What changed in this filing

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Item 1. Financial Statements

2022-11-01 compared with 2022-08-02 · 235 added, 155 removed, 525 unchanged (43% of the section changed)

3 unchanged sentences

(in thousands, except number of shares and par value)

September 30,

2022 December 31,

Current assets:

Cash and cash equivalents $ 2,690,622 $ 2,057,440

Marketable securities—available-for-sale (amortized cost $ 292,350 and $ 291,871 as of June 30, 2022 and December 31, 2021, respectively;

allowance for credit losses $ 0 as of June 30, 2022 and December 31, 2021)

Marketable securities—available-for-sale (amortized cost $ 292,941 and $ 291,871 as of September 30, 2022 and December 31, 2021, respectively;

allowance for credit losses $ 0 as of September 30, 2022 and December 31, 2021)

286,500 290,752

Accounts receivable 618,188 616,300

Inventory 45,869 27,904

Prepaid expenses and other current assets 179,932 126,278

2 unchanged sentences

Long term investments 149,124 221,266

Inventory 55,264 29,034

Property and equipment, net 715,733 723,920

1 unchanged sentence

Other intangible assets, net 134,603 150,755

Goodwill 155,593 155,593

Deferred income tax asset 426,840 467,538

Other assets, net 23,666 37,304

Total assets $ 5,510,214 $ 4,933,352

LIABILITIES AND STOCKHOLDERS’ EQUITY

17 unchanged sentences

400,000,000 shares authorized;

221,875,396 and 221,084,433 shares issued and outstanding as of June 30, 2022 and December 31, 2021 , respectively

222,454,839 and 221,084,433 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

Additional paid-in capital 4,721,166 4,567,111

9 unchanged sentences

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Product revenues, net $ 713,010 $ 594,013 $ 1,982,682 $ 1,673,974

6 unchanged sentences

Selling, general and administrative 266,460 190,704 729,321 513,358

Change in fair value of acquisition-related contingent consideration

(Gain) loss on change in fair value of acquisition-related contingent consideration ( 21,893 ) 2,910 ( 12,198 ) 13,068

Collaboration loss sharing 1,769 9,149 9,055 29,476

3 unchanged sentences

Interest expense ( 641 ) ( 439 ) ( 1,999 ) ( 1,156 )

Unrealized (loss) gain on long term investments

Unrealized loss on long term investments ( 660 ) ( 27,450 ) ( 72,142 ) ( 28,394 )

Income before provision for income taxes 148,588 209,469 448,501 450,424

Provision for income taxes 35,813 27,730 136,302 65,694

Net income $ 112,775 $ 181,739 $ 312,199 $ 384,730

Net income per share:

Basic $ 0.51 $ 0.82 $ 1.41 $ 1.75

Diluted $ 0.50 $ 0.82 $ 1.40 $ 1.73

Shares used in computing net income per share:

Basic 222,415 220,845 221,801 220,243

Diluted 224,175 222,248 223,626 222,113

See accompanying notes.

3 unchanged sentences

Three Months Ended

Six Months Ended

Other comprehensive income (loss):

Foreign currency translation (loss) gain

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net income $ 112,775 $ 181,739 $ 312,199 $ 384,730

Other comprehensive loss:

Foreign currency translation loss ( 2,513 ) ( 629 ) ( 5,132 ) ( 4,061 )

Unrealized loss on marketable securities, net of tax ( 1,135 ) ( 86 ) ( 5,322 ) ( 251 )

Defined benefit pension gain, net of tax 282 342 846 1,026

Other comprehensive income (loss)

Other comprehensive loss ( 3,366 ) ( 373 ) ( 9,608 ) ( 3,286 )

Comprehensive income $ 109,409 $ 181,366 $ 302,591 $ 381,444

3 unchanged sentences

(unaudited, in thousands, except number of shares)

Accumulated Other

Stock Additional

Paid-in Capital Accumulated Other

Comprehensive Loss Accumulated

Deficit Total

Stockholders’

Paid-in Capital

Comprehensive Loss

Balances at January 1, 2022 $ 221 $ 4,567,111 $ ( 19,454 ) $ ( 777,874 ) $ 3,770,004

Issuance of 323,582 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units, net of shares withheld for taxes

— 14,237 — — 14,237

Issuance of 1,535 shares of Common Stock for services rendered

— 112 — — 112

Stock compensation — 44,320 — — 44,320

Other comprehensive loss — — ( 3,593 ) — ( 3,593 )

Balances at March 31, 2022

Net income — — — 37,992 37,992

Balance at March 31, 2022 $ 221 $ 4,625,780 $ ( 23,047 ) $ ( 739,882 ) $ 3,863,072

Issuance of 274,693 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units and performance shares, net of shares withheld for taxes and 189,684 shares of Common Stock under the ESPP

1 16,600 — — 16,601

Issuance of 1,469 shares of Common Stock for services rendered

— 109 — — 109

Stock compensation — 46,496 — — 46,496

Other comprehensive income

Other comprehensive loss — — ( 2,649 ) — ( 2,649 )

Net income — — — 161,432 161,432

Balances at June 30, 2022 $ 222 $ 4,688,985 $ ( 25,696 ) $ ( 578,450 ) $ 4,085,061

Issuance of 578,106 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units, net of shares withheld for taxes

— ( 13,572 ) — — ( 13,572 )

Issuance of 1,337 shares of Common Stock for services rendered

Stock compensation — 45,659 — — 45,659

Other comprehensive loss — — ( 3,366 ) — ( 3,366 )

Net income — — — 112,775 112,775

Balances at September 30, 2022 $ 222 $ 4,721,166 $ ( 29,062 ) $ ( 465,675 ) $ 4,226,651

INCYTE CORPORATION

1 unchanged sentence

(unaudited, in thousands, except number of shares)

Accumulated Other

Stock Additional

Paid-in Capital Accumulated Other

Comprehensive Loss Accumulated

Deficit Total

Stockholders’

Paid-in Capital

Comprehensive Loss

Balances at January 1, 2021 $ 219 $ 4,352,864 $ ( 15,360 ) $ ( 1,726,455 ) $ 2,611,268

( 1,726,455 )

Issuance of 389,512 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units, net of shares withheld for taxes

1 20,027 — — 20,028

Issuance of 1,357 shares of Common Stock for services rendered

— 108 — — 108

Stock compensation — 47,903 — — 47,903

Other comprehensive loss — — ( 4,998 ) — ( 4,998 )

Net income — — — 53,535 53,535

Balances at March 31, 2021 $ 220 $ 4,420,902 $ ( 20,358 ) $ ( 1,672,920 ) $ 2,727,844

( 1,672,920 )

Issuance of 390,001 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units and performance shares, net of shares withheld for taxes and 153,082 shares of Common Stock under the ESPP

— 11,016 — — 11,016

Issuance of 1,288 shares of Common Stock for services rendered

— 109 — — 109

Stock compensation — 45,351 — — 45,351

Other comprehensive income — — 2,085 — 2,085

Net income — — — 149,456 149,456

Balances at June 30, 2021 $ 220 $ 4,477,378 $ ( 18,273 ) $ ( 1,523,464 ) $ 2,935,861

Issuance of 459,084 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units, net of shares withheld for taxes

1 ( 11,993 ) — — ( 11,992 )

Issuance of 1,466 shares of Common Stock for services rendered

— 108 — — 108

Stock compensation — 43,314 — — 43,314

Other comprehensive loss — — ( 373 ) — ( 373 )

Net income — — — 181,739 181,739

Balances at September 30, 2021 $ 221 $ 4,508,807 $ ( 18,646 ) $ ( 1,341,725 ) $ 3,148,657

See accompanying notes.

2 unchanged sentences

(unaudited, in thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities:

Net income $ 312,199 $ 384,730

Adjustments to reconcile net income to net cash provided by operating activities:

2 unchanged sentences

Deferred income taxes 40,432 ( 178 )

Other, net 15,097 5,268

Unrealized loss on long term investments 72,142 28,394

Change in fair value of acquisition-related contingent consideration

(Gain) loss on change in fair value of acquisition-related contingent consideration ( 12,198 ) 13,068

Changes in operating assets and liabilities:

1 unchanged sentence

Prepaid expenses and other assets ( 40,016 ) ( 24,784 )

Inventory ( 48,316 ) ( 16,215 )

Accounts payable ( 8,935 ) 15,742

13 unchanged sentences

Payment of contingent consideration ( 13,473 ) ( 20,093 )

Net cash provided by financing activities

Net cash provided by (used in) financing activities 1,686 ( 2,829 )

Effect of exchange rates on cash, cash equivalents, restricted cash and investments 2,728 ( 3,718 )

10 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

September 30, 2022

Organization and Business

5 unchanged sentences

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

The condensed consolidated balance sheet as of June 30, 2022, the condensed consolidated statements of operations, comprehensive income (loss), and stockholders’ equity for the three and six months ended June 30, 2022 and 2021, and the condensed consolidated statements of cash flows for the six months ended June 30, 2022 and 2021, are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

The condensed consolidated balance sheet as of September 30, 2022, the condensed consolidated statements of operations, comprehensive income (loss), and stockholders’ equity for the three and nine months ended September 30, 2022 and 2021, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021, are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

The condensed consolidated balance sheet at December 31, 2021 has been derived from our audited consolidated financial statements.

14 unchanged sentences

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

JAKAFI revenues, net $ 619,595 $ 547,373 $ 1,761,732 $ 1,542,138

13 unchanged sentences

The following is a summary of our marketable security portfolio for the periods presented (in thousands):

June 30, 2022

Losses Estimated

September 30, 2022

Debt securities (government) $ 292,941 $ ( 6,441 ) $ 286,500

3 unchanged sentences

Debt security assets were assessed for risk of expected credit losses.

As of June 30, 2022 and December 31, 2021, the available-for-sale debt securities were held in U.S.-government backed securities and in Treasury bonds and were assessed on an individual security basis to have a de minimis risk of credit loss.

As of September 30, 2022 and December 31, 2021, the available-for-sale debt securities were held in U.S.-government backed securities and in Treasury bonds and were assessed on an individual security basis to have a de minimis risk of credit loss.

Fair Value Measurements

10 unchanged sentences

government debt securities that are classified as available-for-sale.

At June 30, 2022 and December 31, 2021, our Level 2 U.S.

At September 30, 2022 and December 31, 2021, our Level 2 U.S.

government debt securities were valued using readily available pricing sources which utilize market observable inputs, including the current interest rate and other characteristics for similar types of investments.

Our long term investments classified as Level 1 were valued using their respective closing stock prices on The Nasdaq Stock Market.

We did not experience any transfers of financial instruments between the fair value hierarchy levels during the six months ended June 30, 2022.

We did not experience any transfers of financial instruments between the fair value hierarchy levels during the nine months ended September 30, 2022.

The following fair value hierarchy table presents information about each major category of our financial assets measured at fair value on a recurring basis (in thousands):

1 unchanged sentence

Quoted Prices in

Significant Other

Active Markets for

Identical Assets

Balance as of

June 30, 2022

(Level 1) Significant Other

(Level 2) Significant

(Level 3) Balance as of

September 30, 2022

Cash and cash equivalents $ 2,690,622 $ — $ — $ 2,690,622

1 unchanged sentence

Long term investments (Note 7)

149,124 — — 149,124

Total assets $ 2,839,746 $ 286,500 $ — $ 3,126,246

Fair Value Measurement at Reporting Date Using:

Quoted Prices in

Significant Other

Active Markets for

Identical Assets

Balance as of

(Level 1) Significant Other

(Level 2) Significant

(Level 3) Balance as of

December 31, 2021

2 unchanged sentences

Long term investments (Note 7)

221,266 — — 221,266

Total assets $ 2,278,706 $ 290,752 $ — $ 2,569,458

The following fair value hierarchy table presents information about each major category of our financial liabilities measured at fair value on a recurring basis as (in thousands):

1 unchanged sentence

Quoted Prices in

Significant Other

Active Markets for

Identical Liabilities

Balance as of

June 30, 2022

(Level 1) Significant Other

(Level 2) Significant

(Level 3) Balance as of

September 30, 2022

Acquisition-related contingent consideration $ — $ — $ 206,000 $ 206,000

2 unchanged sentences

Quoted Prices in

Significant Other

Active Markets for

Identical Liabilities

Balance as of

(Level 1) Significant Other

(Level 2) Significant

(Level 3) Balance as of

December 31, 2021

5 unchanged sentences

Change in fair value of contingent consideration ( 12,198 )

Balance at June 30,

Balance at September 30, $ 206,000

The fair value of the contingent consideration was determined on the date of acquisition, June 1, 2016, using an income approach based on projected future net revenues of ICLUSIG in the European Union and other countries for the approved third line treatment over 18 years, and discounted to present value at a rate of 10 %.

The fair value of the contingent consideration is remeasured each reporting period, with changes in fair value recorded in the condensed consolidated statements of operations.

The valuation inputs utilized to estimate the fair value of the contingent consideration as of June 30, 2022 and December 31, 2021 included a discount rate of 10 % and updated projections of future net revenues of ICLUSIG in the European Union and other countries for the approved third line treatment.

The change in fair value of the contingent consideration during the three and six months ended June 30, 2022 was due primarily to the passage of time and updated projections of future net revenues of ICLUSIG.

We make payments to Takeda Pharmaceutical Company Limited quarterly based on the royalties or any additional milestone payments earned in the previous quarter.

At June 30, 2022 and December 31, 2021, contingent consideration earned but not yet paid was $ 16.7 million and $ 19.6 million, respectively, and was included in accrued and other current liabilities.

The valuation inputs utilized to estimate the fair value of the contingent consideration as of September 30, 2022 and December 31, 2021 included a discount rate of 10 % and updated projections of future net revenues of ICLUSIG in the European Union and other countries for the approved third line treatment.

The gain on change in fair value of the contingent consideration during the three and nine months ended September 30, 2022 was due primarily to the changes in foreign currency exchange rates included within the updated projections of future net revenues of ICLUSIG.

We generally make payments to Takeda Pharmaceutical Company Limited quarterly based on the royalties or any additional milestone payments earned in the previous quarter.

At September 30, 2022 and December 31, 2021, contingent consideration earned but not yet paid was $ 25.8 million and $ 19.6 million, respectively, and was included in accrued and other current liabilities.

Concentration of Credit Risk and Current Expected Credit Losses

5 unchanged sentences

In July 2019, we entered into a collaboration and license agreement with Zai Lab (Shanghai) Co., Ltd., a subsidiary of Zai Lab Limited (collectively, “Zai Lab”).

The above collaboration partners comprised, in aggregate, 37 % and 36 % of the accounts receivable balance as of June 30, 2022 and December 31, 2021, respectively.

The above collaboration partners comprised, in aggregate, 19 % and 36 % of the accounts receivable balance as of September 30, 2022 and December 31, 2021, respectively.

For further information relating to these collaboration and license agreements, refer to Note 7.

In November 2011, we began commercialization and distribution of JAKAFI, in April 2020, we began commercialization and distribution of PEMAZYRE, and in October 2021, we began commercialization and distribution of OPZELURA to a number of customers.

Our product revenues are concentrated in a number of these customers.

1 unchanged sentence

Percentage of Total Net

Product Revenues for the

Three Months Ended Percentage of Total Net

Product Revenues for the

Three Months Ended

Six Months Ended

Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Customer A 19 % 19 % 19 % 19 %

Customer B 10 % 11 % 11 % 12 %

Customer C 15 % 17 % 18 % 18 %

Customer D 5 % 9 % 5 % 10 %

Customer E 9 % 11 % 10 % 11 %

We are exposed to risks associated with extending credit to customers related to the sale of products.

Customers A, B, C, D and E comprised, in aggregate, 31 % of the accounts receivable balance as of both June 30, 2022 and December 31, 2021.

Customers A, B, C, D and E comprised, in aggregate, 36 % and 31 % of the accounts receivable balance as of September 30, 2022 and December 31, 2021, respectively.

The concentration of credit risk relating to our other product revenues or accounts receivable is not significant.

We assessed our collaborative and customer receivable assets as of June 30, 2022 according to our accounting policy for applying reserves for expected credit losses, noting minimal history of uncollectible receivables and the continued perceived creditworthiness of our third party sales relationships, upon which the expected credit losses were considered de minimis.

As of June 30, 2022 and December 31, 2021, we had no allowance for doubtful accounts.

We assessed our collaborative and customer receivable assets as of September 30, 2022 according to our accounting policy for applying reserves for expected credit losses, noting minimal history of uncollectible receivables and the continued perceived creditworthiness of our third party sales relationships, upon which the expected credit losses were considered de minimis.

As of September 30, 2022 and December 31, 2021, we had no allowance for doubtful accounts.

Our inventory balance consists of the following (in thousands):

September 30,

2022 December 31,

Raw materials $ 32,289 $ 1,275

3 unchanged sentences

Inventories, stated at the lower of cost and net realizable value, consist of raw materials, work in process and finished goods.

At June 30, 2022, $ 54.5 million of inventory was classified as current on the condensed consolidated balance sheet as we expect this inventory to be consumed for commercial use within the next twelve months.

At June 30, 2022, $ 39.6 million of inventory was classified as non-current on the condensed consolidated balance sheet as we did not expect this inventory to be consumed for commercial use within the next twelve months.

At September 30, 2022, $ 45.9 million of inventory was classified as current on the condensed consolidated balance sheet as we expect this inventory to be consumed for commercial use within the next twelve months.

At September 30, 2022, $ 55.3 million of inventory was classified as non-current on the condensed consolidated balance sheet as we did not expect this inventory to be consumed for commercial use within the next twelve months.

We obtain some inventory components from a limited number of suppliers due to technology, availability, price, quality or other considerations.

3 unchanged sentences

Costs incurred prior to FDA approval are recorded as research and development expense in our statements of operations.

At June 30, 2022, inventory with approximately $ 66.0 million of product costs incurred prior to FDA approval had not yet been sold.

At September 30, 2022, inventory with approximately $ 56.8 million of product costs incurred prior to FDA approval had not yet been sold.

We expect to sell the pre-commercialization inventory over the next 28 months and, as a result, cost of product revenues will reflect a lower average per unit cost of materials.

5 unchanged sentences

Under this agreement, we were initially eligible to receive up to $ 174.0 million for the achievement of development milestones, up to $ 495.0 million for the achievement of regulatory milestones and up to $ 500.0 million for the achievement of sales milestones.

In addition, we are eligible to receive up to $ 75.0 million of additional potential development and regulatory milestones relating to graft-versus-host-disease (“GVHD”).

We have recognized and received, in the aggregate, $ 157.0 million for the achievement of development milestones, $ 340.0 million for the achievement of regulatory milestones, and $ 200.0 million for the achievement of sales milestones through June 30, 2022.

In April 2022, we recognized a $ 15.0 million regulatory milestone for the positive opinion issued by the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) that recommends granting marketing authorization for capmatinib (TABRECTA) as a monotherapy for the treatment of adults with a dvanced non-small cell lung cancer.

In addition, under an amendment to this agreement, we were initially eligible to receive up to $ 75.0 million of additional potential development and regulatory milestones relating to graft-versus-host-disease (“GVHD”).

Additionally, in May 2022, we recognized a $ 45.0 million regulatory milestone as a result of the European Commission’s approval of JAKAVI (ruxolitinib) as the first post-steroid treatment for acute and chronic GVHD.

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We are obligated to pay to Novartis tiered royalties in the low single-digits on future JAKAFI net sales within the United States contingent on certain conditions.

During the three and six months ended June 30, 2022, such royalties on net sales within the United States totaled $ 29.3 million and $ 51.0 million, respectively, and were reflected in cost of product revenues on the condensed consolidated statements of operations.

During the three and six months ended June 30, 2021, such royalties on net sales within the United States totaled $ 25.9 million and $ 43.7 million, respectively, and were reflected in cost of product revenues on the condensed consolidated statements of operations.

At June 30, 2022 and December 31, 2021, $ 191.4 million and $ 148.1 million, respectively, of accrued royalties were included in accrued and other current liabilities on the condensed consolidated balance sheets.

During the three and nine months ended September 30, 2022, such royalties on net sales within the United States totaled $ 30.3 million and $ 81.3 million, respectively, and were reflected in cost of product revenues on the condensed consolidated statements of operations.

During the three and nine months ended September 30, 2021, such royalties on net sales within the United States totaled $ 26.9 million and $ 70.6 million, respectively, and were reflected in cost of product revenues on the condensed consolidated statements of operations.

At September 30, 2022 and December 31, 2021, $ 221.7 million and $ 148.1 million, respectively, of accrued royalties were included in accrued and other current liabilities on the condensed consolidated balance sheets.

Each company is responsible for costs relating to the development and commercialization of ruxolitinib in its respective territories, with costs of collaborative studies shared equally.

Novartis is also responsible for all costs relating to the development and commercialization of capmatinib.

Milestone and contract revenue under the Novartis agreement was $ 60.0 million for both the three and six months ended June 30, 2022.

Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States for the three and six months ended June 30, 2022 was $ 83.6 million and $ 154.6 million, respectively.

Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States for the three and six months ended June 30, 2021 was $ 82.0 million and $ 147.6 million, respectively.

Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three and six months ended June 30, 2022 was $ 3.6 million and $ 7.1 million, respectively.

Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three and six months ended June 30, 2021 was $ 2.5 million and $ 4.5 million, respectively.

We had no milestone and contract revenue under the Novartis agreement for the three months ended September 30, 2022, and we had $ 60.0 million for the nine months ended September 30, 2022.

Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States for the three and nine months ended September 30, 2022 was $ 85.8 million and $ 240.4 million, respectively.

Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States for the three and nine months ended September 30, 2021 was $ 94.7 million and $ 242.3 million, respectively.

Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three and nine months ended September 30, 2022 was $ 4.1 million and $ 11.2 million, respectively.

Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three and nine months ended September 30, 2021 was $ 2.7 million and $ 7.3 million, respectively.

Lilly – Baricitinib

2 unchanged sentences

Under this agreement, we were initially eligible to receive up to $ 150.0 million for the achievement of development milestones, up to $ 365.0 million for the achievement of regulatory milestones and up to $ 150.0 million for the achievement of sales milestones.

We have recognized and received, in aggregate, $ 149.0 million for the achievement of development milestones, $ 335.0 million for the achievement of regulatory milestones and $ 50.0 million for the achievement of sales milestones through June 30, 2022.

We are also eligible to receive tiered, double-digit royalty payments on future global sales with rates ranging up to mid-twenties if a product is successfully commercialized.

We are also eligible to receive tiered, double-digit royalty payments on future global sales with rates ranging up to the mid-twenties if a product is successfully commercialized.

In May 2020, we amended our agreement with Lilly to enable Lilly to develop and commercialize baricitinib for the treatment of COVID-19.

2 unchanged sentences

Additionally, in June 2022 we recognized a $ 20.0 million regulatory milestone for the European Commission’s approval for OLUMIANT for the treatment of adults with severe alopecia areata, and a $ 10.0 million regulatory milestone for the Ministry of Health, Labour and Welfare of Japan’s approval for OLUMIANT for the treatment of adults with severe alopecia areata in Japan.

Milestone and contract revenue under the Lilly agreement was $ 70.0 million for both the three and six months ended June 30, 2022.

Product royalty revenue related to Lilly net sales of OLUMIANT outside of the United States for the three and six months ended June 30, 2022 was $ 30.3 million and $ 78.3 million, respectively.

Product royalty revenue related to Lilly net sales of OLUMIANT outside of the United States for the three and six months ended June 30, 2021 was $ 36.0 million and $ 68.3 million, respectively.

We had no milestone and contract revenue under the Lilly agreement for the three months ended September 30, 2022, and we had $ 70.0 million for the nine months ended September 30, 2022.

Product royalty revenue related to Lilly net sales of OLUMIANT outside of the United States for the three and nine months ended September 30, 2022 was $ 20.4 million and $ 98.7 million, respectively.

Product royalty revenue related to Lilly net sales of OLUMIANT outside of the United States for the three and nine months ended September 30, 2021 was $ 86.6 million and $ 154.9 million, respectively.

Lilly - Ruxolitinib

9 unchanged sentences

There are currently no profit-share programs.

For each royalty-bearing product other than GITR, OX40 and one undisclosed target, Agenus will be eligible to receive tiered royalties on global net sales ranging from 6 % to 12 %.

For GITR, OX40 and one undisclosed target, Agenus will be eligible to receive 15 % royalties on global net sales.

For each royalty-bearing product other than GITR and one undisclosed target, Agenus will be eligible to receive tiered royalties on global net sales ranging from 6 % to 12 %.

For GITR and one undisclosed target, Agenus will be eligible to receive 15 % royalties on global net sales.

The agreement may be terminated by us for convenience upon 12 months’ notice and may also be terminated under certain other circumstances, including material breach.

As of June 30, 2022, we have paid Agenus milestones totaling $ 30.0 million and Agenus is eligible to receive up to an additional $ 500.0 million in future contingent development, regulatory and commercialization milestones across all programs in the collaboration.

On October 19, 2022 we notified Agenus that we were terminating the OX40 project.

As of September 30, 2022, we have paid Agenus milestones totaling $ 30.0 million and Agenus is eligible to receive up to an additional $ 500.0 million in future contingent development, regulatory and commercialization milestones across all programs in the collaboration.

In addition, in 2017 we purchased 10.0 million shares of Agenus Inc.’s common stock for an aggregate purchase price of $ 60.0 million in cash, or $ 6.00 per share.

2 unchanged sentences

The fair market value of our long term investment in Agenus Inc.

at June 30, 2022 and December 31, 2021 was $ 23.4 million and $ 38.9 million, respectively.

As of June 30, 2022, we owned less than 5 % of the outstanding shares of Agenus Inc.’s common stock.

at September 30, 2022 and December 31, 2021 was $ 24.8 million and $ 38.9 million, respectively.

We intend to hold the investment in Agenus Inc.

2 unchanged sentences

Given our intent to hold the investment for the foreseeable future, we have classified the investment within long term investments on the accompanying condensed consolidated balance sheets.

For the three and six months ended June 30, 2022, we recorded an unrealized loss of $ 6.3 million and $ 15.4 million, respectively, based on the change in fair value of Agenus Inc.’s common stock during the respective periods.

For the three and six months ended June 30, 2021, we recorded an unrealized gain of $ 37.8 million and $ 31.9 million, respectively, based on the change in fair value of Agenus Inc.’s common stock during the respective periods.

For the three and nine months ended September 30, 2022, we recorded an unrealized gain of $ 1.3 million and an unrealized loss of $ 14.1 million, respectively, based on the change in fair value of Agenus Inc.’s common stock during the respective periods.

For the three and nine months ended September 30, 2021, we recorded an unrealized loss of $ 2.8 million and an unrealized gain of $ 29.1 million, respectively, based on the change in fair value of Agenus Inc.’s common stock during the respective periods.

In December 2016, we entered into a Collaboration and License Agreement with Merus N.V.

11 unchanged sentences

If Merus opts to cease co-funding a program as to which it exercised its co-development option, then Merus will no longer receive a share of profits in the United States but will be eligible to receive the same milestones from the co-funding termination date and the same tiered royalties described above with respect to programs where Merus does not have a right to co-fund development and, depending on the stage at which Merus chose to cease co-funding development costs, Merus will be eligible to receive additional royalties ranging up to 4 % of net sales in the United States.

As of June 30, 2022, we have paid Merus milestones totaling $ 2.0 million.

As of September 30, 2022, we have paid Merus milestones totaling $ 3.0 million.

In addition, in 2016 we entered into a Share Subscription Agreement with Merus, pursuant to which we purchased 3.2 million common shares of Merus for an aggregate purchase price of $ 80.0 million in cash, or $ 25.00 per share.

In January 2021, we purchased 350,000 common shares in Merus’ underwritten public offering of 4,848,485 common shares at the public offering price of $ 24.75 per share, or an aggregate purchase price of $ 8.7 million.

The fair market value of our total long term investment in Merus at June 30, 2022 and December 31, 2021 was $ 80.4 million and $ 112.9 million, respectively.

As of June 30, 2022, we owned approximately 8 % of the outstanding common shares of Merus.

The fair market value of our total long term investment in Merus at September 30, 2022 and December 31, 2021 was $ 71.1 million and $ 112.9 million, respectively.

As of September 30, 2022, we owned approximately 8 % of the outstanding common shares of Merus.

We have concluded that we have the ability to exercise significant influence, but not control, over Merus based primarily on our ownership interest, the level of intra-entity transactions between us and Merus related to development expenses, as well as other qualitative factors.

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We believe the fair value option to be the most appropriate accounting method to account for securities in publicly held collaborators for which we have significant influence.

For the three and six months ended June 30, 2022, we recorded an unrealized loss of $ 13.5 million and $ 32.5 million, respectively, based on the change in fair value of Merus’ common shares during the respective periods.

For the three and six months ended June 30, 2021, we recorded an unrealized gain of $ 0.6 million and $ 10.0 million, respectively, based on the change in fair value of Merus’ common shares during the respective periods.

For the three and nine months ended September 30, 2022, we recorded an unrealized loss of $ 9.3 million and $ 41.8 million, respectively, based on the change in fair value of Merus’ common shares during the respective periods.

For the three and nine months ended September 30, 2021, we recorded an unrealized gain of $ 3.3 million and $ 13.3 million, respectively, based on the change in fair value of Merus’ common shares during the respective periods.

In January 2017, we entered into a Collaboration and License Agreement with Calithera Biosciences, Inc.

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Under this agreement, we received an exclusive, worldwide license to develop and commercialize small molecule arginase inhibitors, including INCB01158.

We have agreed to co-fund 70 % of the global development costs for the development of the licensed products for hematology and oncology indications.

Calithera will have the right to conduct certain clinical development under the collaboration, including combination studies of a licensed product with a proprietary compound of Calithera.

We will be entitled to 60 % of the profits and losses from net sales of licensed product in the United States, and Calithera will have the right to co-detail licensed products in the United States, and we have agreed to pay Calithera tiered royalties ranging from the low to mid-double digits on net sales of licensed products outside the United States.

As of June 30, 2022, we have paid Calithera milestones totaling $ 12.0 million.

Calithera delivered notice of its decision to opt out of its co-funding obligation, effective on September 30, 2020.

As a result, the U.S.

profit sharing will no longer be in effect, we will be responsible for funding all of the development costs of INCB01158 and any other licensed products, and the agreement provides that we will pay Calithera tiered royalties ranging from the low to mid-double digits on net sales of licensed products both in the United States and outside the United States and additional royalties to reimburse Calithera for previously incurred development costs.

Calithera is eligible to receive $ 720.0 million in potential future development, regulatory and sales milestone payments and will have no further rights to research, develop or co-detail INCB001158.

We will have the right to take over the conduct of all activities related to the research, development and commercialization of INCB001158 for all indications in the hematology/oncology field.

We had initially agreed to co-fund 70 % of the global development costs for the development of the licensed products for hematology and oncology indications, but effective September 30, 2020 Calithera opted out of its co-funding obligation, and we became responsible for funding all of the development costs of INCB01158 and any other licensed products.

In September 2022, we notified Calithera of our exercise of our right to terminate the Collaboration and License Agreement for convenience, effective in December 2022.

As a result of the termination, rights to INCB01158 and the other licensed products will revert to Calithera.

In addition, in 2017, we entered into a Stock Purchase Agreement with Calithera, pursuant to which we purchased 1.7 million shares of Calithera common stock for an aggregate purchase price of $ 8.0 million in cash, or $ 4.65 per share.

In June 2022, Calithera effected a one-for-twenty stock split of its outstanding common stock, adjusting our ownership to 86,021 shares of Calithera’s common stock.

The fair market value of our long term investment in Calithera at June 30, 2022 and December 31, 2021 was $ 0.2 million and $ 1.1 million, respectively.

As of June 30, 2022, we owned approximately 2 % of the outstanding shares of Calithera common stock.

The fair market value of our long term investment in Calithera at September 30, 2022 and December 31, 2021 was $ 0.3 million and $ 1.1 million, respectively.

We intend to hold the investment in Calithera for the foreseeable future and therefore, are accounting for our shares held in Calithera at fair value whereby the investment is marked to market through earnings in each reporting period.

Given our intent to hold the investment for the foreseeable future, we have classified the investment within long term investments on the accompanying condensed consolidated balance sheets.

For the three and six months ended June 30, 2022 we recorded an unrealized loss of $ 0.5 million and $ 0.9 million, respectively, based on the change in fair value of Calithera’s common stock during the respective periods.

For the three and six months ended June 30, 2021 we recorded an unrealized loss of $ 0.5 million and $ 4.8 million, respectively, based on the change in fair value of Calithera’s common stock during the respective periods.

For the three months ended September 30, 2022 we recorded a nominal unrealized gain, and for the nine months ended September 30, 2022 we recorded an unrealized loss of $ 0.9 million, based on the change in fair value of Calithera’s common stock during the respective periods.

For the three and nine months ended September 30, 2021 we recorded an unrealized gain of $ 0.2 million and an unrealized loss of $ 4.6 million, respectively, based on the change in fair value of Calithera’s common stock during the respective periods.

In October 2017, we entered into a Global Collaboration and License Agreement with MacroGenics, Inc.

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In addition, MacroGenics has the right to manufacture a portion of both companies’ global clinical and commercial supply needs of INCMGA0012.

As of June 30, 2022, we have paid MacroGenics developmental milestones totaling $ 70.0 million and MacroGenics was eligible to receive up to an additional $ 365.0 million in future contingent development and regulatory milestones, and up to $ 330.0 million in sales milestones as well as tiered royalties ranging from 15 % to 24 % of global net sales.

In July 2022, we amended our agreement with MacroGenics to reflect changes related to the payment of certain milestones and paid MacroGenics $ 30.0 million.

As a result, after the amendment, MacroGenics will be eligible to receive up to an additional $ 335.0 million in future contingent development and regulatory milestones, and the aforementioned sales milestones and royalties.

Research and development expenses for the three and six months ended June 30, 2022 also included $ 14.8 million and $ 28.3 million, respectively, of development costs incurred pursuant to the MacroGenics agreement.

Research and development expenses for the three and six months ended June 30, 2021 also included $ 17.6 million and $ 31.2 million, respectively, of development costs incurred pursuant to the MacroGenics agreement.

At June 30, 2022 and December 31, 2021, a total of $ 0.6 million and $ 0.7 million of such costs were included in accrued and other liabilities on the condensed consolidated balance sheets.

As of September 30, 2022, we have paid MacroGenics developmental milestones totaling $ 100.0 million.

After the amendment, MacroGenics will be eligible to receive up to an additional $ 335.0 million in future contingent development and regulatory milestones, and up to $ 330.0 million in sales milestones as well as tiered royalties ranging from 15 % to 24 % of global net sales.

Research and development expenses for the three and nine months ended September 30, 2022 also included $ 41.6 million and $ 69.9 million, respectively, of development costs incurred pursuant to the MacroGenics agreement.

Research and development expenses for the three and nine months ended September 30, 2021 also included $ 17.8 million and $ 49.0 million, respectively, of development costs incurred pursuant to the MacroGenics agreement.

At September 30, 2022 and December 31, 2021, a total of $ 2.7 million and $ 0.7 million of such costs were included in accrued and other liabilities on the condensed consolidated balance sheets.

In January 2018, we entered into a Target Discovery, Research Collaboration and Option Agreement with Syros Pharmaceuticals, Inc.

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Subsequently in 2018, we entered into an Amended Stock Purchase Agreement with Syros, pursuant to which we purchased an additional 0.1 million shares of Syros common stock for an aggregate purchase price of $ 1.4 million in cash, or $ 9.55 per share.

The fair market value of our long term investment in Syros as of June 30, 2022 and December 31, 2021 was $ 0.9 million and $ 3.1 million, respectively.

As of June 30, 2022, we owned less than 2 % of the outstanding shares of Syros common stock.

In September 2022, Syros effected a one-for-ten stock split of its outstanding common stock, adjusting our ownership to 93,753 shares of Syros’s common stock.

The fair market value of our long term investment in Syros as of September 30, 2022 and December 31, 2021 was $ 0.6 million and $ 3.1 million, respectively.

We intend to hold the investment in Syros for the foreseeable future and therefore, are accounting for our shares held in Syros at fair value whereby the investment is marked to market through earnings in each reporting period.

Given our intent to hold the investment for the foreseeable future, we have classified the investment within long term investments on the accompanying condensed consolidated balance sheets.

For the three and six months ended June 30, 2022, we recorded an unrealized loss of $ 0.2 million and $ 2.2 million, respectively, based on the change in fair value of Syros’ common stock during the respective periods.

For the three and six months ended June 30, 2021, we recorded an unrealized loss of $ 1.9 million and $ 5.1 million, respectively, based on the change in fair value of Syros’ common stock during the respective periods.

In December 2018, we entered into a Research Collaboration and Licensing Agreement with Innovent.

For the three and nine months ended September 30, 2022, we recorded an unrealized loss of $ 0.3 million and $ 2.5 million, respectively, based on the change in fair value of Syros’ common stock during the respective periods.

For the three and nine months ended September 30, 2021, we recorded an unrealized loss of $ 0.9 million and $ 6.0 million, respectively, based on the change in fair value of Syros’ common stock during the respective periods.

I n December 2018, we entered into a Research Collaboration and Licensing Agreement with Innovent.

Under the terms of this agreement, Innovent received exclusive development and commercialization rights to our clinical-stage product candidates pemigatinib, itacitinib and parsaclisib in hematology and oncology in mainland China, Hong Kong, Macau and Taiwan.

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MorphoSys’ right to receive royalties in any particular country will expire upon the last to occur of (a) the expiration of patent rights in that particular country, (b) a specified period of time after the first post-marketing authorization sale of a licensed product comprising tafasitamab in that country, and (c) the expiration of any regulatory exclusivity for that licensed product in that country.

As of September 30, 2022, we have paid MorphoSys milestones totaling $ 2.5 million.

In addition, under the terms of the agreement and pursuant to a related purchase agreement, we purchased American Depositary Shares (“ADSs”), each representing 0.25 of an ordinary share of MorphoSys AG, for an aggregate purchase price of $ 150.0 million or $ 41.33 per ADS (such ADSs to be purchased, the “New ADSs”).

The fair market value of our long term investment in MorphoSys as of June 30, 2022 and December 31, 2021 was $ 17.5 million and $ 34.2 million, respectively.

As of June 30, 2022, we owned approximately 3 % of the outstanding ordinary shares of MorphoSys.

The fair market value of our long term investment in MorphoSys as of September 30, 2022 and December 31, 2021 was $ 18.3 million and $ 34.2 million, respectively.

We intend to hold the investment in MorphoSys for the foreseeable future and therefore, are accounting for our shares held in MorphoSys at fair value whereby the investment is marked to market through earnings in each reporting period.

Given our intent to hold the investment for the foreseeable future, we have classified the investment within long term investments on the accompanying condensed consolidated balance sheets.

For the three and six months ended June 30, 2022, we recorded an unrealized loss of $ 7.1 million and $ 16.7 million, respectively, based on the change in fair value of MorphoSys’ ordinary shares during the respective periods.

For the three and six months ended June 30, 2021, we recorded an unrealized loss of $ 9.2 million and $ 32.9 million, respectively, based on the change in fair value of MorphoSys’ ordinary shares during the respective periods.

Our 50 % share of the United States loss for the commercialization of tafasitamab for the three and six months ended June 30, 2022 was $ 2.5 million and $ 7.3 million, respectively, and is recorded as collaboration loss sharing on the condensed consolidated statement of operations.

Our 50 % share of the United States loss for the commercialization of tafasitamab for the three and six months ended June 30, 2021 was $ 9.8 million and $ 20.3 million, respectively, and is recorded as collaboration loss sharing on the condensed consolidated statement of operations.

Research and development expenses for the three and six months ended June 30, 2022, includes $ 27.5 million and $ 48.5 million, respectively, related to our 55 % share of the co-development costs for tafasitamab.

Research and development expenses for the three and six months ended June 30, 2021, includes $ 19.4 million and $ 34.3 million, respectively, related to our 55 % share of the co-development costs for tafasitamab.

At June 30, 2022 and December 31, 2021, $ 42.5 million and $ 21.5 million, respectively, was included in accrued and other liabilities on the condensed consolidated balance sheets for amounts due to MorphoSys under the agreement.

For the three and nine months ended September 30, 2022, we recorded an unrealized gain of $ 0.8 million and an unrealized loss of $ 15.9 million, respectively, based on the change in fair value of MorphoSys’ ordinary shares during the respective periods.

For the three and nine months ended September 30, 2021, we recorded an unrealized loss of $ 27.3 million and $ 60.2 million, respectively, based on the change in fair value of MorphoSys’ ordinary shares during the respective periods.

Our 50 % share of the United States loss for the commercialization of tafasitamab for the three and nine months ended September 30, 2022 was $ 1.8 million and $ 9.1 million, respectively, and is recorded as collaboration loss sharing on the condensed consolidated statement of operations.

Our 50 % share of the United States loss for the commercialization of tafasitamab for the three and nine months ended September 30, 2021 was $ 9.1 million and $ 29.5 million, respectively, and is recorded as collaboration loss sharing on the condensed consolidated statement of operations.

Research and development expenses for the three and nine months ended September 30, 2022, includes $ 21.9 million and $ 70.4 million, respectively, related to our 55 % share of the co-development costs for tafasitamab.

Research and development expenses for the three and nine months ended September 30, 2021, includes $ 21.5 million and $ 55.8 million, respectively, related to our 55 % share of the co-development costs for tafasitamab.

At September 30, 2022 and December 31, 2021, $ 72.5 million and $ 21.5 million, respectively, was included in accrued and other liabilities on the condensed consolidated balance sheets for amounts due to MorphoSys under the agreement.

In September 2020, we entered into a Collaboration and License Agreement with Nimble Therapeutics, Inc.

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Of the $ 35.0 million aggregate purchase price paid, $ 24.8 million was allocated to our stock purchase and was recorded within long term investments and $ 10.2 million, representing premium paid on the purchase, was allocated to research and development expense on the consolidated statement of operations for the year ended December 31, 2021.

The fair market value of our long term investment in Syndax as of June 30, 2022 and December 31, 2021 was $ 27.4 million and $ 31.1 million.

As of June 30, 2022, we owned less than 3 % of the outstanding shares of Syndax common stock.

The fair market value of our long term investment in Syndax as of September 30, 2022 and December 31, 2021 was $ 34.2 million and $ 31.1 million.

We intend to hold the investment in Syndax for the foreseeable future and therefore, are accounting for our shares held in Syndax at fair value whereby the investment is marked to market through earnings in each reporting period.

Given our intent to hold the investment for the foreseeable future, we have classified the investment within long term investments on the accompanying condensed consolidated balance sheets.

For the three and six months ended June 30, 2022, we recorded an unrealized gain of $ 2.7 million and an unrealized loss of $ 3.8 million, respectively, based on the change in fair value of Syndax’s common stock during the respective periods.

For the three and nine months ended September 30, 2022, we recorded an unrealized gain of $ 6.8 million and $ 3.1 million, respectively, based on the change in fair value of Syndax’s common stock during the respective periods.

In April 2022, we entered into a strategic alliance agreement with Maruho, Co., Ltd (“Maruho”) for the development, manufacturing and exclusive commercialization of ruxolitinib cream, for treatment of autoimmune and inflammatory dermatology indications in Japan.

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Property and equipment, net consists of the following (in thousands):

September 30,

2022 December 31,

Office equipment $ 22,527 $ 22,554

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Computer equipment 88,239 79,871

Land 10,139 10,494

Building and leasehold improvements 432,748 434,321

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Construction in progress 225,442 220,052

917,713 899,640

Less accumulated depreciation and amortization ( 201,980 ) ( 175,720 )

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In February 2018, we signed an agreement to rent a building in Morges, Switzerland for an initial term of 15 years plus one year of free rent, with multiple options to extend for an additional 20 years.

The building serves as our new

European headquarters and consists of approximately 100,000 square feet of office space.

The building serves as our new European headquarters and consists of approximately 100,000 square feet of office space.

This building allowed for consolidation of our European operations that were located in Geneva and Lausanne, Switzerland.

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At that time, we determined the lease to be a finance lease and recorded a lease liability of $ 31.1 million and a finance lease right-of-use asset of $ 29.1 million, net of a lease incentive from our landlord of $ 2.0 million.

We have capitalized approximately $ 19.5 million in leasehold improvements as of June 30, 2022 relating to Morges.

We have capitalized approximately $ 19.5 million in leasehold improvements as of September 30, 2022 relating to Morges.

In July 2018, we signed an agreement to purchase land located in Yverdon, Switzerland.

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Upon this parcel, we are constructing a large molecule production facility.

Construction activity commenced in July 2018, and as of June 30, 2022, we have capitalized approximately $ 198.1 million in costs for construction, ground preparation and architectural and engineering studies.

Construction activity commenced in July 2018, and as of September 30, 2022, we have capitalized approximately $ 190.5 million in costs for construction, ground preparation and architectural and engineering studies.

Inspection from competent authorities was finalized in March 2022, and in June 2022 Swissmedic authorities granted the GMP drug manufacturing license for this facility.

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Accrued and other current liabilities consisted of the following (in thousands):

September 30,

2022 December 31,

Royalties $ 248,455 $ 168,412

Clinical related costs 152,764 109,486

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Stock Compensation

We recorded $ 46.5 million and $ 90.3 million of stock compensation expense on our condensed consolidated statements of operations for the three and six months ended June 30, 2022, respectively.

We recorded $ 44.8 million and $ 92.1 million of stock compensation expense on our condensed consolidated statements of operations for the three and six months ended June 30, 2021, respectively.

Stock compensation expense included within our condensed consolidated statements of operations included research and development expense of $ 28.1 million, $ 54.4 million, $ 28.0 million and $ 57.9 million for the three and six months ended June 30, 2022 and 2021, respectively.

Stock compensation expense included within our condensed consolidated statements of operations also included selling, general and administrative expense of $ 17.7 million, $ 34.6 million, $ 16.4 million and $ 33.6 million for the three and six months ended June 30, 2022 and 2021, respectively.

Stock compensation expense included within our condensed consolidated statements of operations also included cost of product revenues of $ 0.7 million, $ 1.3 million, $ 0.4 million and $ 0.6 million, respectively, for the three and six months ended June 30, 2022 and 2021.

We recorded $ 45.4 million and $ 135.7 million of stock compensation expense on our condensed consolidated statements of operations for the three and nine months ended September 30, 2022, respectively.

We recorded $ 42.7 million and $ 134.8 million of stock compensation expense on our condensed consolidated statements of operations for the three and nine months ended September 30, 2021, respectively.

Stock compensation expense included within our condensed consolidated statements of operations included research and development expense of $ 25.8 million, $ 80.2 million, $ 26.3 million and $ 84.2 million for the three and nine months ended September 30, 2022 and 2021, respectively.

Stock compensation expense included within our condensed consolidated statements of operations also included selling, general and administrative expense of $ 18.9 million, $ 53.5 million, $ 15.9 million and $ 49.5 million for the three and nine months ended September 30, 2022 and 2021, respectively.

Stock compensation expense included within our condensed consolidated statements of operations also included cost of product revenues of $ 0.7 million, $ 2.0 million, $ 0.5 million and $ 1.1 million, respectively, for the three and nine months ended September 30, 2022 and 2021.

We utilized the Black-Scholes valuation model for estimating the fair value of the stock compensation granted, with the following weighted-average assumptions:

Employee Stock Options

Employee Stock Purchase Plan

For the Three Months Ended

For the Six Months Ended

For the Three Months Ended

For the Six Months Ended

Employee Stock Options Employee Stock Purchase Plan

For the Three Months Ended For the Nine Months Ended For the Three Months Ended For the Nine Months Ended

September 30, September 30,

2022 2021 2022 2021 2022 2021 2022 2021

Average risk-free interest rates 2.90 % 0.76 % 2.03 % 0.60 % 4.22 % 0.28 % 3.44 % 0.22 %

Average expected life (in years) 5.17 5.16 4.88 5.00 0.50 0.50 0.50 0.50

Volatility 35 % 38 % 36 % 39 % 31 % 25 % 27 % 31 %

Weighted-average fair value (in dollars) $ 27.57 $ 28.84 $ 25.96 $ 29.32 $ 16.46 $ 18.20 $ 15.38 $ 18.82

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Outstanding Options

Weighted Average

Shares Weighted Average

Exercise Price

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Options cancelled ( 989,465 ) $ 88.60

Balance at June 30, 2022

Balance at September 30, 2022 13,052,587 $ 87.41

Our annual stock option grants generally have a 10 -year term and vest over four years , with 25 % vesting after one year and the remainder vesting in 36 equal monthly installments.

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Outstanding Awards

Grant Date Value

Shares Grant Date Value

Balance at December 31, 2021 3,966,888 $ 84.91

RSUs granted 2,473,892 77.14

PSUs granted 154,685 77.67

RSUs released ( 845,095 ) 87.06

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PSUs cancelled ( 1,720 ) 65.76

Balance at June 30, 2022

Balance at September 30, 2022 5,226,984 $ 81.29

RSUs and PSUs are granted to our employees at the share price on the date of grant.

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Compensation expense for PSUs with market performance conditions is calculated using a Monte Carlo simulation model as of the date of grant and recorded over the requisite service period.

For the three and six months ended June 30, 2022 we recorded $ 0.1 million and $ 1.9 million, respectively, of stock compensation expense for PSUs on our condensed consolidated statements of operations.

For the three and six months ended June 30, 2021 we recorded $ 0.6 million and $ 3.2 million of stock compensation expense for PSUs on our condensed consolidated statements of operations.

For the three and nine months ended September 30, 2022 we recorded $ 3.2 million and $ 5.1 million, respectively, of stock compensation expense for PSUs on our condensed consolidated statements of operations.

For the three and nine months ended September 30, 2021 we recorded $ 1.7 million and $ 5.0 million of stock compensation expense for PSUs on our condensed consolidated statements of operations.

The following table summarizes our shares available for grant under the 2010 Stock Plan.

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Options, RSUs and PSUs granted ( 7,013,475 )

( 1,964,498 )

Options, RSUs and PSUs cancelled 1,680,482

Balance at June 30, 2022

Balance at September 30, 2022 4,780,305

Based on our historical experience of employee turnover, we have assumed an annualized forfeiture rate of 5 % for our options, RSUs and PSUs.

Under the true-up provisions of the stock compensation guidance, we will record additional expense if the actual forfeiture rate is lower than we estimated, and will record a recovery of prior expense if the actual forfeiture is higher than we estimated.

Total compensation cost of options granted but not yet vested, as of June 30, 2022, was $ 53.0 million, which is expected to be recognized over the weighted average period of approximately 1.0 years.

Total compensation cost of RSUs granted but not yet vested, as of June 30, 2022, was $ 128.8 million, which is expected to be recognized over the weighted average period of approximately 1.6 years.

Total compensation cost of PSUs granted but not yet vested, as of June 30, 2022, was $ 22.7 million, which is expected to be recognized over the weighted average period of 1.9 years, should the underlying performance conditions be deemed probable of achievement.

For the three and six months ended June 30, 2022, we recorded income tax expense of approximately $ 67.9 million and $ 100.5 million, respectively.

For the three and six months ended June 30, 2021, we recorded income tax expense of approximately $ 22.2 million and $ 38.0 million, respectively.

The tax expense for the three and six months ended June 30, 2022 increased as compared to that for the prior year periods due to the release of our valuation allowance against a majority of our U.S.

Total compensation cost of options granted but not yet vested, as of September 30, 2022, was $ 51.2 million, which is expected to be recognized over the weighted average period of approximately 1.1 years.

Total compensation cost of RSUs granted but not yet vested, as of September 30, 2022, was $ 235.5 million, which is expected to be recognized over the weighted average period of approximately 2.0 years.

Total compensation cost of PSUs granted but not yet vested, as of September 30, 2022, was $ 19.6 million, which is expected to be recognized over the weighted average period of 2.2 years, should the underlying performance conditions be deemed probable of achievement.

For the three and nine months ended September 30, 2022, we recorded income tax expense of approximately $ 35.8 million and $ 136.3 million, respectively.

For the three and nine months ended September 30, 2021, we recorded income tax expense of approximately $ 27.7 million and $ 65.7 million, respectively.

The tax expense for the three and nine months ended September 30, 2022 increased as compared to that for the prior year periods due to the release of our valuation allowance against a majority of our U.S.

research and development tax credit carryforwards and other deferred tax assets at December 31, 2021.

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deferred tax assets as well as select state and foreign deferred tax assets.

The balance of our unrecognized tax benefits (including penalties and interest) increased by approximately $ 9.4 million during the six months ended June 30, 2022, resulting in movements to other liabilities and deferred income tax

asset on the condensed consolidated balance sheet.

The balance of our unrecognized tax benefits (including penalties and interest) increased by approximately $ 11.2 million during the nine months ended September 30, 2022, resulting in movements to other liabilities and deferred income tax asset on the condensed consolidated balance sheet.

The overall increase is primarily driven by unrecognized tax benefits related to current year operations and research and development tax credits.

We accrue interest and penalties related to unrecognized tax benefits as a component of its provision for income taxes.

In August 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted into law.

The IRA includes a 15% corporate alternative minimum tax and a 1% excise tax on share repurchases.

We do not expect the IRA to have a material impact on our consolidated financial statements.

Net Income Per Share

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Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Basic net income $ 112,775 $ 181,739 $ 312,199 $ 384,730

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Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Outstanding stock options and awards 11,150,022 11,841,440 10,979,096 9,917,824

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Employees may contribute a portion of their compensation, which is then matched by us, subject to certain limitations.

Defined contribution expense for the three and six months ended June 30, 2022 was $ 4.7 million and $ 9.6 million, respectively.

Defined contribution expense for the three and six months ended June 30, 2021 was $ 4.3 million and $ 8.4 million, respectively.

Defined contribution expense for the three and nine months ended September 30, 2022 was $ 5.1 million and $ 14.7 million, respectively.

Defined contribution expense for the three and nine months ended September 30, 2021 was $ 4.4 million and $ 12.8 million, respectively.

Defined Benefit Pension Plans

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Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Service cost $ 2,376 $ 1,975 $ 7,336 $ 5,927

Interest cost 61 23 187 68

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We record a reserve for these matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

Subsequent Event

In October 2022, we announced that we entered into an agreement to acquire Villaris Therapeutics, Inc.

("Villaris"), a biopharmaceutical company focused on the development of novel antibody therapeutics for vitiligo.

Under the terms of the agreement, Incyte will acquire Villaris and the exclusive global rights to develop and commercialize auremolimab (VM6), an anti-IL-15Rβ monoclonal antibody, for all uses, including in vitiligo and other autoimmune and inflammatory diseases.

Upon effectiveness of the agreement, Incyte will make an upfront payment of $ 70.0 million, and Villaris shareholders will be eligible for up to $ 310.0 million upon achievement of certain development and regulatory milestones, as well as up to an additional $ 1.05 billion in commercial milestones on net sales of the product.

The agreement is subject to clearance by the U.S.

antitrust authorities under the Hart-Scott-Rodino Act and will become effective as soon as this condition has been met.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements