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Item 2. Management’s Discussion and Analysis

2023-05-02 compared with 2022-11-01 · 176 added, 206 removed, 603 unchanged (39% 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 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.

The following discussion of our financial condition and results of operations as of and for the three months ended March 31, 2023 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, 2022 included in our Annual Report on Form 10-K for the year ended December 31, 2022 previously filed with the SEC.

Forward-Looking Statements

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These forward-looking statements include statements as to:

• the discovery, development, formulation, manufacturing and commercialization of our compounds, our drug candidates and JAKAFI ® /JAKAVI ® (ruxolitinib), PEMAZYRE ® (pemigatinib), ICLUSIG ® (ponatinib), MONJUVI ® (tafasitamab-cxix) /MINJUVI ® (tafasitamab), and OPZELURA™ (ruxolitinib) cream;

• our plans to further develop our operations outside of the United States;

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• the risk that previous preclinical testing or clinical trial results are not necessarily indicative of future clinical trial results;

• risks relating to the conduct of our clinical trials;

• risks relating to the conduct of our clinical trials, including geopolitical risks;

• changing regulatory requirements;

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In this report all references to “Incyte,” “we,” “us,” “our” or the “Company” mean Incyte Corporation and our subsidiaries, except where it is made clear that the term means only the parent company.

Incyte, JAKAFI and PEMAZYRE are our registered trademarks and OPZELURA is our trademark.

Incyte, JAKAFI and PEMAZYRE are our registered trademarks and OPZELURA and ZYNYZ are our trademarks.

We also refer to trademarks of other corporations and organizations in this Quarterly Report on Form 10-Q.

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Our global headquarters is located in Wilmington, Delaware, where we conduct global clinical development and commercial operations.

We also conduct clinical development and commercial operations from our country offices across Europe, including our European headquarters in Morges, Switzerland, our Japanese office in Tokyo and our Canadian headquarters in Montreal.

We also conduct clinical development and commercial operations from our European headquarters in Morges, Switzerland and our other offices across Europe, as well as our Japanese office in Tokyo and our Canadian headquarters in Montreal.

As described in more detail below, we operate in two therapeutic areas that are defined by the indications of our approved medicines and the diseases for which our clinical candidates are being developed.

One therapeutic area is Hematology/Oncology, which is comprised of Myeloproliferative Neoplasms (MPNs), Graft-Versus-Host Disease (GVHD), as well as solid tumors and hematologic malignancies.

The other therapeutic area is Inflammation and Autoimmunity (IAI), which includes our newly established Dermatology commercial franchise.

One therapeutic area is Hematology/Oncology, which comprises Myeloproliferative Neoplasms (MPNs), Graft-Versus-Host Disease (GVHD), and solid tumors and hematologic malignancies.

The other therapeutic area is Inflammation and Autoimmunity (IAI), which includes our Dermatology commercial franchise.

We are also eligible to receive milestones and royalties on molecules discovered by us and licensed to third parties.

Hematology and Oncology

Our hematology and oncology franchise is comprised of four approved products, which are JAKAFI (ruxolitinib), MONJUVI (tafasitamab-cxix)/MINJUVI (tafasitamab), PEMAZYRE (pemigatinib) and ICLUSIG (ponatinib), as well as numerous clinical development programs.

Our hematology and oncology franchise comprises five approved products, which are JAKAFI (ruxolitinib), MONJUVI (tafasitamab-cxix)/MINJUVI (tafasitamab), PEMAZYRE (pemigatinib), ICLUSIG (ponatinib) and ZYNYZ (retifanlimab-dlwr), as well as numerous clinical development programs.

JAKAFI (ruxolitinib)

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It was approved by the U.S.

Food and Drug Administration (FDA) in November 2011 for the treatment of adults with intermediate or high-risk myelofibrosis (MF), in December 2014 for the treatment of adults with polycythemia vera (PV) who have had an inadequate response to or are intolerant of hydroxyurea, in May 2019 for the treatment of steroid-refractory acute graft-versus-host disease (GVHD) in adult and pediatric patients 12 years and older and in September 2021 for the treatment of chronic GVHD after failure of one or two lines of systemic therapy in adult and pediatric patients 12 years and older .

Myelofibrosis and polycythemia vera are both myeloproliferative neoplasms (MPNs), a type of rare blood cancer, and GVHD is an adverse immune response to an allogeneic hematopoietic stem cell transplant (HSCT).

Food and Drug Administration (FDA) in November 2011 for the treatment of adults with intermediate or high-risk myelofibrosis (MF);

in December 2014 for the treatment of adults with polycythemia vera (PV) who have had an inadequate response to or are intolerant of hydroxyurea;

in May 2019 for the treatment of steroid-refractory acute graft-versus-host disease (GVHD) in adult and pediatric patients 12 years and older;

and in September 2021 for the treatment of chronic GVHD after failure of one or two lines of systemic therapy in adult and pediatric patients 12 years and older .

MF and PV are both myeloproliferative neoplasms (MPNs), a type of rare blood cancer, and GVHD is an adverse immune response to an allogeneic hematopoietic stem cell transplant (HSCT).

Under our collaboration agreement with our collaboration partner Novartis Pharmaceutical International Ltd., Novartis received exclusive development and commercialization rights to ruxolitinib outside of the United States for all hematologic and oncologic indications and sells ruxolitinib outside of the United States under the name JAKAVI.

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We hold patents that cover the composition of matter and use of ruxolitinib.

These patents, including applicable extensions, currently expire in mid-2028.

A determination of pediatric exclusivity would add six months to the expiration.

These patents, including applicable extensions, currently expire in mid-2028 and late-2028.

In December 2022, we were granted pediatric exclusivity which adds six months to the expiration for all ruxolitinib patents listed in FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (Orange Book) as of the date of the grant.

MONJUVI (tafasitamab-cxix) / MINJUVI (tafasitamab)

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The most frequent serious adverse reactions were infections (26%), including pneumonia (7%) and febrile neutropenia (6%).

Updated three-year data from L-MIND were presented at the American Society of Clinical Oncology (ASCO) 2021.

Updated three-year data from L-MIND were presented at the American Society of Clinical Oncology (ASCO) 2021 and final five-year data were presented at the American Association for Cancer Research (AACR) 2023, which showed that the Monjuvi plus lenalidomide regimen followed by Monjuvi monotherapy provided prolonged, durable responses in adult patients with r/r DLBCL.

In August 2020, we and MorphoSys announced that MONJUVI in combination with lenalidomide had been included in the latest National Comprehensive Cancer Network (NCCN) Clinical Practice Guidelines in Oncology for B-cell Lymphomas.

In August 2021, we and MorphoSys announced that the European Commission granted conditional marketing authorization for MINJUVI (tafasitamab) in combination with lenalidomide, followed by MINJUVI monotherapy, for the treatment of adult patients with relapsed or refractory DLBCL who are not eligible for autologous stem cell transplant (ASCT).

In August 2021, we and MorphoSys announced that the European Commission (EC) granted conditional marketing authorization for MINJUVI (tafasitamab) in combination with lenalidomide, followed by MINJUVI monotherapy, for the treatment of adult patients with relapsed or refractory DLBCL who are not eligible for autologous stem cell transplant (ASCT).

The conditional approval was based on the three-year results from the L-MIND study evaluating the safety and efficacy of MINJUVI in combination with lenalidomide as a treatment for patients with r/r DLBCL who are not eligible for ASCT.

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NICE’s guidance enables all eligible patients in England and Wales to have access to PEMAZYRE through the National Health Service (NHS).

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.

Cholangiocarcinoma is a rare cancer that arises from the cells within the bile ducts.

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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 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.

In March 2023, PEMAZYRE was approved by the MHLW for the treatment of MLNs with FGFR1 fusion.

ICLUSIG (ponatinib)

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or who have the T315I mutation.

ZYNYZ (retifanlimab-dlwr)

In October 2017, we and MacroGenics, Inc.

announced an exclusive global collaboration and license agreement for MacroGenics’ retifanlimab (formerly INCMGA0012), an investigational monoclonal antibody that inhibits PD-1.

Under this collaboration, we obtained exclusive worldwide rights for the development and commercialization of retifanlimab in all indications.

The molecule is currently being evaluated both as monotherapy and in combination therapy across various tumor types.

Two Phase III trials evaluating retifanlimab in squamous cell anal cancer (SCAC) and non-small cell lung cancer (NSCLC) are ongoing.

In March 2023, we announced that the FDA approved ZYNYZ (retifanlimab-dlwr), a humanized monoclonal antibody targeting programmed death receptor-1 (PD-1), under accelerated approval, for the treatment of adults with metastatic or recurrent locally advanced Merkel cell carcinoma (MCC).

This represents the first regulatory approval for our PD-1 inhibitor.

Clinical Programs in Hematology and Oncology

In early 2023, as part of our efforts to continuously optimize our R&D portfolio, we prioritized several programs in dermatology and oncology that we determined to have high potential value.

As part of this process, we also de-prioritized and discontinued certain programs, including parsaclisib in myelofibrosis and warm hemolytic anemia, as well as certain early stage programs.

As part of our ongoing LIMBER (Leadership In MPNs BEyond Ruxolitinib) clinical development initiative, which is designed to improve and expand therapeutic options for patients with myeloproliferative neoplasms, we are evaluating combinations of ruxolitinib with other therapeutic modalities, as well as developing a once-a-day formulation of ruxolitinib for potential use as monotherapy and combination therapy.

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 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 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 GRAVITAS-309 trial, we determined that a pivotal trial was unlikely to be successful.

In March 2023, the FDA issued a complete response letter for ruxolitinib extended-release (XR) tablets for once-daily (QD) use in the treatment of certain types of MF, PV and GVHD.

The complete response letter stated that the FDA could not approve the application in its present form but acknowledged that the study submitted in the NDA met its objective of bioequivalence based on area under the curve parameters but identified additional requirements for approval.

We will work with the FDA to determine the appropriate next steps.

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 recently announced the discontinuation of LIMBER-304 and LIMBER-313, two Phase III studies evaluating ruxolitinib in combination with parsaclisib in MF patients with a suboptimal response to ruxolitinib monotherapy and in first-line MF, respectively.

These studies were discontinued as a result of planned interim analyses which indicated that the studies were unlikely to meet their primary endpoint in the intent-to-treat patient population.

The recommendation to stop the studies was not due to safety.

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 ruxolitinib in patients with newly-diagnosed cGVHD.

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

INCA033989 (mCALR)

In December 2022, new research detailing the development and mechanism of action of INCA033989, an Incyte-discovered, investigational novel anti-mutant calreticulin (CALR)-targeted monoclonal antibody, was featured in the Plenary Scientific Session at the 64th American Society of Hematology (ASH) Annual Meeting.

INCA033989 binds with high affinity to mutant CALR and inhibits oncogenesis, the process of cells becoming cancerous, in cells expressing this oncoprotein.

CALR mutations are responsible for disease development in approximately 25-35% of patients with MF and ET.

INCA033989 is expected to enter clinical studies in 2023.

Tafasitamab is an anti-CD19 antibody and is being investigated as a therapeutic option in B cell malignancies in a number of ongoing and planned combination trials.

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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.

In January 2021, the FDA granted orphan drug designation to tafasitamab as a treatment for patients with follicular lymphoma.

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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.

Based on findings from this study, we have identified populations that may potentially benefit from treatment with pemigatinib and a Phase II trial, FIGHT-209, in patients with glioblastoma is ongoing.

Pemigatinib has Breakthrough Therapy designation as a treatment for patients with myeloid/lymphoid neoplasms (MLN) with FGFR1 rearrangement who have relapsed or are refractory to initial chemotherapy.

The PI3Kδ pathway mediates oncogenic signaling in B cell malignancies.

Parsaclisib is a PI3Kδ inhibitor that has demonstrated potency and selectivity in preclinical studies and has potential therapeutic utility in the treatment of patients with lymphoma.

We initiated the CITADEL clinical program to evaluate parsaclisib in non-Hodgkin lymphomas, including Phase II trials in follicular lymphoma, marginal zone lymphoma and mantle cell lymphoma.

The FDA granted orphan drug designation and Fast Track designation to parsaclisib as a treatment for patients with follicular lymphoma, marginal zone lymphoma and mantle cell lymphoma.

In December 2020, we announced preliminary results from the ongoing CITADEL monotherapy development program, which was designed to enable registration of parsaclisib.

Results from four cohorts were presented at the American Society of Hematology (ASH), including in r/r follicular lymphoma (CITADEL-203), in BTK-naïve r/r marginal zone lymphoma (CITADEL-204) and in both BTK-naïve and BTK-experienced r/r mantle cell lymphoma (CITADEL-205).

In October 2021, we announced the FDA acceptance of an NDA seeking approval of parsaclisib for the treatment of patients with relapsed or refractory follicular lymphoma, marginal zone lymphoma and mantle cell lymphoma.

The submission was based on data from several Phase II studies (CITADEL-203, -204 and -205) evaluating parsaclisib as a treatment for relapsed or refractory non-Hodgkin lymphomas (follicular, marginal zone and mantle cell).

In January 2022, we announced that we withdrew the NDA seeking approval of parsaclisib for the three indications in non-Hodgkin lymphoma.

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 (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.

In June 2021, data from the Phase II trial were presented at EHA.

The majority of patients achieved a response with parsaclisib over the initial 12-week treatment period and treatment with parsaclisib was generally well tolerated.

Based on these results, we initiated a Phase III trial (PATHWAY) in warm AIHA.

The FDA has granted orphan drug designation to parsaclisib as a treatment for patients with AIHA.

In October 2017, we and MacroGenics, Inc.

announced an exclusive global collaboration and license agreement for MacroGenics’ retifanlimab (formerly INCMGA0012), an investigational monoclonal antibody that inhibits PD-1.

Under this collaboration, we obtained exclusive worldwide rights for the development and commercialization of retifanlimab in all indications.

The molecule is currently being evaluated both as monotherapy and in combination therapy across various tumor types.

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 squamous cell carcinoma of the anal canal (SCAC) is underway.

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 ongoing.

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.

The Phase III POD1UM-304 trial is evaluating retifanlimab in combination with platinum-based chemotherapy as a first-line treatment for patients with non-small cell lung cancer (NSCLC), and in October 2020, our collaboration partner Zai Lab announced dosing of the first patient in China.

Retifanlimab has been granted Fast Track designation for the treatment of certain patients with advanced or metastatic MSI-H or DNA mismatch repair (dMMR) endometrial cancer, for the treatment of certain patients with locally advanced or metastatic SCAC and for the treatment of Merkel cell carcinoma (MCC).

The FDA and EMA have granted orphan drug designation to retifanlimab as a treatment for patients with locally advanced or metastatic SCAC and the FDA has granted orphan drug designation to retifanlimab as a treatment for patients with MCC.

The Phase III POD1UM-304 trial is evaluating retifanlimab in combination with platinum-based chemotherapy as a first-line treatment for patients with non-small cell lung cancer (NSCLC).

In November 2021, we highlighted Phase I clinical safety and efficacy data for our oral PD-L1 program which included two compounds, INCB99280 and INCB99318.

Tumor shrinkage was observed for both oral PD-L1 inhibitors and both were generally well tolerated.

We plan to evaluate INCB99280 in Phase II as monotherapy and in combination with other antitumor agents.

Further dose escalation and dose expansion trials are ongoing with INCB99318.

In November 2022, (i) updated safety and preliminary efficacy data for INCB99280 and INCB99318 was presented at the Society for Immunotherapy of Cancer, and (ii) we and Mirati Therapeutics, Inc.

announced a clinical trial collaboration and supply agreement to investigate the combination of INCB99280 and adagrasib, a KRASG12C selective inhibitor, in patients with KRASG12C-mutated solid tumors.

Indication and status

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

NDA under review

ruxolitinib + parsaclisib

(JAK1/JAK2 + PI3Kδ)

Myelofibrosis:

Phase III (first-line therapy) (LIMBER-313)

ruxolitinib XR (QD) (JAK1/JAK2) Myelofibrosis, polycythemia vera and GVHD

ruxolitinib + zilurgisertib (JAK1/JAK2 + ALK2)

Myelofibrosis:

Phase III (suboptimal responders to ruxolitinib) (LIMBER-304)

ruxolitinib + INCB57643

(JAK1/JAK2 + BET)

ruxolitinib + INCB57643 (JAK1/JAK2 + BET)

Myelofibrosis:

ruxolitinib + INCB00928

(JAK1/JAK2 + ALK2) Myelofibrosis:

ruxolitinib + CK0804 1

(JAK1/JAK2 + CB-Tregs)

ruxolitinib + CK0804 1 (JAK1/JAK2 + CB-Tregs)

Myelofibrosis:

PoC (LIMBER-TREG108)

Phase I (LIMBER-TREG108)

axatilimab (anti-CSF-1R) 2

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Pivotal Phase II (third-line plus therapy) (AGAVE-201)

ruxolitinib + axatilimab (JAK1/JAK2 + anti-CSF-1R) Chronic GVHD:

Phase I/II in preparation

INCA033989 (mCALR) Myelofibrosis, essential thrombocythemia:

Entering clinic in 2023

tafasitamab (CD19) 3

Phase II (L-MIND);

Phase III (B-MIND)

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Phase III (inMIND)

r/r B-cell malignancies:

PoC with lenalidomide and plamotamab 4

pemigatinib (FGFR1/2/3) CCA:

pemigatinib (FGFR1/2/3) Myeloid/lymphoid neoplasms (MLN):

approved in the U.S.

Phase III (FIGHT-302)

Myeloid/lymphoid neoplasms (MLN):

Phase II (FIGHT-203);

approved in the United States

Glioblastoma:

Phase II (FIGHT-209)

Phase II (FIGHT-210)

parsaclisib (PI3Kδ) Warm autoimmune hemolytic anemia:

Phase III (PATHWAY)

retifanlimab (PD-1) 4

Merkel cell carcinoma:

approved in the U.S.

Phase III (PODIUM-303)

Phase III (POD1UM-304)

MSI-high endometrial cancer:

Phase II (POD1UM-101, POD1UM-204)

Merkel cell carcinoma:

Phase II (POD1UM-201)

Phase III (POD1UM-304)

INCB99280 (Oral PD-L1) Solid tumors:

KRASG12C-mutated solid tumors:

Phase I/Ib in combination with adagrasib 5 , in preparation

INCB99318 (Oral PD-L1)

Solid tumors:

Development collaboration with Cellenkos, Inc.

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tafasitamab development in collaboration with MorphoSys.

Clinical collaboration with MorphoSys and Xencor, Inc.

to investigate the combination of tafasitamab plus lenalidomide in combination with Xencor’s CD20xCD3 XmAb bispecific antibody, plamotamab.

retifanlimab licensed from MacroGenics.

Clinical trial collaboration and supply agreement with Mirati Therapeutics.

Earlier-Stage Development Programs in Hematology and Oncology

In November 2021, we highlighted Phase I clinical safety and efficacy data for our oral PD-L1 program which included three compounds, INCB86550, INCB99280 and INCB99318.

Tumor shrinkage was observed for all three oral PD-L1 inhibitors.

With regard to safety, both INCB99280 and INCB99318 did not show peripheral neuropathy seen with INCB86550.

In May 2022, the decision was made to prioritize the development of INCB99280 and INCB99318 based on positive therapeutic ratios.

INCB123667 (CDK2)

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INCB123667 is a novel, potent and selective oral small molecule inhibitor of CDK2 which has been shown to suppress tumor growth as monotherapy and in combination with standard of care, in Cyclin E amplified tumor models, in vivo.

In July 2022, we initiated a Phase I dose-escalation and dose-expansion study evaluating INCB123667 in adults with selected advanced or metastatic solid tumors.

In April 2023, we presented data at the American Association for Cancer Research (AACR) Annual Meeting, demonstrating INCB123667 exhibited significant single-agent activity in vivo, in CCNE1high breast cancer xenograft and patient-derived xenograft models.

INCB123667 is currently being evaluated in a Phase I clinical trial in patients with advanced malignancies including CCNE1high TNBC and HR+HER2- tumors post-CDK4/6 inhibitors.

INCA32459 (LAG-3xPD-1)

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

In collaboration with Merus N.V.

we have developed INCA32459, a novel LAG3xPD-1 bispecific antibody that is currently being evaluated in clinical studies.

INCA33890 (TGFβR2xPD-1)

INCA33890 is a TGFβR2xPD-1 bispecific antibody which has been engineered to avoid the known toxicity of broad TGFβ pathway blockade.

INCA33989 has a 10-fold higher binding affinity for PD-1 relative to TGFβR2, and blocks TGFβ signaling specifically in cells co-expressing PD-1.

In April 2023, we presented preclinical data at AACR which showed INCA33890 inhibits tumor growth in PD-1-resistant mouse models.

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

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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), INCAGN2390 (TIM-3), INCA00186 (CD73)

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

Small molecules INCB123667 (CDK2)

Monoclonal antibodies INCAGN2385 (LAG-3) 1 , INCAGN2390 (TIM-3) 1

Bispecific antibodies INCA32459 (LAG-3xPD-1) 2 , INCA33890 (TGFβR2xPD-1) 2

Discovery collaboration with Agenus Inc.

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Inflammation and AutoImmunity (IAI)

Incyte Dermatology launched its first approved product, OPZELURA (ruxolitinib) cream, in October 2021, following FDA approval in September 2021.

Incyte Dermatology launched its first approved product, OPZELURA (ruxolitinib) cream, in October 2021, following FDA approval for atopic dermatitis in September 2021.

OPZELURA was subsequently approved by the FDA and European Commission for vitiligo in July 2022 and April 2023, respectively.

Incyte’s IAI efforts also include numerous clinical development programs.

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The most common (>1%) treatment-emergent adverse reactions in patients treated with OPZELURA were application site acne, application site pruritus, nasopharyngitis, headache, urinary tract infection, application site erythema and pyrexia.

In March 2023, at the American Academy of Dermatology (AAD), long-term 104-week safety and efficacy data for ruxolitinib cream in vitiligo were presented, demonstrating that patients who achieved a high level of facial repigmentation (≥F-VASI90) at Week 52 maintained durable response one year following withdrawal of treatment and that those patients who continued treatment with Opzelura for up to two years demonstrated sustained facial repigmentation and further improvements in facial and total body repigmentation.

In April 2023, we announced that the European Commission approved OPZELURA for the topical treatment of nonsegmental vitiligo with facial involvement in adults and adolescents 12 years and older following a positive opinion from the Committee for Medicinal Products for Human Use (CHMP).

Clinical Programs in Dermatology

Ruxolitinib cream

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, chronic hand eczema, lichen planus and lichen sclerosus.

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, lichen planus, lichen sclerosus, hidradenitis suppurativa and prurigo nodularis.

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.

In November 2022, we initiated two Phase II trials evaluating ruxolitinib cream in lichen planus and lichen sclerosus.

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.

A Phase II trial evaluating ruxolitinib cream in mild to moderate hidradenitis suppurativa is ongoing and two Phase III trials evaluating ruxolitinib cream in prurigo nodularis were initiated.

We continue to expand the development of ruxolitinib cream into new indications as part of our efforts to maximize the potential opportunity with ruxolitinib cream.

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

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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.

In August 2022, we presented results from the Phase II trial of povorcitinib in HS.

In December 2022, we initiated two Phase III trials (STOP-HS1 and STOP-HS2) in moderate to severe hidradenitis suppurativa.

In February 2023, 52-week results from the Phase II study evaluating povorcitinib in HS were presented as an oral presentation at the European Hidradenitis Suppurativa Foundation (EHSF) Annual Meeting.

The data demonstrated that longer-term treatment with povorcitinib 75 mg resulted in sustained and durable efficacy across all treatment arms and importantly, 22-29% of patients achieved HiSCR100, which is defined as a 100% reduction from baseline in total AN count with no increase from baseline in abscess or draining tunnel count.

Povorcitinib is currently in two phase 3 studies in moderate to severe HS.

In March 2023, 36-week results from the Phase IIb study evaluating povorcitinib in patients with extensive vitiligo were presented as an oral late-breaking presentation at the American Academy of Dermatology (AAD) Annual Meeting.

The data demonstrated that treatment with oral povorcitinib was associated with substantial total body repigmentation in patients with extensive nonsegmental vitiligo, as measured by total Vitiligo Area Scoring Index (T-VASI) scores.

Specifically, the study met its primary endpoint and patients receiving povorcitinib experienced statistically superior improvements in T-VASI at Week 24 compared to placebo.

Earlier-Stage Development Programs in Dermatology

In November 2022, we acquired Villaris Therapeutics, Inc., an asset-centric biopharmaceutical company focused on the development of novel antibody therapeutics for vitiligo.

Its lead asset, auremolimab (VM6) is a novel, humanized anti-IL-15Rβ monoclonal antibody designed to target and deplete autoreactive tissue resident memory T cells (TRM) that has demonstrated efficacy as a treatment for vitiligo in preclinical models.

IND-enabling studies are underway, and clinical development for auremolimab is currently expected to begin in 2023.

Indication and status

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Phase III (TRuE-V1, TRuE-V2);

approved by FDA;

MAA under review

approved in the U.S.

Lichen planus:

Lichen sclerosus:

Hidradenitis suppurativa:

Prurigo nodularis:

Phase III initiated (TRuE-PN1, TRuE-PN2)

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

povorcitinib (JAK1) Hidradenitis suppurativa:

Phase III in preparation

(JAK1) Hidradenitis suppurativa:

Phase III (STOP-HS1, STOP-HS2)

Phase III planned

Prurigo nodularis:

Chronic spontaneous urticaria:

(anti-IL-15Rβ) Vitiligo:

Phase I in preparation

Novartis’ rights for ruxolitinib outside of the United States under our Collaboration and License Agreement with Novartis do not include topical administration.

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In February 2017, we and Lilly announced that the European Commission approved baricitinib as OLUMIANT for the treatment of moderate-to-severe rheumatoid arthritis in adult patients who have responded inadequately to, or who are intolerant to, one or more disease-modifying antirheumatic drugs (DMARDs).

In July 2017, the Japanese Ministry of Health, Labour and Welfare (MHLW) granted marketing approval for OLUMIANT for the treatment of rheumatoid arthritis (including the prevention of structural injury of joints) in patients with inadequate response to standard-of-care therapies.

In July 2017, the MHLW granted marketing approval for OLUMIANT for the treatment of rheumatoid arthritis (including the prevention of structural injury of joints) in patients with inadequate response to standard-of-care therapies.

In June 2018, the FDA approved the 2mg dose of OLUMIANT for the treatment of adults with moderately-to-severely active rheumatoid arthritis (RA) who have had an inadequate response to one or more tumor necrosis factor (TNF) inhibitor therapies.

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Atopic dermatitis:

Phase III (BREEZE-AD);

approved in Europe and Japan

Severe alopecia areata:

Phase III (BRAVE-AA1, BRAVE-AA2);

approved in the United States, Europe and Japan

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Below is a brief description of our significant business relationships and collaborations and related license agreements that expand our pipeline and provide us with certain rights to existing and potential new products and technologies.

Additional information regarding our collaboration agreements, including their financial and accounting impact on our business and results of operations, can be found in Note 7 of notes to the condensed consolidated financial statements.

Out-License Agreements

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

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

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

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

We retained an option to assist in the promotion of retifanlimab in Zai Lab’s licensed territories.

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

In August 2021, we entered into a Collaboration and License Agreement with a subsidiary of InnoCare Pharma Limited.

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Under the terms of this agreement, Maruho received development, manufacturing and exclusive commercialization rights to ruxolitinib cream, and other potential future topical formulations of ruxolitinib, in autoimmune and inflammatory dermatologic diseases in Japan.

CMS Aesthetics Limited

In December 2022, we entered into a Collaboration and License Agreement with CMS Aesthetics Limited, a subsidiary of China Medical System Holdings Limited.

Under the terms of the agreement, CMS received an exclusive license to develop and commercialize, and a non-exclusive license to manufacture, ruxolitinib cream, and potentially other future topical formulations of ruxolitinib, in autoimmune and inflammatory dermatologic diseases, including vitiligo and atopic dermatitis, for patients in mainland China, Hong Kong, Macau, Taiwan and Southeast Asia.

In-License Agreements

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Under this agreement, the parties have agreed to collaborate on the discovery of novel immuno-therapeutics using Agenus’ antibody discovery platforms.

Under the terms of this agreement, as amended in February 2017, we received exclusive worldwide development and commercialization rights to four checkpoint modulators directed against GITR, OX40, LAG-3 and TIM-3.

In addition to the initial four program targets, we and Agenus have the option to jointly nominate and pursue additional targets within the framework of the collaboration, and in November 2015, three more targets were added, two of which were removed from the collaboration under the February 2017 amendments.

Takeda (ARIAD)

In June 2016, we acquired from ARIAD Pharmaceuticals, Inc.

all of the outstanding shares of ARIAD Pharmaceuticals (Luxembourg) S.à.r.l., the parent company of ARIAD’s European subsidiaries responsible for the development and commercialization of ICLUSIG in the European Union and other countries.

We obtained an exclusive license to develop and commercialize ICLUSIG in Europe and other select countries.

ARIAD was subsequently acquired by Takeda Pharmaceutical Company Limited in 2017.

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

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

Under this agreement, which became effective in January 2017, the parties have agreed to collaborate with respect to the research, discovery and development of bispecific antibodies utilizing Merus’ technology platform.

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We continue to collaborate with Merus and leverage the Merus platform to develop a pipeline of novel agents, as we continue to hold worldwide exclusive development and commercialization rights to up to ten additional programs.

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

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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Under the terms of this agreement, we received exclusive commercialization rights outside of the United States, and Syndax has co-commercialization rights in the United States with respect to axatilimab.

In December 2019, coronavirus disease of 2019, or COVID-19, was first reported in Wuhan, China.

In March 2020, the World Health Organization declared COVID-19 a pandemic.

We and our collaboration partners Lilly and Novartis initiated a number of clinical trials to address COVID-19.

In April 2020, we announced the initiation of a Phase III clinical trial (RUXCOVID) to evaluate the efficacy and safety of ruxolitinib plus standard-of-care (SoC), compared to SoC therapy alone, in patients not on mechanical ventilation and who have COVID-19 associated cytokine storm.

We sponsored this collaborative study in the United States and our collaboration partner Novartis International Pharmaceutical Ltd.

sponsored the study outside of the United States.

In December 2020, we announced initial results from RUXCOVID, where treatment with ruxolitinib plus SoC did not prevent complications compared to SoC treatment alone in patients with COVID-19 associated cytokine storm.

In March 2021, results from a second Phase III clinical trial to evaluate the efficacy and safety of ruxolitinib plus SoC, compared to SoC therapy alone, in COVID-19 patients on mechanical ventilation and who have acute respiratory distress syndrome (ARDS), a type of respiratory failure characterized by rapid onset of widespread inflammation in the lungs were announced.

Ruxolitinib failed to reduce mortality due to any cause through Day 29 although in the U.S.

study population (91% of total study patients), there was a clinically and statistically significant improvement in mortality in each of the 5mg and 15mg ruxolitinib arms.

In April 2020, Lilly announced that it has entered into an agreement with the National Institute of Allergy and Infectious Diseases (NIAID), part of the National Institutes of Health, to study baricitinib as an arm in NIAID's Adaptive COVID-19 Treatment Trial (ACTT-2).

The study is investigating the efficacy and safety of baricitinib as a potential treatment for hospitalized patients diagnosed with COVID-19 in the United States, and Lilly is also planning an expansion to include Europe and Asia.

In September 2020, we and Lilly announced initial results from ACTT-2, where baricitinib in combination with remdesivir reduced the time to recovery in comparison with remdesivir alone.

Additional data announced in October 2020 showed that baricitinib plus remdesivir resulted in a numerical decrease in mortality through Day 29 compared to remdesivir alone, with a more pronounced reduction seen in more severely ill patients.

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

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 April 2021, we and Lilly announced that the primary endpoint was not met in COV-BARRIER, the Phase III randomized, double-blind, placebo–controlled study to evaluate the efficacy and safety of baricitinib in hospitalized adults not on mechanical ventilation and who have COVID-19.

There was, however, a 38% reduction in mortality by Day 28 in patients treated with baricitinib in addition to SoC.

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 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 2022 Form 10-K.

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

There have been no significant changes to our critical accounting policies or estimates during the three months ended March 31, 2023.

Recent Accounting Pronouncements

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Results of Operations

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.

We recorded net income of $21.7 million and basic and diluted net income per share of $0.10 for the three months ended March 31, 2023, as compared to net income of $38.0 million and basic and diluted net income per share of $0.17 in the corresponding period in 2022.

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(in millions) (in millions)

(in millions)

JAKAFI revenues, net $ 580.0 $ 544.5

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TABRECTA product royalty revenues 4.2 3.5

PEMAZYRE product royalty revenues 0.4 —

Total product royalty revenues 115.4 122.3

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Total revenues $ 808.7 $ 733.2

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.

The increase in JAKAFI net product revenues for the three months ended March 31, 2023 as compared to the corresponding period in 2022 was comprised of a volume increase of $26.1 million and a price increase of $9.4 million.

The JAKAFI net product revenues increase was primarily driven by growth in patient demand across all indications and was partially offset by higher gross-to-net deductions for Medicare and commercial co-pay assistance consistent with historical prior year’s first quarters, as well as an increase in the volume of JAKAFI sold at discounted prices under the federal 340B drug pricing program.

The quarter was also impacted by lower weeks on hand channel inventory than normal due to timing of certain customer purchases.

The increase in OPZELURA net product revenues for the three months ended March 31, 2023 was driven by increased patient demand and expanded coverage.

OPZELURA net product revenues for the three months ended March 31, 2023 were negatively impacted by an increase in co-pay assistance due to higher commercial patient deductibles at the beginning of the plan year and higher Medicaid utilization volume.

In addition, OPZELURA volume was negatively impacted by an acceleration of refills in December 2022 driven by patient demand in advance of annual deductible reset or health plan changes.

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.

Product revenues are recorded net of estimated product returns, pricing discounts including rebates offered pursuant to mandatory federal and state government programs and chargebacks, prompt pay discounts and distribution fees and co-pay assistance.

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

Nine Months Ended September 30, 2022 Discounts and

Three Months Ended March 31, 2023 Discounts and

Fees Government

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Credits/payments for prior period sales (15,436) (76,254) (17,073) (3,991) (112,754)

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

Balance at March 31, 2023 $ 18,801 $ 186,000 $ 13,535 $ 6,775 $ 225,111

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

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Claims by third-party payors for rebates and chargebacks are frequently submitted after the period in which the related sales occurred, which may result in adjustments to prior period accrual balances in the period in which the new information becomes available.

Our company-sponsored patient savings program in which we provide financial assistance to enable commercially-insured patients to afford their insurance premium and co-pays may fluctuate as the commercial insurance landscape evolves and may impact net revenues, particularly for drugs like OPZELURA.

We also adjust our allowance for product returns based on new information regarding actual returns as it becomes available.

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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 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..

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.

JAKAVI and OLUMIANT product royalty revenues for the three months ended March 31, 2023 as compared to the corresponding period in 2022 were impacted by unfavorable changes in foreign currency exchange rates, while OLUMIANT product royalty revenues were also impacted by a decrease in net product sales of OLUMIANT for use as a treatment for COVID-19.

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

Cost of Product Revenues

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(in millions) (in millions)

(in millions)

Product costs $ 23.5 $ 12.0

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Total cost of product revenues $ 56.8 $ 42.6

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 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.

Cost of product revenues includes all product related costs, reserves for obsolescence, 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 months ended March 31, 2023 as compared to the same periods in 2022 was primarily due to product related costs for our commercial products including OPZELURA.

Operating Expenses

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(in millions) (in millions)

(in millions)

Salary and benefits related $ 100.4 $ 84.5

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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 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.

The increase in salary and benefits related expense for the three months ended March 31, 2023 as compared to the corresponding periods in 2022 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.

The increase in clinical research and outside services expense for the three months ended March 31, 2023 as compared to the corresponding period in 2022 was primarily due to continued investment in our late stage development assets and the timing of certain expenses.

Research and development expenses include upfront and milestone expenses related to our collaborative agreements of $2.7 million and $20.0 million, respectively, for the three months ended March 31, 2023 and 2022.

Research and development expenses for the three months ended March 31, 2023 and 2022 were net of $0.6 million and $10.3 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 preclinical and clinical trial related activities.

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(in millions) (in millions)

(in millions)

Salary and benefits related $ 72.9 $ 67.3

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Total selling, general and administrative expenses $ 315.6 $ 209.6

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 salary and benefits related expense for the three months ended March 31, 2023 as compared to the corresponding period in 2022 was due primarily to increased headcount.

This increased headcount was due primarily to the establishment of our dermatology commercial organization.

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

The increase in other contract services and outside costs for the three months ended March 31, 2023, as compared to the corresponding periods in 2022, was primarily due to expenses related to promotional activities to support the launch of OPZELURA for the treatments of atopic dermatitis and vitiligo, and timing of certain expenses.

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 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

The loss on change in fair value of the acquisition-related contingent consideration for the three months ended March 31, 2023 and 2022 was $6.2 million and $6.4 million, respectively, which is recorded in 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 contingent consideration during the three months ended March 31, 2023 was due primarily to the passage of time.

(Profit) and loss sharing under collaboration agreements

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 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)

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.

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.

Interest income and other, net

Interest income and other, net .

Interest income and other, net for the three months ended March 31, 2023 and 2022 was $32.9 million and $1.3 million, respectively.

The increase in Interest income and other, net for the three months ended March 31, 2023 primarily relates to an increase in interest income.

Unrealized loss on long term investments.

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(in millions) (in millions)

(in millions)

Agenus $ (10.6) $ (9.2)

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Provision for income taxes.

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.

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

The provision for income taxes for the three months ended March 31, 2023 and 2022 was $30.2 million and $32.5 million, respectively.

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.

Liquidity and Capital Resources

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

Due to historical net losses, we had an accumulated deficit of $416 million as of March 31, 2023.

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

At March 31, 2023, we had available cash, cash equivalents and marketable securities of $3.1 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 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.

Net cash used in operating activities for the three months ended March 31, 2023 was $105.6 million and net cash provided by operating activities for the three months ended March 31, 2022 was $215.7 million.

The decrease in cash provided by operating activities was due primarily to changes in working capital due to a reduction of our accounts payable balance at March 31, 2023.

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 $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.

Net cash used in investing activities was $28.6 million for the three months ended March 31, 2023, which represented purchases of marketable securities of $54.9 million, payments for intangible assets of $15.0 million, and capital expenditures of $11.9 million, offset in part by the sale and maturities of marketable securities of $53.2 million.

Net cash used in investing activities was $16.7 million for the three months ended March 31, 2022, which represented capital expenditures of $17.0 million, offset in part by the sales and maturities of marketable securities of $0.3 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 $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.

In addition, in October 2019, we entered into an agreement with Wilmington Friends School Inc., to purchase property for $50.0 million to expand our global headquarters.

Net cash provided by financing activities was $4.0 million and $0.1 million for the three months ended March 31, 2023 and 2022, respectively, 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.

In October 2019, we entered into an agreement with Wilmington Friends School Inc., to purchase property for $50.0 million to expand our global headquarters.

Under that agreement, closing of the purchase is subject to certain standard closing conditions, including an initial diligence period and a subsequent approval period.

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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 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.

As of March 31, 2023, we had no outstanding borrowings and were in compliance with all covenants under this facility.

income tax payments will increase significantly in 2023 resulting from the full utilization in 2022 of our research and development and orphan drug tax credit carryforwards generated in prior years.

tax liabilities continue to reflect the adverse impacts of the mandatory capitalization and amortization of research and development expenses as required under the Tax Cuts and Jobs Act of 2017, which eliminated the immediate expensing of such expenses.

We believe that our cash flow from operations, together with our cash, cash equivalents and marketable securities and funds available under our revolving credit facility, will be adequate to satisfy our capital needs for the foreseeable future.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis