&A Expense in the Consolidated Statements of Income. During the year ended December 31, 2022, global profit and loss share expenses were $119 million and were recorded primarily in Cost of sales in the Consolidated Statements of Income. TEZSPIRE launched in the United States in January 2022.
UCB
We are in a collaboration with UCB for the development and commercialization of EVENITY. Under our collaboration, UCB has rights to lead commercialization for EVENITY in most countries in Europe and China (excluding Hong Kong). Amgen, as the principal, leads commercialization for EVENITY and recognizes product sales in all other territories, including the United States. Global development costs and commercialization profits and losses related to the collaboration are shared equally. Amgen manufactures and supplies EVENITY worldwide.
During the years ended December 31, 2022, 2021 and 2020, global profit and loss share expenses were $255 million, $186 million and $115 million, respectively, and were recorded primarily in Cost of sales in the Consolidated Statements of Income. Net costs recovered from and due to UCB during the years ended December 31, 2022, 2021 and 2020, were not material.
Novartis Pharma AG
We are in a collaboration with Novartis to jointly develop and commercialize Aimovig. On January 31, 2022, we modified the terms of the collaboration. Effective January 1, 2022, in the United States, Novartis no longer collaborates with Amgen, shares Aimovig commercialization costs or is required to pay milestones, and Amgen no longer pays royalties to Novartis on U.S. sales of Aimovig. Novartis continues to hold global co-development rights and exclusive commercial rights outside the United States and Japan for Aimovig. Amgen and Novartis share global development expenses, and Novartis pays Amgen double-digit royalties on net sales of the product outside the United States and Japan. Amgen manufactures and supplies Aimovig worldwide.
During the year ended December 31, 2022, net costs recovered from Novartis for migraine products were $53 million and were recorded in R&D expense in the Consolidated Statements of Income. During the years ended December 31, 2021 and 2020, net costs recovered from Novartis for migraine products were $160 million and $192 million, respectively, and were recorded primarily in SG&A expense in the Consolidated Statements of Income. During the years ended December 31, 2021 and 2020, royalties due to Novartis for Aimovig were $116 million and $139 million, respectively, and were recorded in Cost of sales in the Consolidated Statements of Income. During the years ended December 31, 2022, 2021 and 2020, royalties due from Novartis for Aimovig were not material.
Kyowa Kirin Co., Ltd.
On July 30, 2021, we closed our collaboration and licensing agreement with KKC to jointly develop and commercialize rocatinlimab, an anti-OX40 fully human monoclonal antibody, worldwide, except in Japan. Rocatinlimab is for the treatment of atopic dermatitis, with potential for treatment of other autoimmune diseases.
Under the terms of the agreement, we lead the global development, manufacture and commercialization of rocatinlimab, except in Japan. KKC will co-promote rocatinlimab with Amgen in the United States and have opt in rights to co-promote rocatinlimab in various other markets outside the United States, including in Europe and Asia.
We made an upfront payment of $400 million to KKC that was recognized in R&D expense in the third quarter of 2021. Amgen and KKC share equally the global development costs, except in Japan, and the U.S. commercialization costs. Outside the United States and Japan, any commercialization costs incurred by KKC will be reimbursed by Amgen. We may also be required to make milestone payments of up to $850 million contingent upon the achievement of certain regulatory events and commercial thresholds. We will also pay KKC significant double-digit royalties on global sales, except in Japan. Net costs recovered from and due to KKC were not material during the years ended December 31, 2022 and 2021.
Other
In addition to the collaborations discussed above, we have various other collaborations that are not individually significant to our business at this time. Pursuant to the terms of those agreements, we may be required to pay additional amounts or we may receive additional amounts upon the achievement of various development and commercial milestones that in the aggregate could be significant. We may also incur or have reimbursed to us significant R&D costs if a related product candidate were to advance to late-stage clinical trials. In addition, if any products related to these collaborations are approved for sale, we may be required to pay significant royalties or we may receive significant royalties on future sales. The payments of these amounts, however, are contingent upon the occurrence of various future events that have high degrees of uncertainty of occurrence.
9. Investments
Available-for-sale investments
The amortized cost, gross unrealized gains, gross unrealized losses and fair values of interest-bearing securities, which are considered available-for-sale, by type of security were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Types of securities as of December 31, 2022 | | Amortized
cost | | Gross
unrealized
gains | | Gross
unrealized
losses | | Fair
values |
| U.S. Treasury notes | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| U.S. Treasury bills | | 1,676 | | | — | | | — | | | 1,676 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Money market mutual funds | | 2,659 | | | — | | | — | | | 2,659 | |
| Other short-term interest-bearing securities | | — | | | — | | | — | | | — | |
| Total available-for-sale investments | | $ | 4,335 | | | $ | — | | | $ | — | | | $ | 4,335 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Types of securities as of December 31, 2021 | | Amortized
cost | | Gross
unrealized
gains | | Gross
unrealized
losses | | Fair
values |
| U.S. Treasury notes | | $ | 47 | | | $ | — | | | $ | — | | | $ | 47 | |
| U.S. Treasury bills | | 1,400 | | | — | | | — | | | 1,400 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Money market mutual funds | | 5,856 | | | — | | | — | | | 5,856 | |
| Other short-term interest-bearing securities | | 1 | | | — | | | — | | | 1 | |
| | | | | | | | |
| | | | | | | | |
| Total available-for-sale investments | | $ | 7,304 | | | $ | — | | | $ | — | | | $ | 7,304 | |
The fair values of available-for-sale investments by location in the Consolidated Balance Sheets were as follows (in millions):
| | | | | | | | | | | | | | |
| | December 31, |
| Consolidated Balance Sheets locations | | 2022 | | 2021 |
| Cash and cash equivalents | | $ | 2,659 | | | $ | 7,256 | |
| Marketable securities | | 1,676 | | | 48 | |
| | | | |
| Total available-for-sale investments | | $ | 4,335 | | | $ | 7,304 | |
Cash and cash equivalents in the above table excludes bank account cash of $4,970 million and $733 million as of December 31, 2022 and 2021, respectively.
All interest-bearing securities as of December 31, 2022 and 2021, mature in one year or less.
For the years ended December 31, 2022, 2021 and 2020, realized gains and losses on interest-bearing securities were not material. Realized gains and losses on interest-bearing securities are recorded in Other (expense) income, net, in the Consolidated Statements of Income. The cost of securities sold is based on the specific-identification method.
The primary objective of our investment portfolio is to maintain safety of principal, prudent levels of liquidity and acceptable levels of risk. Our investment policy limits interest-bearing security investments to certain types of debt and money market instruments issued by institutions with investment-grade credit ratings, and it places restrictions on maturities and concentration by asset class and issuer.
Equity securities
We held investments in equity securities with readily determinable fair values (publicly traded securities) of $480 million and $611 million as of December 31, 2022 and 2021, respectively, which are included in Other noncurrent assets in the Consolidated Balance Sheets. For the years ended December 31, 2022, 2021 and 2020, net unrealized gains and losses on publicly traded securities were a loss of $165 million and gains of $161 million and $174 million, respectively. Realized gains and losses on publicly traded securities for the years ended December 31, 2022, 2021 and 2020, were not material.
We held investments of $233 million and $262 million in equity securities without readily determinable fair values as of December 31, 2022 and 2021, respectively, which are included in Other noncurrent assets in the Consolidated Balance Sheets. For the years ended December 31, 2022 and 2020, gains due to upward adjustments and gains realized upon dispositions of
these securities were not material. For the year ended December 31, 2021, gains due to upward adjustments were $152 million, and gains realized on the dispositions of these securities were $41 million. For the year ended December 31, 2022, downward adjustments to the carrying values of these securities were $67 million. For the years ended December 31, 2021 and 2020, downward adjustments were not material. Adjustments were based on observable price transactions.
Equity Method Investments
BeiGene, Ltd.
On January 2, 2020, we acquired a 20.5% ownership interest in BeiGene for $2.8 billion, of which $2.6 billion was attributed to the fair value of equity securities upon closing, with the remainder attributed to prepaid R&D. Our equity investment in BeiGene is included in Other noncurrent assets in the Consolidated Balance Sheets. As of December 31, 2022, our equity investment is accounted for under the equity method of accounting due to our ability to exert significant influence over BeiGene. See Note 1, Summary of significant accounting policies, for factors in concluding our ability to exert significant influence over BeiGene. The fair value of equity securities acquired exceeded our proportionate share of the carrying value of the underlying net assets of BeiGene by approximately $2.4 billion. The equity method of accounting requires us to identify and allocate amounts to items that give rise to the basis difference and to amortize these items over their useful lives. This amortization, along with our share of the results of operations of BeiGene, is included in Other (expense) income, net, in our Consolidated Statements of Income. Recognition occurs one quarter in arrears, which began in the second quarter of 2020. The basis difference was allocated to finite-lived intangible assets, indefinite-lived intangible assets, equity-method goodwill and related deferred taxes. The finite-lived intangible assets are being amortized over a period ranging from 8 to 15 years.
During the years ended December 31, 2022, 2021 and 2020, the carrying value of the investment was reduced by our share of BeiGene’s net losses of $394 million, $265 million and $229 million, respectively, and amortization of the basis difference of $190 million, $172 million and $109 million, respectively. During the years ended December 31, 2021 and 2020, we increased the carrying value by $50 million and $569 million, respectively, as a result of our purchases of additional shares of BeiGene; we did not purchase additional shares of BeiGene during the year ended December 31, 2022. In addition, during the years ended December 31, 2022, 2021 and 2020, the carrying value increased by $11 million, $265 million and $34 million, respectively, from the impact of other BeiGene ownership transactions.
As of December 31, 2022 and 2021, our ownership interest in BeiGene was approximately 18.2% and 18.4%, respectively. As of December 31, 2022 and 2021, the carrying value of our investment in BeiGene was $2.2 billion and $2.8 billion, respectively. As of December 31, 2022 and 2021, the fair value of our investment in BeiGene was $4.2 billion and $5.1 billion, respectively. We believe that as of December 31, 2022, the carrying value of our equity investment in BeiGene is fully recoverable. For information on a collaboration agreement we entered into with BeiGene in connection with this investment, see Note 8, Collaborations.
Effective January 30, 2023, we relinquished our right to appoint a director to BeiGene’s Board of Directors. We no longer have the ability to exert significant influence over BeiGene and therefore will account for our equity investment at fair value, with changes in fair value recorded in earnings starting in the first quarter of 2023.
Neumora Therapeutics, Inc.
On September 30, 2021, we acquired an approximately 25.9% ownership interest in Neumora, a privately held company, for $257 million, which is included in Other noncurrent assets in the Consolidated Balance Sheets, in exchange for a $100 million cash payment and $157 million in noncash consideration primarily related to future services. Although our equity investment provides us with the ability to exercise significant influence over Neumora, we have elected the fair value option to account for our equity investment. Under the fair value option, changes in the fair value of the investment are recognized through earnings each reporting period. We believe the fair value option best reflects the economics of the underlying transaction. During the year ended December 31, 2022, we made an additional $10 million cash investment via participation in Neumora’s subsequent financing round. As of December 31, 2022 and 2021, our ownership interest in Neumora was approximately 24.9% and 25.9%, respectively, and the fair value of our investment was $335 million and $220 million, respectively. During the years ended December 31, 2022 and 2021, we recognized a net gain of $105 million and a net loss of $37 million, respectively, for the change in fair values in Other (expense) income, net, in the Consolidated Statements of Income. For information on determination of fair values, see Note 17, Fair value measurement.
Limited partnerships
We held limited partnership investments of $249 million and $573 million as of December 31, 2022 and 2021, respectively, which are included in Other noncurrent assets in the Consolidated Balance Sheets. These investments, which are primarily investment funds of early-stage biotechnology companies, are accounted for by using the equity method of accounting and are measured by using our proportionate share of the net asset values of the underlying investments held by the limited partnerships as a practical expedient. These investments are typically redeemable only through distributions upon liquidation of the underlying assets. As of December 31, 2022, unfunded additional commitments to be made for these investments during the next several years were $187 million. For the years ended December 31, 2022, 2021 and 2020, net gains and losses recognized from our limited partnership investments were a net loss of $284 million and net gains of $143 million and $241 million, respectively.
10. Inventories
Inventories consisted of the following (in millions):
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Raw materials | $ | 828 | | | $ | 647 | |
| Work in process | 3,098 | | | 2,367 | |
| Finished goods | 1,004 | | | 1,072 | |
| Total inventories | $ | 4,930 | | | $ | 4,086 | |
11. Property, plant and equipment
Property, plant and equipment consisted of the following (dollar amounts in millions):
| | | | | | | | | | | | | | | | | |
| | | December 31, |
| Useful life (in years) | | 2022 | | 2021 |
| Land | — | | $ | 292 | | | $ | 279 | |
| Buildings and improvements | 10-40 | | 4,201 | | | 4,028 | |
| Manufacturing equipment | 8-12 | | 3,105 | | | 3,080 | |
| Laboratory equipment | 8-12 | | 1,277 | | | 1,193 | |
| Fixed equipment | 12 | | 2,478 | | | 2,402 | |
| Capitalized software | 3-5 | | 1,215 | | | 1,151 | |
| Other | 5-10 | | 929 | | | 862 | |
| Construction in progress | — | | 1,213 | | | 987 | |
| Property, plant and equipment, gross | | | 14,710 | | | 13,982 | |
| Less accumulated depreciation and amortization | | | (9,283) | | | (8,798) | |
| Property, plant and equipment, net | | | $ | 5,427 | | | $ | 5,184 | |
During the years ended December 31, 2022, 2021 and 2020, we recognized depreciation and amortization expense associated with our property, plant and equipment of $661 million, $644 million and $640 million, respectively.
Geographic information
Certain geographic information with respect to property, plant and equipment, net (long-lived assets), was as follows (in millions):
| | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| U.S. | $ | 3,154 | | | $ | 2,801 | |
| Puerto Rico | 1,247 | | | 1,311 | |
| ROW | 1,026 | | | 1,072 | |
| Total property, plant and equipment, net | $ | 5,427 | | | $ | 5,184 | |
12. Goodwill and other intangible assets
Goodwill
The changes in the carrying amounts of goodwill were as follows (in millions):
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Beginning balance | $ | 14,890 | | | $ | 14,689 | |
Changes to goodwill resulting from acquisitions and divestitures, net(1) | 651 | | | 251 | |
| Currency translation adjustments | (12) | | | (50) | |
| Ending balance | $ | 15,529 | | | $ | 14,890 | |
____________
(1) For 2022, the changes to goodwill consist of goodwill resulting from the acquisition of ChemoCentryx, changes to the acquisition date fair values of net assets acquired in the acquisition of Teneobio and the nonstrategic Gensenta divestiture. See Note 2, Acquisitions and divestitures.
Other intangible assets
Other intangible assets consisted of the following (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| | 2022 | | 2021 |
| | Gross
carrying
amounts | | Accumulated
amortization | | Other intangible
assets, net | | Gross
carrying
amounts | | Accumulated
amortization | | Other intangible
assets, net |
| Finite-lived intangible assets: | | | | | | | | | | | |
| Developed-product-technology rights | $ | 29,028 | | | $ | (15,045) | | | $ | 13,983 | | | $ | 25,561 | | | $ | (12,769) | | | $ | 12,792 | |
| Licensing rights | 3,864 | | | (3,123) | | | 741 | | | 3,807 | | | (2,973) | | | 834 | |
| Marketing-related rights | 1,326 | | | (1,167) | | | 159 | | | 1,354 | | | (1,112) | | | 242 | |
| R&D technology rights | 1,378 | | | (1,190) | | | 188 | | | 1,377 | | | (1,133) | | | 244 | |
| Total finite-lived intangible assets | 35,596 | | | (20,525) | | | 15,071 | | | 32,099 | | | (17,987) | | | 14,112 | |
| Indefinite-lived intangible assets: | | | | | | | | | | | |
| IPR&D | 1,009 | | | — | | | 1,009 | | | 1,070 | | | — | | | 1,070 | |
| Total other intangible assets | $ | 36,605 | | | $ | (20,525) | | | $ | 16,080 | | | $ | 33,169 | | | $ | (17,987) | | | $ | 15,182 | |
Developed-product-technology rights consists of rights related to marketed products acquired in acquisitions. Licensing rights consists primarily of contractual rights acquired in acquisitions to receive future milestone, royalty and profit-sharing payments; capitalized payments to third parties for milestones related to regulatory approvals to commercialize products; and up-front payments associated with royalty obligations for marketed products. Marketing-related rights consists primarily of rights related to the sale and distribution of marketed products. R&D technology rights pertains to technologies used in R&D that have alternative future uses. Developed-product-technology rights include assets acquired with the ChemoCentryx acquisition. IPR&D, R&D technology rights and licensing rights includes assets acquired with the Teneobio acquisition. See Note 2, Acquisitions and divestitures.
IPR&D consists of R&D projects acquired in a business combination that are not complete at the time of acquisition due to remaining technological risks and/or lack of receipt of required regulatory approvals. All IPR&D projects have major risks and uncertainties associated with the timely and successful completion of the development and commercialization of product candidates, including our ability to confirm safety and efficacy based on data from clinical trials, our ability to obtain necessary regulatory approvals and our ability to successfully complete these tasks within budgeted costs. We are not permitted to market a human therapeutic without obtaining regulatory approvals, and such approvals require the completion of clinical trials that demonstrate that a product candidate is safe and effective. In addition, the availability and extent of coverage and reimbursement from third-party payers, including government healthcare programs and private insurance plans as well as competitive product launches, affect the revenues a product can generate. Consequently, the eventual realized values, if any, of acquired IPR&D projects may vary from their estimated fair values. We review IPR&D projects for impairment annually, whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable and upon the establishment of technological feasibility or regulatory approval.
During the years ended December 31, 2022, 2021 and 2020, we recognized amortization associated with our finite-lived intangible assets of $2.6 billion, $2.6 billion and $2.8 billion, respectively. Amortization of intangible assets is included primarily in Cost of sales in the Consolidated Statements of Income. The total estimated amortization for our finite-lived intangible assets for the years ending December 31, 2023, 2024, 2025, 2026 and 2027, are $2.8 billion, $2.7 billion, $2.5 billion, $2.1 billion and $2.1 billion, respectively.
13. Leases
We lease certain facilities and equipment related primarily to R&D, administrative and commercial activities. Leases with terms of 12 months or less are expensed as incurred and are not recorded in the Consolidated Balance Sheets.
Most leases include one or more options to renew, with renewal terms that may extend the lease term up to seven years. The exercise of lease renewal options is at our sole discretion. In addition, some of our lease agreements include rental payments adjusted periodically for inflation. Our lease agreements neither contain residual value guarantees nor impose significant restrictions or covenants. We sublease certain real estate to third parties. Our sublease portfolio consists of operating leases from former R&D and administrative space.
The following table summarizes information related to our leases, all of which are classified as operating, included in our Consolidated Balance Sheets (in millions):
| | | | | | | | | | | | | | |
| | December 31, |
| Consolidated Balance Sheets locations | | 2022 | | 2021 |
| Assets: | | | | |
| Other noncurrent assets | | $ | 579 | | | $ | 566 | |
| Liabilities: | | | | |
| Accrued liabilities | | $ | 156 | | | $ | 145 | |
| Other noncurrent liabilities | | 539 | | | 525 | |
| Total lease liabilities | | $ | 695 | | | $ | 670 | |
The components of net lease costs were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, |
| Lease costs | | 2022 | | 2021 | | 2020 |
Operating(1) | | $ | 218 | | | $ | 237 | | | $ | 223 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Sublease income | | (32) | | | (38) | | | (34) | |
| Total net lease costs | | $ | 186 | | | $ | 199 | | | $ | 189 | |
____________
(1) Includes short-term leases and variable lease costs, which were not material for the years ended December 31, 2022, 2021 and 2020.
Maturities of lease liabilities as of December 31, 2022, were as follows (in millions):
| | | | | | | | | | | | |
| Maturity dates | | Amounts | | | | |
| 2023 | | $ | 172 | | | | | |
| 2024 | | 109 | | | | | |
| 2025 | | 80 | | | | | |
| 2026 | | 70 | | | | | |
| 2027 | | 64 | | | | | |
| Thereafter | | 286 | | | | | |
Total lease payments(1) | | 781 | | | | | |
| Less imputed interest | | (86) | | | | | |
| Present value of lease liabilities | | $ | 695 | | | | | |
____________
(1) Includes future rental commitments for abandoned leases of $90 million. We expect to receive total future rental income of $76 million related to noncancelable subleases for abandoned facilities.
The weighted-average remaining lease terms and weighted-average discount rates were as follows:
| | | | | | | | | | | | | | |
| | | | December 31, |
| | | | 2022 | | 2021 |
| Weighted-average remaining lease term (in years) | | | | 8.2 | | 8.3 |
| Weighted-average discount rate | | | | 2.7 | % | | 2.5 | % |
Cash and noncash information related to our leases was as follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | | Years ended December 31, |
| | | | 2022 | | 2021 | | 2020 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | | |
| Operating cash flows for operating leases | | | | $ | 171 | | | $ | 190 | | | $ | 177 | |
| | | | | | | | |
| | | | | | | | |
| ROU assets obtained in exchange for lease obligations: | | | | | | | | |
| Operating leases | | | | $ | 191 | | | $ | 340 | | | $ | 101 | |
| | | | | | | | |
As of December 31, 2022, the total undiscounted future lease payments for leases that have not yet commenced were not material.
14. Other current assets and accrued liabilities
Other current assets consisted of the following (in millions):
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Prepaid expenses | $ | 1,204 | | | $ | 1,223 | |
| Corporate partner receivables | 700 | | | 780 | |
| Tax receivables | 129 | | | 164 | |
| Other | 355 | | | 200 | |
| Total other current assets | $ | 2,388 | | | $ | 2,367 | |
Accrued liabilities consisted of the following (in millions):
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Sales deductions | $ | 5,986 | | | $ | 5,174 | |
| Income taxes payable | 1,195 | | | 701 | |
| Dividends payable | 1,137 | | | 1,083 | |
| Employee compensation and benefits | 1,099 | | | 1,081 | |
| Sales returns reserve | 548 | | | 542 | |
| Other | 2,559 | | | 2,150 | |
| Total accrued liabilities | $ | 12,524 | | | $ | 10,731 | |
15. Financing arrangements
Our borrowings consisted of the following (in millions):
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
0.41% CHF700 million bonds due 2023 (0.41% 2023 Swiss franc Bonds) | $ | 757 | | | $ | 767 | |
2.25% notes due 2023 (2.25% 2023 Notes) | 750 | | | 750 | |
3.625% notes due 2024 (3.625% 2024 Notes) | 1,400 | | | 1,400 | |
1.90% notes due 2025 (1.90% 2025 Notes) | 500 | | | 500 | |
3.125% notes due 2025 (3.125% 2025 Notes) | 1,000 | | | 1,000 | |
2.00% €750 million notes due 2026 (2.00% 2026 euro Notes) | 803 | | | 853 | |
2.60% notes due 2026 (2.60% 2026 Notes) | 1,250 | | | 1,250 | |
5.50% £475 million notes due 2026 (5.50% 2026 pound sterling Notes) | 574 | | | 643 | |
2.20% notes due 2027 (2.20% 2027 Notes) | 1,724 | | | 1,750 | |
3.20% notes due 2027 (3.20% 2027 Notes) | 1,000 | | | 1,000 | |
1.65% notes due in 2028 (1.65% 2028 Notes) | 1,234 | | | 1,250 | |
3.00% notes due 2029 (3.00% 2029 Notes) | 750 | | | — | |
4.05% notes due 2029 (4.05% 2029 Notes) | 1,250 | | | — | |
4.00% £700 million notes due 2029 (4.00% 2029 pound sterling Notes) | 846 | | | 947 | |
2.45% notes due 2030 (2.45% 2030 Notes) | 1,250 | | | 1,250 | |
2.30% notes due 2031 (2.30% 2031 Notes) | 1,250 | | | 1,250 | |
2.00% notes due 2032 (2.00% 2032 Notes) | 1,051 | | | 1,250 | |
3.35% notes due 2032 (3.35% 2032 Notes) | 1,000 | | | — | |
4.20% notes due 2033 (4.20% 2033 Notes) | 750 | | | — | |
6.375% notes due 2037 (6.375% 2037 Notes) | 478 | | | 478 | |
6.90% notes due 2038 (6.90% 2038 Notes) | 254 | | | 254 | |
6.40% notes due 2039 (6.40% 2039 Notes) | 333 | | | 333 | |
3.15% notes due 2040 (3.15% 2040 Notes) | 2,000 | | | 2,000 | |
5.75% notes due 2040 (5.75% 2040 Notes) | 373 | | | 373 | |
2.80% notes due 2041 (2.80% 2041 Notes) | 1,110 | | | 1,150 | |
4.95% notes due 2041 (4.95% 2041 Notes) | 600 | | | 600 | |
5.15% notes due 2041 (5.15% 2041 Notes) | 729 | | | 729 | |
5.65% notes due 2042 (5.65% 2042 Notes) | 415 | | | 415 | |
5.375% notes due 2043 (5.375% 2043 Notes) | 185 | | | 185 | |
4.40% notes due 2045 (4.40% 2045 Notes) | 2,250 | | | 2,250 | |
4.563% notes due 2048 (4.563% 2048 Notes) | 1,415 | | | 1,415 | |
3.375% notes due 2050 (3.375% 2050 Notes) | 2,250 | | | 2,250 | |
4.663% notes due 2051 (4.663% 2051 Notes) | 3,541 | | | 3,541 | |
3.00% notes due 2052 (3.00% 2052 Notes) | 1,254 | | | 1,350 | |
4.20% notes due 2052 (4.20% 2052 Notes) | 1,000 | | | — | |
4.875% notes due 2053 (4.875% 2053 Notes) | 1,000 | | | — | |
2.77% notes due 2053 (2.77% 2053 Notes) | 940 | | | 940 | |
4.40% notes due 2062 (4.40% 2062 Notes) | 1,250 | | | — | |
| Other notes due 2097 | 100 | | | 100 | |
| Unamortized bond discounts, premiums and issuance costs, net | (1,246) | | | (1,213) | |
| Fair value adjustments | (437) | | | 284 | |
| Other | 12 | | | 15 | |
| Total carrying value of debt | 38,945 | | | 33,309 | |
| Less current portion | (1,591) | | | (87) | |
| Total long-term debt | $ | 37,354 | | | $ | 33,222 | |
There are no material differences between the effective interest rates and the coupon rates of any of our borrowings, except for the 4.563% 2048 Notes, the 4.663% 2051 Notes and the 2.77% 2053 Notes, which have effective interest rates of 6.3%, 5.6% and 5.2%, respectively.
Under the terms of all of our outstanding notes, except our Other notes due 2097, in the event of a change-in-control triggering event we may be required to purchase all or a portion of these debt securities at prices equal to 101% of the principal amounts of the notes plus accrued and unpaid interest. In addition, all of our outstanding notes—except our 0.41% 2023 Swiss franc Bonds and Other notes due 2097—may be redeemed at any time at our option—in whole or in part—at the principal amounts of the notes being redeemed plus accrued and unpaid interest and make-whole amounts, which are defined by the terms of the notes. Certain of the redeemable notes do not require the payment of make-whole amounts if redeemed during a specified period of time immediately prior to the maturity of the notes. Such time periods range from one month to six months prior to maturity.
Debt issuances
During the years ended December 31, 2022, 2021 and 2020, we issued debt securities in the following offerings:
•In 2022, we issued $7.0 billion of debt consisting of $750 million of the 3.00% 2029 Notes, $1.25 billion of the 4.05% 2029 Notes, $1.0 billion of the 3.35% 2032 Notes, $750 million of the 4.20% 2033 Notes, $1.0 billion of the 4.20% 2052 Notes, $1.0 billion of the 4.875% 2053 Notes and $1.25 billion of the 4.40% 2062 Notes. The 3.00% 2029 Notes were issued to finance eligible projects that meet specified criteria to reduce our impact on the environment.
•In 2021, we issued $5.0 billion of debt consisting of $1.25 billion of the 1.65% 2028 Notes, $1.25 billion of the 2.00% 2032 Notes, $1.15 billion of the 2.80% 2041 Notes and $1.35 billion of the 3.00% 2052 Notes.
•In 2020, we issued $9.0 billion of debt consisting of $500 million of the 1.90% 2025 Notes, $1.75 billion of the 2.20% 2027 Notes, $1.25 billion of the 2.45% 2030 Notes, $1.25 billion of the 2.30% 2031 Notes, $2.0 billion of the 3.15% 2040 Notes and $2.25 billion of the 3.375% 2050 Notes.
Debt extinguishment
In 2022, we repurchased portions of the 2.20% 2027 Notes, the 1.65% 2028 Notes, the 2.00% 2032 Notes, the 2.80% 2041 Notes and the 3.00% 2052 Notes for an aggregate cost of $297 million, which resulted in the recognition of a $78 million gain on extinguishment of debt recorded in Other (expense) income, net, in the Consolidated Statements of Income.
Debt repayments/redemptions
We made debt repayments/redemptions during the years ended December 31, 2022, 2021 and 2020, as follows:
•In 2022, no debt was repaid/redeemed.
•In 2021, we redeemed $4.2 billion of debt, including the €1.25 billion aggregate principal amount ($1.4 billion upon settlement of the related cross-currency swap) of the 1.25% 2022 euro Notes, the $500 million aggregate principal amount of the 2.70% 2022 Notes, the $1.5 billion aggregate principal amount of the 2.65% 2022 Notes and the $750 million aggregate principal amount of the 3.625% 2022 Notes. In connection with the redemption of these notes, we paid a total of $24 million in make-whole amounts plus associated accrued and unpaid interest, all of which was recognized in Interest expense, net, in the Consolidated Statements of Income.
•In 2020, we repaid/redeemed $6.5 billion of debt, including the repayment at maturity of the $300 million aggregate principal amount of the 4.50% 2020 Notes, the $750 million aggregate principal amount of the 2.125% 2020 Notes, the $300 million Floating Rate Notes due 2020 and the $700 million aggregate principal amount of the 2.20% 2020 Notes. In connection with the redemption of the $900 million aggregate principal amount of the 3.45% 2020 Notes, the $1.0 billion aggregate principal balance of the 4.10% 2021 Notes, the $750 million aggregate principal balance of the 1.85% 2021 Notes and the $1.75 billion aggregate principal balance of the 3.875% 2021 Notes, we paid a total of $96 million in make-whole amounts plus associated accrued and unpaid interest, all of which was recognized in Interest expense, net, in the Consolidated Statements of Income.
Interest rate swaps
To achieve a desired mix of fixed-rate and floating-rate debt, we entered into interest rate swap contracts that effectively converted fixed-rate interest coupons for certain of our debt issuances to floating LIBOR-based coupons over the lives of the respective notes. These interest rate swap contracts qualified and are designated as fair value hedges.
During the year ended December 31, 2021, we entered into interest rate swap contracts with an aggregate notional amount of $1.0 billion with respect to the 2.45% 2030 Notes and an aggregate notional amount of $500 million with respect to the 2.30% 2031 Notes. In connection with the redemption of the 3.625% 2022 Notes, discussed above, associated interest rate swap contracts with an aggregate notional amount of $750 million were terminated.
In connection with the redemption of certain of the notes during the year ended December 31, 2020, discussed above, associated interest rate swap contracts with an aggregate notional value of $3.65 billion were terminated. In addition, because of historically low interest rates, during the year ended December 31, 2020, we terminated interest rate swaps with an aggregate notional amount of $5.2 billion that hedged the 3.625% 2024 Notes, the 2.60% 2026 Notes, the 4.663% 2051 Notes and portions of the 3.625% 2022 Notes and the 3.125% 2025 Notes, which resulted in the receipt of $576 million of cash and reduced counterparty credit risk. Immediately following the terminations of these contracts, we entered into new interest rate swap agreements at then-current interest rates on the same $5.2 billion principal amount of notes. See Note 18, Derivative instruments.
As of December 31, 2022 and 2021, the effective interest rates on notes for which we have entered into interest rate swap contracts and the related notional amounts of these contracts were as follows (dollar amounts in millions):
| | | | | | | | | | | |
| Notes | | Notional amounts | Effective interest rates |
3.625% 2024 Notes | | $ | 1,400 | | LIBOR + 3.2% |
3.125% 2025 Notes | | 1,000 | | LIBOR + 1.8% |
2.60% 2026 Notes | | 1,250 | | LIBOR + 1.8% |
2.45% 2030 Notes | | 1,000 | | LIBOR + 1.0% |
2.30% 2031 Notes | | 500 | | LIBOR + 0.8% |
4.663% 2051 Notes | | 1,500 | | LIBOR + 4.1% |
| Total notional amounts | | $ | 6,650 | | |
Debt exchange
In 2020, we completed a private offering to exchange portions of certain outstanding senior notes due 2037 through 2043 (collectively, Old Notes), listed below, for the $940 million principal amount of the newly issued 2.77% 2053 Notes (the Exchange Offer).
The following principal amounts of each series of Old Notes were validly tendered and subsequently canceled in connection with the Exchange Offer (in millions):
| | | | | |
| Principal amount exchanged |
6.375% 2037 Notes | $ | 74 | |
6.90% 2038 Notes | $ | 37 | |
6.40% 2039 Notes | $ | 133 | |
5.75% 2040 Notes | $ | 39 | |
5.15% 2041 Notes | $ | 245 | |
5.65% 2042 Notes | $ | 72 | |
5.375% 2043 Notes | $ | 76 | |
The 2.77% 2053 Notes bear interest at a lower fixed coupon rate while requiring higher principal repayment at a later maturity date as compared to those of the Old Notes that were exchanged. There were no other significant changes to the terms between the Old Notes and the 2.77% 2053 Notes. In connection with the Exchange Offer, $85 million was paid to holders of the Old Notes (the cash consideration).
The Exchange Offer was accounted for as a debt modification, and accordingly, deferred financing costs and discounts associated with the Old Notes, the cash consideration and the $264 million discount associated with the 2.77% 2053 Notes are being accreted over the term of these newly issued notes and recorded as Interest expense, net, in the Consolidated Statements of Income.
Cross-currency swaps
To hedge our exposure to foreign currency exchange rate risk associated with certain of our long-term notes denominated in foreign currencies, we entered into cross-currency swap contracts. The terms of these contracts effectively convert the interest payments and principal repayments on our 0.41% 2023 Swiss franc Bonds, 2.00% 2026 euro Notes, 5.50% 2026 pound sterling Notes and 4.00% 2029 pound sterling Notes from euros, pounds sterling and Swiss francs to U.S. dollars. These cross-currency swap contracts have been designated as cash flow hedges. For information regarding the terms of these contracts, see Note 18, Derivative instruments.
In connection with the redemption of the 1.25% 2022 euro Notes, discussed above, associated cross-currency swap contracts with an aggregate notional amount of €1.25 billion were terminated.
Shelf registration statement and other facilities
As of December 31, 2022, we have a commercial paper program that allows us to issue up to $2.5 billion of unsecured commercial paper to fund our working-capital needs. As of December 31, 2022 and 2021, we had no amounts outstanding under our commercial paper program.
In 2019, we amended and restated our $2.5 billion syndicated, unsecured, revolving credit agreement, which is available for general corporate purposes or as a liquidity backstop to our commercial paper program. The commitments under the revolving credit agreement may be increased by up to $750 million with the agreement of the banks. Each bank that is a party to the agreement has an initial commitment term of five years. This term may be extended for up to two additional one-year periods with the agreement of the banks. Annual commitment fees for this agreement are 0.1% of the unused portion of the facility based on our current credit rating. In December 2022, this revolving credit agreement was further amended to replace LIBOR with SOFR as the reference rate, pursuant to provisions contained therein related to determination of successor rates in case of phaseout or unavailability of existing designated reference rates. Generally, we would be charged interest for any amounts borrowed under this facility, based on our current credit rating, at (i) SOFR plus 1.125% or (ii) the highest of (A) the syndication agent bank base commercial lending rate, (B) the overnight federal funds rate plus 0.50% or (C) one-month SOFR plus 1.1%. As of December 31, 2022 and 2021, no amounts were outstanding under this facility.
In February 2020, we filed a shelf registration statement with the SEC that allows us to issue unspecified amounts of debt securities; common stock; preferred stock; warrants to purchase debt securities, common stock, preferred stock or depositary shares; rights to purchase common stock or preferred stock; securities purchase contracts; securities purchase units; and depositary shares. Under this shelf registration statement, all of the securities available for issuance may be offered from time to time with terms to be determined at the time of issuance. This shelf registration statement expires in February 2023, and our Board has approved a new shelf registration statement to replace it.
In December 2022, in connection with the proposed acquisition of Horizon, we entered into a bridge credit agreement and a term loan credit agreement which provide for borrowings aggregating $28.5 billion. As of December 31, 2022, no amounts have been borrowed under either agreement. See Note 2, Acquisitions and divestitures.
Certain of our financing arrangements contain nonfinancial covenants. In addition, our revolving credit agreement, bridge credit agreement and term loan agreement include a financial covenant, which requires us to maintain a specified minimum interest coverage ratio of (i) the sum of consolidated net income, interest expense, provision for income taxes, depreciation expense, amortization expense, unusual or nonrecurring charges and other noncash items (Consolidated EBITDA) to (ii) Consolidated Interest Expense, each as defined and described in the respective agreements. We were in compliance with all applicable covenants under these arrangements as of December 31, 2022.
Contractual maturities of debt obligations
The aggregate contractual maturities of all borrowings due subsequent to December 31, 2022, are as follows (in millions):
| | | | | | | | |
| Maturity dates | | Amounts |
| 2023 | | $ | 1,509 | |
| 2024 | | 1,400 | |
| 2025 | | 1,500 | |
| 2026 | | 2,627 | |
| 2027 | | 2,724 | |
| Thereafter | | 30,868 | |
| Total | | $ | 40,628 | |
Interest costs
Interest costs are expensed as incurred except to the extent such interest is related to construction in progress, in which case interest is capitalized. Interest costs capitalized for the years ended December 31, 2022, 2021 and 2020, were not material. Interest paid, including the ongoing impact of interest rate and cross-currency swap contracts, during each of the years ended December 31, 2022, 2021 and 2020, were $1.2 billion.
16. Stockholders’ equity
Stock repurchase program
Activity under our stock repurchase program, on a trade date basis, was as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2022 | | 2021 | | 2020 |
| Shares | | Dollars | | Shares | | Dollars | | Shares | | Dollars |
| First quarter | 24.6 | | | $ | 5,410 | | | 3.7 | | | $ | 865 | | | 4.3 | | | $ | 933 | |
| Second quarter | — | | | — | | | 6.5 | | | 1,592 | | | 2.6 | | | 591 | |
| Third quarter | 1.5 | | | 900 | | | 4.6 | | | 1,069 | | | 3.0 | | | 752 | |
| Fourth quarter | — | | | — | | | 6.9 | | | 1,461 | | | 5.3 | | | 1,221 | |
| Total stock repurchases | 26.1 | | | $ | 6,310 | | | 21.7 | | $ | 4,987 | | | 15.2 | | $ | 3,497 | |
During the first quarter of 2022, the Company entered into ASR agreements with third-party financial institutions (Dealers) whereby the Company made payments in an aggregate amount of $6.0 billion to the Dealers and received and retired an initial 23.3 million shares of the Company’s common stock from the Dealers. The payments were recorded as reductions to shareholders’ equity, consisting of a $5.1 billion increase to accumulated deficit, which reflects the value of the initial shares received, and a $0.9 billion decrease in additional paid-in capital, which reflects the value of the stock that remained to be delivered by the Dealers. During the third quarter of 2022, an additional 1.5 million shares of the Company’s common stock were received from the Dealers which constituted final settlement under the ASR agreements, and accordingly, the $0.9 billion decrease in additional paid-in capital recorded in the first quarter was reclassified to accumulated deficit. In total, we repurchased 26.1 million shares of common stock during the year ended December 31, 2022, consisting primarily of the 24.8 million shares received under the ASR agreements.
In October 2022, our Board of Directors increased the amount authorized under our stock repurchase program by an additional $2.4 billion. As of December 31, 2022, $7.0 billion remained available under our stock repurchase program.
Dividends
Our Board of Directors declared quarterly dividends per share of $1.94, $1.76 and $1.60, which were paid in each of the four quarters of 2022, 2021 and 2020, respectively.
Historically, we have declared dividends in December of each year, which were paid in the first quarter of the following fiscal year and in March, July and October, which were paid in the second, third and fourth quarters, respectively, of the same fiscal year. Additionally, on December 12, 2022, the Board of Directors declared a quarterly cash dividend of $2.13 per share of common stock, which will be paid in March 2023, to all stockholders of record as of the close of business on February 15, 2023.
Accumulated other comprehensive loss
The components of AOCI were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign
currency
translation | | Cash flow
hedges | | Available-for-sale
securities | | Other | | AOCI |
| Balance as of December 31, 2019 | $ | (718) | | | $ | 175 | | | $ | 22 | | | $ | (7) | | | $ | (528) | |
| Foreign currency translation adjustments | 9 | | | — | | | — | | | — | | | 9 | |
| Unrealized (losses) gains | — | | | (61) | | | 6 | | | — | | | (55) | |
| Reclassification adjustments to income | — | | | (501) | | | (33) | | | — | | | (534) | |
| Other losses | — | | | — | | | — | | | (7) | | | (7) | |
| Income taxes | — | | | 124 | | | 6 | | | — | | | 130 | |
| Balance as of December 31, 2020 | (709) | | | (263) | | | 1 | | | (14) | | | (985) | |
| | | | | | | | | |
| Foreign currency translation adjustments | (135) | | | — | | | — | | | — | | | (135) | |
| Unrealized gains (losses) | — | | | 159 | | | (1) | | | — | | | 158 | |
| Reclassification adjustments to income | — | | | 253 | | | — | | | — | | | 253 | |
| Other gains | — | | | — | | | — | | | 1 | | | 1 | |
| Income taxes | — | | | (88) | | | — | | | — | | | (88) | |
| Balance as of December 31, 2021 | (844) | | | 61 | | | — | | | (13) | | | (796) | |
| | | | | | | | | |
| Foreign currency translation adjustments | 496 | | | — | | | — | | | — | | | 496 | |
| Unrealized gains | — | | | 84 | | | — | | | — | | | 84 | |
| Reclassification adjustments to income | — | | | 2 | | | — | | | — | | | 2 | |
| Other gains | — | | | — | | | — | | | 2 | | | 2 | |
| Income taxes | — | | | (19) | | | — | | | — | | | (19) | |
| Balance as of December 31, 2022 | $ | (348) | | | $ | 128 | | | $ | — | | | $ | (11) | | | $ | (231) | |
With respect to the table above, income tax expenses or benefits for unrealized gains and losses and the related reclassification adjustments to income for cash flow hedges were a $19 million expense and a $0 million expense in 2022, a $33 million expense and a $55 million expense in 2021 and a $14 million benefit and a $110 million benefit in 2020, respectively. Income tax expenses or benefits for unrealized gains and losses and the related reclassification adjustments to income for available-for-sale securities were a $1 million expense and a $7 million benefit in 2020, respectively.
Reclassifications out of AOCI and into earnings were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, | | |
| Components of AOCI | | 2022 | | 2021 | | 2020 | | Consolidated Statements of Income locations |
| Cash flow hedges: | | | | | | | | |
| Foreign currency contract gains (losses) | | $ | 231 | | | $ | (8) | | | $ | 178 | | | Product sales |
| Cross-currency swap contract (losses) gains | | (233) | | | (245) | | | 323 | | | Other (expense) income, net |
| | | | | | | | |
| | (2) | | | (253) | | | 501 | | | Income before income taxes |
| | — | | | 55 | | | (110) | | | Provision for income taxes |
| | $ | (2) | | | $ | (198) | | | $ | 391 | | | Net income |
| Available-for-sale securities: | | | | | | | | |
| Net realized gains | | $ | — | | | $ | — | | | $ | 33 | | | Other (expense) income, net |
| | — | | | — | | | (7) | | | Provision for income taxes |
| | $ | — | | | $ | — | | | $ | 26 | | | Net income |
Other
In addition to common stock, our authorized capital includes 5 million shares of preferred stock, $0.0001 par value. As of December 31, 2022 and 2021, no shares of preferred stock were issued or outstanding.
17. Fair value measurement
To estimate the fair value of our financial assets and liabilities, we use valuation approaches within a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing an asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing an asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is divided into three levels based on the source of inputs as follows:
| | | | | | | | |
| Level 1 | — | Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access |
| Level 2 | — | Valuations for which all significant inputs are observable either directly or indirectly—other than Level 1 inputs |
| Level 3 | — | Valuations based on inputs that are unobservable and significant to the overall fair value measurement |
The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used for measuring fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level of input used that is significant to the overall fair value measurement.
The fair values of each major class of the Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value measurement as of December 31, 2022, using: | | Quoted prices in
active markets for
identical assets
(Level 1) | | Significant other
observable
inputs
(Level 2) | | Significant
unobservable
inputs
(Level 3) | | Total |
| Assets: | | | | | | | | |
| Available-for-sale securities: | | | | | | | | |
| U.S. Treasury notes | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| U.S. Treasury bills | | 1,676 | | | — | | | — | | | 1,676 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Money market mutual funds | | 2,659 | | | — | | | — | | | 2,659 | |
| Other short-term interest-bearing securities | | — | | | — | | | — | | | — | |
| Other investments | | — | | | 130 | | | — | | | 130 | |
| Equity securities | | 480 | | | — | | | 335 | | | 815 | |
| Derivatives: | | | | | | | | |
| Foreign currency forward contracts | | — | | | 287 | | | — | | | 287 | |
| Cross-currency swap contracts | | — | | | 54 | | | — | | | 54 | |
| Interest rate swap contracts | | — | | | — | | | — | | | — | |
| Total assets | | $ | 4,815 | | | $ | 471 | | | $ | 335 | | | $ | 5,621 | |
| Liabilities: | | | | | | | | |
| Derivatives: | | | | | | | | |
| Foreign currency forward contracts | | $ | — | | | $ | 76 | | | $ | — | | | $ | 76 | |
| Cross-currency swap contracts | | — | | | 541 | | | — | | | 541 | |
| Interest rate swap contracts | | — | | | 776 | | | — | | | 776 | |
| Forward interest rate contracts | | — | | | 5 | | | — | | | 5 | |
Contingent consideration obligations | | — | | | — | | | 270 | | | 270 | |
| Total liabilities | | $ | — | | | $ | 1,398 | | | $ | 270 | | | $ | 1,668 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value measurement as of December 31, 2021, using: | | Quoted prices in
active markets for
identical assets
(Level 1) | | Significant other
observable
inputs
(Level 2) | | Significant
unobservable
inputs
(Level 3) | | Total |
| Assets: | | | | | | | | |
| Available-for-sale securities: | | | | | | | | |
| U.S. Treasury notes | | $ | 47 | | | $ | — | | | $ | — | | | $ | 47 | |
| U.S. Treasury bills | | 1,400 | | | — | | | — | | | 1,400 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Money market mutual funds | | 5,856 | | | — | | | — | | | 5,856 | |
| Other short-term interest-bearing securities | | — | | | 1 | | | — | | | 1 | |
| Other investments | | — | | | — | | | — | | | — | |
| Equity securities | | 611 | | | — | | | 220 | | | 831 | |
| Derivatives: | | | | | | | | |
| Foreign currency forward contracts | | — | | | 183 | | | — | | | 183 | |
| Cross-currency swap contracts | | — | | | 66 | | | — | | | 66 | |
| Interest rate swap contracts | | — | | | 16 | | | — | | | 16 | |
| Total assets | | $ | 7,914 | | | $ | 266 | | | $ | 220 | | | $ | 8,400 | |
| Liabilities: | | | | | | | | |
| Derivatives: | | | | | | | | |
| Foreign currency forward contracts | | $ | — | | | $ | 39 | | | $ | — | | | $ | 39 | |
| Cross-currency swap contracts | | — | | | 339 | | | — | | | 339 | |
| Interest rate swap contracts | | — | | | 156 | | | — | | | 156 | |
| Forward interest rate contracts | | — | | | — | | | — | | | — | |
| Contingent consideration obligations | | — | | | — | | | 342 | | | 342 | |
| Total liabilities | | $ | — | | | $ | 534 | | | $ | 342 | | | $ | 876 | |
Interest-bearing and equity securities
The fair values of our U.S. Treasury securities, money market mutual funds and equity investments in publicly traded securities are based on quoted market prices in active markets, with no valuation adjustment. Other investments consist of interest-bearing deposits that are valued at amortized cost, which approximates fair value given their near term maturity. The fair value of equity securities for which the fair value option was elected are initially valued at the transaction price and subsequently valued based on a combination of observable price transactions, when available, market performance and publicly available market information for similar companies that have actively traded equity securities. See Note 9, Investments— Neumora Therapeutics, Inc.
Derivatives
Our foreign currency forward contracts, cross-currency swap contracts and interest rate swap contracts are with counterparties that have minimum credit ratings of A– or equivalent by S&P, Moody’s or Fitch. We estimate the fair values of these contracts by taking into consideration valuations obtained from a third-party valuation service that uses an income-based industry-standard valuation model for which all significant inputs are observable either directly or indirectly. These inputs, as applicable, include foreign currency exchange rates, LIBOR, swap rates, obligor credit default swap rates and cross-currency basis swap spreads. Certain inputs, when applicable, are at commonly quoted intervals. See Note 18, Derivative instruments.
Contingent consideration obligations
As a result of our business acquisitions, we have incurred contingent consideration obligations as discussed below. The contingent consideration obligations are recorded at their fair values by using probability-adjusted discounted cash flows, and we revalue these obligations each reporting period until the related contingencies have been resolved. The fair value measurements of these obligations are based on significant unobservable inputs related to licensing rights and product candidates acquired in business combinations, and they are reviewed quarterly by management in our R&D and commercial sales organizations. The inputs include, as applicable, estimated probabilities and the timing of achieving specified development, regulatory and commercial milestones as well as estimated annual sales. Significant changes to these inputs would result in corresponding increases or decreases in the fair values of the obligations, as applicable. Changes in the fair values of contingent consideration obligations are recognized in Other operating expenses in the Consolidated Statements of Income.
Changes in the carrying amounts of contingent consideration obligations were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Beginning balance | | $ | 342 | | | $ | 33 | | | $ | 61 | |
| Additions | | — | | | 309 | | | — | |
| Payments | | (7) | | | (7) | | | (6) | |
| Net changes in valuations | | (65) | | | 7 | | | (22) | |
| Ending balance | | $ | 270 | | | $ | 342 | | | $ | 33 | |
As a result of our acquisition of Teneobio in 2021, we are obligated to pay its former shareholders up to $1.6 billion upon achieving separate development and regulatory milestones with regard to various R&D programs. See Note 2, Acquisitions and divestitures.
As a result of our acquisition of K-A in 2018, we are obligated to make single-digit royalty payments to Kirin Holdings Company, Limited contingent upon sales of brodalumab.
As a result of our acquisition of BioVex Group Inc. in 2011, we were obligated to pay its former shareholders upon achieving separate sales-related milestones with regard to IMLYGIC if certain sales thresholds were met. During the year ended December 31, 2020, we determined that the likelihood of achieving these milestones was no longer probable, and accordingly, the obligations were written off.
Summary of the fair values of other financial instruments
Cash equivalents
The fair values of cash equivalents approximate their carrying values due to the short-term nature of such financial instruments.
Borrowings
We estimated the fair values of our borrowings by using Level 2 inputs. As of December 31, 2022 and 2021, the aggregate fair values of our borrowings were $35.0 billion and $37.9 billion, respectively, and the carrying values were $38.9 billion and $33.3 billion, respectively.
Investment in BeiGene
We estimated the fair value of our investment in BeiGene by using Level 1 inputs. As of December 31, 2022 and 2021, the fair values were $4.2 billion and $5.1 billion, and the carrying values were $2.2 billion and $2.8 billion, respectively.
During the years ended December 31, 2022 and 2021, there were no transfers of assets or liabilities between fair value measurement levels, and there were no material remeasurements to the fair values of assets and liabilities that are not measured at fair value on a recurring basis.
18. Derivative instruments
The Company is exposed to foreign currency exchange rate and interest rate risks related to its business operations. To reduce our risks related to such exposures, we use or have used certain derivative instruments, including foreign currency forward, foreign currency option, cross-currency swap, forward interest rate and interest rate swap contracts. We have designated certain of our derivatives as cash flow and fair value hedges; we also have derivatives not designated as hedges. We do not use derivatives for speculative trading purposes.
Cash flow hedges
We are exposed to possible changes in the values of certain anticipated foreign currency cash flows resulting from changes in foreign currency exchange rates primarily associated with our euro-denominated international product sales. The foreign currency exchange rate fluctuation exposure associated with cash inflows from our international product sales are partially offset by corresponding cash outflows from our international operating expenses. To further reduce this exposure, we enter into foreign currency forward contracts to hedge a portion of our projected international product sales up to a maximum of three years into the future; and at any given point in time, a higher percentage of nearer-term projected product sales is being hedged than in successive periods.
As of December 31, 2022, 2021 and 2020, we had outstanding foreign currency forward contracts with aggregate notional amounts of $6.0 billion, $5.7 billion and $5.1 billion, respectively. We have designated these foreign currency forward contracts, which are primarily euro based, as cash flow hedges. Accordingly, we report unrealized gains and losses on these contracts in AOCI in the Consolidated Balance Sheets, and we reclassify them to Product sales in the Consolidated Statements of Income in the same periods during which the hedged transactions affect earnings.
To hedge our exposure to foreign currency exchange rate risk associated with certain of our long-term debt denominated in foreign currencies, we enter into cross-currency swap contracts. Under the terms of such contracts, we paid euros, pounds sterling and Swiss francs and received U.S. dollars for the notional amounts at inception of the contracts; and based on these notional amounts, we exchange interest payments at fixed rates over the lives of the contracts by paying U.S. dollars and receiving euros, pounds sterling and Swiss francs. In addition, we will pay U.S. dollars to and receive euros, pounds sterling and Swiss francs from the counterparties at the maturities of the contracts for these same notional amounts. The terms of these contracts correspond to the related hedged debt, thereby effectively converting the interest payments and principal repayment on the debt from euros, pounds sterling and Swiss francs to U.S. dollars. We have designated these cross-currency swap contracts as cash flow hedges. Accordingly, the unrealized gains and losses on these contracts are reported in AOCI in the Consolidated Balance Sheets and reclassified to Other (expense) income, net, in the Consolidated Statements of Income in the same periods during which the hedged debt affects earnings.
The notional amounts and interest rates of our cross-currency swaps as of December 31, 2022, were as follows (notional amounts in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Foreign currency | | U.S. dollars |
| Hedged notes | | Notional amounts | | Interest rates | | Notional amounts | | Interest rates |
| | | | | | | | |
| 0.41% 2023 Swiss franc Bonds | | CHF | 700 | | | 0.4 | % | | $ | 704 | | | 3.4 | % |
| 2.00% 2026 euro Notes | | € | 750 | | | 2.0 | % | | $ | 833 | | | 3.9 | % |
| 5.50% 2026 pound sterling Notes | | £ | 475 | | | 5.5 | % | | $ | 747 | | | 6.0 | % |
| 4.00% 2029 pound sterling Notes | | £ | 700 | | | 4.0 | % | | $ | 1,111 | | | 4.6 | % |
In connection with the anticipated issuance of long-term fixed-rate debt, we occasionally enter into forward interest rate contracts in order to hedge the variability in cash flows due to changes in the applicable U.S. Treasury rate between the time we enter into these contracts and the time the related debt is issued. Gains and losses on forward interest rate contracts, which are designated as cash flow hedges, are recognized in AOCI in the Consolidated Balance Sheets and are amortized into Interest expense, net, in the Consolidated Statements of Income over the lives of the associated debt issuances. In December 2022, we entered into a forward interest rate contract with an aggregate notional amount of $700 million. Amounts expected to be recognized during the subsequent 12 months on forward interest rate contracts are not material.
The unrealized gains and losses recognized in AOCI for our derivative instruments designated as cash flow hedges were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Years ended December 31, |
| Derivatives in cash flow hedging relationships | | | | 2022 | | 2021 | | 2020 |
| Foreign currency forward contracts | | | | $ | 308 | | | $ | 373 | | | $ | (251) | |
| Cross-currency swap contracts | | | | (219) | | | (214) | | | 190 | |
| Forward interest rate contracts | | | | (5) | | | — | | | — | |
| Total unrealized gains (losses) | | | | $ | 84 | | | $ | 159 | | | $ | (61) | |
Fair value hedges
To achieve a desired mix of fixed-rate and floating-rate debt, we entered into interest rate swap contracts that qualified for and were designated as fair value hedges. These interest rate swap contracts effectively convert fixed-rate coupons to floating-rate LIBOR-based coupons over the terms of the related hedge contracts. As of both December 31, 2022 and 2021, we had interest rate swap contracts with aggregate notional amounts of $6.7 billion that hedge certain portions of our long-term debt issuances. See Note 15, Financing arrangements, for information on our interest rate swaps.
For interest rate swap contracts that qualify for and are designated as fair value hedges, we recognize in Interest expense, net, in the Consolidated Statements of Income the unrealized gain or loss on the derivative resulting from the change in fair value during the period, as well as the offsetting unrealized loss or gain of the hedged item resulting from the change in fair value during the period attributable to the hedged risk. If a hedging relationship involving an interest rate swap contract is terminated, the gain or loss realized on contract termination is recorded as an adjustment to the carrying value of the debt and amortized into Interest expense, net, over the remaining life of the previously hedged debt.
The hedged liabilities and related cumulative-basis adjustments for fair value hedges of those liabilities were recorded in the Consolidated Balance Sheets as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying amounts of hedged liabilities(1) | | Cumulative amounts of fair value hedging adjustments related to the carrying amounts of the hedged liabilities(2) |
| | December 31, | | December 31, |
| Consolidated Balance Sheets locations | | 2022 | | 2021 | | 2022 | | 2021 |
| Current portion of long-term debt | | $ | 82 | | | $ | 85 | | | $ | 82 | | | $ | 85 | |
| Long-term debt | | $ | 6,017 | | | $ | 6,729 | | | $ | (519) | | | $ | 199 | |
____________
(1)Current portion of long-term debt includes $82 million and $85 million of carrying value with discontinued hedging relationships as of December 31, 2022 and 2021, respectively. Long-term debt includes $357 million and $440 million of carrying value with discontinued hedging relationships as of December 31, 2022 and 2021, respectively.
(2)Current portion of long-term debt includes $82 million and $85 million of hedging adjustments on discontinued hedging relationships as of December 31, 2022 and 2021, respectively. Long-term debt includes $257 million and $340 million of hedging adjustments on discontinued hedging relationships as of December 31, 2022 and 2021, respectively.
Impact of hedging transactions
The following tables summarize the amounts recorded in income and expense line items and the effects thereon from fair value and cash flow hedging, including discontinued hedging relationships (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, 2022 |
| | Product sales | | Other (expense) income, net | | Interest expense, net |
| Total amounts recorded in income and (expense) line items presented in the Consolidated Statements of Income | | $ | 24,801 | | | $ | (814) | | | $ | (1,406) | |
| The effects of cash flow and fair value hedging: | | | | | | |
| Gains (losses) on cash flow hedging relationships reclassified out of AOCI: | | | | | | |
| Foreign currency forward contracts | | $ | 231 | | | $ | — | | | $ | — | |
| Cross-currency swap contracts | | $ | — | | | $ | (233) | | | $ | — | |
| Gains (losses) on fair value hedging relationships—interest rate swap agreements: | | | | | | |
Hedged items(1) | | $ | — | | | $ | — | | | $ | 716 | |
| Derivatives designated as hedging instruments | | $ | — | | | $ | — | | | $ | (636) | |
| | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, 2021 |
| | Product sales | | Other (expense) income, net | | Interest expense, net |
| Total amounts recorded in income and (expense) line items presented in the Consolidated Statements of Income | | $ | 24,297 | | | $ | 259 | | | $ | (1,197) | |
| The effects of cash flow and fair value hedging: | | | | | | |
| Losses on cash flow hedging relationships reclassified out of AOCI: | | | | | | |
| Foreign currency forward contracts | | $ | (8) | | | $ | — | | | $ | — | |
| Cross-currency swap contracts | | $ | — | | | $ | (245) | | | $ | — | |
| Gains (losses) on fair value hedging relationships—interest rate swap agreements: | | | | | | |
Hedged items(1) | | $ | — | | | $ | — | | | $ | 281 | |
| Derivatives designated as hedging instruments | | $ | — | | | $ | — | | | $ | (192) | |
| | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, 2020 |
| | Product sales | | Other (expense) income, net | | Interest expense, net |
| Total amounts recorded in income and (expense) line items presented in the Consolidated Statements of Income | | $ | 24,240 | | | $ | 256 | | | $ | (1,262) | |
| The effects of cash flow and fair value hedging: | | | | | | |
| Gains on cash flow hedging relationships reclassified out of AOCI: | | | | | | |
| Foreign currency forward contracts | | $ | 178 | | | $ | — | | | $ | — | |
| Cross-currency swap contracts | | $ | — | | | $ | 323 | | | $ | — | |
| | | | | | |
| Gains (losses) on fair value hedging relationships—interest rate swap agreements: | | | | | | |
Hedged items(1) | | $ | — | | | $ | — | | | $ | 315 | |
| Derivatives designated as hedging instruments | | $ | — | | | $ | — | | | $ | (204) | |
__________
(1) Gains on hedged items do not completely offset losses on the related designated hedging instruments due to amortization of the cumulative amounts of fair value hedging adjustments included in the carrying amount of the hedged debt for discontinued hedging relationships and the recognition of gains on terminated hedges when the corresponding hedged item was paid down in the period.
No portions of our cash flow hedge contracts were excluded from the assessment of hedge effectiveness. As of December 31, 2022, we expected to reclassify $159 million of net gains on our foreign currency and cross-currency swap contracts out of AOCI and into earnings during the next 12 months.
Derivatives not designated as hedges
To reduce our exposure to foreign currency fluctuations in certain assets and liabilities denominated in foreign currencies, we enter into foreign currency forward contracts that are not designated as hedging transactions. Most of these exposures are hedged on a month-to-month basis. As of December 31, 2022, 2021 and 2020, the total notional amounts of these foreign currency forward contracts were $517 million, $680 million and $1.0 billion, respectively. Gains and losses recognized in earnings for our derivative instruments not designated as hedging instruments were not material for the years ended December 31, 2022, 2021 and 2020.
Fair values of derivatives
The fair values of derivatives included in the Consolidated Balance Sheets were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Derivative assets | | Derivative liabilities |
| December 31, 2022 | | Consolidated Balance Sheets locations | | Fair values | | Consolidated Balance Sheets locations | | Fair values |
| Derivatives designated as hedging instruments: | | | | | | | | |
| Foreign currency forward contracts | | Other current assets/ Other noncurrent assets | | $ | 287 | | | Accrued liabilities/ Other noncurrent liabilities | | $ | 76 | |
| Cross-currency swap contracts | | Other current assets/ Other noncurrent assets | | 54 | | | Accrued liabilities/ Other noncurrent liabilities | | 541 | |
Interest rate swap contracts | | Other current assets/ Other noncurrent assets | | — | | | Accrued liabilities/ Other noncurrent liabilities | | 776 | |
| Forward interest rate contracts | | Other current assets/ Other noncurrent assets | | — | | | Accrued liabilities/ Other noncurrent liabilities | | 5 | |
Total derivatives designated as hedging instruments | | | | 341 | | | | | 1,398 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Total derivatives | | | | $ | 341 | | | | | $ | 1,398 | |
| | | | | | | | |
| | | Derivative assets | | Derivative liabilities |
| December 31, 2021 | | Consolidated Balance Sheets locations | | Fair values | | Consolidated Balance Sheets locations | | Fair values |
| Derivatives designated as hedging instruments: | | | | | | | | |
| Foreign currency forward contracts | | Other current assets/ Other noncurrent assets | | $ | 183 | | | Accrued liabilities/ Other noncurrent liabilities | | $ | 39 | |
| Cross-currency swap contracts | | Other current assets/ Other noncurrent assets | | 66 | | | Accrued liabilities/ Other noncurrent liabilities | | 339 | |
Interest rate swap contracts | | Other current assets/ Other noncurrent assets | | 16 | | | Accrued liabilities/ Other noncurrent liabilities | | 156 | |
| Forward interest rate contracts | | Other current assets/ Other noncurrent assets | | — | | | Accrued liabilities/ Other noncurrent liabilities | | — | |
Total derivatives designated as hedging instruments | | | | 265 | | | | | 534 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Total derivatives | | | | $ | 265 | | | | | $ | 534 | |
For additional information, see Note 17, Fair value measurement.
Our derivative contracts that were in liability positions as of December 31, 2022, contain certain credit-risk-related contingent provisions that would be triggered if (i) we were to undergo a change-in-control and (ii) our or the surviving entity’s creditworthiness deteriorates, which is generally defined as having either a credit rating that is below investment grade or a materially weaker creditworthiness after the change-in-control. If these events were to occur, the counterparties would have the right, but not the obligation, to close the contracts under early-termination provisions. In such circumstances, the counterparties could request immediate settlement of these contracts for amounts that approximate the then current fair values of the contracts. In addition, our derivative contracts are not subject to any type of master netting arrangement, and amounts due either to or from a counterparty under the contracts may be offset against other amounts due either to or from the same counterparty only if an event of default or termination, as defined, were to occur.
The cash flow effects of our derivative contracts in the Consolidated Statements of Cash Flows are included in Net cash provided by operating activities, except for the settlement of notional amounts of cross-currency swaps, which are included in Net cash used in financing activities.
19. Contingencies and commitments
Contingencies
In the ordinary course of business, we are involved in various legal proceedings, government investigations and other matters that are complex in nature and have outcomes that are difficult to predict. See Part I, Item 1A. Risk Factors—Our business may be affected by litigation and government investigations. We describe our legal proceedings and other matters that are significant or that we believe could become significant in this footnote.
We record accruals for loss contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. We evaluate, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that has been accrued previously.
Our legal proceedings involve various aspects of our business and a variety of claims, some of which present novel factual allegations and/or unique legal theories. In each of the matters described in this filing, in which we could incur a liability, our opponents seek an award of a not-yet-quantified amount of damages or an amount that is not material. In addition, a number of the matters pending against us are at very early stages of the legal process, which in complex proceedings of the sort we face often extend for several years. As a result, none of the matters described in this filing, in which we could incur a liability, have progressed sufficiently through discovery and/or the development of important factual information and legal issues to enable us to estimate a range of possible loss, if any, or such amounts are not material. While it is not possible to accurately predict or determine the eventual outcomes of these matters, an adverse determination in one or more of these matters currently pending could have a material adverse effect on our consolidated results of operations, financial position or cash flows.
Certain recent developments concerning our legal proceedings and other matters are discussed below:
ANDA Patent Litigation
Otezla ANDA Patent Litigation
Amgen Inc. v. Sandoz Inc., et al.
Beginning in June 2018, Celgene filed 19 separate lawsuits in the U.S. District Court for the District of New Jersey (the New Jersey District Court) against Alkem Laboratories Ltd. (Alkem); Amneal Pharmaceuticals LLC (Amneal); Annora Pharma Private Ltd. and Hetero USA Inc. (collectively, Hetero); Aurobindo Pharma Ltd. and Aurobindo Pharma USA Inc. (collectively, Aurobindo); Cipla Limited (Cipla Ltd); DRL; Emcure Pharmaceuticals Ltd. and Heritage Pharmaceuticals Inc. (collectively, Emcure); Glenmark Pharmaceuticals Ltd. (Glenmark); Macleods Pharmaceuticals Ltd. (Macleods); Mankind Pharma Ltd. (Mankind); MSN Laboratories Private Limited (MSN); Pharmascience Inc. (Pharmascience); Prinston Pharmaceutical Inc. (Prinston); Sandoz Inc. (Sandoz); Shilpa Medicare Ltd. (Shilpa); Teva Pharmaceuticals USA, Inc. and Actavis LLC (collectively, Actavis); Torrent Pharmaceuticals Ltd. (Torrent); Unichem Laboratories, Ltd. (Unichem); and Zydus Pharmaceuticals (USA) Inc. (Zydus), each for infringement of one or more of the following patents: U.S. Patent Nos. 6,962,940 (the ’940 Patent), 7,208,516 (the ’516 Patent), 7,427,638 (the ’638 Patent), 7,659,302 (the ’302 Patent), 7,893,101 (the ’101 Patent), 8,455,536 (the ’536 Patent), 8,802,717 (the ’717 Patent), 9,018,243 (the ’243 Patent) and 9,872,854 (the ’854 Patent), which are listed in the Orange Book for Otezla. Each of these lawsuits was based on each defendant’s submission of an ANDA seeking FDA approval to market a generic version of Otezla. The New Jersey District Court consolidated these 19 lawsuits for discovery and case management purposes into a single case, Celgene Corp. v. Sandoz Inc., et al. Each lawsuit seeks an order of the New Jersey District Court making any FDA approval of the respective defendant’s ANDA effective no earlier than the expiration of the applicable patents.
In August 2018, Celgene filed amended complaints against Alkem, Amneal, Aurobindo, Cipla Ltd, DRL, Glenmark, Pharmascience, Sandoz, Actavis, Unichem and Zydus additionally asserting U.S. Patent No. 9,724,330 (the ’330 Patent), which is listed in the Orange Book for Otezla. Between October 15 and November 27, 2018, Celgene filed amended complaints against Alkem, Amneal, Hetero, Aurobindo, Cipla Ltd, DRL, Emcure, Glenmark, Macleods, Mankind, MSN, Pharmascience, Prinston, Sandoz, Actavis, Torrent, Unichem and Zydus additionally asserting U.S. Patent No. 10,092,541 (the ’541 Patent), which is listed in the Orange Book for Otezla. Between March 1 and April 4, 2019, Celgene filed amended complaints against Hetero, MSN and Emcure for infringement of one or more of the above-listed patents. On October 1, 2019, Celgene filed an amended complaint against Mankind for infringement of the ’940, ’302, ’536, ’243 and ’330 Patents. On October 8, 2019, Celgene filed a separate lawsuit against Zydus in the New Jersey District Court for infringement of U.S. Patent Nos. 8,093,283 (the ’283 Patent) and 8,629,173, which are not listed in the Orange Book for Otezla. On December 19, 2019, the New Jersey District Court consolidated this lawsuit for discovery and case management purposes into the existing consolidated case, Celgene Corp. v. Sandoz Inc., et al. Each defendant has filed an answer to the above-listed complaints and amended complaints disputing infringement and/or validity of the patents asserted against it. Along with their answers, each of Alkem, Hetero, Cipla Ltd, DRL, Emcure, Glenmark, Macleods, Mankind, Pharmascience, Sandoz, Shilpa, Actavis, Torrent, Unichem and Zydus filed declaratory judgment counterclaims asserting that some or all of the patents are not infringed and/or are invalid. In August 2019, based on a joint request by Celgene and Glenmark, the New Jersey District Court entered a consent judgment and injunction prohibiting the making, having made, using, selling, offering to sell, importing, or distributing of Glenmark’s apremilast product during the term of the ’940, ’638, ’302, ’101, ’536, ’243, ’330 and ’541 Patents, unless authorized pursuant to a confidential settlement agreement.
Following Amgen’s acquisition of the patents-in-suit and the new drug application for Otezla, on February 14, 2020, the New Jersey District Court issued an order substituting Amgen for Celgene as plaintiff in the consolidated action and all related actions, terminating Celgene as plaintiff in the consolidated action and all related actions, and amending the case caption in the consolidated action and all related actions to reflect Amgen as the sole plaintiff.
On March 25, 2020, based on a joint request by Amgen and Unichem, the New Jersey District Court entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of Unichem’s apremilast product during the term of the ’940, ’638, ’302, ’101, ’536, ’243, ’330 and ’541 Patents, unless authorized pursuant to a confidential settlement agreement. On April 3, 2020, based on a joint request by Amgen and Hetero, the New Jersey District Court entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of Hetero’s apremilast product during the term of the ’940, ’516, ’638, ’302, ’101, ’536, ’717, ’243, ’330, ’854 and ’541 Patents, unless authorized pursuant to a confidential settlement agreement. On May 28, 2020, based on a joint request by Amgen and Emcure, the New Jersey District Court entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of Emcure’s apremilast product during the term of the ’638, ’101, ’854 and ’541 Patents unless authorized pursuant to a confidential settlement agreement. On July 7, 2020, the New Jersey District Court ordered a stipulated dismissal without prejudice of all claims, counterclaims, and affirmative defenses between Amgen and Sandoz with respect to the ’717, ’516 and ’854 Patents, leaving the ’940, ’302, ’536, ’243, ’330, ’638, ’101 and ’541 Patents asserted by Amgen against Sandoz in the litigation. On August 6, 2020, based on a joint request by Amgen and Mankind, the New Jersey District Court entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of Mankind’s apremilast product during the term of the ’940, ’302, ’536, ’243, ’330, ’638, ’101 and ’541 Patents, unless authorized pursuant to a confidential settlement agreement. On August 14, 2020, based on a joint request by Amgen and Macleods, the New Jersey District Court entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of Macleods’ apremilast product during the term of the ’638 and ’541 Patents, unless authorized pursuant to a confidential settlement agreement. On October 7, 2020, based on a joint request by Amgen and Amneal, the New Jersey District Court entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of Amneal’s apremilast product during the term of the ’101, ’940, ’638, ’302, ’536, ’243, ’330 and ’541 Patents, unless authorized pursuant to a confidential settlement agreement. On December 30, 2020, based on a joint request by Amgen and Shilpa, the New Jersey District Court entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of Shilpa’s apremilast product during the term of the ’638, ’101 and ’854 Patents, unless authorized pursuant to a confidential settlement agreement. On January 26, 2021, based on a joint request by Amgen and Actavis, the New Jersey District Court entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of Actavis’ apremilast product during the term of the ’940, ’516, ’638, ’302, ’536, ’717, ’330, ’854 and ’541 Patents, unless authorized pursuant to a confidential settlement agreement. On March 24, 2021, based on a joint request by Amgen and Prinston, the New Jersey District Court entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of Prinston’s apremilast product during the term of the ’638 and ’541 Patents, unless authorized pursuant to a confidential settlement agreement. On April 6, 2021, based on a joint request by Amgen and Aurobindo, the New Jersey District Court entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of Aurobindo’s apremilast product during the term of the ’940, ’516, ’638, ’302, ’101, ’536, ’717, ’243, ’330, ’854 and ’541 Patents, unless authorized pursuant to a confidential settlement agreement.
On May 5, 2021, based on a joint request by Amgen and Cipla, the New Jersey District Court entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of Cipla’s apremilast product during the term of the ’940, ’638, ’302, ’536, ’330 and ’541 Patents, unless authorized pursuant to a confidential settlement agreement. On May 14, 2021, based on a joint request by Amgen and Torrent, the New Jersey District Court entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of Torrent’s apremilast product during the term of the ’101, ’638, ’854 and ’541 Patents, unless authorized pursuant to a confidential settlement agreement. On May 19, 2021, based on a joint request by Amgen and Alkem, the New Jersey District Court entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of Alkem’s apremilast product during the term of the ’940, ’638, ’302, ’536, ’330 and ’541 Patents, unless authorized pursuant to a confidential settlement agreement. On May 25, 2021, based on a joint request by Amgen and MSN, the New Jersey District Court entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of MSN’s apremilast product during the term of the ’940, ’638, ’302, ’536, ’330 and ’541 Patents, unless authorized pursuant to a confidential settlement agreement. On June 11, 2021, based on a joint request by Amgen and Pharmascience, the New Jersey District Court entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of Pharmascience’s apremilast product during the term of the ’243, ’940, ’638, ’302, ’101, ’536, ’330 and ’541 Patents, unless authorized pursuant to a confidential settlement agreement. On June 17, 2021, based on a joint request by Amgen and DRL, the New Jersey District Court entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of DRL’s apremilast product during the term of the ’638, ’101, ’536 and ’541 Patents, unless authorized pursuant to a confidential settlement agreement.
Trial on the consolidated patent infringement action against Sandoz and Zydus was held at the New Jersey District Court from June 14 to 25, 2021, with closing arguments on July 28, 2021.
On September 28, 2021, consistent with its September 20, 2021 opinion and order, the New Jersey District Court entered final judgment in favor of Amgen and against Zydus with respect to claims 3 and 6 of the ’638 Patent, claim 6 of the ’536 Patent and claims 2 and 27 of the ’283 Patent; and final judgment in favor of Zydus and against Amgen with respect to claims 1 and 15 of the ’101 Patent and claims 2, 19 and 21 of the ’541 Patent. The final judgment ordered that the effective date of any final approval by the FDA of Zydus’s ANDA must be after expiration of the three infringed patents (the ’638, ’536 and ’283 Patents) and any regulatory exclusivity to which Amgen may become entitled. The final judgment also includes an injunction prohibiting Zydus from making, using, offering to sell, or selling in the United States, or importing into the United States, Zydus’s generic apremilast products during the term of the three infringed patents. On October 27, 2021, Zydus filed a notice of appeal to the Federal Circuit Court with respect to the ’638 Patent. On October 28, 2021, Amgen filed a notice of appeal to the Federal Circuit Court.
On October 12, 2021, the New Jersey District Court also entered final judgment in favor of Amgen and against Sandoz with respect to claims 3 and 6 of the ’638 Patent, claim 6 of the ’536 Patent and claims 1 and 15 of the ’101 Patent; and final judgment in favor of Sandoz and against Amgen with respect to claims 2, 19 and 21 of the ’541 Patent. The final judgment ordered that the effective date of any final approval by the FDA of Sandoz’s ANDA must be after expiration of the three infringed patents (the ’638, ’536 and ’101 Patents) and any regulatory exclusivity to which Amgen may become entitled. The final judgment also includes an injunction prohibiting Sandoz from making, using, offering to sell, or selling in the United States, or importing into the United States, Sandoz’s generic apremilast products during the term of the three infringed patents. On November 9, 2021, Sandoz filed a notice of appeal to the Federal Circuit Court with respect to the ’638 and ’101 Patents. On November 10, 2021, Amgen filed a notice of appeal to the Federal Circuit Court.
Oral argument for Amgen’s, Sandoz’s and Zydus’ appeals was held on February 8, 2023.
Amgen Inc. v. Apotex Inc.
On June 14, 2022, Amgen filed a lawsuit in the New Jersey District Court against Apotex Inc. (Apotex) for infringement of the ’638 Patent, the ’854 Patent and the ’541 Patent. This lawsuit was based on Apotex’s submission of an ANDA seeking FDA approval to market a generic version of Otezla and seeks an order of the New Jersey District Court making any FDA approval of Apotex’s ANDA effective no earlier than the expiration of the applicable patents.
On October 14, 2022, Apotex filed its answer, disputing infringement and/or validity of the patents-in-suit. Along with its answer, Apotex also filed declaratory judgment counterclaims asserting that the patents-in-suit are not infringed and/or are invalid.
On January 20, 2023, based on a joint request by Amgen and Apotex, the New Jersey District Court entered a consent judgment and injunction prohibiting the making, using, selling, offering to sell, or importing of Apotex’s apremilast product during the term of the ’638, ’854, and ’541 Patents, unless authorized pursuant to a confidential settlement agreement.
Repatha Patent Litigation
Amgen Inc., et al. v. Sanofi, et al.
In October 2014, Amgen initiated a series of lawsuits that were consolidated by the U.S. District Court for the District of Delaware (Delaware District Court) in December 2014 into a single case against Sanofi, Sanofi-Aventis U.S. LLC and Aventisub LLC, formerly doing business as Aventis Pharmaceuticals Inc. (collectively, Sanofi) and Regeneron Pharmaceuticals, Inc. (Regeneron), addressing seven of our patents: U.S. Patent Nos. 8,563,698; 8,829,165 (the ’165 Patent); 8,859,741 (the ’741 Patent); 8,871,913; 8,871,914; 8,883,983; and 8,889,834. These patents describe and claim monoclonal antibodies to PCSK9. By its complaints, Amgen seeks an injunction to prevent the infringing manufacture, use and sale of Sanofi and Regeneron’s alirocumab, a monoclonal antibody targeting PCSK9. In January 2016, the Delaware District Court granted Amgen’s motion to amend the complaint to add its affiliates, Amgen Manufacturing, Limited and Amgen USA Inc., as plaintiffs and to add the allegation that Sanofi and Regeneron’s infringement of Amgen’s patents is willful.
In February 2016, the Delaware District Court entered a stipulated order finding alirocumab and the drug product containing it, PRALUENT infringe certain of Amgen’s patents, including claims 2, 7, 9, 15, 19 and 29 of the ’165 Patent and claim 7 of the ’741 Patent. In March 2016, the Delaware District Court entered judgment in favor of Amgen following a five-day jury trial and a unanimous jury verdict that these patent claims are all valid. In January 2017, the Delaware District Court denied Sanofi and Regeneron’s posttrial motions seeking a new trial and for judgment as a matter of law, and granted Amgen’s motion for a permanent injunction prohibiting the infringing manufacture, use, sale, offer for sale or import of alirocumab in the United States. Sanofi and Regeneron filed an appeal of the judgment and the permanent injunction to the Federal Circuit Court. In February 2017, following a motion by Sanofi and Regeneron, the Federal Circuit Court entered a stay of the permanent injunction during the pendency of the appeal. In October 2017, the Federal Circuit Court reversed in part the judgment of the Delaware District Court and remanded for a new trial two of the patent validity defenses (lack of written description and enablement of the claimed inventions), and affirmed the Delaware District Court’s judgment of infringement of claims 2, 7, 9, 15, 19 and 29 of the ’165 Patent and claim 7 of the ’741 Patent and the third patent validity defense (finding that the claimed inventions were not obvious to a person of ordinary skill in the field of the patents).
In March 2018, the Federal Circuit Court issued a mandate returning the case to the Delaware District Court for a new trial on two of Sanofi and Regeneron’s challenges to the validity of our patents (lack of written description and enablement of the claimed inventions) and for further consideration of a permanent injunction. In July 2018, Amgen filed a petition for certiorari with the U.S. Supreme Court seeking review of the Federal Circuit Court’s conclusion that the judgment affirming the validity of Amgen’s patents was based, in part, on an erroneous application of the law of written description. On January 7, 2019, the U.S. Supreme Court denied Amgen’s petition for certiorari. On remand, the Delaware District Court scheduled a new trial on Sanofi and Regeneron’s challenges to the validity of our patents based on lack of written description and enablement of the claimed inventions. The Delaware District Court also entered judgment on the pleadings for Sanofi and Regeneron on Amgen’s claim of willful infringement.
On February 25, 2019, a jury of the Delaware District Court again unanimously upheld the validity of claims 19 and 29 of the ’165 Patent and claim 7 of the ’741 Patent. The jury also found that claims 7 and 15 of the ’165 Patent meet the enablement requirement, but are invalid for failure to meet the written description requirement. On March 18, 2019, Sanofi and Regeneron filed posttrial motions seeking to reverse the jury verdict against them or for a new trial, and Amgen filed a motion for a permanent injunction. On August 28, 2019, the Delaware District Court ruled on the posttrial motions, denying Sanofi and Regeneron’s request for a new trial and their request to reverse the jury verdict that the ’165 Patent and the ’741 Patent provide written description support for the claimed inventions. The Delaware District Court also ruled as a matter of law that claims 19 and 29 of the ’165 Patent and claim 7 of the ’741 Patent are invalid for failing to meet the enablement requirement, overturning the jury verdict.
On October 23, 2019, Amgen filed a notice of appeal to the Federal Circuit Court and based on the subsequent hearing, on February 11, 2021 the Federal Circuit Court issued a decision affirming the Delaware District Court’s ruling. Amgen filed a petition for rehearing en banc which was denied on June 21, 2021. On November 18, 2021, Amgen filed a petition for writ of certiorari with the U.S. Supreme Court seeking review of the invalidation of claims 19 and 29 of the ’165 Patent and claim 7 of the ’741 Patent as lacking an enabling disclosure of the invention.
On November 4, 2022, the U.S. Supreme Court granted review on Amgen’s petition for certiorari on the question of whether the appropriate standard was applied by the lower courts in invalidating claims 19 and 29 of the ’165 Patent and claim 7 of the ’741 Patent as lacking an enabling disclosure of the invention. Amgen filed its opening brief on December 27, 2022. On February 3, 2023, Sanofi and Regeneron filed a brief in response. Oral argument before the U.S. Supreme Court is scheduled for March 27, 2023.
Patent Disputes in the International Region
We are involved in and expect future involvement in additional disputes regarding our PCSK9 patents in other jurisdictions and regions. This includes matters filed against us and that we have filed in Germany, Spain and Japan.
In February 2016, the European Patent Office (EPO) granted European Patent No. 2,215,124 (EP 2,215,124) to Amgen. This patent describes and claims monoclonal antibodies to PCSK9 and methods of treatment and Sanofi filed an opposition to the patent in the EPO seeking to invalidate it. In November 2016, Sanofi-Aventis Deutschland GmbH, Sanofi-Aventis Groupe S.A. and Sanofi Winthrop Industrie S.A. filed a joint opposition against Amgen’s patent, and each of Lilly, Regeneron and Strawman Ltd. also filed oppositions to Amgen’s patent. In November 2018, the EPO confirmed the validity of Amgen’s EP 2,215,124, which was appealed to the Technical Board of Appeal (TBA). On October 29, 2020, the TBA upheld the validity of certain claims, including claims that protect Repatha, but ruled that broader claims encompassing PRALUENT were invalid. As a result of the TBA’s decision, national litigations regarding PRALUENT in Europe are in the process of being resolved. In Germany, Sanofi-Aventis Deutschland GmbH and Regeneron have filed actions seeking damages arising from the provisional enforcement of an injunction against PRALUENT that was lifted after the TBA’s October 29, 2020 ruling.
On March 23, 2022, Amgen filed counterclaims alleging that PRALUENT infringes Amgen’s European Patent No. 2,641,917 (the ’917 Patent). A EPO opposition to the ’917 Patent, filed by Sanofi on February 5, 2021, is pending, and the hearing before the EPO’s Opposition Division is scheduled for February 21, 2023.
On July 21, 2022, Sanofi Biotechnology SAS filed an action against Amgen GmbH and Amgen (Europe) B.V. before the Regional Court of Dusseldorf alleging that the marketing and sale of Repatha infringes European Patent No. 2,756,004 (the EP’004 Patent), seeking infringement damages and injunctive relief. The EP’004 Patent is currently in opposition proceedings, initiated by Amgen and an anonymous third party, before the EPO. A hearing before the Opposition Division of the EPO was held on June 8 and 9, 2022, and on August 16, 2022, the Opposition Division issued a written decision upholding the validity of the EP’004 Patent claims at issue, with narrowing amendments. Proceedings before the TBA commenced on August 17, 2022. On November 22, 2022, Amgen filed Grounds of Appeal before the TBA, and on December 30, 2022, Regeneron filed Grounds of Appeal before the TBA. On January 23, 2023, the TBA invited Amgen to file any response to Regeneron’s Grounds of Appeal by May 23, 2023.
On April 24, 2020, the Supreme Court of Japan declined to hear Sanofi K.K.’s appeals making final the Japanese High Court’s decisions that PRALUENT infringes Amgen’s valid patent rights in Japan. On June 24, 2020, Amgen filed written answers to the invalidity trials initiated by Regeneron on February 12, 2020 before the Japan Patent Office seeking to invalidate Amgen’s Japanese patents that were previously held infringed by PRALUENT and valid over challenges filed by Sanofi K.K. On April 15, 2021, the Japanese Patent Office dismissed Regeneron’s invalidity trials, and in August 2021 Regeneron appealed the decisions to the Japanese High Court. On January 26, 2023, the Japanese High Court found Amgen’s patent claims invalid for lacking adequate support. The decision is subject to appeal to the Japanese Supreme Court. Damages proceedings against Sanofi K.K. are ongoing before the Tokyo District Court, where Sanofi K.K. has initiated new validity challenges to Amgen patents in Japan.
ABP 654 (ustekinumab) Patent Litigation
Janssen Biotech, Inc. v. Amgen Inc.
On November 29, 2022, Janssen filed a lawsuit in the Delaware District Court alleging Amgen’s infringement of two patents by Amgen’s submission of an application for FDA licensure of ABP 654, Amgen’s biosimilar version of Janssen’s STELARA (ustekinumab) and also seeking declaratory judgment of infringement of the same two patents.
Antitrust Class Action
Sensipar Antitrust Class Actions
From February to April 2019, four plaintiffs filed putative class action lawsuits against Amgen and various entities affiliated with Teva Pharmaceuticals USA, Inc. (Teva) alleging anticompetitive conduct in connection with settlements between Amgen and manufacturers of generic cinacalcet product. two of those actions were brought in the Delaware District Court, captioned UFCW Local 1500 Welfare Fund v. Amgen Inc., et al. (February 21, 2019) (Local 1500) and Cesar Castillo, Inc. v. Amgen Inc., et al. (February 26, 2019) (Castillo). The third action was brought in the New Jersey District Court, captioned Teamsters Local 237 Welfare Fund, et al. v. Amgen Inc., et al. (March 14, 2019) (Local 237) and the fourth action was brought in the U.S. District Court for the Eastern District of Pennsylvania (the Eastern Pennsylvania District Court), captioned KPH Healthcare Services, Inc. a/k/a Kinney Drugs, Inc. v. Amgen Inc., et al (April 10, 2019) (KPH). Each of the lawsuits is brought on behalf of a putative class of direct or indirect purchasers of Sensipar and alleges that the plaintiffs have overpaid for Sensipar as a result of Amgen’s conduct that allegedly improperly delayed market entry by manufacturers of generic cinacalcet products.
The lawsuits focus predominantly on the settlement among Amgen, Watson Laboratories, Inc. (Watson) and Teva of the parties’ patent infringement litigation. Each of the lawsuits seeks, among other things, treble damages, equitable relief and attorneys’ fees and costs. On April 10, 2019, the plaintiff in the KPH lawsuit filed a motion seeking to have the four lawsuits consolidated and designated as a multidistrict litigation (MDL) in the Eastern Pennsylvania District Court, and the plaintiff in the Local 1500 lawsuit filed a motion seeking to have the four lawsuits, along with Cipla Ltd. v. Amgen Inc., consolidated and designated as an MDL in the Delaware District Court.
On July 31, 2019, the MDL panel entered an order consolidating in the Delaware District Court the four class action lawsuits. On September 13, 2019, the plaintiffs filed amended complaints, and on October 15, 2019, Amgen filed its motion to dismiss both the direct purchaser plaintiffs’ consolidated class action complaint and the indirect purchaser end payer plaintiffs’ complaint. On December 6, 2019, the plaintiffs responded to Amgen’s motion to dismiss and, on January 10, 2020, Amgen filed its response. On February 6, 2020, the motions in the class action lawsuits were transferred to the U.S. Magistrate Judge for the District of Delaware (Magistrate Judge) for a recommendation. The MDL panel certified its conditional transfer order on February 6, 2020 transferring the additional class action lawsuit brought in the U.S. District Court for the Southern District of Florida, captioned MSP Recovery Claims v. Amgen Inc., et al., to the Delaware District Court.
On July 22, 2020, the Magistrate Judge issued a recommendation to the Delaware District Court that the claims against Amgen be dismissed but leave be given to plaintiffs to amend their complaints. On August 5, 2020, the plaintiffs filed objections to the Magistrate Judge’s report and recommendation. On August 19, 2020, Amgen filed a response to the plaintiffs’ objections. On November 30, 2020, the District Court adopted the Magistrate Judge’s recommendation in part and denied it in part, denying Amgen’s motion to dismiss on the grounds that plaintiffs adequately alleged reverse payment claims but granted Amgen’s motion to dismiss with respect to the other Federal antitrust claims. On December 23, 2020, Teva, Watson and Actavis filed a motion for interlocutory appeal and for a stay pending appeal and Amgen filed its joinder (the 1292 Motion). On January 5, 2021, a joint status report was filed advising the Delaware District Court that the defendants are still considering whether to withdraw the 1292 Motion and plaintiffs’ offer to stay discovery, pending further rulings on motions to dismiss the amended complaints. On January 19, 2021, a joint status report was filed pursuant to the Delaware District Court’s January 6, 2021 order along with a stipulation to defer the 1292 Motion until after rulings on the amended complaints.
On February 16, 2021, the plaintiffs in the antitrust class action lawsuit brought on behalf of putative classes of direct or indirect purchasers of Sensipar filed their amended complaints. On March 4, 2021, a stipulation and order regarding the filing of a second amended complaint were filed to add another plaintiff: Teamsters Western Region & Local 177 Health Care Fund. On March 17, 2021, a defendant, MSP Recovery Claims, Series LLC, filed its notice of voluntary dismissal. On March 30, 2021, the remaining defendants, including Amgen, filed their motions to dismiss the second amended complaint.
On April 27, 2021, plaintiffs filed their oppositions to defendants’ (including Amgen’s) motion to dismiss, and defendants’ reply was filed on May 25, 2021. A hearing on defendants’ motion to dismiss was held in the Delaware District Court on July 13, 2021.
On March 11, 2022, the Delaware District Court granted defendants’ (including Amgen’s) motion to dismiss except as to the reverse payment claim and various state law claims from ten of the states in which plaintiffs reside. On May 11, 2022, the parties filed motions asking permission to seek interlocutory appeal. The plaintiffs did not oppose Amgen’s motion and instead argued all issues should be appealed at this time. Amgen filed its opposition to plaintiffs’ motion on June 10, 2022, and reply briefs were filed on June 24, 2022.
Regeneron Pharmaceuticals, Inc. Antitrust Action
On May 27, 2022, Regeneron Pharmaceuticals, Inc. (Regeneron) filed suit against Amgen in the Delaware District Court for federal and state antitrust and unfair competition violations and tortious interference with prospective business relations. Regeneron alleges that Amgen’s sales contracting practices for Repatha, ENBREL and Otezla with key insurers, third-party payers and PBMs have harmed the sales of its product PRALUENT and focuses on two primary arguments: that Amgen improperly bundled sales of Repatha with ENBREL, Otezla and potentially other products and sought exclusive or de facto exclusive formulary positioning for Repatha. Amgen’s initial responsive pleading, a motion to dismiss, was filed on August 1, 2022.
On August 11, 2022, Amgen moved to stay the case pending the ultimate decision on the merits of the ongoing patent litigation between Amgen and Regeneron in Amgen Inc., et al. v. Sanofi, et al. On January 6, 2023, the Delaware District Court heard oral argument on the motion to stay and the motion to dismiss.
U.S. Tax Litigation.
Amgen Inc. & Subsidiaries v. Commissioner of Internal Revenue
See Note 6, Income taxes, for discussion of the IRS tax dispute and the Company’s petitions in the U.S. Tax Court.
ChemoCentryx, Inc. Securities Matters
On May 5 and June 8 of 2021, ChemoCentryx and its Chief Executive Officer were named as defendants in two putative shareholder class actions filed in the U.S. District Court for the Northern District of California (Northern District Court of California). These cases were consolidated into Homyk v. ChemoCentryx, Inc. in which the plaintiffs allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act in connection with statements regarding the New Drug Application for TAVNEOS and the underlying Phase 3 clinical trial, seeking an award of damages, interest and attorneys’ fees. On March 28, 2022, the plaintiffs filed their consolidated amended complaint, and on May 19, 2022, ChemoCentryx moved to dismiss these claims.
On January 25, 2022, the Board of Directors and certain of ChemoCentryx’s officers were named as defendants in a putative shareholder derivative action filed in the Northern District Court of California, Napoli v. Schall, and on March 11, 2022, the Northern District Court of California stayed the action until judgment is entered in the Homyk v. ChemoCentryx, Inc. action. On December 5, 2022 the plaintiffs in Napoli filed a Notice of Voluntary Dismissal, and on December 22, 2022, the Court ordered the dismissal of the case.
Commitments – U.S. repatriation tax
Under the 2017 Tax Act, we elected to pay in eight annual installments the repatriation tax related primarily to prior indefinitely invested earnings of our foreign operations. The following table summarizes the remaining scheduled repatriation tax payments as of December 31, 2022 (in millions):
| | | | | |
| Amounts |
| 2023 | $ | 1,100 | |
| 2024 | 1,467 | |
| 2025 | 1,834 | |
| Total remaining U.S. repatriation tax commitments | $ | 4,401 | |