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Acquisition | 12 Months Ended
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Dec. 31, 2017
Acquisition [Abstract] |
Business Combination Disclosure [Text Block] | ACQUISITIONS Kite Pharma, Inc. On October 3, 2017 (the Acquisition Date), we completed a tender offer for all of the outstanding common stock of Kite Pharma, Inc. (Kite) for $180 per share in cash. As a result, Kite became our wholly-owned subsidiary. The acquisition of Kite helps establish our foundation for improving the treatment of hematological malignancies and solid tumors. Kite’s cell therapies express either a chimeric antigen receptor (CAR) or an engineered T cell receptor, depending on the type of cancer. Kite’s most advanced therapy candidate, axicabtagene ciloleucel, is a CAR T cell therapy. On October 18, 2017, axicabtagene ciloleucel, now known commercially as Yescarta, was approved by FDA, making it the first CAR T cell therapy for the treatment of adult patients with relapsed or refractory large B-cell lymphoma after two or more lines of systemic therapy, which includes diffuse large B-cell lymphoma (DLBCL), transformed follicular lymphoma (TFL) and primary mediastinal B-cell lymphoma (PMBCL). A marketing authorization application has also been filed for axicabtagene ciloleucel for the treatment of relapsed/refractory DLBCL, TFL and PMBCL with the European Medicines Agency. Kite has additional candidates in clinical trials in both hematologic cancers and solid tumors, including KITE-585, a CAR T cell therapy candidate that targets B-cell maturation antigen expressed in multiple myeloma. The consideration transferred for the acquisition was $11,155 million, consisting of $10,420 million in cash to the outstanding Kite common stockholders, $645 million cash payment to vested equity award holders, $15 million to warrant holders, and approximately $75 million representing the portion of the replaced stock-based awards attributable to the pre-combination period. In addition, approximately $733 million was excluded from the consideration transferred, representing the portion of the replaced stock-based awards attributable to the post combination period, of which $238 million was recognized as compensation expense during the three months ended December 31, 2017. The remaining stock-based compensation expense from the replacement awards is expected to be recognized through 2021. We financed the transaction with $3.0 billion aggregate principal amount in senior unsecured notes issued in September 2017, a $6.0 billion aggregate principal amount term loan facility credit agreement entered into in September 2017 and drawn in October 2017, as well as cash on hand. See Note 11, Debt and Credit Facilities for additional information. The acquisition of Kite was accounted for as a business combination using the acquisition method of accounting. This method requires, among other things, that assets acquired and liabilities assumed be recognized at fair value as of the acquisition date. The fair value estimates for the assets acquired and liabilities assumed were based upon preliminary valuations using information known and knowable as of the date of this filing. We will be able to complete our valuation when we obtain additional information, primarily related to certain forecast assumptions used to perform our preliminary valuation of intangibles and estimates to record the benefit of certain tax attributes. Changes to these assumptions and estimates could cause an impact to the valuation of assets acquired, including intangible assets, goodwill and the related tax impacts of the acquisition. The following table summarizes the preliminary acquisition date fair values of assets acquired and liabilities assumed, and the consideration transferred (in millions):
Cash and cash equivalents |  | $ | 652 |
Identifiable intangible assets |  |
Indefinite-lived intangible assets - IPR&D |  | 8,950 |
Outlicense acquired |  | 91 |
Deferred income taxes |  | (1,606 | )
Other assets acquired (liabilities assumed), net |  | 81 |
Total identifiable net assets |  | 8,168 |
Goodwill |  | 2,987 |
Total consideration transferred |  | $ | 11,155 |
Identifiable Intangible Assets We acquired intangible assets primarily related to IPR&D for axicabtagene ciloleucel, KITE-585 and KTE-C19, which had an estimated aggregate fair value of $8,950 million as of the Acquisition Date. The fair values of the assets were determined using a probability-weighted income approach that discounts expected future cash flows to present value. The estimated net cash flows were discounted using a discount rate of 9.5%, which is based on the estimated weighted-average cost of capital for companies with profiles similar to that of Kite. This rate is comparable to the estimated internal rate of return for the acquisition and represents the rate that market participants would use to value the intangible assets. The projected cash flows from the IPR&D assets were based on key assumptions such as:
• | estimates of revenues and operating profits related to each project considering its stage of development as of the Acquisition Date;
• | the time and resources needed to complete the development and approval of the product candidates;
• | the life of the potential commercialized product and associated risks, including the inherent difficulties and uncertainties in developing a product candidate such as obtaining marketing approval from the FDA and other regulatory agencies;
• | risks related to the viability of and potential alternative treatments in any future target markets.
Intangible assets related to IPR&D projects are considered to be indefinite-lived assets until the completion or abandonment of the associated R&D efforts. In October 2017, upon FDA approval of Yescarta for the treatment of adult patients with relapsed or refractory DLBCL after two or more lines of systemic therapy, $6,200 million of the purchased IPR&D was reclassified as a finite-lived intangible asset and is being amortized over an estimated useful life of 18 years using the straight-line method. Additionally, we acquired an outlicense to Daiichi Sankyo, which had an estimated fair value of $91 million as of the Acquisition Date. This definite-lived intangible asset is being amortized over an estimated useful life of 14 years on a straight-line basis. The fair value was determined by estimating the probability-weighted net cash flows attributable to the outlicense discounted to present value using a discount rate that represents the estimated rate that market participants would use to value this intangible asset. Goodwill The $2,987 million goodwill represents the excess of the consideration transferred over the fair values of assets acquired and liabilities assumed and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. None of the goodwill is deductible for income tax purposes. Actual and Supplemental Pro Forma Information The financial results of Kite since the date of acquisition have been included in our Consolidated Statements of Income for the year ended December 31, 2017. Kite’s pre-tax operating loss was approximately $675 million, which included expenses of $431 million associated with the acquisition of Kite. Kite’s pre-tax operating loss included $290 million share-based and other compensation expenses, of which $209 million was due to accelerated vesting and other compensation charges associated with the acquisition, $222 million acquired IPR&D expenses, primarily related to the acquisition of Cell Design Labs, Inc. (Cell Design Labs), and $73 million amortization of intangible assets. Share-based compensation expenses were recorded primarily within Research and development expenses and Selling, general and administrative expenses, acquired IPR&D expenses were recorded within Research and development expenses and amortization expense was recorded within Cost of goods sold on our Consolidated Statements of Income for the year ended December 31, 2017. In connection with the acquisition of Kite, we incurred $48 million of transaction costs which were recorded within Selling, general, and administrative expenses on our Consolidated Statements of Income for the year ended December 31, 2017. The following pro forma information presents the combined results of operations of Gilead and Kite as if the acquisition of Kite had been completed on January 1, 2016, with adjustments to give effect to pro forma events that are directly attributable to the acquisition (in millions, unaudited):
|  | Year Ended December 31,
|  | 2017 |  | 2016
Total revenues |  | $ | 26,127 |  |  | $ | 30,390 |
Net income attributable to Gilead |  | $ | 4,508 |  |  | $ | 12,928 |
The unaudited pro forma consolidated results include pro forma adjustments directly attributable to the acquisition, assuming that the acquisition occurred on January 1, 2016. The primary adjustments include: (i) compensation expenses of $223 million and acquisition-related transaction expenses of $139 million, inclusive of Kite’s transaction expenses, incurred in 2017, which were included in the net income attributable to Gilead for the year ended December 31, 2016, and (ii) the impact of additional interest expense on debt issued in connection with the acquisition of Kite assuming the debt was incurred on January 1, 2016. The unaudited pro forma results do not reflect any operating efficiencies or potential cost savings which may result from the consolidation of the operations of Gilead and Kite. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of 2016, nor are they indicative of future results of operations. Cell Design Labs, Inc. In December 2017, we acquired all of the issued and outstanding stock of Cell Design Labs, a privately held company, which was in addition to the approximately 12.2% of shares in Cell Design Labs we obtained in the acquisition of Kite. With this acquisition, we gained new technology platforms that will enhance research and development efforts in cellular therapy. The cash consideration totaled $150 million, net of acquired cash. Additionally, the shareholders of Cell Design Labs, other than us, are eligible to receive contingent development and regulatory milestone-based payments of up to $322 million. Our 12.2% equity interest in Cell Design Labs had a carrying value of $30 million. The transaction was accounted for as an asset acquisition. As a result, $172 million was expensed as acquired IPR&D within Research and development expenses on our Consolidated Statements of Income. Nimbus Apollo, Inc. In May 2016, we acquired Nimbus Apollo, Inc., a privately held company, and its Acetyl-CoA Carboxylase inhibitor program, which is being evaluated for the potential treatment of non-alcoholic steatohepatitis, hepatocellular carcinoma and other diseases. The consideration included a payment of $400 million and contingent development and regulatory milestone-based payments of up to $800 million. The transaction was accounted for as an asset acquisition. As a result, the payment of $400 million was expensed as acquired IPR&D within Research and development expenses on our Consolidated Statements of Income. During 2016, based on the achievement of certain clinical development milestones, we recorded a $200 million expense within Research and development expenses on our Consolidated Statements of Income.

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