What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-13 compared with 2023-02-07 · 214 added, 242 removed, 1000 unchanged (31% of the section changed)

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowances for rebates owed pursuant to the Medicaid Drug Rebate Program in the U.S.

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In addition, we involved our governmental pricing specialists to assist in evaluating management’s methodology and calculations used to measure the estimated rebates.

Valuation of acquisition-related contingent consideration liability

Description of the Matter As discussed in Note 3 to the consolidated financial statements, the Company’s acquisition-related contingent consideration liability, which consists of certain future royalty obligations on future net revenues of ICLUSIG, is remeasured to its estimated fair value each reporting period, with changes in fair value recorded in the consolidated statements of operations.

As of December 31, 2022, the acquisition-related contingent consideration liability was $221.0 million.

Auditing the valuation of the acquisition-related contingent consideration liability was complex and highly judgmental due to the significant estimation required in determining the fair value.

In particular, the fair value estimate was sensitive to significant assumptions such as the discount rate and projected future net revenues of ICLUSIG, which are affected by expectations about future industry, market and economic conditions, and are forward-looking and inherently uncertain.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s valuation of the acquisition-related contingent consideration liability.

For example, we tested the Company's controls over management’s review of the valuation model, including controls over the significant assumptions utilized in the calculation, such as the discount rate and the projected future net revenues of ICLUSIG.

To test the estimated fair value of the acquisition-related contingent consideration liability, we performed audit procedures that included, among others, assessing the terms of the arrangement, evaluating the methodology used, and testing the significant assumptions discussed above used by the Company in its analysis.

We involved our valuation specialists to assist in the evaluation of the significant assumptions and methodology used by the Company.

We also compared the significant assumptions to current industry, market and economic trends and to the Company's budgets and forecasts.

In addition, we assessed the historical accuracy of management’s estimates against actual performance.

/s/ Ernst & Young LLP

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Additional paid-in capital 5,016,122 4,792,041

Accumulated other comprehensive income (loss) 15,069 ( 19,454 )

Accumulated deficit ( 437,214 ) ( 777,874 )

Accumulated other comprehensive income 13,106 15,069

Retained earnings (accumulated deficit) 160,385 ( 437,214 )

Total stockholders’ equity 5,189,837 4,370,119

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Total costs and expenses 3,075,124 2,815,195 2,400,490

Income (loss) from operations 579,440 585,777 ( 263,676 )

Other income (expense), net 39,932 10,647 23,206

Income from operations 620,525 579,440 585,777

Interest income and other, net 172,348 39,932 10,647

Interest expense ( 2,551 ) ( 2,666 ) ( 1,908 )

Unrealized (loss) gain on long term investments ( 87,590 ) ( 24,072 ) 10,426

Income (loss) before provision (benefit) for income taxes 529,116 570,444 ( 232,218 )

Unrealized gain (loss) on long term investments 43,893 ( 87,590 ) ( 24,072 )

Income before provision (benefit) for income taxes 834,215 529,116 570,444

Provision (benefit) for income taxes 236,616 188,456 ( 378,137 )

Net income (loss) $ 340,660 $ 948,581 $ ( 295,697 )

Net income (loss) per share:

Net income $ 597,599 $ 340,660 $ 948,581

Net income per share:

Basic $ 2.67 $ 1.53 $ 4.30

Diluted $ 2.65 $ 1.52 $ 4.27

Shares used in computing net income (loss) per share:

Shares used in computing net income per share:

Basic 223,628 222,004 220,428

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2023 2022 2021

Net income (loss) $ 340,660 $ 948,581 $ ( 295,697 )

Other comprehensive income (loss):

Net income $ 597,599 $ 340,660 $ 948,581

Other comprehensive (loss) income:

Foreign currency translation gain (loss) 25,772 13,065 ( 2,959 )

Unrealized (loss) gain on marketable securities, net of tax ( 3,918 ) ( 1,289 ) 95

Defined benefit pension gain (loss), net of tax 25,376 154 ( 8,363 )

Other comprehensive income (loss) 34,523 ( 4,094 ) 182

Comprehensive income (loss) $ 375,183 $ 944,487 $ ( 295,515 )

Unrealized gain (loss) on marketable securities, net of tax 4,888 ( 3,918 ) ( 1,289 )

Defined benefit pension (loss) gain, net of tax ( 32,623 ) 25,376 154

Other comprehensive (loss) income ( 1,963 ) 34,523 ( 4,094 )

Comprehensive income $ 595,636 $ 375,183 $ 944,487

See accompanying notes.

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— 434 — — 434

Issuance of 368,886 shares of Common Stock upon conversion of Convertible Senior Notes due 2020

— 18,999 — — 18,999

Stock compensation — 185,129 — — 185,129

Other comprehensive income — — 182 — 182

Net loss — — — ( 295,697 ) ( 295,697 )

Other comprehensive loss — — ( 4,094 ) — ( 4,094 )

Net income — — — 948,581 948,581

Balances at December 31, 2021

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Stock compensation — 189,691 — — 189,691

Other comprehensive loss — — ( 4,094 ) — ( 4,094 )

Other comprehensive income — — 34,523 — 34,523

Net income — — — 340,660 340,660

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Stock compensation — 216,475 — — 216,475

Other comprehensive income — — 34,523 — 34,523

Other comprehensive loss — — ( 1,963 ) — ( 1,963 )

Net income — — — 597,599 597,599

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Cash flows from operating activities:

Net income (loss) $ 340,660 $ 948,581 $ ( 295,697 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Net income $ 597,599 $ 340,660 $ 948,581

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

Depreciation and amortization 82,660 67,855 57,844

Stock-based compensation 215,889 188,420 183,006

Deferred income taxes (including benefit from valuation allowance release) 57,091 ( 465,604 ) ( 350 )

Unrealized foreign exchange losses (gains) and other, net 17,366 1,417 546

Unrealized loss (gain) on long term investments 87,590 24,072 ( 10,426 )

Deferred income taxes ( 158,898 ) 57,091 ( 465,604 )

Other, net 22,579 17,366 1,417

Unrealized (gain) loss on long term investments ( 43,893 ) 87,590 24,072

Loss on change in fair value of acquisition-related contingent consideration 29,202 12,149 14,741

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Accrued and other liabilities 230,614 220,196 131,439

Net cash provided by (used in) operating activities 969,941 749,488 ( 124,599 )

Net cash provided by operating activities 496,487 969,941 749,488

Cash flows from investing activities:

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Capital expenditures ( 32,486 ) ( 77,833 ) ( 181,006 )

Payments for intangible assets ( 15,000 ) — —

Purchases of marketable securities ( 456,020 ) ( 79,860 ) ( 235,167 )

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Effect of exchange rates on cash, cash equivalents, and restricted cash ( 6,676 ) 3,355 ( 3,570 )

Net increase (decrease) in cash, cash equivalents, and restricted cash 893,960 544,395 ( 318,942 )

Net increase in cash, cash equivalents, and restricted cash 262,101 893,960 544,395

Cash, cash equivalents, and restricted cash at beginning of period 2,953,120 2,059,160 1,514,765

Cash, cash equivalents, restricted cash and investments at end of period $ 2,953,120 $ 2,059,160 $ 1,514,765

Cash, cash equivalents, and restricted cash at end of period $ 3,215,221 $ 2,953,120 $ 2,059,160

Supplemental Schedule of Cash Flow Information

Income taxes paid $ 378,206 $ 136,242 $ 67,731

Reclassification to common stock and additional paid in capital in connection with conversions of 1.25 % convertible senior notes due 2020

$ — $ — $ 18,999

Unpaid purchases of property and equipment $ 5,052 $ 3,493 $ 27,098

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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) and ZYNYZ® (retifanlimab-dlwr).

Our operations are treated as one operating segment.

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Accounts Receivable.

As of December 31, 2022, we had a de minimis amount of allowance for doubtful accounts, and as of December 31, 2021, we had no allowance for doubtful accounts.

As of December 31, 2023 and December 31, 2022, we had a de minimis amount of allowance for doubtful accounts.

We provide an allowance for doubtful accounts based on management’s assessment of the collectability of specific customer accounts, which includes consideration of the credit worthiness and financial condition of those customers, aging of such receivables, history of collectability with the customer and the general economic environment.

We record an allowance to reduce the receivables to the amount that is expected to be collected.

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

Inventory costs are primarily accounted for under the specific identification method.

Inventories are valued at the lower of cost and net realizable value.

We use the specific identification method to account for commercial product manufactured by third-party contractors, which is our predominant source of inventory.

We apply the first-in, first-out (FIFO) method to inventories produced at our internal manufacturing facility located in Yverdon, Switzerland.

Inventories consist of costs of materials, including shipping and handling fees, third-party contract manufacturing, and allocable overhead associated with the production of our commercialized products.

We capitalize inventory after regulatory approval from U.S.

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

Raw materials and work-in-process inventory are monitored for obsolescence, as applicable, and generally the shelf life of the finished goods inventory is approximately 36 months from the start of manufacturing of the finished goods, with the exception of OPZELURA, which currently has an approximate shelf life of 24 months.

Raw materials, active pharmaceutical ingredients ("API") and work-in-process inventory are monitored for obsolescence, as applicable, and generally the shelf life of the finished goods inventory is approximately 36 months from the start of manufacturing of the finished goods, with the exception of OPZELURA and ZYNYZ, which currently has an approximate shelf life of 24 months.

We evaluate for potential excess inventory by analyzing current and future product demand relative to the remaining product shelf life.

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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.

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.

Impairment of Long-Lived Assets.

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The primary factors used to assess the likelihood of realization are our recent history of cumulative earnings or losses, expected reversals of taxable temporary timing differences, forecasts of future taxable income and available tax planning strategies that could be implemented to realize the deferred tax assets.

Upon evaluating and weighting both positive and negative evidence, we concluded that we should release the valuation allowance on the majority of our U.S.

deferred tax assets as of December 31, 2021.

We recognize the tax benefit from an uncertain tax position only if it is more-likely-than-not that the position will be sustained upon examination by the taxing authorities, including resolutions of any related appeals or litigation processes, based on the technical merits of the position.

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Any interest and penalties on uncertain tax positions are included within the tax provision.

Net Income (Loss) Per Share.

Our basic and diluted net income (loss) per share is calculated by dividing the net income (loss) by the weighted average number of shares of common stock outstanding during all periods presented.

Net Income Per Share.

Our basic and diluted net income per share is calculated by dividing the net income by the weighted average number of shares of common stock outstanding during all periods presented.

Options to purchase stock, restricted stock units and performance stock units are included in diluted earnings per share calculations, unless the effects are anti-dilutive.

Accumulated Other Comprehensive Income (Loss).

Accumulated other comprehensive income (loss) consists of unrealized gains or losses on our marketable debt securities that are classified as available-for-sale, foreign currency translation gains or losses and unrecognized actuarial gains or loss related to our defined benefit pension plan.

Accumulated Other Comprehensive Income.

Accumulated other comprehensive income consists of unrealized gains or losses on our marketable debt securities that are classified as available-for-sale, foreign currency translation gains or losses and unrecognized actuarial gains or loss related to our defined benefit pension plan.

Revenue Recognition.

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Product Revenues

Our product revenues consist of sales of JAKAFI, OPZELURA and PEMAZYRE in the U.S., sales of MINJUVI, PEMAZYRE and ICLUSIG in Europe, and sales of PEMAZYRE in Japan.

Our product revenues consist of sales of JAKAFI, OPZELURA, PEMAZYRE and ZYNYZ in the U.S., sales of MINJUVI, PEMAZYRE, ICLUSIG and OPZELURA in Europe, and sales of PEMAZYRE in Japan.

Product revenues are recognized at a point in time once we satisfy the performance obligation and control is transferred under the revenue recognition criteria as described above.

We sell JAKAFI, OPZELURA and PEMAZYRE to our customers in the U.S., which include specialty and retail pharmacies, specialty distributors and wholesalers.

We sell MINJUVI, PEMAZYRE and ICLUSIG to our customers in the European Union and certain other jurisdictions, which include retail pharmacies, hospital pharmacies and distributors.

We sell JAKAFI, OPZELURA, PEMAZYRE and ZYNYZ to our customers in the U.S., which include specialty and retail pharmacies, specialty distributors and wholesalers.

We sell MINJUVI, PEMAZYRE, ICLUSIG and OPZELURA to our customers in the European Union and certain other jurisdictions, which include retail pharmacies, hospital pharmacies and distributors.

We sell PEMAZYRE in Japan to an exclusive wholesaler.

We recognize revenues for product received by our customers net of allowances for customer credits, including estimated rebates, chargebacks, discounts, returns, distribution service fees, patient assistance programs, and government rebates, such as Medicare Part D coverage gap reimbursements in the U.S.

We recognize revenues for product received by our customers net of allowances for customer credits, including estimated rebates, chargebacks, discounts, returns, distribution service fees, patient assistance programs, and government rebates, such as the Medicaid Drug Rebate Program and Medicare Part D coverage gap reimbursements in the U.S.

Product shipping and handling costs are included in cost of product revenues.

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If actual future funding varies from estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

Additionally, beginning in January 2020, the amount of spending required by eligible patients in the Medicare Part D insurance coverage gap increased 30 % due to the expiration of a provision in the Patient Protection and Affordable Care Act, which now results in a change in the True Out of Pocket (TrOOP) calculation methodology.

The methodological change has resulted in an increase in required spending by patients and, in turn, an increase in manufacturers’ contributions on behalf of patients in the Medicare Part D insurance coverage gap.

Co-payment Assistance:

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Cost of Product Revenues

Cost of product revenues includes all product related costs.

In addition, cost of product revenues include royalties owed under our collaboration and license agreements, contingent on certain conditions, and the amortization of our licensed intellectual property for ICLUSIG using the straight-line method over the estimated useful life of 12.5 years from the date of acquisition on June 1, 2016 of all of the outstanding shares of ARIAD Pharmaceuticals (Luxembourg) S.à.r.l.

(since renamed Incyte Biosciences Luxembourg S.à.r.l.) from ARIAD Pharmaceuticals, Inc.

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.

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Acquisition-Related Contingent Consideration.

Acquisition-related contingent consideration consists of our future royalty obligations on future net revenues of ICLUSIG owed to Takeda Pharmaceutical Company Limited, which acquired ARIAD (“Takeda”).

Acquisition-related contingent consideration was recorded on the acquisition date of June 1, 2016 at the estimated fair value of the obligation, in accordance with the acquisition method of accounting.

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(Profit) and loss sharing under collaboration agreements.

For the year ended December 31, 2022 and 2021, (profit) and loss sharing under collaboration agreements represents our 50 % share of the United States loss for commercialization of MONJUVI (tafasitamab-cxix) under our agreement with MorphoSys, which is described in Note 7 below.

For the years ended December 31, 2023 and 2022, (profit) and loss sharing under collaboration agreements represents our 50 % share of the United States loss for commercialization of MONJUVI (tafasitamab-cxix) under our agreement with MorphoSys, which is described in Note 7 below.

Recent Accounting Pronouncements

As of December 31, 2022, there were no new accounting pronouncements issued or adopted that may have a material impact on the Company's financial position, results of operations, or cash flows upon their adoption.

In November 2023, the Financial Accounting Standards Board (the "FASB") issued ASU No.

2023-07, " Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures ." This amended guidance applies to all public entities and aims to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, to enable investors to develop more decision-useful financial analyses.

This guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

We are currently analyzing the impact that ASU No.

2023-07 will have on our consolidated financial statements.

In December 2023, the FASB issued ASU No.

2023-09, " Income Taxes (Topic 740):

Improvements to Income Tax Disclosures ." This amended guidance applies to all entities and broadly aims to enhance the transparency and decision usefulness of income tax disclosures.

For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2024.

Early adoption is permitted for any annual periods for which financial statements have not been issued or made available for issuance.

We are currently analyzing the impact that ASU No.

2023-09 will have on our consolidated financial statements .

As discussed in Note 1, revenues are recognized under guidance within ASC 606.

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JAKAFI revenues, net $ 2,593,732 $ 2,409,225 $ 2,134,508

OPZELURA revenues, net 337,864 128,735 4,668

ICLUSIG revenues, net 111,623 105,838 109,395

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MINJUVI revenues, net 37,057 19,654 4,910

OPZELURA revenues, net 128,735 4,668 —

ZYNYZ revenues, net 1,250 — —

Total product revenues, net 3,165,168 2,746,897 2,322,012

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The valuation inputs utilized to estimate the fair value of the contingent consideration as of December 31, 2023 and 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 losses on change in fair value of the contingent consideration during the years ended December 31, 2022 and 2021, were due primarily to the impact of updated projections of future net revenues of ICLUSIG in the European Union and the passage of time.

The loss on change in fair value of the contingent consideration during the years ended December 31, 2023 and 2022 was due primarily to fluctuations in foreign currency exchange rates impacting future revenue projections of ICLUSIG and the passage of time.

We generally make payments to Takeda quarterly based on the royalties earned in the previous quarter.

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

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

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

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

The concentration of credit risk related to our JAKAFI, PEMAZYRE and OPZELURA product revenues is as follows:

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Customer E 12 % 14 % 8 %

Customer F 14 % 8 % 5 %

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

Customers A, B, C, D, E, and F comprised, in the aggregate, 43 % and 38 % of the accounts receivable balance as of December 31, 2022 and 2021, respectively.

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

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

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("Villaris").

Villaris is an early-stage biopharma company focused on the development of novel antibody therapeutics for vitiligo.

Villaris was an early-stage biopharma company focused on the development of novel antibody therapeutics for vitiligo.

We evaluated the acquired set of activities and assets, and concluded that the acquisition of Villaris did not meet the definition of a business, as substantially all of the purchase price was concentrated in a single identifiable preclinical asset.

Therefore, the transaction was accounted for as an asset acquisition.

Under the terms of the acquisition agreement, we made an upfront payment of $ 70.3 million, which was attributed to the fair value of the preclinical asset acquired.

Under the terms of the acquisition agreement, we made an upfront payment of $ 70.3 million in 2022, which was attributed to the fair value of the preclinical asset acquired.

As the preclinical asset had no alternative future use at the date of acquisition, the entire upfront payment amount was expensed to research and development expense on the consolidated statement of operations for the year ended December 31, 2022.

There were no material assets or liabilities recorded on the consolidated balance sheet as part of this acquisition.

Former Villaris stockholders are eligible to receive 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 commercialized products.

During December 2023, we made a $ 20.0 million development milestone payment to former Villaris stockholders for the initiation of the Phase 1 clinical trial of INCA034460 as a treatment for vitiligo, which was expensed to research and development expense on the consolidated statement of operations for the year ended December 31, 2023.

Former Villaris stockholders are eligible to receive up to an additional $ 290.0 million upon achievement of certain regulatory milestones, as well as up to an additional $ 1.05 billion in commercial milestones on net sales of commercialized products.

We will accrue for these milestone payments in the future when it becomes probable they will be achieved.

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Raw materials $ 23,282 $ 31,874

Work-in-process 54,455 39,895

API and Work-in-process 209,793 54,455

Finished goods 36,862 34,630

Total inventory $ 269,937 $ 120,959

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

Inventories, stated at the lower of cost and net realizable value, consist of raw materials, API and work-in-process, and finished goods, inclusive of freight and inventoriable overhead.

At December 31, 2023, $ 63.0 million of inventory was classified as current on the consolidated balance sheet as we expect this inventory to be consumed for commercial use within the next twelve months.

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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.

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

At December 31, 2023, inventory with approximately $ 35.6 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 25 months and, as a result, cost of product revenues will reflect a lower average per unit cost of materials.

We expect to sell the pre-commercialization inventory over the next 9 to 12 months and, as a result, cost of product revenues will reflect a lower average per unit cost of materials.

License Agreements

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Novartis also received worldwide exclusive development and commercialization rights to our MET inhibitor compound capmatinib and certain back-up compounds in all indications.

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

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

We have recognized and received, in the aggregate, $ 157.0 million for the achievement of development milestones, $ 340.0 million for the achievement of regulatory milestones and $ 200.0 million for the achievement of sales milestones through December 31, 2022.

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

In addition, we were initially 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 December 31, 2023, we have recognized and received, in the aggregate, $ 157.0 million for the achievement of development milestones, $ 345.0 million for the achievement of regulatory milestones and $ 200.0 million for the achievement of sales 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 Novartis and decisions made by regulatory agencies.

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

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 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 September 2023, we recognized a $ 5.0 million regulatory milestone for the approval of JAKAVI (ruxolitinib) in GVHD by the Japanese Ministry of Health, Labour and Welfare.

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 %.

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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 December 31, 2022.

Since the inception of the agreement through December 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.

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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.

The Lilly agreement will continue until Lilly no longer has any royalty payment obligations or, if earlier, the termination of the agreement in accordance with its terms.

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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.

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 consolidated statements of operations.

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

Since the date of the amendment through December 31, 2023, we have fully paid Lilly milestones totaling $ 40.0 million.

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

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Under this agreement, which was amended in February 2017, the parties have agreed to collaborate on the discovery of novel immuno-therapeutics using Agenus’ antibody discovery platforms.

Under the terms of the amended agreement, we received exclusive worldwide development and commercialization rights to four checkpoint modulators directed against GITR, OX40, LAG-3 and TIM-3 as well as two undisclosed targets.

Targets may be designated profit-share programs, where all costs and profits are shared equally by us and Agenus, or royalty-bearing programs, where we are responsible for all costs associated with discovery, preclinical, clinical development and commercialization activities.

There are currently no profit-share programs.

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

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

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

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

As of December 31, 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 also agreed to purchase 10.0 million shares of Agenus 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 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 common stock resulting in gross proceeds of approximately $ 10.5 million.

The fair market value of our long term investment in Agenus as of December 31, 2022 and 2021 was $ 29.0 million and $ 38.9 million, respectively.

We are accounting for our shares held in Agenus 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 consolidated balance sheets.

For the years ended December 31, 2022, 2021 and 2020, we recorded an unrealized loss of $ 9.9 million, an unrealized gain of $ 4.6 million and an unrealized loss of $ 10.3 million, respectively, based on the change in fair value of Agenus Inc.’s common stock during the respective periods.

Under this agreement, we are responsible for all costs associated with discovery, preclinical, clinical development and commercialization activities for the currently active programs.

Agenus will be eligible to receive tiered royalties on global net sales ranging from 6 % to 12 %, for all programs but one, in which Agenus will be eligible to receive 15 % royalties on global net sales.

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

Since the inception of the agreement through December 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 December 31, 2023, we held an investment of approximately 12.1 million shares of Agenus Inc.

common stock.

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

at December 31, 2023 and 2022 was $ 10.0 million and $ 29.0 million, respectively.

For the years ended December 31, 2023, 2022 and 2021, we recorded an unrealized loss of $ 18.9 million, an unrealized loss of $ 9.9 million and an unrealized gain of $ 4.6 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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The collaboration encompasses up to ten independent programs.

In January 2022, we decided to opt-out of the continued development of MCLA-145, a bispecific antibody targeting PD-L1 and CD137.

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.

Of these ten additional programs, Merus retained the option, subject to certain conditions, to co-fund development of up to two such programs.

We hold worldwide exclusive development and commercialization rights to those programs and are responsible for all research, development and commercialization costs, subject to Merus’ option, subject to certain conditions, to co-fund development of up to two of such programs and participate in certain commercialization activities for one of those co-developed programs.

If Merus exercises its co-funding option for a program, Merus would be responsible for funding 35 % of the associated future global development costs and, for certain of such programs, would be responsible for reimbursing us for certain development costs incurred prior to the option exercise.

Merus will also have the right to participate in a specified proportion of detailing activities in the United States for one of those co-developed programs.

All costs related to the co-funded collaboration programs are subject to joint research and development plans and overseen by a joint development committee, but we will have final determination as to such plans in cases of dispute.

We will be responsible for all research, development and commercialization costs relating to all other programs.

For each program as to which Merus does not have commercialization or development co-funding rights, Merus is eligible to receive up to $ 100.0 million in future contingent development and regulatory milestones, and up to $ 250.0 million in commercialization milestones as well as tiered royalties ranging from 6 % to 10 % of global net sales.

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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 December 31, 2022, we have paid Merus milestones totaling $ 3.0 million, which was recorded as research and development expense in our consolidated statements of operations.

The Merus agreement will continue on a program-by-program basis until we have no royalty payment obligations with respect to such program or, if earlier, the termination of the agreement or any program in accordance with the terms of the agreement.

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If the agreement is terminated with respect to one or more programs, all rights in the terminated programs revert to Merus, subject to payment to us of a reverse royalty of up to 4 % on sales of future products, if Merus elects to pursue development and commercialization of products arising from the terminated programs.

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.

During January 2023, August 2023 and December 2023, we paid Merus milestones of $ 2.5 million, $ 2.5 million and $ 1.0 million, respectively, which were recorded as research and development expense in our consolidated statements of operations.

Since the inception of the agreement through December 31, 2023, we have paid and expensed Merus milestones totaling $ 9.0 million.

During August 2023, we purchased approximately 0.5 million shares of Merus’ common shares for an aggregate purchase price of $ 10.0 million in cash.

As of December 31, 2023, we held an investment of approximately 4.0 million Merus common shares.

The fair market value of our total long term investment in Merus as of December 31, 2023 and 2022 was $ 110.1 million and $ 54.9 million, respectively.

As of December 31, 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 years ended December 31, 2022, 2021 and 2020, we recorded an unrealized loss of $ 58.0 million, an unrealized gain of $ 48.1 million, and an unrealized gain of $ 11.0 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 December 2022, the Collaboration and License Agreement was terminated.

As a result of the termination, rights to INCB01158 and the other licensed products reverted 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 reverse 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 as of December 31, 2022 and 2021 was $ 0.3 million and $ 1.1 million, respectively.

Through December 31, 2022, we accounted for our shares held in Calithera at fair value whereby the investment was marked to market through earnings in each reporting period, and we classified the investment within long term investments on the accompanying consolidated balance sheets.

For the years ended December 31, 2022, 2021 and 2020, we recorded an unrealized loss of $ 0.9 million, $ 7.3 million, and $ 1.4 million, respectively, based on the change in fair value of Calithera’s common stock during the respective periods.

During January 2023, Calithera announced that its Board of Directors approved the dissolution of Calithera and the complete liquidation of its assets.

Subsequent to this announcement, in January 2023, we sold all of our remaining shares of Calithera common stock.

For the years ended December 31, 2023, 2022 and 2021, we recorded an unrealized gain of $ 45.2 million, an unrealized loss of $ 58.0 million, and an unrealized gain of $ 48.1 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 December 31, 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.

The MacroGenics agreement will continue until we are no longer commercializing, developing or manufacturing INCMGA0012 or, if earlier, the termination of the agreement in accordance with its terms.

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The agreement may also be terminated by either party under certain other circumstances, including material breach, as set forth in the agreement.

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 recorded as research and development expense in our 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 consolidated balance sheet as of December 31, 2023, and is being amortized through cost of product revenues over the estimated useful life of 13.5 years.

Since the inception of the agreement through December 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 years ended December 31, 2023, 2022 and 2021, also included $ 51.5 million, $ 89.2 million and $ 72.3 million, respectively, of development costs incurred pursuant to the MacroGenics agreement.

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

Under this agreement, Syros will use its proprietary gene control platform to identify novel therapeutic targets with a focus in myeloproliferative neoplasms and we have received options to obtain exclusive worldwide rights to intellectual property resulting from the collaboration for up to seven validated targets.

We will have exclusive worldwide rights to develop and commercialize any therapies under the collaboration that modulate those validated targets.

We have agreed to pay Syros up to $ 54.0 million in target selection and option exercise fees should we decide to exercise all of our options under the agreement.

For products resulting from the collaboration against each of the seven selected and validated targets, we have agreed to pay up to $ 50.0 million in potential development and regulatory milestones and up to $ 65.0 million in potential sales milestones.

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 reverse stock split of its outstanding common stock, adjusting our ownership to 93,753 shares of Syros’s common stock.

Under this agreement, Syros used its proprietary gene control platform to identify novel therapeutic targets with a focus in myeloproliferative neoplasms and we received options to obtain exclusive worldwide rights to intellectual property resulting from the collaboration for up to seven validated targets.

This agreement was terminated in October 2023.

As of December 31, 2023, we held an investment of approximately 0.1 million shares of Syros common stock.

The fair market value of our long term investment in Syros as of December 31, 2023 and 2022 was $ 0.7 million and $ 0.3 million, respectively.

We 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 consolidated balance sheets.

For the years ended December 31, 2022, 2021 and 2020, we recorded an unrealized loss of $ 2.7 million, an unrealized loss of $ 7.1 million and an unrealized gain of $ 3.7 million, respectively, based on the change in fair value of Syros’ common stock during the respective periods.

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”).

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.

In November 2022, Zai Lab sent us notice of its termination of the agreement, effective January 11, 2023.

For the years ended December 31, 2023, 2022 and 2021, we recorded an unrealized gain of $ 0.4 million, an unrealized loss of $ 2.7 million and an unrealized loss of $ 7.1 million, respectively, based on the change in fair value of Syros’ common stock during the respective periods.

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 was under clinical development by MorphoSys at the beginning of the agreement, and has subsequently been commercialized as MONJUVI/MINJUVI.

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All development costs related to the collaboration are subject to a joint development plan.

In 2020, we paid MorphoSys an upfront non-refundable payment of $ 750.0 million.

MorphoSys is eligible to receive up to $ 737.5 million in future contingent development and regulatory milestones and up to $ 315.0 million in commercialization milestones as well as tiered royalties ranging from the mid-teens to mid-twenties of net sales outside of the United States.

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 December 31, 2022, we have paid MorphoSys milestones totaling $ 2.5 million, which was recorded as research and development expense in our consolidated statements of operations.

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 December 31, 2022 and 2021 was $ 13.0 million and $ 34.2 million, respectively.

We 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 consolidated balance sheets.

For the years ended December 31, 2022, 2021 and 2020 we recorded an unrealized loss of $ 21.2 million, an unrealized loss of $ 68.7 million, and an unrealized gain of $ 7.4 million, respectively, based on the change in fair value of MorphoSys’ common stock during the respective periods.

Since the inception of the agreement through December 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 December 31, 2023, we held an investment of approximately 3.6 million American Depository Shares, each representing 0.25 of an ordinary share of MorphoSys AG.

The fair market value of our long term investment in MorphoSys AG as of December 31, 2023 and 2022 was $ 35.9 million and $ 13.0 million, respectively.

For the years ended December 31, 2023, 2022 and 2021 we recorded an unrealized gain of $ 22.9 million, an unrealized loss of $ 21.2 million, and an unrealized loss of $ 68.7 million, respectively, based on the change in fair value of MorphoSys AG's ordinary shares during the respective periods.

Our 50 % share of the United States loss for the commercialization of tafasitamab for the years ended December 31, 2023, 2022 and 2021 was $ 2.0 million, $ 8.0 million, and $ 37.0 million respectively, and is recorded as (profit) and loss sharing under collaboration agreements on the consolidated statement of operations.

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At December 31, 2023 and 2022, $ 18.8 million and $ 28.5 million, respectively, was included in accrued and other liabilities on the consolidated balance sheet for amounts due to MorphoSys under the agreement.

During February 2024, we entered into a purchase agreement with MorphoSys, as a result of which we now hold exclusive global rights for tafasitamab.

See Note 18 for further information relating to this agreement.

In September 2021, we entered into a Collaboration and License Agreement with Syndax Pharmaceuticals, Inc.

(“Syndax”), covering the worldwide development and commercialization of SNDX-6352 (“axatilimab”).

Axatilimab, currently in clinical development by Syndax, is a monoclonal antibody that blocks the colony stimulating factor-1 (CSF-1) receptor.

Syndax has exclusive worldwide development and commercialization rights to axatilimab under a June 2016 license agreement with UCB Biopharma Sprl.

The agreement became effective in December 2021.

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

We will be responsible for leading the commercialization strategy and booking all revenue from sales of axatilimab globally, and Syndax will have the option to co-commercialization axatilimab with Incyte in the United States.

Axatilimab, which is currently in clinical development, is a monoclonal antibody that blocks the colony stimulating factor-1 (CSF-1) receptor.

Syndax obtained exclusive worldwide development and commercialization rights to axatilimab under a June 2016 license agreement with UCB Biopharma Sprl.

Under the terms of our agreement, we received exclusive commercialization rights to axatilimab outside of the United States, and share commercialization rights in the United States with Syndax.

We are responsible for leading the commercialization strategy and booking all revenue from sales of axatilimab globally.

Incyte and Syndax will share equally the profits and losses from the co-commercialization efforts in the United States.

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Syndax is eligible to receive up to $ 220.0 million in future contingent development and regulatory milestones and up to $ 230.0 million in sales milestones as well as tiered royalties ranging in the mid-teens on net sales in Europe and Japan and low double digit percentage on net sales in the rest of the world outside of the United States.

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.

Syndax’s 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.

As of December 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 December 31, 2023 and 2022 was $ 30.7 million and $ 36.2 million, respectively.

We 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 consolidated balance sheets.

For the years ended December 31, 2022 and 2021, we recorded an unrealized gain of $ 5.1 million and $ 6.3 million, respectively, based on the change in fair value of Syndax’s common stock during the period.

CMS Aesthetics Limited

In December 2022, we entered into a Collaboration and License Agreement with CMS Aesthetics Limited, a dermatology medical aesthetic company and subsidiary of China Medical System Holdings Limited ("CMS"), for the development and commercialization of ruxolitinib cream for the treatment of autoimmune and inflammatory dermatologic diseases in Greater China and Southeast Asia.

In December 2022, we recognized an upfront payment under this agreement of $ 30.0 million upon our transfer of the functional intellectual property related to ruxolitinib cream to CMS, which was recorded in milestone and contract revenues on the consolidated statement of operations for the year ended December 31, 2022.

We are eligible to receive additional potential development and regulatory milestones, as well as sales milestones, and royalties on net sales of the licensed product in CMS’ territory.

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.

For the years ended December 31, 2023, 2022 and 2021, we recorded an unrealized loss of $ 5.5 million, and unrealized gain of $ 5.1 million, and an unrealized gain of $ 6.3 million, respectively, based on the change in fair value of Syndax’s common stock during the respective periods.

Research and development expenses for the year ended December 31, 2023, includes $ 25.8 million related to our 55 % share of the co-development costs for axatilimab.

At December 31, 2023, $ 1.8 million was included in accrued and other liabilities on the consolidated balance sheet for amounts due to Syndax under the agreement.

Other Agreements

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Depreciation expense, including amortization expense of leasehold improvements, was $ 60.1 million, $ 46.3 million and $ 36.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.

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.

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.

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, at lease commencement.

We have capitalized approximately $ 20.1 million in leasehold improvements as of December 31, 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 constructed a large molecule production facility which received a GMP drug manufacturing license in June 2022 from Swissmedic authorities.

We capitalized approximately $ 176.2 million in building and approximately $ 79.7 million in laboratory equipment as of December 31, 2022.

We are the lessee of several contracts, including those to secure fleet vehicles, buildings and equipment.

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Licensed IP 12.5 $ 271,000 $ 163,318 $ 107,682 $ 271,000 $ 141,781 $ 129,219

Amortization expense was $ 21.5 million for the years ended December 31, 2022, 2021 and 2020 and is recorded in cost of product revenues on the consolidated statement of operations.

Capitalized milestone payments 13.3 $ 17,000 $ 1,137 $ 15,863 $ — $ — $ —

Amortization expense was $ 22.5 million for the year ended December 31, 2023, and amortization expense was $ 21.5 million for the years ended December 31, 2022 and 2021 and is recorded in cost of product revenues on the consolidated statement of operations.

Estimated aggregate amortization expense based on the current carrying value of amortizable intangible assets will be as follows for the years ending December 31 (in thousands):

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Sales and marketing 37,369 31,149

Construction in progress 3,493 27,098

Accrued taxes 42,295 7,108

Operating lease liabilities 5,686 8,195

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2010 Stock Incentive Plan.

In May 2010 the Board of Directors adopted the 2010 Stock Incentive Plan (the “2010 Stock Plan”), which was most recently amended and restated in May 2021, for issuance of common stock to employees, non-employee directors, consultants, and scientific advisors.

Options are granted to employees, consultants, and scientific advisors under the 2010 Stock Plan, pursuant to a formula determined by our Board of Directors.

In May 2010 the Board of Directors adopted the 2010 Stock Incentive Plan (the “2010 Stock Plan”), which was most recently amended in April 2023, for issuance of common stock to employees, non-employee directors, consultants, and scientific advisors.

Awards under the 2010 Stock Plan include stock options, RSUs and PSUs.

In June 2023, our stockholders approved an increase in the number of shares of common stock reserved for issuance under the 2010 Stock Plan from 53,953,475 to 66,453,475 .

Stock Options

Options are granted to employees, consultants, and scientific advisors under the 2010 Stock Plan.

Options are also granted under the 2010 Stock Plan to non-employee members of our Board of Directors, pursuant to a formula set forth in the 2010 Stock Plan.

All options are exercisable at the fair market value of the stock on the date of grant.

Non-employee director options expire after 10 years.

In May 2021, our stockholders approved an increase in the number of shares of common stock reserved for issuance under the 2010 Stock Plan from 44,453,475 to 53,953,475 .

In July 2016, we revised the terms of our annual stock option grants to provide that new option grants would 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.

Previously, our option grants generally had seven-year terms and vested over three years , with 33 % vesting after one year and the remainder vesting in 24 equal monthly installments.

Non-employee director options expire after 10 years and vest in full on the first anniversary of the date of grant or, if earlier, the date of the next annual meeting of stockholders.

Option activity under the 2010 Stock Plan was as follows:

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12,457,158 $ 85.40

Previously, our option grants generally had seven-year terms and vested over three years , with 33 % vesting after one year and the remainder vesting in 24 equal monthly installments.

Options to purchase a total of 9,743,775 , 8,952,289 and 8,024,951 shares as of December 31, 2023, 2022 and 2021, respectively, were exercisable.

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Restricted Stock Units and Performance Shares

In 2014, we began granting restricted stock units (“RSUs”) and performance shares (“PSUs”) to our employees at the share price on the date of grant.

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

Each RSU represents the right to acquire one share of our common stock.

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Balance at December 31, 2022

Additional authorization 12,500,000

Options, RSUs and PSUs granted ( 9,196,930 )

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Each regular full-time and part-time employee working 20 hours or more per week is eligible to participate after one month of employment.

In June 2023, our stockholders approved an increase in the number of shares of common stock reserved for issuance under the ESPP from 9,600,000 to 10,350,000 .

We issued 380,145 , 308,413 and 264,503 shares under the ESPP in 2023, 2022 and 2021, respectively.

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federal, state and foreign corporate income taxes.

The provision (benefit) for income taxes is based on income (loss) before provision (benefit) for income taxes as follows (in thousands):

The provision (benefit) for income taxes is based on income before provision (benefit) for income taxes as follows (in thousands):

Year Ended December 31,

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( 250,039 ) ( 237,665 ) ( 421,429 )

Income (loss) before provision (benefit) for income taxes $ 529,116 $ 570,444 $ ( 232,218 )

On a periodic basis, we reassess the valuation allowance on our deferred income tax assets.

Valuation allowances require an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable.

Such assessment is required on a jurisdiction-by-jurisdiction basis.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

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, 2022, we maintained a valuation allowance of $ 472.1 million against a portion of our remaining U.S.

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

Income before provision (benefit) for income taxes $ 834,215 $ 529,116 $ 570,444

Our provision (benefit) for income taxes consists of the following (in thousands):

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Total provision (benefit) for income taxes $ 236,616 $ 188,456 $ ( 378,137 )