AMGEN INC (AMGN) FY 2022 MD&A

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following MD&A is intended to assist the reader in understanding Amgen’s business. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and accompanying notes. Our results of operations discussed in MD&A are presented in conformity with GAAP. Amgen operates in one business segment: human therapeutics. Therefore, our results of operations are discussed on a consolidated basis.

Forward-looking statements

This report and other documents we file with the SEC contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about us, our future performance, our business, our beliefs and our management’s assumptions. In addition, we, or others on our behalf, may make forward-looking statements in press releases, written statements or our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls. Such words as “expect,” “anticipate,” “outlook,” “could,” “target,” “project,” “intend,” “plan,” “believe,” “seek,” “estimate,” “should,” “may,” “assume” and “continue” as well as variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and they involve certain risks, uncertainties and assumptions that are difficult to predict. We describe our respective risks, uncertainties and assumptions that could affect the outcome or results of operations in Part I, Item 1A. Risk Factors. We have based our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied or forecasted by our forward-looking statements. Reference is made in particular to forward-looking statements regarding product sales, regulatory activities, clinical trial results, reimbursement, expenses, EPS, liquidity and capital resources, trends, planned dividends, stock repurchases, collaborations and effects of pandemics. Except as required under the federal securities laws and the rules and regulations of the SEC, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions or otherwise.

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Overview

Amgen is a biotechnology company committed to unlocking the potential of biology for patients suffering from serious illnesses. A biotechnology pioneer since 1980, Amgen has grown to be one of the world’s leading independent biotechnology companies, has reached millions of patients around the world and is developing a pipeline of medicines with breakaway potential.

Our principal products are ENBREL, Prolia, Otezla, XGEVA, Aranesp, Nplate, Repatha, KYPROLIS, Neulasta and EVENITY. We also market a number of other products, including MVASI, Vectibix, BLINCYTO, EPOGEN, AMGEVITA, Aimovig, Parsabiv, KANJINTI, LUMAKRAS/LUMYKRAS, TEZSPIRE, NEUPOGEN, Sensipar/Mimpara and TAVNEOS. For additional information about our products, see Part I, Item 1. Business—Marketing, Distribution and Selected Marketed Products.

Our strategy includes integrated activities intended to strengthen our competitive position in the industry. We operate in six commercial areas: inflammation, oncology/hematology, bone health, cardiovascular (CV) disease, nephrology and neuroscience. We conduct discovery research primarily in three therapeutic areas: inflammation, oncology/hematology and general medicine. In 2022, we advanced our innovative pipeline, grew our international business, completed a strategic transaction to augment our marketed product portfolio, announced our intention to acquire Horizon and continued providing uninterrupted supplies of our medicines globally through the third year of the COVID-19 pandemic. We accomplished these objectives while maintaining a strategic and disciplined approach to capital allocation and advancing our ESG efforts.

In 2022, we continued to advance our pipeline, initiating phase 3 clinical trials for a number of programs, including LUMAKRAS/LUMYKRAS for advanced colorectal cancer, olpasiran for CV disease and rocatinlimab for atopic dermatitis. We continued to grow our international business, including achieving key regulatory approvals for TEZSPIRE in the EU and Japan. Our external business development activities for 2022 included the acquisition of ChemoCentryx, adding recently launched TAVNEOS to our inflammation portfolio. We also continued to advance our biosimilar program, with launches in new markets. Our biosimilars are expected to continue launching in new markets throughout 2023, including the U.S. launch of AMJEVITA in January 2023.

During 2022, while gradually recovering from the global pandemic and facing increased competition from biosimilars and generics, total product sales increased 2%, primarily driven by volume growth for certain brands, partially offset by declines in net selling prices of certain products and unfavorable changes to foreign currency exchange rates. Product sales increased 3% in the United States, primarily driven by volume growth, partially offset by declines in net selling prices, and increased 1% in ROW, primarily driven by volume growth, partially offset by unfavorable changes to foreign currency exchange rates and declines in net selling prices. Total operating expenses decreased 9% due to both the acquired IPR&D write-off from the Five Prime acquisition and a licensing-related upfront payment to KKC in 2021, partially offset by a loss on a nonstrategic divestiture in 2022.

Cash flows from operating activities totaled $9.7 billion, which supported investment in our business while returning capital to shareholders through the payment of cash dividends and stock repurchases. For 2022, we increased our quarterly cash dividend by 10% to $1.94 per share of common stock. In December 2022, we declared a cash dividend of $2.13 per share of common stock for the first quarter of 2023, an increase of 10% for this period, to be paid in March 2023. We also repurchased 26.1 million shares of our common stock during 2022 at an aggregate cost of $6.3 billion. In 2022, we received net proceeds from the issuance of debt of $6.9 billion and extinguished $0.3 billion of debt. 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 in the aggregate of $28.5 billion.

Amgen’s approach to and investment in human capital resource management is directed at attracting, motivating, developing and retaining talent to tackle the challenges of running an enterprise focused on the discovery, development and commercialization of innovative medicines. Our compensation, benefits and development programs are designed to encourage performance, promote accountability and adherence to Company values, and align with the interests of the Company’s shareholders. Further, we believe that a diverse and inclusive culture fosters innovation, which supports our ability to serve patients. We are engaging in activities and setting goals to improve our focus on diversity, inclusion and belonging. For further information on these and other efforts, see Part I, Item 1. Business—Human Capital Resources.

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We have a long-standing ambition to be environmentally responsible, and we regularly set targets to challenge ourselves to deliver further improvements. We achieved our targets for the 2013–2020 period while growing revenues, increasing production capacity and expanding to approximately 100 countries over the same period. To continue on our path to greater environmental sustainability, in January 2021 we announced a new set of long-term environmental targets to achieve by 2027, including achieving carbon neutrality, reducing water consumption by 40% and reducing waste disposed by 75%.(1)(2) Additionally, in 2022 we issued our first green bonds to finance eligible projects that meet specified criteria to reduce our impact on the environment.

Our long-term success depends, to a great extent, on our ability to continue to discover, develop and commercialize innovative products and acquire or collaborate on therapies currently in development by other companies. We must develop new products to achieve revenue growth and to offset revenue losses from when products lose their exclusivity or when competing products are launched. Certain of our products face increasing pressure from competition, including biosimilars and generics. For additional information, including information on the expirations of patents for various products, see Part I, Item 1. Business—Marketing, Distribution and Selected Marketed Products—Patents, and Part I, Item 1. Business—Marketing, Distribution and Selected Marketed Products—Competition. We devote considerable resources to R&D activities, but successful product development in the biotechnology industry is highly uncertain. We also face increasing regulatory scrutiny of safety and efficacy both before and after products launch.

Rising healthcare costs, uncertain macroeconomic conditions, including higher inflation and rising interest rates, and geopolitical conflicts continue to pose challenges to our business. As a result of public and private healthcare-provider focus, the industry continues to be subject to cost containment measures and significant pricing pressures, including net price declines. Moreover, legislation enacted to reduce healthcare expenditures, including provisions of the IRA, have affected, and are likely to continue to affect, our business. Finally, wholesale and end-user buying patterns can affect our product sales. These buying patterns can cause fluctuations in quarterly product sales but have generally not been significant to date when comparing full-year product performance to the prior year. See Part I, Item 1. Business—Marketing, Distribution and Selected Marketed Products, and Part I, Item 1A. Risk Factors for further discussion of certain factors that could impact our future product sales.

COVID-19 pandemic

Since the onset of the pandemic in 2020, we have been closely monitoring the pandemic’s effects on our global operations. We continue to take appropriate steps to minimize risks to our employees, a significant number of whom have continued to work virtually. To date, our remote working arrangements have not significantly affected our ability to maintain critical business operations, and we have not experienced disruptions to or shortages of our supply of medicines.

Over the course of the pandemic we have experienced changes in demand for some of our products as fluctuations in the frequency of patient visits to doctors’ offices have impacted the provision of treatments to existing patients and reduced diagnoses in new patients. During 2021, there was a gradual recovery in both patient visits and diagnosis rates that approached pre-pandemic levels. In 2022, the pandemic continued to impact the healthcare sector and our business, to varying degrees across our markets. During 2022, with the exception of the Asia Pacific region that was affected by lockdowns during most of the year, we saw greater stability in patient visits and demand patterns even in areas that were facing surges in the virus. Given the evolution of COVID-19 since its onset, including the proliferation of variants, we cannot predict the impact of future virus surges on our business and will continue to closely monitor the impact of COVID-19 on our business and on the healthcare sector more generally.

Since early 2021, efforts have been under way to control the COVID-19 pandemic. However, uncertainty remains as to the efficacy of these activities with respect to the ongoing trajectory of the pandemic. Challenges to vaccination efforts, new variants and other causes of virus spread may require governments to change restrictions and/or shutdown requirements in various geographies. As a result, we expect to see continued volatility for at least the duration of the pandemic as governments respond to current local conditions.

With regard to our clinical trial activities, we are continuously monitoring COVID-19 infection rates, including changes from new variants; we are working to mitigate effects on future study enrollment in our clinical trials; and we are evaluating the impact in all relevant countries. We remain focused on supporting our active clinical sites in their providing care for patients and in our providing investigational drug supply. For a discussion of the risks the COVID-19 pandemic could present to our results, see Part I, Item 1A. Risk Factors of this Form 10-K.

(1) Represents reductions against established baselines, taking into account only verified reduction projects and does not take into account changes associated with contraction or expansion of the Company.

(2) Carbon neutrality goal refers to Scope 1 and 2.

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Selected Financial Information

The following is an overview of our results of operations (in millions, except percentages and per-share data):

In the following discussion of changes in product sales, any reference to volume growth or decline refers to changes in the purchases of our products by healthcare providers (such as physicians or their clinics), dialysis centers, hospitals and pharmacies. In addition, any reference to increases or decreases in inventory refers to changes in inventory held by wholesaler customers and end users (such as pharmacies).

Total product sales increased in 2022, primarily driven by volume growth for certain brands, including Repatha, Prolia, EVENITY, Nplate, LUMAKRAS/LUMYKRAS, KYPROLIS, Otezla and TEZSPIRE, partially offset by declines in net selling prices of certain products, including Neulasta, Repatha and MVASI, and unfavorable changes to foreign currency exchange rates. For 2023, we expect that net selling prices will continue to decline at a portfolio level driven by increased competition. Further, the first quarter of a year historically represents the lowest product sales quarter for the year, in part due to plan changes, insurance reverifications and higher co-pay expenses as U.S. patients work through deductibles, particularly for products acquired through pharmacy benefit programs.

As a result of uncertain macroeconomic conditions, we expect volatility around foreign currency exchange rates to continue. The impact of unfavorable changes to foreign currency exchange rates will be partially offset by corresponding decreases in our international operating expenses. While not designed to completely address foreign currency changes, our hedging activities also seek to offset, in part, such effects on our net income by hedging our net foreign currency exposure, primarily with respect to product sales denominated in euros.

As discussed above, our product sales have been affected by reduced demand as a result of the COVID-19 pandemic. In general, the dynamics of the pandemic were most significant on our product sales in the early months of the pandemic, with demand beginning to show some recovery in late 2020. In late 2021 and early 2022, increased infection rates caused by variants of the virus (including Omicron) led to diminished capacity in the healthcare sector and reduced working days for our own sales force, which impacted our business. As of the second quarter of 2022, we saw the effects of these variants recede in most markets, which allowed us to engage in increased field-facing activities. Provider and patient activity also increased, leading to improvements in demand for our products to pre-pandemic levels. However, the cumulative decrease in diagnoses over the course of the pandemic has suppressed the volume of new patients starting treatment, which continues to impact our business. Given the unpredictable nature of the pandemic, there could be intermittent disruptions in physician–patient interactions, and as a result, we may experience quarter-to-quarter variability. In addition, other changes in the healthcare ecosystem have the potential to introduce variability into product sales trends. For example, changes in U.S. employment have led to changes to the insured population. Growth in numbers of Medicaid enrollees and uninsured individuals, along with provisions of the IRA, may have a negative impact on product sales. Overall, uncertainty remains around the timing and magnitude of our sales during the COVID-19 pandemic. See Risk Factors in Part I, Item 1A. of this Form 10-K.

Other revenues decreased for 2022, driven by lower revenue from COVID-19 antibody material and licensing-related revenues.

Operating expenses decreased for 2022 due to both the acquired IPR&D write-off related to the bemarituzumab program acquired as part of the Five Prime acquisition and a licensing-related upfront payment to KKC in 2021, partially offset by a loss

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on a nonstrategic divestiture in 2022. See Part IV—Note 2, Acquisitions and divestitures, and Note 8, Collaborations, to the Consolidated Financial Statements.

Results of Operations

Product sales

Worldwide product sales were as follows (dollar amounts in millions):

____________

(1)    Consists of product sales of our non-principal products, as well as our Gensenta and Bergamo subsidiaries.

Future sales of our products will depend in part on the factors discussed in the Overview, Part I, Item 1. Business—Marketing, Distribution and Selected Marketed Products—Competition, in Part I, Item 1A. Risk Factors, and any additional factors discussed in the individual product sections below. In addition, for a list of our products’ significant competitors, see Part I, Item 1. Business—Marketing, Distribution and Selected Marketed Products—Competition.

ENBREL

Total ENBREL sales by geographic region were as follows (dollar amounts in millions):

The decrease in ENBREL sales for 2022 was primarily driven by unfavorable changes to estimated sales deductions, lower volume and lower net selling price. For 2023, we expect ENBREL to follow the historical pattern of lower sales in the first quarter relative to subsequent quarters due to the impact of benefit plan changes, insurance reverification and increased co-pay expenses as U.S. patients work through deductibles. In addition, for 2023, we expect further declines in net selling price.

The decrease in ENBREL sales for 2021 was driven by lower net selling price, volume and unfavorable changes to inventory.

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Prolia

Total Prolia sales by geographic region were as follows (dollar amounts in millions):

The increase in global Prolia sales for 2022 was driven by volume growth and higher net selling price, partially offset by unfavorable changes to foreign currency exchange rates.

The increase in global Prolia sales for 2021 was primarily driven by volume growth.

Otezla

Total Otezla sales by geographic region were as follows (dollar amounts in millions):

The increase in global Otezla sales for 2022 was primarily driven by volume growth, partially offset by lower net selling price. ROW Otezla sales for 2022 were impacted by unfavorable changes to foreign currency exchange rates. For 2023, we expect Otezla to follow the historical pattern of lower sales in the first quarter relative to subsequent quarters due to the impact of benefit plan changes, insurance reverification and increased co-pay expenses as U.S. patients work through deductibles.

The increase in global Otezla sales for 2021 was driven by volume growth, partially offset by lower net selling price and unfavorable changes to inventory.

For a discussion of ongoing litigation related to Otezla, see Part IV—Note 19, Contingencies and commitments, to the Consolidated Financial Statements.

XGEVA

Total XGEVA sales by geographic region were as follows (dollar amounts in millions):

Global XGEVA sales were relatively unchanged for 2022 as higher net selling price was offset by lower volume as a result of increased competition and unfavorable changes to foreign currency exchange rates.

The increase in global XGEVA sales for 2021 was primarily driven by volume growth, partially offset by lower net selling price.

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Aranesp

Total Aranesp sales by geographic region were as follows (dollar amounts in millions):

The decrease in global Aranesp sales for 2022 was driven by lower net selling price and unfavorable changes to foreign currency exchange rates, partially offset by favorable changes to estimated sales deductions and volume growth.

The decrease in global Aranesp sales for 2021 was primarily driven by lower net selling price.

Aranesp continues to face competition from a long-acting erythropoiesis-stimulating agent (ESA) and from a biosimilar version of EPOGEN, which will impact net selling price and volume in the future.

Nplate

Total Nplate sales by geographic region were as follows (dollar amounts in millions):

The increase in global Nplate sales for 2022 was driven by volume growth. Nplate sales for 2022 included a $207 million order in the fourth quarter from the U.S. government.

The increase in global Nplate sales for 2021 was primarily driven by volume growth.

Repatha

Total Repatha sales by geographic region were as follows (dollar amounts in millions):

The increase in global Repatha sales for 2022 was driven by volume growth, partially offset by lower net selling price and unfavorable changes to foreign currency exchange rates. Volume benefited from contracting changes to support and improve Medicare Part D and commercial patient access and the inclusion of Repatha on China’s National Reimbursement Drug List as of January 1, 2022, both of which resulted in decreases to the net selling price in 2022.

The increase in global Repatha sales for 2021 was driven by volume growth, partially offset by lower net selling price.

For a discussion of ongoing litigation related to Repatha, see Part IV—Note 19, Contingencies and commitments, to the Consolidated Financial Statements.

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KYPROLIS

Total KYPROLIS sales by geographic region were as follows (dollar amounts in millions):

The increases in global KYPROLIS sales for 2022 and 2021 were primarily driven by volume growth.

The FDA has reported that it has granted tentative or final approval of ANDAs for generic carfilzomib products filed by a number of companies. The date of approval of those ANDAs for generic carfilzomib products is governed by the Hatch–Waxman Act and any applicable settlement agreements between us and certain companies that seek to develop generic carfilzomib products.

Neulasta

Total Neulasta sales by geographic region were as follows (dollar amounts in millions):

The decreases in global Neulasta sales for 2022 and 2021 were driven by lower net selling price and volume.

Increased competition as a result of biosimilar versions of Neulasta has had and will continue to have a significant adverse impact on brand sales, including accelerating net price erosion and lower volume. We also expect other biosimilar versions, including biosimilars that will use an on-body injector that would compete with our Onpro injector, to be approved in the future.

EVENITY

Total EVENITY sales by geographic region were as follows (dollar amounts in millions):

The increases in global EVENITY sales for 2022 and 2021 were driven by volume growth across our markets.

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Other products

Other product sales by geographic region were as follows (dollar amounts in millions):

NM = not meaningful

* Change in excess of 100%

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(1)    TAVNEOS was acquired on October 20, 2022 from our acquisition of ChemoCentryx.

(2)    Consists of Corlanor, AVSOLA, IMLYGIC and RIABNI, as well as sales by our Gensenta and Bergamo subsidiaries.

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Operating expenses

Operating expenses were as follows (dollar amounts in millions):

NM = not meaningful

* Change in excess of 100%

Cost of sales

Cost of sales decreased to 24.3% of total revenues for 2022, driven by lower COVID-19 antibody shipments and manufacturing costs, partially offset by changes in our product mix.

Cost of sales increased to 24.8% of total revenues for 2021, driven by changes in our product mix and higher profit share and royalties, partially offset by lower amortization expense from acquisition-related assets and lower manufacturing costs.

Research and development

The Company groups all of its R&D activities and related expenditures into three categories: (i) research and early pipeline, (ii) later-stage clinical programs and (iii) marketed products. These categories are described below:

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R&D expense by category was as follows (in millions):

The decrease in R&D expense for 2022 was driven by higher business development activity in 2021 included in later-stage clinical programs and research and early pipeline and lower marketed products support, partially offset by higher later-stage clinical programs support and research and early pipeline spend.

The increase in R&D expense for 2021 was driven by a licensing-related upfront payment to KKC included in later-stage clinical programs and higher spend in research and early pipeline, including other business development activities.

Acquired in-process research and development

The Acquired IPR&D expense in 2021 was related to the bemarituzumab program, which was acquired as part of the Five Prime acquisition in 2021. See Part IV—Note 2, Acquisitions and divestitures, to the Consolidated Financial Statements.

Selling, general and administrative

The increase in SG&A expense for 2022 was primarily driven by higher acquisition-related expenses.

The decrease in SG&A expense for 2021 was primarily driven by lower spend for marketed products and lower general and administrative expenses.

Other

Other operating expenses for 2022 primarily consisted of a loss on a nonstrategic divestiture. See Part IV—Note 2, Acquisitions and divestitures, to the Consolidated Financial Statements.

Other operating expenses for 2021 primarily consisted of expenses related to cost-savings initiatives and a legal judgment.

Other operating expenses for 2020 primarily consisted of legal settlement expenses.

Nonoperating expenses/income and income taxes

Nonoperating expenses/income and income taxes were as follows (dollar amounts in millions):

Interest expense, net

The increase in Interest expense, net, for 2022 was primarily due to higher overall debt outstanding and higher LIBORs on debt for which we effectively pay a variable rate of interest through the use of interest rate swaps.

The decrease in Interest expense, net, for 2021 was primarily due to net higher costs associated with the early retirement of debt in 2020 and lower LIBORs in 2021 on debt for which we effectively pay a variable rate of interest through the use of interest rate swaps, partially offset by higher overall debt outstanding.

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Other (expense) income, net

The change in Other (expense) income, net, for 2022 was primarily due to higher losses recognized in connection with our BeiGene investment compared with 2021 and losses recognized on our investments in limited partnerships, publicly traded equity securities and other strategic investments.

The change in Other (expense) income, net, for 2021 was primarily due to lower losses incurred in connection with our BeiGene investment compared with 2020, partially offset by lower income on our interest-bearing investments in 2021 and other nonrecurring gains recognized in 2020.

Income taxes

The decrease in our effective tax rate for 2022 compared with 2021 was primarily due to the nondeductible IPR&D expense arising from the acquisition of Five Prime in the prior year, partially offset by a nondeductible loss on a nonstrategic divestiture in 2022 and net unfavorable items as compared to the prior year.

The increase in our effective tax rate for 2021 compared with 2020 was primarily driven by the nondeductible IPR&D expense arising from the acquisition of Five Prime, partially offset by earnings mix and adjustments to prior-year tax liabilities.

The Administration and Congress continue to discuss changes to existing tax law that could substantially increase the taxes we pay to the U.S. government. Further, the OECD recently reached an agreement to align countries on a minimum corporate tax rate and an expansion of the taxing rights of market countries. If enacted, either by all OECD participants or unilaterally by individual countries, this agreement could result in a tax increase that could affect our U.S. and foreign tax liabilities.

The U.S. Treasury released final foreign tax credit regulations in December 2021 that eliminated U.S. creditability of the Puerto Rico Excise Tax beginning in 2023, which would have increased our U.S. tax liability. In response, on June 30, 2022, the U.S. territory of Puerto Rico enacted Act 52-2022, which provides for an alternate fixed tax rate on industrial development income that the U.S. Treasury confirmed will be creditable under federal law. As part of this new law, eligible businesses will be subject to incremental income and withholding taxes in lieu of payment of the Puerto Rico Excise Tax. In order to qualify for the alternative fixed tax rate, our current tax grant with the Puerto Rico government was amended in December 2022. We qualify for this alternative fixed tax rate, beginning January 1, 2023 and our tax expense will increase.

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

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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.

See Part I, Item 1A. Risk Factors—The adoption and interpretation of new tax legislation or exposure to additional tax liabilities could affect our profitability; Part II, Item 7. Management’s Discussion and Analysis or Financial Condition and Results of Operations—Critical Accounting Policies and Estimates, Income taxes; and Part IV—Note 6, Income taxes, to the Consolidated Financial Statements for further discussion.

Financial Condition, Liquidity and Capital Resources

Selected financial data was as follows (in millions):

Cash, cash equivalents and marketable securities

Our balance of cash, cash equivalents and marketable securities was $9.3 billion at December 31, 2022. 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 primarily investment-grade credit ratings, and it places restrictions on maturities and concentration by asset class and issuer.

Capital allocation

Consistent with the objective to optimize our capital structure, we deploy our accumulated cash balances in a strategic manner and consider a number of alternatives, including investments in innovation, both internally and externally, strategic transactions (including those that expand our portfolio of products in areas of therapeutic interest), repayment of debt, payment of dividends and stock repurchases.

We intend to continue investing in our business while returning capital to stockholders through the payment of cash dividends and stock repurchases, thereby reflecting our confidence in the future cash flows of our business and our desire to optimize our cost of capital. The timing and amount of future dividends and stock repurchases will vary based on a number of factors, including future capital requirements for strategic transactions, availability of financing on acceptable terms, debt service requirements, our credit rating, changes to applicable tax laws or corporate laws, changes to our business model and periodic determination by our Board of Directors that cash dividends and/or stock repurchases are in the best interests of stockholders and are in compliance with applicable laws and the Company’s agreements. In addition, the timing and amount of stock repurchases may also be affected by our overall level of cash, stock price and blackout periods, during which we are restricted from repurchasing stock. The manner of stock repurchases may include block purchases, tender offers, accelerated share repurchases and market transactions.

The Board of Directors declared quarterly cash dividends of $1.94, $1.76 and $1.60 per share of common stock paid in 2022, 2021 and 2020, respectively, an increase of 10% over the prior year in both 2022 and 2021. In December 2022, the Board of Directors declared a cash dividend of $2.13 per share of common stock for the first quarter of 2023, an increase of 10% for this period, to be paid in March 2023.

We also returned capital to stockholders through our stock repurchase program. During 2022, we repurchased $6.3 billion of common stock, including $6.0 billion under ASR agreements and had cash settlements for stock repurchases of $6.4 billion. In 2021, we repurchased and had cash settlements of $5.0 billion of common stock. In 2020, we repurchased and had cash settlements of $3.5 billion of common stock. In October 2022, the Board of Directors increased the amount authorized under our stock repurchase program by $2.4 billion. As of December 31, 2022, $7.0 billion remained available under the stock repurchase program.

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As a result of stock repurchases and quarterly dividend payments, we have an accumulated deficit as of December 31, 2022 and 2021. Our accumulated deficit is not anticipated to affect our future ability to operate, repurchase stock, pay dividends or repay our debt given our expected continued profitability and strong financial position.

We believe that existing funds, cash generated from operations and existing sources of and access to financing are adequate to satisfy our needs for working capital, capital expenditure and debt service requirements, our plans to pay dividends and repurchase stock, and other business initiatives we plan to strategically pursue, including acquisitions and licensing activities. We anticipate that our liquidity needs can be met through a variety of sources, including cash provided by operating activities, sales of marketable securities, borrowings through commercial paper and/or syndicated credit facilities, and access to other domestic and foreign debt markets and equity markets. See Part I, Item 1A. Risk Factors—Global economic conditions may negatively affect us and may magnify certain risks that affect our business.

Financing arrangements

To help meet our liquidity requirements, we have entered into various financing arrangements. The noncurrent portions of our long-term borrowings as of December 31, 2022 and 2021, were $37.4 billion and $33.2 billion, respectively. The carrying values of our long-term borrowings are net of fair value adjustments for interest rate swaps and unamortized discounts, premiums and offering costs. As of December 31, 2022, S&P, Moody’s and Fitch assigned credit ratings to our outstanding senior notes of BBB+, Baa1 and BBB+, respectively, which are considered investment grade. Unfavorable changes to these ratings may have an adverse impact on future financings.

During 2022, 2021 and 2020, we issued debt with aggregate principal amounts of $7.0 billion, $5.0 billion and $9.0 billion, respectively. During 2022, we repurchased portions of our debt at a cost of $0.3 billion. During 2021 and 2020, we repaid/redeemed debt of $4.2 billion and $6.5 billion, respectively. In addition, during 2020, we exchanged $0.7 billion of certain of our outstanding note issuances with $0.9 billion of newly issued notes with a lower interest rate and later maturity date.

To achieve a desired mix of fixed-rate and floating-rate debt, we entered into interest rate swap contracts that effectively converted a fixed-rate interest coupon for certain of our debt issuances to a floating, LIBOR-based coupon over the lives of the respective notes. These interest rate swap contracts qualify and are designated as fair value hedges. As of both December 31, 2022 and 2021, we had interest rate swap contracts with aggregate notional amount of $6.7 billion.

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, which effectively convert the interest payments and principal repayment of the respective notes from euros, pounds sterling and Swiss francs to U.S. dollars. These cross-currency swap contracts qualify and are designated as cash flow hedges. As of both December 31, 2022 and 2021, we had cross-currency swap contracts with aggregate notional amount of $3.4 billion.

As of December 31, 2022, we had a commercial paper program that allows us to issue up to $2.5 billion of unsecured commercial paper to fund our working-capital needs. During 2022, 2021 and 2020, we did not issue any commercial paper. No commercial paper was outstanding as of December 31, 2022 and 2021.

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 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 in the aggregate of $28.5 billion. As of December 31, 2022, no amounts have been borrowed under either agreement. See Part IV—Note 2, Acquisitions and divestitures, to the Consolidated Financial Statements.

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It is anticipated that the U.S. dollar LIBOR rate will be phased out and replaced by 2023. The Alternative Reference Rates Committee, a group of private-market participants convened by the Federal Reserve Board and the Federal Reserve Bank of New York to help ensure a successful transition from U.S. dollar LIBOR to a more robust reference rate, recommends SOFR as the U.S. dollar LIBOR alternative. As such, we expect SOFR to become widely adopted by market participants. We do not expect this change to have a material impact on our consolidated financial statements. See Part I, Item 1A. Risk Factors—Our sales and operations are subject to the risks of doing business internationally, including in emerging markets.

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.

Certain of our financing arrangements contain nonfinancial covenants. In addition, our revolving credit agreement, bridge credit agreement and term loan credit agreement include a financial covenant that 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.

These financing arrangements are more fully discussed in Part IV—Note 15, Financing arrangements, and Note 18, Derivative instruments, to the Consolidated Financial Statements.

Cash flows

Our summarized cash flow activity was as follows (in millions):

Operating

Cash provided by operating activities has been and is expected to continue to be our primary recurring source of funds. Cash provided by operating activities increased in 2022 primarily due to the timing of payments for sales incentives and discounts, vendor purchases, liabilities to tax authorities and receipts from corporate partners, partially offset by higher manufacturing activities in the current year. Cash provided by operating activities decreased during 2021 primarily due to the monetization of interest rate swaps that occurred in 2020 and the timing of payments for sales incentives and discounts.

Investing

Cash used in investing activities during 2022 was primarily due to our $3.8 billion purchase of ChemoCentryx and net cash outflows related to marketable securities of $1.4 billion. Cash provided by investing activities during 2021 was primarily due to net cash inflows related to marketable securities of $4.3 billion, partially offset by cash used in the acquisitions of Teneobio and Five Prime of $2.5 billion. Cash used in investing activities during 2020 was primarily due to our $3.2 billion of purchases of equity method investments, primarily BeiGene, and net cash outflows related to marketable securities of $1.5 billion. Capital expenditures were $936 million, $880 million and $608 million in 2022, 2021 and 2020, respectively. We currently estimate 2023 spending on capital projects to be approximately $925 million. A majority of the increase in expenditures relates to expansion of manufacturing capacity to enable supply of products and product candidates.

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Financing

Cash used in financing activities during 2022 was primarily due to payments to repurchase our common stock of $6.4 billion and dividends paid of $4.2 billion, partially offset by proceeds from the issuance of debt of $6.9 billion. Cash used in financing activities during 2021 was primarily due to payments to repurchase our common stock of $5.0 billion and the payment of dividends of $4.0 billion, partially offset by proceeds from the issuance of debt, net of repayments of $0.8 billion. Cash used in financing activities during 2020 was primarily due to the payment of dividends of $3.8 billion and payments to repurchase our common stock of $3.5 billion, partially offset by proceeds from issuance of debt, net of repayments of $2.5 billion.

See Part IV—Note 9, Investments; Note 15, Financing arrangements; and Note 16, Stockholders’ equity, to the Consolidated Financial Statements.

Capital requirements

We have material cash requirements to pay third parties under various contractual obligations discussed below.

We are obligated to pay interest and repay principal under our various financing arrangements, including amounts under interest rate swap and cross-currency swap contracts related to certain of our long-term debt obligations. For information on scheduled debt maturities and payments under derivative contracts associated with our long-term debt obligations, see Part IV—Note 15, Financing arrangements, and Note 18, Derivative instruments, to the Consolidated Financial Statements.

We are obligated to make payments for operating leases, including rental commitments on abandoned leases and leases that have not yet commenced. For information on these obligations, see Part IV—Note 13, Leases, to the Consolidated Financial Statements.

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. For information on the remaining scheduled repatriation tax installments, see Part IV—Note 19, Contingencies and commitments—Commitments—U.S. repatriation tax, to the Consolidated Financial Statements.

We have purchase obligations of $3.5 billion primarily related to (i) R&D commitments (including those related to clinical trials) for new and existing products, (ii) capital expenditures and (iii) open purchase orders for the acquisition of goods and services in the ordinary course of business. Most of these obligations are expected to be paid within one year, and payment of certain of these amounts may be reduced based on certain future events.

In addition to the purchase obligations noted above, we are contractually obligated to pay additional amounts that in the aggregate are significant, upon the achievement of various development, regulatory and commercial milestones for agreements we have entered into with third parties, including contingent consideration incurred in the acquisitions of Teneobio and K-A. These payments are contingent upon the occurrence of various future events, substantially all of which have a high degree of uncertainty of occurring, and any resulting cash requirements are managed through our operational budgeting processes. Except with respect to the fair value of the contingent consideration of approximately $0.3 billion, these obligations are not recorded on our Consolidated Balance Sheets. As of December 31, 2022, the maximum amount that may be payable in the future for agreements we have entered into with third parties is $5.6 billion.

We have recorded liabilities for UTBs that, because of their nature, have a high degree of uncertainty regarding the timing of future cash payment and other events that extinguish these liabilities. See Part IV—Note 6, Income taxes, to the Consolidated Financial Statements.

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Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the notes to the financial statements. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions. Our significant accounting policies are included in Part IV—Note 1, Summary of significant accounting policies. The following are considered critical to our consolidated financial statements because they require the most difficult, subjective or complex judgments, often because of the need to make estimates about matters that are inherently uncertain.

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 adjustment is appropriate. Accruals are also adjusted to reflect actual results. Amounts recorded in Accrued liabilities in the Consolidated Balance Sheets for sales deductions were as follows (in millions):

For the years ended December 31, 2022, 2021 and 2020, total sales deductions were 51%, 47% and 44% of gross product sales, respectively. The increase in the total sales deductions balance as of December 31, 2022, compared with December 31, 2021, was primarily driven by the impact of higher U.S. chargeback and commercial rebate discount rates and an increase in gross sales, partially offset by timing of payments. Included in the amounts are immaterial net adjustments related to prior-year sales due to changes in estimates.

In the United States, we use wholesalers as the principal means of distributing our products to healthcare providers such as physicians or their clinics, dialysis centers, hospitals and pharmacies. Products we sell in Europe are distributed principally to hospitals and/or wholesalers depending on the distribution practice in each country where the products are sold. We monitor the inventory levels of our products at our wholesalers by using data from our wholesalers and other third parties, and we believe wholesaler inventories have been maintained at appropriate levels (generally two to three weeks) given end-user demand. Accordingly, historical fluctuations in wholesaler inventory levels have not significantly affected our method of estimating sales deductions and returns.

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 year, can be affected by the mix of products sold.

Rebates include primarily amounts paid to payers and providers in the United States, including those paid to state Medicaid programs, and are based on contractual arrangements or statutory requirements that vary by product, by payer and by individual payer plans. As we sell products, we estimate the amount of rebate we will pay based on the product sold, contractual terms, estimated patient population, historical experience and wholesaler inventory levels; and we accrue these rebates in the period the related sales are recorded. We then adjust the rebate accruals as more information becomes available and to reflect

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actual claims experience. Estimating such rebates is complicated, in part because of the time delay between the date of sale and the actual settlement of the liability. We believe the methodology we use to accrue for rebates is reasonable and appropriate given current facts and circumstances, but actual results may differ.

Wholesaler chargebacks relate to our contractual agreements to sell products to healthcare providers in the United States at fixed prices that are lower than the prices we charge wholesalers. When healthcare providers purchase our products through wholesalers at these reduced prices, wholesalers charge us for the difference between their purchase prices and the contractual prices between Amgen and the healthcare providers. The provision for chargebacks is based on expected sales by our wholesaler customers to healthcare providers. Accruals for wholesaler chargebacks are less difficult to estimate than rebates are, and they closely approximate actual results because chargeback amounts are fixed at the date of purchase by the healthcare providers and because we generally settle the liability for these deductions within a few weeks.

Product returns

Returns are estimated by comparison of historical return data to 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. In each of the past three years, sales return provisions have amounted to less than 1% of gross product sales. Changes in estimates for prior-year sales return provisions have historically been immaterial.

Income taxes

We provide for income taxes based on pretax income and applicable tax rates in the various jurisdictions in which we operate.

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 believe our estimates for uncertain tax positions are appropriate and sufficient for any assessments that may result from examinations of our tax returns. We recognize both accrued interest and penalties, when appropriate, related to UTBs in income tax expense.

Certain items are included in our tax return at different times than they are reflected in the financial statements, and they cause temporary differences between the tax bases of assets and liabilities and their reported amounts. Such temporary differences create deferred tax assets and liabilities. Deferred tax assets are generally items that can be used as tax deductions or credits in tax returns in future years but for which we have already recorded the tax benefit in the consolidated financial statements. We establish valuation allowances against our deferred tax assets when the amount of expected future taxable income is not likely to support the use of the deduction or credit. Deferred tax liabilities are either (i) tax expenses recognized in the consolidated financial statements for which payment has been deferred, (ii) expenses for which we have already taken a deduction on the tax return but have not yet recognized in the consolidated financial statements or (iii) liabilities for the difference between the book basis and the tax basis of the intangible assets acquired in many business combinations, because future expenses associated with these assets most often will not be tax deductible.

We are a vertically integrated enterprise with operations in the United States and various foreign jurisdictions. In the jurisdictions where we conduct operations, we are subject to income tax based on the tax laws and principles of such jurisdictions and on the functions, risks and activities performed therein. Our pretax income is therefore attributed to domestic or foreign sources based on the operations performed and risks assumed in each location and the tax laws and principles of the respective taxing jurisdictions. For example, we conduct significant operations in Puerto Rico, a territory of the United States that is treated as a foreign jurisdiction for U.S. tax purposes, pertaining to manufacturing, distribution and other related functions to meet our worldwide product demand. Income from our operations in Puerto Rico is subject to tax incentive grants through 2050.

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.

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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 received 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 have examinations by a number of state and foreign tax jurisdictions.

Final resolution of these complex matters is not likely within the next 12 months. We 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. See Part I, Item 1A. Risk Factors—The adoption and interpretation of new tax legislation or exposure to additional tax liabilities could affect our profitability; Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations, Income taxes; and Part IV—Note 6, Income taxes, to the Consolidated Financial Statements for further discussion.

Our operations are subject to the tax laws, regulations and administrative practices of the United States, the U.S. territory of Puerto Rico, U.S. state jurisdictions and other countries in which we do business. Significant changes in these rules could have a material adverse effect on our results of operations. See Part I, Item 1A. Risk Factors—The adoption and interpretation of new tax legislation or exposure to additional tax liabilities could affect our profitability.

Contingencies

In the ordinary course of business, we are involved in various legal proceedings, government investigations and other matters such as intellectual property disputes, contractual disputes and class action suits that are complex in nature and have outcomes that are difficult to predict. We describe our legal proceedings and other matters that are significant or that we believe could become significant in Part IV—Note 19, Contingencies and commitments, to the Consolidated Financial Statements. 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.

While it is not possible to accurately predict or determine the eventual outcomes of these items, an adverse determination in one or more of these items currently pending could have a material adverse effect on our consolidated results of operations, financial position or cash flows.

Valuation of assets and liabilities in connection with acquisitions

We have acquired and continue to acquire intangible assets in connection with business combinations and asset acquisitions. These intangible assets consist primarily of technology associated with currently marketed human therapeutic products and IPR&D product candidates. Discounted cash flow models are typically used to determine the fair values of these intangible assets for purposes of allocating consideration paid to the net assets acquired in an acquisition. See Part IV—Note 2, Acquisitions and divestitures, to the Consolidated Financial Statements. These models require the use of significant estimates and assumptions, including but not limited to:

•determining the timing and expected costs to complete in-process projects, taking into account the stage of completion at the acquisition date;

•projecting the probability and timing of obtaining marketing approval from the FDA and other regulatory agencies for product candidates;

•estimating the timing of and future net cash flows from product sales resulting from completed products and in-process projects; and

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•developing appropriate discount rates to calculate the present values of the cash flows.

Significant estimates and assumptions are also required to determine the business combination date fair values of any contingent consideration obligations incurred in connection with business combinations. In addition, we must revalue these obligations each subsequent reporting period until the related contingencies are resolved and record changes in their fair values in earnings. The acquisition date fair values of contingent consideration obligations incurred or assumed in the acquisitions were determined using a combination of valuation techniques. Significant estimates and assumptions required for these valuations included but were not limited to the timing and probability of achieving regulatory milestones, product sales projections under various scenarios and discount rates used to calculate the present value of the required payments. These estimates and assumptions are required to be updated in order to revalue these contingent consideration obligations each reporting period. Accordingly, subsequent changes in underlying facts and circumstances could result in changes in these estimates and assumptions, which could have a material impact on the estimated future fair values of these obligations.

We believe the fair values used to record intangible assets acquired and contingent consideration obligations incurred in connection with business combinations and asset acquisitions are based on reasonable estimates and assumptions given the facts and circumstances as of the related valuation dates.

Impairment of long-lived assets

We review the carrying value of our property, plant and equipment and 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. If such circumstances exist, an estimate of undiscounted future cash flows to be generated by the long-lived asset is compared with the carrying value to determine whether an impairment exists. If an asset is determined to be impaired, the loss is measured based on the difference between the asset’s fair value and its carrying value.

Indefinite-lived intangible assets, composed of IPR&D projects acquired in a business combination that have not reached technological feasibility or that lack regulatory approval at the time of acquisition, are reviewed for impairment annually, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable and upon establishment of technological feasibility or regulatory approval. We determine impairment by comparing the fair value of the asset to its carrying value. If the asset’s carrying value exceeds its fair value, an impairment charge is recorded for the difference, and its carrying value is reduced accordingly.

Estimating future cash flows of an IPR&D product candidate for purposes of an impairment analysis requires us to make significant estimates and assumptions regarding the amount and timing of costs to complete the project and the amount, timing and probability of achieving revenues from the completed product similar to how the acquisition date fair value of the project was determined, as described above. There are often major risks and uncertainties associated with IPR&D projects as we are required to obtain regulatory approvals in order to be able to market these 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 which could have a material adverse effect on our results of operations.

We believe our estimations of future cash flows used for assessing impairment of long-lived assets are based on reasonable assumptions given the facts and circumstances as of the related dates of the assessments.

Impairment of equity method investments

We review the carrying value of our equity method investments whenever events or changes in circumstances indicate that the carrying amount of an investment may not be recoverable. 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 and the extent to which the fair value is below the carrying value, volatility of the security price, the financial condition of the issuer, changes in technology that may impair the earnings potential of the investment and our intent and ability to retain the investment to allow for a recovery in fair value.

We believe our judgments used in assessing impairment of equity method investments are based on reasonable assumptions given the facts and circumstances as of the related dates of the assessments.

Recently Issued Accounting Standards

See Part IV—Note 1, Summary of significant accounting policies, to the Consolidated Financial Statements for a discussion of recently issued accounting pronouncements not yet adopted as of December 31, 2022.

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