What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-01 compared with 2022-08-02 · 122 added, 114 removed, 687 unchanged (26% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations as of and for the three and six months ended June 30, 2022 should be read in conjunction with the unaudited condensed consolidated financial statements and notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements as of and for the year ended December 31, 2021 included in our Annual Report on Form 10-K for the year ended December 31, 2021 previously filed with the SEC.

The following discussion of our financial condition and results of operations as of and for the three and nine months ended September 30, 2022 should be read in conjunction with the unaudited condensed consolidated financial statements and notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements as of and for the year ended December 31, 2021 included in our Annual Report on Form 10-K for the year ended December 31, 2021 previously filed with the SEC.

Forward-Looking Statements

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fluctuation of losses;

currency translation impact associated with collaboration royalties;

currency translation impact associated with non-U.S.

operations and collaboration royalties;

• our profitability;

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In this trial, patients treated with JAKAFI demonstrated superior hematocrit control and reductions in spleen volume compared to best available therapy.

In addition, a greater proportion of patients treated with JAKAFI

achieved complete hematologic remission—which was defined as achieving hematocrit control, and lowering platelet and white blood cell counts.

In addition, a greater proportion of patients treated with JAKAFI achieved complete hematologic remission—which was defined as achieving hematocrit control, and lowering platelet and white blood cell counts.

In the RESPONSE trial, the most common hematologic adverse reactions (incidence > 20%) were thrombocytopenia and anemia.

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PEMAZYRE is the first FDA-approved treatment for this indication, which was approved under accelerated approval based on overall response rate and duration of response (DOR).

In March 2021, PEMAZYRE was approved by the Japanese Ministry of Health, Labour and Welfare (MHLW) for the treatment of patients with unresectable biliary tract cancer (BTC) with an FGFR2 fusion gene, worsening after

cancer chemotherapy.

Also in March 2021, PEMAZYRE was approved by the European Commission (EC) for the treatment of adults with locally advanced or metastatic cholangiocarcinoma with an FGFR2 fusion or rearrangement that have progressed after at least one prior line of systemic therapy.

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FIGHT-302, a Phase III trial of pemigatinib for the first-line treatment of patients with cholangiocarcinoma and FGFR2 fusions or rearrangements, is ongoing.

In March 2022, PEMAZYRE was approved by the National Medical Products Administration (NMPA) for the treatment of adults with locally advanced or metastatic cholangiocarcinoma with a fibroblast growth receptor 2 (FGFR2) fusion or rearrangement as confirmed by a validated diagnostic test that have progressed after at least one prior line of systemic therapy.

In March 2022, PEMAZYRE was approved by the National Medical Products Administration (NMPA) of the People ’ s Republic of China for the treatment of adults with locally advanced or metastatic cholangiocarcinoma with a fibroblast growth receptor 2 (FGFR2) fusion or rearrangement as confirmed by a validated diagnostic test that have progressed after at least one prior line of systemic therapy.

In August 2022, PEMAZYRE was approved by the FDA as the first and only targeted treatment for myeloid/lymphoid neoplasms (MLNs) with FGFR1 rearrangement.

MLNs with FGFR1 rearrangement are extremely rare and aggressive blood cancers.

ICLUSIG (ponatinib)

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Bioavailability and bioequivalence data were published for ruxolitinib’s once-daily (QD) extended release (XR) formulation at the European Hematology Association (EHA) 2021 Virtual Congress in June 2021.

The FDA accepted the NDA for QD ruxolitinib with a Prescription Drug User Fee Act (PDUFA) target action date of March 23, 2023.

The FDA accepted the New Drug Application (NDA) for QD ruxolitinib with a Prescription Drug User Fee Act (PDUFA) target action date of March 23, 2023.

Based on positive Phase II data, we opened two pivotal trials of ruxolitinib in combination with parsaclisib (PI3Kδ) in first-line MF (LIMBER-313) and in MF patients with a suboptimal response to ruxolitinib monotherapy (LIMBER-304), and both trials are ongoing.

Additional Phase II trials combining ruxolitinib with investigational agents from our portfolio such as INCB57643 (BET) and INCB00928 (ALK2) in patients with MF are in preparation, and

additional discovery and development initiatives are also ongoing within the LIMBER program, which are evaluating internally-discovered compounds and candidates from collaboration partners.

Additional Phase II trials combining ruxolitinib with investigational agents from our portfolio such as INCB57643 (BET) and INCB00928 (ALK2) in patients with MF are ongoing, and additional discovery and development initiatives are also ongoing within the LIMBER program, which are evaluating internally-discovered compounds and candidates from collaboration partners.

We no longer intend to develop itacitinib, a selective JAK1 inhibitor, in treatment-naïve chronic GVHD (cGVHD).

Based on efficacy data from Part I of the Phase II/II GRAVTIAS-309 trial, we determined that a pivotal trial was unlikely to be successful.

Based on efficacy data from Part I of the Phase II/II GRAVITAS-309 trial, we determined that a pivotal trial was unlikely to be successful.

In September 2021, we and Syndax Pharmaceuticals, Inc.

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A 68% overall response rate and broad clinical benefit across multiple organs were observed at doses being assessed in AGAVE-201, a global pivotal trial evaluating axatilimab monotherapy in patients with chronic GVHD in the third line setting.

Additional trials of axatilimab are planned in patients with chronic GVHD, including a Phase II trial in combination with a JAK inhibitor in patients with steroid-refractory cGVHD.

Additional trials of axatilimab are planned in patients with chronic GVHD, including a Phase II trial in combination with ruxolitinib in patients with newly-diagnosed cGVHD.

In May 2022, Syndax announced that axatilimab was granted fast-track designation by the FDA for the treatment of patients with chronic GVHD after failure of two or more lines of systemic therapy.

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firstMIND is a Phase Ib safety trial of tafasitamab as a first-line therapy for patients with DLBCL, and frontMIND, a placebo-controlled Phase III trial evaluating tafasitamab in combination with lenalidomide added to rituximab plus chemotherapy (R-CHOP) as a first-line therapy for patients with DLBCL, is ongoing.

A placebo-controlled Phase III trial (inMIND) of tafasitamab added to lenalidomide plus rituximab (R 2 ) in patients with relapsed or refractory follicular or marginal zone lymphomas is ongoing, as is a proof-of-concept study (topMIND) evaluating tafasitamab in combination with parsaclisib (PI3Kδ) in patients with relapsed or refractory B-cell malignancies.

A placebo-controlled Phase III trial (inMIND) of tafasitamab added to lenalidomide plus rituximab (R 2 ) in patients with relapsed or refractory follicular or marginal zone lymphomas is ongoing.

A proof-of-concept study of tafasitamab, lenalidomide and plamotamab in patients with r/r DLBCL is also ongoing.

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Based on data generated from these trials, we have initiated additional trials including FIGHT-302, a Phase III study in first-line cholangiocarcinoma.

FIGHT-207, a solid tumor-agnostic trial evaluating pemigatinib in

patients with driver-alterations of FGF/FGFR, is now closed to recruitment.

FIGHT-207, a solid tumor-agnostic trial evaluating pemigatinib in patients with driver-alterations of FGF/FGFR, is now closed to recruitment.

Based on findings from this study, we have identified populations that may potentially benefit from treatment with pemigatinib and have initiated two Phase II trials – FIGHT-209 in patients with glioblastoma and FIGHT-210 in patients with non-small cell lung cancer.

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The decision to withdraw the NDA followed discussions with FDA regarding confirmatory studies that we determined cannot be completed within a reasonable time period to support an accelerated approval.

In July 2022, we withdrew the Marketing Authorization Application (MAA) seeking approval of parsaclisib in marginal zone lymphoma following discussions with the European Medicines Agency regarding the confirmatory study needed to support the approval which we determined were not feasible.

In July 2022, we withdrew the Marketing Authorization Application (MAA) seeking approval of parsaclisib in marginal zone lymphoma following discussions with the European Medicines Agency (EMA) regarding the confirmatory study needed to support the approval which we determined were not feasible.

A Phase II trial of parsaclisib in patients with autoimmune hemolytic anemia (AIHA), a rare red blood cell disorder, is ongoing.

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Potentially registration-enabling trials in microsatellite instability-high (MSI-H) endometrial cancer and Merkel cell carcinoma are ongoing.

The Phase III POD1UM-303 trial of retifanlimab in combination with platinum-based chemotherapy as a first-line treatment for patients with SCAC is underway.

In July 2021, we announced that the FDA issued a complete response letter (CRL) for the BLA of retifanlimab for the treatment of squamous cell carcinoma of the anal canal (SCAC).

The Phase III POD1UM-303 trial of retifanlimab in combination with platinum-based chemotherapy as a first-line treatment for patients with squamous cell carcinoma of the anal canal (SCAC) is underway.

In July 2021, we announced that the FDA issued a complete response letter (CRL) for the BLA of retifanlimab for the treatment of SCAC.

In October 2021, we announced that we withdrew the MAA seeking approval of retifanlimab in SCAC.

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Indication and status

Once-a-day ruxolitinib (JAK1/JAK2)

Myelofibrosis, polycythemia vera and GVHD:

clinical pharmacology studies;

Once-a-day ruxolitinib (JAK1/JAK2) Myelofibrosis, polycythemia vera and GVHD:

NDA under review

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ruxolitinib + INCB00928

(JAK1/JAK2 + ALK2)

Myelofibrosis:

(JAK1/JAK2 + ALK2) Myelofibrosis:

ruxolitinib + CK0804 1

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r/r B-cell malignancies:

PoC with parsaclisib (PI3Kδ) (topMIND)

r/r B-cell malignancies:

PoC with lenalidomide and plamotamab 4

pemigatinib (FGFR1/2/3)

pemigatinib (FGFR1/2/3) CCA:

Phase III (FIGHT-302)

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Phase II (FIGHT-203);

approved in the United States

Glioblastoma:

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Phase II (FIGHT-210)

parsaclisib (PI3Kδ)

Warm autoimmune hemolytic anemia:

parsaclisib (PI3Kδ) Warm autoimmune hemolytic anemia:

Phase III (PATHWAY)

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In collaboration with Merus we have developed INCA32459, a novel LAG3xPD-1 bispecific antibody that is planned to enter clinical studies later this year.

We also have a number of other earlier-stage clinical programs in hematology and oncology, as detailed in the table below.

Our earlier-stage clinical programs in hematology and oncology are included in the table below.

We intend to describe these programs more fully if we obtain clinical proof-of-concept and establish that a program warrants further development in a specific indication or group of indications.

Small molecules

INCB81776 (AXL/MER), INCB99280 (PD-L1), INCB99318 (PD-L1), INCB106385 (A2A/A 2B ), INCB123667 (CDK2)

Modality Candidates

Small molecules INCB81776 (AXL/MER), INCB99280 (PD-L1), INCB99318 (PD-L1), INCB106385 (A2A/A 2B ), INCB123667 (CDK2)

Monoclonal antibodies 1

INCAGN1876 (GITR), INCAGN2385 (LAG-3), INCAGN1949 (OX40), INCAGN2390 (TIM-3), INCA00186 (CD73)

Bispecific antibodies

INCA32459 (LAG-3xPD-1) 2

INCAGN1876 (GITR), INCAGN2385 (LAG-3), INCAGN2390 (TIM-3), INCA00186 (CD73)

Bispecific antibodies INCA32459 (LAG-3xPD-1) 2

Discovery collaboration with Agenus Inc.

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Atopic Dermatitis.

of age and older whose disease is not adequately controlled with topical prescription therapies, or when those therapies are not advisable.

In September 2021, we announced that the FDA approved OPZELURA (ruxolitinib) cream, a novel cream formulation of Incyte’s selective JAK1/JAK2 inhibitor ruxolitinib, for the topical short-term and non-continuous chronic treatment of mild to moderate atopic dermatitis (AD) in non-immunocompromised patients 12 years of age and older whose disease is not adequately controlled with topical prescription therapies, or when those therapies are not advisable.

AD is a skin disorder that causes long term inflammation of the skin resulting in itchy, red, swollen and cracked skin.

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Clinical Programs in Dermatology

Ruxolitinib cream is a potent, selective inhibitor of JAK1 and JAK2 that provides the opportunity to directly target diverse pathogenic pathways that underlie certain dermatologic conditions, including atopic dermatitis, vitiligo and chronic hand eczema.

We are currently evaluating ruxolitinib cream in a Phase III trial, TRuE-AD3, in pediatric atopic dermatitis patients ages ≥2 years to < 12 years.

Two Phase III trials (TRuE-CHE1 and TRuE-CHE2) evaluating ruxolitinib cream in chronic hand eczema are in preparation.

Ruxolitinib cream

In October 2021, we announced the validation of the MAA for ruxolitinib cream as a potential treatment for adolescents and adults (age ≥12 years) with nonsegmental vitiligo with facial involvement.

Two Phase 2 trials evaluating ruxolitinib cream in lichen planus and lichen sclerosus are in preparation.

Lichen planus is a recurrent inflammatory condition affecting the skin and mucosal surfaces and can result in itchy, purple bumps on the skin.

Lichen sclerosus is a chronic inflammatory skin disease most commonly affecting women and can result in painful ulcers and intense itching.

We are also developing povorcitinib (formerly INCB54707), which is an oral small molecule selective JAK1 inhibitor.

Povorcitinib is undergoing evaluation in patients with hidradenitis suppurativa (HS), a chronic skin condition where lesions develop as a result of inflammation and infection of the sweat glands.

In October 2020, initial results from

the clinical program were presented and a randomized Phase IIb trial of povorcitinib is underway in patients with HS.

In October 2020, initial results from the clinical program were presented and a randomized Phase IIb trial of povorcitinib is underway in patients with HS.

In March 2021, we initiated a Phase II trial evaluating povorcitinib in patients with vitiligo.

A Phase II trial evaluating povorcitinib in patients with prurigo nodularis is ongoing.

In August 2022, we presented results from the Phase II trial of povorcitinib in HS and based on positive results, we plan to initiate a Phase III study in HS.

Indication and status

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MAA under review

Chronic hand eczema:

Phase III (TRuE-CHE1 and TRuE-CHE2) in preparation

ruxolitinib cream + NB-UVB (JAK1/JAK2 + phototherapy)

povorcitinib (JAK1)

Hidradenitis suppurativa:

ruxolitinib cream + NB-UVB (JAK1/JAK2 + phototherapy) Vitiligo:

povorcitinib (JAK1) Hidradenitis suppurativa:

Phase III in preparation

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Indication and status

INCB00928 (ALK2)

Fibrodysplasia ossificans progressiva:

INCB00928 (ALK2) Fibrodysplasia ossificans progressiva:

Collaborative Partnered Programs

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In January 2020, we and Lilly announced that baricitinib met the primary endpoint in both BREEZE-AD4 and BREEZE-AD5, the results of which completed the placebo-controlled data program intended to support global registrations.

An sNDA for baricitinib has been submitted by Lilly for the treatment of patients with moderate to severe AD.

A supplemental New Drug Application (sNDA) for baricitinib was submitted by Lilly for the treatment of patients with moderate to severe AD.

In April 2021, we and Lilly announced the FDA extended the review period for the sNDA for baricitinib for the treatment of moderate to severe AD by three months to allow time for additional data analyses.

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The EUA now provides for the use of baricitinib for treatment of COVID-19 in hospitalized adults and pediatric patients two years of age or older requiring supplemental oxygen, non-invasive or invasive mechanical ventilation or extracorporeal membrane oxygenation (ECMO).

In June 2022, we and Lilly announced the FDA approved baricitinib as OLUMIANT for the treatment of COVID-19 in hospitalized adults requiring supplemental oxygen, non-invasive or invasive mechanical ventilation, or extracorporeal membrane oxygenation (ECMO).

Capmatinib is a potent and highly selective MET inhibitor.

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Under this agreement, we received an exclusive, worldwide license to develop and commercialize small molecule arginase inhibitors, including INCB01158 (CB-1158), which is currently in Phase II clinical trials, for multiple myeloma.

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

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In November 2020, we and Lilly announced that the FDA issued an Emergency Use Authorization (EUA) for the distribution and emergency use of baricitinib to be used in combination with remdesivir in hospitalized adult and pediatric patients two years of age or older with suspected or laboratory confirmed COVID-19 who require supplemental oxygen, invasive mechanical ventilation, or extracorporeal membrane oxygenation.

In December 2020, we and Lilly announced

that data from ACTT-2 supportive of the EUA were published in the New England Journal of Medicine.

In December 2020, we and Lilly announced that data from ACTT-2 supportive of the EUA were published in the New England Journal of Medicine.

In July 2021, we and Lilly announced that the FDA broadened the EUA for baricitinib to allow for treatment with or without remdesivir.

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In August 2021, we and Lilly announced new data from an additional cohort of 101 adult patients from the COV-BARRIER trial.

In this sub-study, patients with COVID-19 on mechanical ventilation or extracorporeal membrane oxygenation (ECMO) who received baricitinib plus standard of care were 46% less likely to die by Day 28 compared to patients who received placebo plus standard of care.

In this sub-study, patients with COVID-19 on mechanical ventilation or ECMO who received baricitinib plus standard of care were 46% less likely to die by Day 28 compared to patients who received placebo plus standard of care.

Critical Accounting Policies and Significant Estimates

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Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Form 10-K.

There have been no significant changes to our critical accounting policies or estimates during the six months ended June 30, 2022.

There have been no significant changes to our critical accounting policies or estimates during the nine months ended September 30, 2022.

Recent Accounting Pronouncements

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Results of Operations

We recorded net income of $161.4 million and basic net income per share of $0.73 and diluted net income per share of $0.72 for the three months ended June 30, 2022, as compared to net income of $149.5 million and basic net income per share of $0.68 and diluted net income per share of $0.67 in the corresponding period in 2021.

We recorded net income of $199.4 million and basic net income per share of $0.90 and diluted net income per share of $0.89 for the six months ended June 30, 2022, as compared to net income of $203.0 million and basic net income per share of $0.92 and diluted net income per share of $0.91 in the corresponding period in 2021.

For the Three Months Ended,

For the Six Months Ended,

(in millions)

We recorded net income of $112.8 million and basic net income per share of $0.51 and diluted net income per share of $0.50 for the three months ended September 30, 2022, as compared to net income of $181.7 million and basic and diluted net income per share of $0.82 in the corresponding period in 2021.

We recorded net income of $312.2 million and basic net income per share of $1.41 and diluted net income per share of $1.40 for the nine months ended September 30, 2022, as compared to net income of $384.7 million and basic net income per share of $1.75 and diluted net income per share of $1.73 in the corresponding period in 2021.

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(in millions) (in millions)

JAKAFI revenues, net $ 619.6 $ 547.4 $ 1,761.7 $ 1,542.1

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Total revenues $ 823.3 $ 813.0 $ 2,467.9 $ 2,123.4

The increase in JAKAFI product revenues for the three months ended June 30, 2022 as compared to the corresponding period in 2021 was comprised of a volume increase of $51.2 million and a price increase of $17.4 million.

The increase in JAKAFI product revenues for the six months ended June 30, 2022 as compared to the corresponding period in 2021 was comprised of a volume increase of $94.3 million and a price increase of $53.0 million.

The increase in JAKAFI product revenues for the three months ended September 30, 2022 as compared to the corresponding period in 2021 was comprised of a volume increase of $30.9 million and a price increase of $41.3 million.

The increase in JAKAFI product revenues for the nine months ended September 30, 2022 as compared to the corresponding period in 2021 was comprised of a volume increase of $125.7 million and a price increase of $93.9 million.

Additionally, our product revenues may fluctuate from quarter to quarter due to our customers’ purchasing patterns over the course of the year, including as a result of increased inventory building by customers in advance of expected or announced price increases.

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The following table provides a summary of activity with respect to our sales allowances and accruals (in thousands):

Discounts and

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022 Discounts and

Fees Government

Chargebacks Co-Pay

Discounts Product

Returns Total

Balance at January 1, 2022 $ 14,678 $ 99,304 $ 24,074 $ 4,740 $ 142,796

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Credits/payments for prior period sales (12,095) (58,696) (8,230) (2,229) (81,250)

Balance at June 30, 2022

Balance at September 30, 2022 $ 23,999 $ 119,075 $ 44,882 $ 6,287 $ 194,243

Government rebates and chargebacks are the most significant component of our sales allowances.

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Product royalty revenues on commercial sales of JAKAVI and TABRECTA by Novartis are based on net sales of licensed products in licensed territories as provided by Novartis.

Product royalty revenues on commercial sales of OLUMIANT by Lilly are based on net sales of licensed products in licensed territories as provided by Lilly.

The increase in OLUMIANT product royalty revenues for the six months ended June 30, 2022 as compared to the corresponding period in 2021 reflects an increase in net product sales as a result of the use of OLUMIANT for the treatment of COVID-19.

Our milestone and contract revenues for the six months ended June 30, 2022, were derived from total regulatory milestones of $60.0 million under the Novartis collaboration and license agreement, regulatory milestones of $70.0 million under the license, development and commercialization agreement with Lilly, and a $ 5.0 million regulatory milestone under the Innovent research collaboration and licensing agreement.

Our milestone and contract revenues for the six months ended June 30, 2021, were derived from a $10.0 million milestone under the Innovent research collaboration and licensing agreement.

Product royalty revenues on commercial sales of OLUMIANT by Lilly are based on net sales of licensed products in licensed territor ies as provided by Lilly.

The decrease in OLUMIANT product royalty revenues for the nine months ended September 30, 2022 as compared to the corresponding period in 2021 reflects unfavorable changes in foreign currency exchange rates, a decrease in net product sales of OLUMIANT for use as a treatment for COVID-19 and a one-time deduction related to securing intellectual property rights.

Our milestone and contract revenues for the nine months ended September 30, 2022, were derived from total regulatory milestones of $60.0 million under the Novartis collaboration and license agreement, regulatory milestones of $70.0 million under the license, development and commercialization agreement with Lilly, and a $5.0 million regulatory milestone under the Innovent research collaboration and licensing agreement.

Our milestone and contract revenues for the nine months ended September 30, 2021, were derived from a $10.0 million milestone under the Innovent research collaboration and licensing agreement and a $35.0 million upfront payment under the InnoCare collaboration and license agreement..

Cost of Product Revenues

For the Three Months Ended,

For the Six Months Ended,

(in millions)

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(in millions) (in millions)

Product costs $ 14.9 $ 4.8 $ 39.1 $ 14.3

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Cost of product revenues includes all product related costs, employee personnel costs, including stock compensation, for those employees dedicated to the production of our commercial products, royalties under our collaborative agreements and amortization of our licensed intellectual property rights for ICLUSIG.

The increase in cost of product revenues for the three and six months ended June 30, 2022 as compared to the same periods in 2021 was primarily due to product related costs for our commercial products including OPZELURA.

The increase in cost of product revenues for the three and nine months ended September 30, 2022 as compared to the same periods in 2021 was primarily due to product related costs for our commercial products including OPZELURA.

Operating Expenses

Research and development expenses

For the Three Months Ended,

For the Six Months Ended,

(in millions)

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(in millions) (in millions)

Salary and benefits related $ 82.3 $ 75.9 $ 250.1 $ 229.3

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We account for research and development costs by natural expense line and not costs by project.

The increase in salary and benefits related expense for the three and six months ended June 30, 2022 as compared to the corresponding periods in 2021 was due primarily to increased development headcount to sustain our development pipeline.

compensation expense may fluctuate from period to period based on the number of awards granted, stock price volatility and expected award lives, as well as expected award forfeiture rates which are used to value equity-based compensation.

The decrease in clinical research and outside services expense for the three months ended June 30, 2022 as compared to the corresponding period in 2021 was primarily due to the timing of studies, and the increase in such expense for the six months ended June 30, 2022 as compared to the corresponding period in 2021 was due to continued investment in our late stage development assets.

Research and development expenses include upfront and milestone expenses related to our collaborative agreements of $2.5 million and $22.5 million, respectively, for the three and six months ended June 30, 2022.

Research and development expenses include upfront and milestone expenses related to our collaborative agreements of $5.0 million and $16.5 million, respectively, for the three and six months ended June 30, 2021.

Research and development expenses for the three and six months ended June 30, 2022 and 2021 were net of $24.3 million, $34.6 million, $8.9 million and $12.5 million, respectively, of costs reimbursed by our collaborative partners.

In addition to one-time expenses resulting from upfront fees in connection with the entry into any new or amended collaboration agreements and payment of milestones under those agreements, research and development expenses may fluctuate from period to period depending upon the stage of certain projects and the level of pre-clinical and clinical trial related activities.

The increase in salary and benefits related expense for the three and nine months ended September 30, 2022 as compared to the corresponding periods in 2021 was due primarily to increased development headcount to sustain our development pipeline.

Stock compensation expense may fluctuate from period to period based on the number of awards granted, stock price volatility and expected award lives, as well as expected award forfeiture rates which are used to value equity-based compensation.

The increase in clinical research and outside services expense for the three and nine months ended September 30, 2022 as compared to the corresponding period in 2021 was primarily due to continued investment in our late stage development assets.

Research and development expenses include upfront and milestone expenses related to our collaborative agreements of $33.5 million and $56.0 million, respectively, for the three and nine months ended September 30, 2022.

Research and development expenses include upfront and milestone expenses related to our collaborative agreements of $4.3 million and $20.8 million, respectively, for the three and nine months ended September 30, 2021.

Research and development expenses for the three and nine months ended September 30, 2022 and 2021 were net of $8.7 million, $43.3 million, $3.2 million and $15.7 million, respectively, of costs reimbursed by our collaborative partners.

Many factors can affect the cost and timing of our clinical trials, including requests by regulatory agencies for more information, inconclusive results requiring additional clinical trials, slow patient enrollment, adverse side effects among patients, insufficient supplies for our clinical trials, timing of drug supply, including API, and real or perceived lack of effectiveness or safety of our investigational drugs in our clinical trials.

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Selling, general and administrative expenses

For the Three Months Ended,

For the Six Months Ended,

(in millions)

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(in millions) (in millions)

Salary and benefits related $ 64.3 $ 58.3 $ 197.0 $ 163.4

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Total selling, general and administrative expenses $ 266.5 $ 190.7 $ 729.3 $ 513.4

The increase in salary and benefits related expense for the three and six months ended June 30, 2022 as compared to the corresponding period in 2021 was due primarily to increased headcount.

The increase in salary and benefits related expense for the three and nine months ended September 30, 2022 as compared to the corresponding period in 2021 was due primarily to increased headcount.

This increased headcount was due primarily to the establishment of our dermatology commercial organization and activities to support the launch of OPZELURA for the treatment of atopic dermatitis.

The increase in other contract services and outside costs for the three and six months ended June 30, 2022, as compared to the corresponding periods in 2021, was due primarily to expenses related to our dermatology commercial organization and activities to support the launch of OPZELURA for the treatments of atopic dermatitis and pre-launch activities for vitiligo.

Change in fair value of acquisition-related contingent consideration

The increase in other contract services and outside costs for the three and nine months ended September 30, 2022, as compared to the corresponding periods in 2021, was due primarily to expenses related to our dermatology commercial organization and activities to support the launch of OPZELURA for the treatments of atopic dermatitis and vitiligo.

(Gain) loss on change in fair value of acquisition-related contingent consideration

Acquisition-related contingent consideration, which consists of our future royalty obligations to ARIAD/Takeda, was recorded on the acquisition date, June 1, 2016, at the estimated fair value of the obligation, in accordance with the acquisition method of accounting.

The fair value of the acquisition-related contingent consideration is remeasured quarterly.

The change in fair value of the acquisition-related contingent consideration for the three and six months ended June 30, 2022 was $3.3 million and $9.7 million, respectively, which is recorded in change in fair value of acquisition-related contingent consideration on the condensed consolidated statements of operations.

The change in fair value of the acquisition-related contingent consideration for the three and six months ended June 30, 2021 was $4.6 million and $10.2 million, respectively, which is recorded in change in fair value of acquisition-related contingent consideration on the

condensed consolidated statements of operations.

The change in fair value for the three and six months ended June 30, 2022 and 2021 was due primarily to the passage of time and updated projections of future net revenues of ICLUSIG.

The gain on change in fair value of the acquisition-related contingent consideration for the three and nine months ended September 30, 2022 was $21.9 million and $12.2 million, respectively, which is recorded in (gain) loss on change in fair value of acquisition-related contingent consideration on the condensed consolidated statements of operations.

The loss on change in fair value of the acquisition-related contingent consideration for the three and nine months ended September 30, 2021 was $2.9 million and $13.1 million, respectively, which is recorded in (gain) loss on change in fair value of acquisition-related contingent consideration on the condensed consolidated statements of operations.

The change in fair value for 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.

Collaboration loss sharing

Under the collaboration and license agreement with MorphoSys, which was executed in March 2020, we and MorphoSys are both responsible for the commercialization efforts of tafasitamab in the United States and will share equally the profits and losses from the co-commercialization efforts.

For the three and six months ended June 30, 2022, our 50% share of the losses for tafasitamab was $2.5 million and $7.3 million, respectively, as recorded in collaboration loss sharing on the condensed consolidated statement of operations.

For the three and six months ended June 30, 2021, our 50% share of the losses for tafasitamab was $9.8 million and $20.3 million, respectively, as recorded in collaboration loss sharing on the condensed consolidated statement of operations.

For the three and nine months ended September 30, 2022, our 50% share of the losses for tafasitamab was $1.8 million and $9.1 million, respectively, as recorded in collaboration loss sharing on the condensed consolidated statement of operations.

For the three and nine months ended September 30, 2021, our 50% share of the losses for tafasitamab was $9.1 million and $29.5 million, respectively, as recorded in collaboration loss sharing on the condensed consolidated statement of operations.

Other income (expense)

Unrealized (loss) gain on long term investments.

Other income (expense), net .

Other income (expense), net for the three and nine months ended September 30, 2022 was $11.5 million and $13.3 million, respectively.

Other income (expense), net for the three and nine months ended September 30, 2021 was $1.9 million and $4.9 million, respectively.

The increase in other income (expense), net for the three and nine months ended September 30, 2022 primarily relates to an increase in interest income.

Unrealized loss on long term investments.

Unrealized gains and losses on long term investments will fluctuate from period to period, based on the change in fair value of the securities we hold in our publicly held collaboration partners.

The following table provides a summary of those unrealized gains and (losses):

For the Three Months Ended,

For the Six Months Ended,

(in millions)

Total unrealized (loss) gain on long term investments

The following table provides a summary of those unrealized losses:

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(in millions) (in millions)

Agenus $ 1.3 $ (2.8) $ (14.1) $ 29.1

Calithera — 0.2 (0.9) (4.6)

Merus (9.3) 3.3 (41.8) 13.3

MorphoSys 0.8 (27.3) (15.9) (60.2)

Syndax 6.8 — 3.1 —

Syros (0.3) (0.9) (2.5) (6.0)

Total unrealized loss on long term investments $ (0.7) $ (27.5) $ (72.1) $ (28.4)

Provision for income taxes.

The provision for income taxes for the three and six months ended June 30, 2022 was $67.9 million and $100.5 million, respectively.

The provision for income taxes for the three and six months ended June 30, 2021 and was $22.2 million and $38.0 million, respectively.

The provision for income taxes for the three and nine months ended September 30, 2022 was $35.8 million and $136.3 million, respectively.

The provision for income taxes for the three and nine months ended September 30, 2021 was $27.7 million and $65.7 million, respectively.

The provision for income taxes increased in 2022 as compared to that for the prior year period due to the release of our valuation allowance against a majority of our U.S.

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Liquidity and Capital Resources

Due to historical net losses, we had an accumulated deficit of $0.6 billion as of June 30, 2022.

Due to historical net losses, we had an accumulated deficit of $0.5 billion as of September 30, 2022.

We have funded our research and development operations through cash received from customers, sales of equity securities, the issuance of convertible notes, and collaborative arrangements.

At June 30, 2022, we had available cash, cash equivalents and marketable securities of $2.7 billion.

At September 30, 2022, we had available cash, cash equivalents and marketable securities of $3.0 billion.

Our cash and marketable securities balances are held in a variety of interest-bearing instruments, including money market accounts, and U.S.

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Available cash is invested in accordance with our investment policy’s primary objectives of liquidity, safety of principal and diversity of investments.

Net cash provided by operating activities for the six months ended June 30, 2022 and 2021 was $389.9 million and $379.0 million, respectively.

Net cash provided by operating activities for the nine months ended September 30, 2022 and 2021 was $686.3 million and $634.1 million, respectively.

The increase in cash provided by operating activities was due primarily to changes in working capital.

Our investing activities, other than purchases, sales and maturities of marketable securities, have consisted predominantly of capital expenditures and purchases of long term investments.

Net cash used in investing activities was $29.2 million for the six months ended June 30, 2022, which represented purchases of marketable securities of $44.0 million and capital expenditures of $28.7 million, offset in part by the sale and maturities of marketable securities of $43.5

Net cash used in investing activities was $108.9 million for the six months ended June 30, 2021, which represented purchases of marketable securities of $102.3 million, capital expenditures of $114.4 million, and purchases of long term equity investments of $8.7 million, offset in part by the sale of long term investment of $9.3 million and the sales and maturities of marketable securities of $107.1 million.

Net cash used in investing activities was $57.6 million for the nine months ended September 30, 2022, which represented purchases of marketable securities of $59.1 million and capital expenditures of $56.6 million, offset in part by the sale and maturities of marketable securities of $58.0 million.

Net cash used in investing activities was $141.7 million for the nine months ended September 30, 2021, which represented purchases of marketable securities of $228.2 million, capital expenditures of $146.5 million, and purchases of long term equity investments of $8.7 million, offset in part by the sale of long term investment of $10.5 million and the sales and maturities of marketable securities of $231.3 million.

In the future, net cash used by investing activities may fluctuate significantly from period to period due to the timing of strategic equity investments, acquisitions, and capital expenditures and maturities/sales and purchases of marketable securities.

Net cash provided by financing activities was $16.0 million for the six months ended June 30, 2022 and net cash provided by financing activities was $16.5 million for the six months ended June 30, 2021, primarily representing proceeds from the issuance of common stock under our stock plans, offset in part by cash paid to ARIAD/Takeda for contingent consideration.

Net cash provided by financing activities was $1.7 million for the nine months ended September 30, 2022 and net cash used in financing activities was $2.8 million for the nine months ended September 30, 2021, primarily representing proceeds from the issuance of common stock under our stock plans, offset in part by cash paid to ARIAD/Takeda for contingent consideration.

Our capital expenditures for construction activities are discussed in Note 8 of notes to our condensed consolidated financial statements.

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We may increase the maximum revolving commitments or add one or more incremental term loan facilities, subject to obtaining commitments from any participating lenders and certain other conditions, in an amount not to exceed $250.0 million plus a contingent additional amount that is dependent on our pro forma consolidated leverage ratio.

As of June 30, 2022, we had no outstanding borrowings and were in compliance with all covenants under this facility.

As of September 30, 2022, we had no outstanding borrowings and were in compliance with all covenants under this facility.

income tax payments will increase significantly due to the mandatory capitalization and amortization of research and development expenses for tax years beginning after December 31, 2021, as required under the Tax Cuts and Jobs Act of 2017, which eliminated the immediate expensing of such expenses.

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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 2. Management’s Discussion and Analysis