What changed in this filing

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Item 1. Financial Statements

2023-05-02 compared with 2022-11-01 · 124 added, 283 removed, 477 unchanged (46% of the section changed)

3 unchanged sentences

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

September 30,

2023 December 31,

1 unchanged sentence

Cash and cash equivalents $ 2,821,051 $ 2,951,422

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)

Marketable securities—available-for-sale (amortized cost $ 294,278 and $ 292,580 as of March 31, 2023 and December 31, 2022, respectively;

allowance for credit losses $ 0 as of March 31, 2023 and December 31, 2022)

291,661 287,543

3 unchanged sentences

Total current assets 3,971,633 4,092,850

Restricted cash and investments 1,601 1,720

Restricted cash 1,717 1,698

Long term investments 128,313 133,676

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400,000,000 shares authorized;

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

223,061,787 and 222,746,719 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 4,856,914 4,792,041

Accumulated other comprehensive loss ( 29,062 ) ( 19,454 )

Accumulated other comprehensive income 20,942 15,069

Accumulated deficit ( 415,511 ) ( 437,214 )

7 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Product revenues, net $ 693,237 $ 605,821

6 unchanged sentences

Selling, general and administrative 315,606 209,584

(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

Loss on change in fair value of acquisition-related contingent consideration 6,196 6,382

(Profit) and loss sharing under collaboration agreements ( 1,362 ) 4,742

Total costs and expenses 783,903 616,695

Income from operations 24,770 116,540

Other income (expense), net 11,513 1,948 13,295 4,931

Interest income and other, net 32,873 1,260

Interest expense ( 469 ) ( 680 )

14 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net income $ 21,703 $ 37,992

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 )

Other comprehensive income (loss):

Foreign currency translation gain (loss) 3,260 ( 782 )

Unrealized gain (loss) on marketable securities, net of tax 2,420 ( 3,093 )

Defined benefit pension gain, net of tax 193 282

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

Other comprehensive income (loss) 5,873 ( 3,593 )

Comprehensive income $ 27,576 $ 34,399

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Paid-in Capital Accumulated Other

Comprehensive Loss Accumulated

Comprehensive Income Accumulated

Deficit Total

4 unchanged sentences

Issuance of 1,073 shares of Common Stock for services rendered

— 112 — — 112

Stock compensation — 53,558 — — 53,558

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

Other comprehensive income — — 5,873 — 5,873

Net income — — — 21,703 21,703

Balance at March 31, 2023 $ 223 $ 4,856,914 $ 20,942 $ ( 415,511 ) $ 4,462,568

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 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

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

(unaudited, in thousands, except number of shares)

Stock Additional

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

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)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities:

6 unchanged sentences

Unrealized loss on long term investments 5,318 46,585

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

Loss on change in fair value of acquisition-related contingent consideration 6,196 6,382

Changes in operating assets and liabilities:

4 unchanged sentences

Accrued and other liabilities 71,900 53,787

Net cash provided by operating activities 686,279 634,137

Net cash (used in) provided by operating activities ( 105,603 ) 215,741

Cash flows from investing activities:

Purchase of long term investments — ( 8,662 )

Sale of long term investments 45 —

Capital expenditures ( 11,906 ) ( 17,006 )

Payments for intangible assets ( 15,000 ) —

Purchases of marketable securities ( 54,887 ) —

6 unchanged sentences

Payment of contingent consideration ( 6,424 ) ( 13,473 )

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

Net cash provided by financing activities 4,009 96

Effect of exchange rates on cash, cash equivalents, restricted cash and investments ( 199 ) 210

Net increase in cash, cash equivalents, restricted cash and investments 633,063 485,938

Net (decrease) increase in cash, cash equivalents, restricted cash and investments ( 130,352 ) 199,299

Cash, cash equivalents, restricted cash and investments at beginning of period 2,953,120 2,059,160

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

March 31, 2023

Organization and Business

Incyte Corporation (including its subsidiaries, “Incyte,” “we,” “us,” or “our”) is a biopharmaceutical company focused on developing and commercializing proprietary therapeutics.

Our portfolio includes compounds in various stages, ranging from preclinical to late stage development, and commercialized products JAKAFI® (ruxolitinib), ICLUSIG® (ponatinib), PEMAZYRE® (pemigatinib), OPZELURA™ (ruxolitinib cream), MINJUVI® (tafasitamab) and MONJUVI® (tafasitamab-cxix), which is co-commercialized.

Our portfolio includes compounds in various stages, ranging from preclinical to late stage development, and commercialized products JAKAFI® (ruxolitinib), ICLUSIG® (ponatinib), PEMAZYRE® (pemigatinib), OPZELURA™ (ruxolitinib cream), MINJUVI® (tafasitamab), MONJUVI® (tafasitamab-cxix), which is co-commercialized, and ZYNYZ™ (retifanlimab-dlwr).

Our operations are treated as one operating segment.

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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 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 as of March 31, 2023, the condensed consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for the three months ended March 31, 2023 and 2022, 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, 2022 has been derived from our audited consolidated financial statements.

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Actual results could differ from those estimates.

Other Intangible Assets, net.

Other intangible assets, net consist of licensed intellectual property rights acquired in business combinations, which are reported at acquisition date fair value, less accumulated amortization, as well as milestone payments made to collaboration partners incurred at or after the product has obtained regulatory approval.

Intangible assets with finite lives are amortized over their estimated useful lives using the straight-line method.

Intangible assets with finite lives are tested for recoverability whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.

Cost of Product Revenues.

Cost of product revenues includes all product related costs and royalties owed under our collaboration and license agreements, contingent on certain conditions.

In addition, cost of product revenues includes the amortization of our licensed intellectual property for ICLUSIG and the amortization of capitalized milestone payments, using the straight-line method over the respective estimated useful lives, which range between approximately 11 to 14 years.

Cost of product revenues also includes employee personnel costs, including stock compensation, for those employees dedicated to the production of our commercial products.

Recent Accounting Pronouncements

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

JAKAFI revenues, net $ 579,969 $ 544,464

7 unchanged sentences

TABRECTA product royalty revenues 4,177 3,483

PEMAZYRE product royalty revenues 412 —

Total product royalty revenues 115,436 122,414

5 unchanged sentences

Losses Estimated

September 30, 2022

March 31, 2023

Debt securities (government) $ 294,278 $ ( 2,617 ) $ 291,661

3 unchanged sentences

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

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.

As of March 31, 2023 and December 31, 2022, 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

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

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

At March 31, 2023 and December 31, 2022, 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 nine months ended September 30, 2022.

We did not experience any transfers of financial instruments between the fair value hierarchy levels during the three months ended March 31, 2023.

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):

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(Level 3) Balance as of

September 30, 2022

March 31, 2023

Cash and cash equivalents $ 2,821,051 $ — $ — $ 2,821,051

24 unchanged sentences

(Level 3) Balance as of

September 30, 2022

March 31, 2023

Acquisition-related contingent consideration $ — $ — $ 218,000 $ 218,000

14 unchanged sentences

Change in fair value of contingent consideration 6,196

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 %.

Balance at March 31, $ 218,000

The initial 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 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.

The valuation inputs utilized to estimate the fair value of the contingent consideration as of March 31, 2023 and December 31, 2022 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 loss on change in fair value of the contingent consideration during the three months ended March 31, 2023 was due primarily to the passage of time.

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.

At March 31, 2023 and December 31, 2022, contingent consideration earned but not yet paid was $ 9.2 million and $ 9.3 million, respectively, and was included in accrued and other current liabilities.

Concentration of Credit Risk and Current Expected Credit Losses

2 unchanged sentences

In December 2009, we entered into a license, development and commercialization agreement with Eli Lilly and Company (“Lilly”).

In December 2018, we entered into a research collaboration and licensing agreement with Innovent Biologics, Inc.

(“Innovent”).

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, 19 % and 36 % of the accounts receivable balance as of September 30, 2022 and December 31, 2021, respectively.

The above collaboration partners comprised, in aggregate, 18 % and 20 % of the accounts receivable balance as of March 31, 2023 and December 31, 2022, respectively.

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

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Product Revenues for the

Three Months Ended Percentage of Total Net

Product Revenues for the

Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Customer A 17 % 19 %

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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, 36 % and 31 % of the accounts receivable balance as of September 30, 2022 and December 31, 2021, respectively.

Customers A, B, C, D, and E comprised, in aggregate, 40 % and 41 % of the accounts receivable balance as of March 31, 2023 and December 31, 2022, 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 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.

We assessed our collaborative and customer receivable assets as of March 31, 2023 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 March 31, 2023 and December 31, 2022, we had no allowance for doubtful accounts.

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

September 30,

2023 December 31,

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

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.

At March 31, 2023, $ 40.9 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 March 31, 2023, $ 116.7 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.

The loss of a supplier, the deterioration of our relationship with a supplier, or any unilateral violation of the contractual terms under which we are supplied components by a supplier could adversely affect our total revenues and gross margins.

We capitalize inventory after U.S.

Food and Drug Administration (FDA) approval as the related costs are expected to be recoverable through the commercialization of the product.

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

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

We capitalize inventory after regulatory approval as the related costs are expected to be recoverable through the commercialization of the product.

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

At March 31, 2023, inventory with approximately $ 40.7 million of product costs incurred prior to regulatory approval had not yet been sold.

We expect to sell the pre-commercialization inventory over the next 24 months and, as a result, cost of product revenues will reflect a lower average per unit cost of materials.

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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, 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”).

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 September 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 advanced non-small cell lung cancer.

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.

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”).

Since the inception of the agreement through March 31, 2023, 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.

We also are eligible to receive tiered, double-digit royalties ranging from the upper-teens to the mid-twenties on future JAKAVI net sales outside of the United States, and tiered, worldwide royalties on TABRECTA net sales that range from 12 % to 14 %.

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 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.

During the three months ended March 31, 2023 and 2022, such royalties on net sales within the United States totaled $ 23.4 million and $ 21.7 million, respectively, and were reflected in cost of product revenues on the condensed consolidated statements of operations.

At March 31, 2023 and December 31, 2022, $ 276.9 million and $ 253.5 million, respectively, of accrued royalties were included in accrued and other current liabilities on the condensed consolidated balance sheets, payment of which is dependent on the outcome of a contract dispute with Novartis.

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.

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.

Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States for the three months ended March 31, 2023 and 2022 was $ 76.7 million and $ 70.9 million, respectively.

Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three months ended March 31, 2023 and 2022 was $ 4.2 million and $ 3.5 million, respectively.

Lilly – Baricitinib

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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 September 30, 2022.

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.

Since the inception of the agreement through March 31, 2023, 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.

We are also eligible to receive tiered, double-digit royalties 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.

As part of the amended agreement, in addition to the royalties described above, we will be entitled to receive additional royalty payments with rates in the low teens on global net sales of baricitinib for the treatment of COVID-19 that exceed a specified aggregate global net sales threshold.

In June 2022, we recognized a $ 40.0 million regulatory milestone for the FDA approval of OLUMIANT as a first-in-disease systemic treatment for adults with severe alopecia areata.

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.

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.

Product royalty revenue related to Lilly net sales of OLUMIANT outside of the United States for the three months ended March 31, 2023 and 2022 was $ 34.2 million and $ 48.1 million, respectively.

Lilly - Ruxolitinib

In March 2016, we entered into an amendment to the agreement with Lilly that amended the non-compete provision of the agreement to allow us to engage in the development and commercialization of ruxolitinib in the GVHD field.

Lilly is eligible to receive up to $ 40.0 million in regulatory milestone payments relating to ruxolitinib in the GVHD field.

Lilly was eligible to receive up to $ 40.0 million in regulatory milestone payments relating to ruxolitinib in the GVHD field.

In May 2019, the approval of JAKAFI in steroid-refractory acute GVHD triggered a $ 20.0 million milestone payment to Lilly.

In March 2022, the positive recommendation from the European Medicines Agency for regulatory approval of ruxolitinib in the GVHD field triggered an additional $ 20.0 million milestone payment to Lilly, which was recorded as research and development expense in our condensed consolidated statements of operations.

In January 2015, we entered into a License, Development and Commercialization Agreement with Agenus Inc.

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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.

In 2020, we sold an aggregate of approximately 3.7 million shares of Agenus Inc.’s common stock resulting in gross proceeds of approximately $ 17.2 million.

In 2021, we sold an aggregate of approximately 2.0 million shares of Agenus Inc.’s common stock resulting in gross proceeds of approximately $ 10.5 million.

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

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.

for the foreseeable future and therefore, are accounting for our shares held in Agenus Inc.

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 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.

Since the inception of the agreement through March 31, 2023, 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.

As of March 31, 2023, we held an investment of approximately 12.1 million shares of Agenus common stock.

The fair market value of our long term investment in Agenus at March 31, 2023 and December 31, 2022 was $ 18.3 million and $ 29.0 million, respectively.

For the three months ended March 31, 2023 and 2022, we recorded an unrealized loss of $ 10.6 million and $ 9.2 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.

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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 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 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.

We have elected the fair value option to account for our long term investment in Merus whereby the investment is marked to market through earnings in each reporting period.

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 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.

(“Calithera”).

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

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 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 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 January 2023, we paid Merus a milestone of $ 2.5 million, which was recorded as research and development expense in our condensed consolidated statements of operations during the three months ended March 31, 2023.

Since the inception of the agreement through March 31, 2023, we have paid and expensed Merus milestones totaling $ 5.5 million.

As of March 31, 2023, we held an investment of approximately 3.6 million common shares.

The fair market value of our total long term investment in Merus at March 31, 2023 and December 31, 2022 was $ 65.3 million and $ 54.9 million, respectively.

For the three months ended March 31, 2023 and 2022, we recorded an unrealized gain $ 10.4 million and an unrealized loss of $ 19.0 million, respectively, based on the change in fair value of Merus’ common shares 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.

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 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 July 2022, we amended our agreement with MacroGenics to reflect changes related to the payment of certain milestones and paid MacroGenics $ 30.0 million, which was previously recorded as research and development expense in our condensed consolidated statements of operations in the third quarter of 2022.

In March 2023, we made a $ 15.0 million regulatory milestone payment to MacroGenics for the FDA approval of ZYNYZ for the treatment of adults with Merkel cell carcinoma.

This milestone payment was capitalized as an intangible asset and included in Other intangible assets, net on the condensed consolidated balance sheet as of March 31, 2023, and will be amortized through cost of product revenues over the estimated useful life of 13.5 years.

Since the inception of the agreement through March 31, 2023, we have paid MacroGenics developmental and regulatory milestones totaling $ 115.0 million.

After the amendment and subsequent payments, MacroGenics will be eligible to receive up to an additional $ 320.0 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 months ended March 31, 2023 and 2022 also included $ 17.8 million and $ 13.5 million, respectively, of development costs incurred pursuant to the MacroGenics agreement.

At March 31, 2023 and December 31, 2022, a total of $ 1.3 million and $ 2.9 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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Syros is also eligible to receive low single-digit royalties on net sales of products resulting from the collaboration.

In addition, in 2018, we entered into a Stock Purchase Agreement with Syros, pursuant to which we purchased 0.8 million shares of Syros common stock for an aggregate purchase price of $ 10.0 million in cash, or $ 12.61 per share.

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.

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 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.

We are eligible to receive up to an additional $ 94.0 million in potential development and regulatory milestones.

We recognize development and regulatory milestones upon confirmation of achievement of the event, as development and regulatory approvals are events not controllable by us but rather development activities of Innovent and decisions made by regulatory agencies.

In March 2022, we recognized a $ 5.0 million milestone for approval of PEMAZYRE (pemigatinib) in China.

In the event of commercialization of the licensed molecule, we are eligible to receive up to $ 202.5 million in potential sales milestones from Innovent.

We will recognize sales milestones in the corresponding period of the product sale upon confirmation of net sales milestone threshold achievement by Innovent.

We are also eligible to receive tiered royalties from the high-teens to the low-twenties on future sales of products resulting from the collaboration.

We retain an option to assist in the promotion of the three product candidates in the Innovent territories.

In July 2019, we entered into a Collaboration and License Agreement with Zai Lab.

Under the terms of this agreement, Zai Lab received development and exclusive commercialization rights to INCMGA0012 in hematology and oncology in mainland China, Hong Kong, Macau and Taiwan.

The agreement allows for Zai Lab to continue development of the licensed molecule and to submit the licensed molecule to authorities for regulatory approval within the agreement territory, upon which we are eligible for up to $ 22.5 million in potential development and regulatory milestones.

In the event of commercialization of the licensed molecule, we are eligible to receive up to $ 37.5 million in potential sales milestones from Zai Lab.

We will recognize sales milestones in the corresponding period of the product sale upon confirmation of net sales milestone threshold achievement by Zai Lab.

We are also eligible to receive tiered royalties from the low to mid-twenties on future product sales resulting from the collaboration.

We also retain an option to assist in the promotion of INCMGA0012 in Zai Lab’s licensed territories.

In January 2020, we entered into a Collaboration and License Agreement with MorphoSys AG and MorphoSys US Inc., a wholly-owned subsidiary of MorphoSys AG (together with MorphoSys AG, “MorphoSys”), covering the worldwide development and commercialization of MOR208 (tafasitamab), an investigational Fc engineered monoclonal antibody directed against the target molecule CD19 that is currently in clinical development by MorphoSys.

As of March 31, 2023, we held an investment of 93,753 shares of Syros common stock.

The fair market value of our long term investment in Syros as of March 31, 2023 and December 31, 2022 was $ 0.3 million and $ 0.3 million, respectively.

For the three months ended March 31, 2023 and 2022, we recorded an unrealized loss of $ 0.1 million and $ 1.9 million, respectively, based on the change in fair value of Syros’ common stock during the respective periods.

MorphoSys has exclusive worldwide development and commercialization rights to tafasitamab under a June 2010 collaboration and license agreement with Xencor, Inc.

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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 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 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.

Under the terms of this agreement, Nimble will utilize their peptide synthesis, screening and optimization platform for discovery and validation of peptides against specified targets.

Under the agreement, Nimble is eligible to receive up to $ 8.0 million in future contingent discovery milestones and up to $ 127.0 million in future contingent development and regulatory milestones.

Additionally, in the event of successful commercialization, Nimble is eligible to receive up to $ 130.0 million in future contingent sales milestones and tiered royalties on net sales in the low single digits.

In August 2021, we entered into a Collaboration and License Agreement with Sunny Investments Limited, a wholly-owned subsidiary of InnoCare Pharma Limited (“InnoCare”).

InnoCare received development and exclusive commercialization rights to tafasitamab in hematology and oncology in mainland China, Hong Kong, Macau and Taiwan.

In September 2021, we recognized an upfront payment under this agreement of $ 35.0 million upon our transfer of technology related to the licensed product candidate to InnoCare, which was recorded in milestone and contract revenues on the consolidated statement of operations for the year ended December 31, 2021.

Under the terms of this agreement, we are eligible to receive up to an additional $ 82.5 million in potential development, regulatory and commercial milestones.

In the event of commercialization, we will recognize sales milestones in the corresponding period of the product sale upon confirmation of net sales milestone threshold achievement by InnoCare.

Since the inception of the agreement through March 31, 2023, we have paid MorphoSys milestones totaling $ 2.5 million, all of which have previously been recorded as research and development expenses.

As of March 31, 2023, we held an investment of approximately 3.6 million American Depository Shares, each representing 0.25 of an ordinary share of MorphoSys.

The fair market value of our long term investment in MorphoSys as of March 31, 2023 and December 31, 2022 was $ 14.4 million and $ 13.0 million, respectively.

For the three months ended March 31, 2023 and 2022, we recorded an unrealized gain of $ 1.4 million and an unrealized loss of $ 9.6 million, respectively, based on the change in fair value of MorphoSys’ ordinary shares during the respective periods.

Our 50 % share of the United States profit or loss for the commercialization of tafasitamab for the three months ended March 31, 2023 was a profit of $ 1.4 million, and was a $ 4.7 million loss for the three months ended March 31, 2022, and is recorded as (profit) and loss sharing under collaboration agreements on the condensed consolidated statement of operations.

Research and development expenses for the three months ended March 31, 2023 and 2022, includes $ 25.2 million and $ 21.0 million, respectively, related to our 55 % share of the co-development costs for tafasitamab.

At March 31, 2023 and December 31, 2022, $ 27.1 million and $ 28.5 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 2021, we entered into a Collaboration and License Agreement with Syndax Pharmaceuticals, Inc.

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Syndax’ 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 axatilimab in that country, and (c) the expiration of any regulatory exclusivity for that licensed product in that country.

In addition, under the terms of the agreement and pursuant to a related stock purchase agreement, we purchased approximately 1.4 million shares of Syndax common stock for an aggregate purchase price of $ 35.0 million, or $ 24.62 per share.

We completed the purchase of the shares on December 9, 2021 when the closing price on The Nasdaq Stock Market was $ 17.48 per share.

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 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 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.

Maruho will receive the rights to develop, manufacture and exclusively commercialize ruxolitinib cream, and other potential future topical formulations of ruxolitinib, in autoimmune and inflammatory dermatologic diseases, including vitiligo and atopic dermatitis, in Japan.

Under the terms of the agreement, we received an upfront payment from Maruho which was deferred and recorded in other liabilities on the condensed consolidated balance sheet and we are eligible to receive additional potential development, regulatory and commercial milestones and royalties on net sales of the licensed product in Japan.

As of March 31, 2023, we held an investment of approximately 1.4 million shares of Syndax common stock.

The fair market value of our long term investment in Syndax as of March 31, 2023 and December 31, 2022 was $ 30.0 million and $ 36.2 million.

For the three months ended March 31, 2023 and 2022, we recorded an unrealized loss of $ 6.2 million and $ 6.4 million, respectively, based on the change in fair value of Syndax’s common stock during the respective periods.

Other Agreements

In addition to the license and collaboration agreements discussed above, we have various other license and collaboration agreements that are not individually material to our operating results or financial condition at this time.

Pursuant to the terms of those agreements, we may be required to pay, or we may receive, additional amounts contingent upon the occurrence of various future events such as future discovery, development, regulatory or commercial milestones, which in the aggregate could be material.

In addition, if any products related to these collaborations are approved for sale, we may be required to pay, or we may receive, royalties on future sales.

The payment or receipt of these amounts, however, is contingent upon the occurrence of various future events, the likelihood of which cannot presently be determined.

Property and Equipment, net

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

September 30,

2023 December 31,

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Property and equipment, net $ 741,701 $ 739,310

In March 2017, we acquired additional adjacent buildings to our global headquarters in Wilmington, Delaware and in 2019, began demolition of these buildings and construction of a new laboratory and office building totaling approximately 200,000 square feet.

The certificate of occupancy was received in December 2021 and we capitalized approximately $ 158.2 million in building and office equipment that was previously included in construction in progress as of December 31, 2021.

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.

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

In June 2019, we obtained control of the Morges building to begin our construction activity, which was completed in 2020.

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 September 30, 2022 relating to Morges.

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

The land was purchased, in cash, for approximately $ 4.8 million.

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

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.

Accrued and Other Current Liabilities

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

September 30,

2023 December 31,

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Stock Compensation

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 recorded $ 53.4 million and $ 43.8 million of stock compensation expense on our condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022, respectively.

Stock compensation expense included within our condensed consolidated statements of operations included research and development expense of $ 31.0 million and $ 26.3 million for the three months ended March 31, 2023 and 2022, respectively.

Stock compensation expense included within our condensed consolidated statements of operations also included selling, general and administrative expense of $ 21.6 million and $ 16.9 million for the three months ended March 31, 2023 and 2022, respectively.

Stock compensation expense included within our condensed consolidated statements of operations also included cost of product revenues of $ 0.8 million and $ 0.6 million for the three months ended March 31, 2023 and 2022, respectively.

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

September 30, September 30,

For the Three Months Ended For the Three Months Ended

March 31, March 31,

2023 2022 2023 2022

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Options cancelled ( 544,806 ) $ 95.30

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

Balance at March 31, 2023 12,419,055 $ 87.06

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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RSUs granted 577,956 $ 83.12

PSUs granted 154,685 77.67

RSUs released ( 140,791 ) $ 78.04

PSUs released ( 184,401 ) 69.25

RSUs cancelled ( 73,338 ) $ 81.34

PSUs cancelled ( 971 ) $ 106.47

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

Balance at March 31, 2023 5,550,448 $ 81.52

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 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.

For the three months ended March 31, 2023 and 2022, we recorded $ 6.5 million and $ 1.8 million, respectively, 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 cancelled 692,169

Balance at September 30, 2022 4,780,305

Balance at March 31, 2023 4,071,475

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 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.

In the fourth quarter of 2021, we assessed the valuation allowance and considered positive evidence, including significant cumulative consolidated and U.S.

income over the three years ended December 31, 2021, consistent growth in product revenues, and expectations regarding future profitability.

We also assessed negative evidence, including the potential impact of competition, clinical failures and patent expirations on our projections.

After assessing both the positive evidence and negative evidence, we determined it was more likely than not that the majority of our U.S.

deferred tax assets would be realized in the future and released the associated valuation allowance as of December 31, 2021.

This resulted in a benefit of $ 569.0 million.

As of December 31, 2021, we maintained a valuation allowance of $ 408.2 million against a portion of our remaining U.S.

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 $ 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.

Total compensation cost of options granted but not yet vested, as of March 31, 2023, was $ 42.3 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 March 31, 2023, was $ 202.8 million, which is expected to be recognized over the weighted average period of approximately 1.8 years.

Total compensation cost of PSUs granted but not yet vested, as of March 31, 2023, was $ 24.1 million, which is expected to be recognized over the weighted average period of 1.7 years, should the underlying performance conditions be deemed probable of achievement.

For the three months ended March 31, 2023 and 2022, we recorded the following provisions for income taxes and effective tax rates as compared to our income before provision for income taxes:

Three Months Ended

Income before provision for income taxes $ 51,856 $ 70,535

Provision for income taxes 30,153 32,543

Effective tax rate 58.1 % 46.1 %

Our effective tax rate for both of the three months ended March 31, 2023 and 2022 was higher than the U.S.

statutory rate primarily due to foreign losses with no associated tax benefit (i.e., full valuation allowance).

While the tax expense for the three months ended March 31, 2023 decreased marginally as compared to that for the prior year period, the effective tax rate increased as a result of lower U.S.

earnings, while unbenefited foreign losses remained flat.

The balance of our unrecognized tax benefits (including penalties and interest) increased by approximately $ 2.7 million during the three months ended March 31, 2023, 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.

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Basic net income $ 21,703 $ 37,992

8 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Outstanding stock options and awards 10,078,342 11,116,177

4 unchanged sentences

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 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 contribution expense for the three months ended March 31, 2023 and 2022 was $ 5.6 million and $ 4.9 million, respectively.

Defined Benefit Pension Plans

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Service cost $ 2,088 $ 2,522

4 unchanged sentences

Net periodic benefit cost $ 1,358 $ 1,797

The components of net periodic benefit cost other than the service cost component are included in other income (expense), net on the condensed consolidated statements of operations.

The components of net periodic benefit cost other than the service cost component are included in Interest income and other, net on the condensed consolidated statements of operations.

We expect to contribute a total of $ 8.0 million to the pension plans in 2023 inclusive of the amounts contributed to the plan during the current period.

5 unchanged sentences

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