INCYTE CORP 10-Q

Item 1. Financial Statements INCYTE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except number of shares and par value) March 31, 2024 December 31, 2023* (unaudited) ASSETS Current assets: Cash and cash equivalents $ 3,346,204 $ 3,213,376 Marketable securities—available-for-sale (amortized cost $ 506,379 and $ 442,816 as of March 31, 2024 and December 31, 2023, respectively; allowance for credit losses $ 0 as of March 31, 2024 and December 31, 2023) 504,484 442,667 Accounts receivable 745,526 743,557 Inventory 63,642 62,972 Prepaid expenses and other current assets 189,235 182,830 Total current assets 4,849,091 4,645,402 Restricted cash 1,627 1,845 Long term investments 287,663 187,716 Inventory 264,292 206,965 Property and equipment, net 719,999 751,513 Finance lease right-of-use assets, net 25,533 25,535 Other intangible assets, net 117,841 123,545 Goodwill 155,593 155,593 Deferred income tax asset 666,566 631,886 Other assets, net 47,400 52,107 Total assets $ 7,135,605 $ 6,782,107 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 164,238 $ 109,601 Accrued compensation 89,109 153,348 Accrued and other current liabilities 1,102,268 935,569 Finance lease liabilities 3,678 3,439 Acquisition-related contingent consideration 37,160 38,422 Total current liabilities 1,396,453 1,240,379 Acquisition-related contingent consideration 164,840 173,578 Finance lease liabilities 28,934 29,162 Other liabilities 151,107 149,151 Total liabilities 1,741,334 1,592,270 Commitments and contingencies (Note 15) Stockholders’ equity: Preferred stock, $ 0.001 par value; 5,000,000 shares authorized; none issued or outstanding — — Common stock, $ 0.001 par value; 400,000,000 shares authorized; 224,533,449 and 224,286,862 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively 224 224 Additional paid-in capital 5,070,286 5,016,122 Accumulated other comprehensive (loss) income ( 6,172 ) 13,106 Retained earnings 329,933 160,385 Total stockholders’ equity 5,394,271 5,189,837 Total liabilities and stockholders’ equity $ 7,135,605 $ 6,782,107 * The condensed consolidated balance sheet at December 31, 2023 has been derived from the audited consolidated financial statements at that date. See accompanying notes. 3 Table of Contents INCYTE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands, except per share amounts) Three Months Ended March 31, 2024 2023 Revenues: Product revenues, net $ 729,923 $ 693,237 Product royalty revenues 125,966 115,436 Milestone and contract revenues 25,000 — Total revenues 880,889 808,673 Costs, expenses and other: Cost of product revenues (including definite-lived intangible amortization) 60,956 56,822 Research and development 429,260 406,641 Selling, general and administrative 300,256 315,606 (Gain) loss on change in fair value of acquisition-related contingent consideration ( 456 ) 6,196 (Profit) and loss sharing under collaboration agreements ( 1,025 ) ( 1,362 ) Total costs, expenses and other 788,991 783,903 Income from operations 91,898 24,770 Interest income and other, net 44,744 32,873 Interest expense ( 430 ) ( 469 ) Unrealized gain (loss) on long term investments 99,947 ( 5,318 ) Income before provision for income taxes 236,159 51,856 Provision for income taxes 66,611 30,153 Net income $ 169,548 $ 21,703 Net income per share: Basic $ 0.76 $ 0.10 Diluted $ 0.75 $ 0.10 Shares used in computing net income per share: Basic 224,484 222,960 Diluted 227,219 225,589 See accompanying notes. 4 Table of Contents INCYTE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited, in thousands) Three Months Ended March 31, 2024 2023 Net income $ 169,548 $ 21,703 Other comprehensive (loss) income: Foreign currency translation (loss) gain ( 17,820 ) 3,260 Unrealized (loss) gain on marketable securities, net of tax ( 1,746 ) 2,420 Defined benefit pension gain, net of tax 288 193 Other comprehensive (loss) income ( 19,278 ) 5,873 Comprehensive income $ 150,270 $ 27,576 See accompanying notes. 5 Table of Contents INCYTE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited, in thousands, except number of shares) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive (Loss) Income Retained Earnings Total Stockholders’ Equity Balances at January 1, 2024 $ 224 $ 5,016,122 $ 13,106 $ 160,385 $ 5,189,837 Issuance of 245,228 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units, net of shares withheld for taxes — ( 5,697 ) — — ( 5,697 ) Issuance of 1,359 shares of Common Stock for services rendered — 80 — — 80 Stock compensation — 59,781 — — 59,781 Other comprehensive loss — — ( 19,278 ) — ( 19,278 ) Net income — — — 169,548 169,548 Balance at March 31, 2024 $ 224 $ 5,070,286 $ ( 6,172 ) $ 329,933 $ 5,394,271 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders’ Equity Balances at January 1, 2023 $ 223 $ 4,792,041 $ 15,069 $ ( 437,214 ) $ 4,370,119 Issuance of 313,995 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units, net of shares withheld for taxes — 11,235 — — 11,235 Issuance of 1,073 shares of Common Stock for services rendered — 80 — — 80 Stock compensation — 53,558 — — 53,558 Other comprehensive income — — 5,873 — 5,873 Net income — — — 21,703 21,703 Balances at March 31, 2023 $ 223 $ 4,856,914 $ 20,942 $ ( 415,511 ) $ 4,462,568 See accompanying notes. 6 Table of Contents INCYTE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands) Three Months Ended March 31, 2024 2023 Cash flows from operating activities: Net income $ 169,548 $ 21,703 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 21,947 19,211 Stock-based compensation 59,778 53,379 Deferred income taxes ( 34,251 ) ( 22,163 ) Other, net 2,954 ( 2,651 ) Unrealized (gain) loss on long term investments ( 99,947 ) 5,318 (Gain) loss on change in fair value of acquisition-related contingent consideration ( 456 ) 6,196 Changes in operating assets and liabilities: Accounts receivable ( 1,969 ) 21,091 Prepaid expenses and other assets ( 1,698 ) ( 24,354 ) Inventory ( 57,197 ) ( 33,320 ) Accounts payable 54,637 ( 221,913 ) Accrued and other liabilities 105,465 71,900 Net cash provided by (used in) operating activities 218,811 ( 105,603 ) Cash flows from investing activities: Sale of long term investments — 45 Capital expenditures ( 9,549 ) ( 11,906 ) Payments for intangible assets — ( 15,000 ) Purchases of marketable securities ( 165,808 ) ( 54,887 ) Sale and maturities of marketable securities 102,245 53,189 Net cash used in investing activities ( 73,112 ) ( 28,559 ) Cash flows from financing activities: Proceeds from issuance of common stock under stock plans 477 13,988 Tax withholdings related to restricted and performance share vesting ( 6,174 ) ( 2,753 ) Payment of finance lease liabilities ( 871 ) ( 802 ) Payment of contingent consideration ( 5,845 ) ( 6,424 ) Net cash (used in) provided by financing activities ( 12,413 ) 4,009 Effect of exchange rates on cash, cash equivalents, and restricted cash ( 676 ) ( 199 ) Net increase (decrease) in cash, cash equivalents, and restricted cash 132,610 ( 130,352 ) Cash, cash equivalents, and restricted cash at beginning of period 3,215,221 2,953,120 Cash, cash equivalents, and restricted cash at end of period $ 3,347,831 $ 2,822,768 Supplemental Schedule of Cash Flow Information Income taxes paid $ 2,691 $ 7,107 Unpaid purchases of property and equipment $ 383 $ 3,059 Leased assets obtained in exchange for new operating lease liabilities $ — $ 809 Leased assets obtained in exchange for new finance lease liabilities $ 550 $ 385 See accompanying notes. 7 Table of Contents INCYTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2024 (Unaudited) Note 1. Organization and Business Incyte Corporation (including its subsidiaries, “Incyte,” “we,” “us,” or “our”) is a biopharmaceutical company focused on developing and commercializing proprietary therapeutics. Our portfolio includes compounds in various stages, ranging from preclinical to late stage development, and commercialized products JAKAFI® (ruxolitinib), ICLUSIG® (ponatinib), PEMAZYRE® (pemigatinib), OPZELURA® (ruxolitinib cream), MINJUVI® (tafasitamab), MONJUVI® (tafasitamab-cxix), and ZYNYZ® (retifanlimab-dlwr). Our operations are treated as one operating segment. Note 2. Summary of Significant Accounting Policies Basis of presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The condensed consolidated balance sheet as of March 31, 2024, the condensed consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for the three months ended March 31, 2024 and 2023, are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The condensed consolidated balance sheet at December 31, 2023 has been derived from our audited consolidated financial statements. Although we believe that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and footnote information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Results for any interim period are not necessarily indicative of results for any future interim period or for the entire year. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023. Principles of Consolidation. The condensed consolidated financial statements include the accounts of Incyte Corporation and our wholly owned subsidiaries. All inter-company accounts, transactions, and profits have been eliminated in consolidation. Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Recent Accounting Pronouncements and Regulatory Updates 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 evaluating the impact that ASU No. 2023-07 will have on our annual consolidated financial statements. 8 Table of Contents 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 evaluating the impact that ASU No. 2023-09 will have on our consolidated financial statements. In March 2024, the SEC issued Release Nos. 33-11275; 34-99678 “ The Enhancement and Standardization of Climate-Related Disclosures for Investors ” to require public companies to provide certain climate-related information in their registration statements and annual reports. The compliance dates for the rules amended by this release begin in fiscal year 2025 for large accelerated filers. On April 4, 2024, the SEC issued an order staying the newly adopted rules. We are currently evaluating the impact of this release on our financial disclosures. Note 3. Revenues Revenues are recognized under guidance within ASC 606, Revenue from Contracts with Customers . The following table presents our disaggregated revenue for the periods presented (in thousands): Three Months Ended March 31, 2024 2023 JAKAFI revenues, net $ 571,839 $ 579,969 OPZELURA revenues, net 85,724 56,552 ICLUSIG revenues, net 30,343 27,685 PEMAZYRE revenues, net 17,676 22,475 MINJUVI/MONJUVI revenues, net 23,874 6,556 ZYNYZ revenues, net 467 — Total product revenues, net 729,923 693,237 JAKAVI product royalty revenues 89,595 76,692 OLUMIANT product royalty revenues 30,589 34,155 TABRECTA product royalty revenues 5,234 4,177 PEMAZYRE product royalty revenues 548 412 Total product royalty revenues 125,966 115,436 Milestone and contract revenues 25,000 — Total revenues $ 880,889 $ 808,673 For further information on the MINJUVI/MONJUVI revenues, refer to Note 6, and for further information on our revenue-generating contracts, refer to Note 8. Note 4. Fair Value of Financial Instruments The following is a summary of our marketable security portfolio for the periods presented (in thousands): Amortized Cost Net Unrealized Losses Estimated Fair Value March 31, 2024 Debt securities (government) $ 506,379 $ ( 1,895 ) $ 504,484 December 31, 2023 Debt securities (government) $ 442,816 $ ( 149 ) $ 442,667 9 Table of Contents Our available-for-sale debt securities generally have contractual maturity dates of between 12 to 18 months. Debt security assets were assessed for risk of expected credit losses. As of March 31, 2024 and December 31, 2023, the available-for-sale debt securities were held in U.S.-government backed securities and in Treasury bonds and were assessed on an individual security basis to have a de minimis risk of credit loss. Fair Value Measurements FASB accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (“the exit price”) in an orderly transaction between market participants at the measurement date. The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. In determining fair value we use quoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of us. The fair value hierarchy is broken down into three levels based on the source of inputs as follows: Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities. Level 2—Valuations based on observable inputs and quoted prices in active markets for similar assets and liabilities. Level 3—Valuations based on inputs that are unobservable and models that are significant to the overall fair value measurement. Recurring Fair Value Measurements Our marketable securities consist of investments in U.S. government debt securities that are classified as available-for-sale. At March 31, 2024 and December 31, 2023, our Level 2 U.S. government debt securities were valued using readily available pricing sources which utilize market observable inputs, including the current interest rate and other characteristics for similar types of investments. Our long term investments classified as Level 1 were valued using their respective closing stock prices on The Nasdaq Stock Market. We did not experience any transfers of financial instruments between the fair value hierarchy levels during the three months ended March 31, 2024. The following fair value hierarchy table presents information about each major category of our financial assets measured at fair value on a recurring basis (in thousands): Fair Value Measurement at Reporting Date Using: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Balance as of March 31, 2024 Cash and cash equivalents $ 3,346,204 $ — $ — $ 3,346,204 Debt securities (government) — 504,484 — 504,484 Long term investments (Note 8) 287,663 — — 287,663 Total assets $ 3,633,867 $ 504,484 $ — $ 4,138,351 10 Table of Contents Fair Value Measurement at Reporting Date Using: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Balance as of December 31, 2023 Cash and cash equivalents $ 3,213,376 $ — $ — $ 3,213,376 Debt securities (government) — 442,667 — 442,667 Long term investments (Note 8) 187,716 — — 187,716 Total assets $ 3,401,092 $ 442,667 $ — $ 3,843,759 The following fair value hierarchy table presents information about each major category of our financial liabilities measured at fair value on a recurring basis as (in thousands): Fair Value Measurement at Reporting Date Using: Quoted Prices in Active Markets for Identical Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Balance as of March 31, 2024 Acquisition-related contingent consideration $ — $ — $ 202,000 $ 202,000 Total liabilities $ — $ — $ 202,000 $ 202,000 Fair Value Measurement at Reporting Date Using: Quoted Prices in Active Markets for Identical Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Balance as of December 31, 2023 Acquisition-related contingent consideration $ — $ — $ 212,000 $ 212,000 Total liabilities $ — $ — $ 212,000 $ 212,000 The following is a roll forward of our Level 3 liabilities (in thousands): 2024 Balance at January 1, $ 212,000 Contingent consideration earned during the period but not yet paid ( 9,544 ) Change in fair value of contingent consideration ( 456 ) Balance at March 31, $ 202,000 The initial fair value of the contingent consideration was determined on the date of acquisition, June 1, 2016, using an income approach based on projected future net revenues of ICLUSIG in the European Union and other countries for the approved third line treatment over 18 years, and discounted to present value at a rate of 10 %. The fair value of the contingent consideration is remeasured each reporting period, with changes in fair value recorded in the condensed consolidated statements of operations. The valuation inputs utilized to estimate the fair value of the contingent consideration as of March 31, 2024 and December 31, 2023 included a discount rate of 10 % and updated projections of future net revenues of ICLUSIG in the European Union and other countries for the approved third line treatment. The change in fair value of the contingent consideration during the three months ended March 31, 2024 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 Pharmaceutical Company Limited quarterly based on the royalties or any additional milestone payments earned in the previous quarter. At March 31, 2024 and December 31, 2023, contingent consideration earned but not yet paid was $ 9.5 million and $ 10.3 million, respectively, and was included in accrued and other current liabilities. 11 Table of Contents Note 5. Concentration of Credit Risk and Current Expected Credit Losses In November 2009, we entered into a collaboration and license agreement with Novartis Pharmaceutical International Ltd. (“Novartis”). In December 2009, we entered into a license, development and commercialization agreement with Eli Lilly and Company (“Lilly”). The above collaboration partners comprised, in aggregate, 17 % and 20 % of the accounts receivable balance as of March 31, 2024 and December 31, 2023, respectively. For further information relating to these collaboration and license agreements, refer to Note 8. In November 2011, we began commercialization and distribution of JAKAFI and in October 2021, we began commercialization and distribution of OPZELURA. Our product revenues are concentrated in a number of customers for these products. The concentration of credit risk related to our JAKAFI and OPZELURA product revenues is as follows: Percentage of Total Net Product Revenues for the Three Months Ended March 31, 2024 2023 Customer A 17 % 17 % Customer B 11 % 11 % Customer C 18 % 18 % Customer D 9 % 10 % Customer E 12 % 12 % We are exposed to risks associated with extending credit to customers related to the sale of products. Customers A, B, C, D, and E comprised, in aggregate, 41 % and 40 % of the accounts receivable balance as of March 31, 2024 and December 31, 2023, respectively. The concentration of credit risk relating to our other product revenues or accounts receivable is not significant. We assessed our collaborative and customer receivable assets as of March 31, 2024 according to our accounting policy for applying reserves for expected credit losses, noting minimal history of uncollectible receivables and the continued perceived creditworthiness of our third party sales relationships, upon which the expected credit losses were considered de minimis. As of March 31, 2024 and December 31, 2023, we had no allowance for doubtful accounts. Note 6. Asset Acquisition On February 5, 2024, we entered into a purchase agreement with MorphoSys AG and MorphoSys US Inc., a wholly-owned subsidiary of MorphoSys AG (together with MorphoSys AG, “MorphoSys”), under which we gained exclusive global rights to tafasitamab, a humanized Fc-modified CD19-targeting immunotherapy marketed in the United States as MONJUVI (tafasitamab-cxix) and outside of the United States as MINJUVI (tafasitamab). We previously had the rights to tafasitamab outside of the United States under our prior collaboration and license agreement with MorphoSys entered into in January 2020, which has now been terminated; therefore, this new agreement gave us all of the remaining global rights to tafasitamab. Under the terms of the purchase agreement, we made a payment of $ 25.0 million to MorphoSys and gained global development and commercialization rights for tafasitamab along with MONJUVI inventory. We will recognize revenue and costs for all U.S. commercialization and clinical development and MorphoSys will no longer be eligible to receive future milestone, profit split and royalty payments under the now-terminated collaboration and license agreement with MorphoSys. We evaluated the set of activities and assets acquired under the purchase agreement, and concluded that it did not meet the definition of a business because the acquired set did not include a substantive process. Therefore, the transaction was accounted for as an asset acquisition and the total purchase price, inclusive of direct transaction costs, was allocated to the acquired MONJUVI inventory, in accordance with applicable accounting guidance. 12 Table of Contents Under the purchase agreement, we have also become the successor to MorphoSys under its collaboration and license agreement with Xencor, Inc. (“Xencor”), pursuant to which Xencor granted MorphoSys an exclusive, worldwide license, including the right to sublicense under certain conditions, for tafasitamab. Xencor is entitled to receive up to $ 186.5 million in future contingent development and regulatory milestones, and up to $ 50.0 million in sales milestones. Furthermore, Xencor is eligible to receive tiered royalties on global net sales of tafasitamab in the single-digit to sub-teen double-digit percentage range. Our royalty obligations continue on a country-by-country basis until the later to occur of the expiration of the last valid claim in the licensed patent covering tafasitamab in such country, or 11 years after the first sale thereof following marketing authorization in such country. The term of the Xencor collaboration agreement will continue until all of our royalty payment obligations have expired, unless terminated earlier. The Xencor collaboration agreement may be terminated by either party upon written notice to the other party immediately in the event of the other party’s insolvency or upon 120 days’ written notice for the other party’s uncured material breach (or upon 30 days’ written notice in the case of a breach of a payment obligation). Moreover, we may terminate the Xencor collaboration agreement without cause upon 90 days’ advance written notice to Xencor. In the event that (i) we terminate this agreement for convenience or (ii) Xencor terminates due to our material breach, our challenge of Xencor’s licensed patents or our insolvency, worldwide rights to develop, manufacture and commercialize licensed products, including tafasitamab, revert back to Xencor. Note 7. Inventory Our inventory balance consists of the following (in thousands): March 31, 2024 December 31, 2023 Raw materials $ 23,427 $ 23,282 Work-in-process 255,039 209,793 Finished goods 49,468 36,862 Total inventory $ 327,934 $ 269,937 Inventories, stated at the lower of cost and net realizable value, consist of raw materials, work in process and finished goods. At March 31, 2024, $ 63.6 million of inventory was classified as current on the condensed consolidated balance sheet as we expect this inventory to be consumed for commercial use within the next twelve months. At March 31, 2024, $ 264.3 million of inventory was classified as non-current on the condensed consolidated balance sheet as we did not expect this inventory to be consumed for commercial use within the next twelve months. We obtain some inventory components from a limited number of suppliers due to technology, availability, price, quality or other considerations. The loss of a supplier, the deterioration of our relationship with a supplier, or any unilateral violation of the contractual terms under which we are supplied components by a supplier could adversely affect our total revenues and gross margins. We capitalize inventory after regulatory approval as the related costs are expected to be recoverable through the commercialization of the product. Costs incurred prior to regulatory approval are recorded as research and development expense in our statements of operations. At March 31, 2024, inventory with approximately $ 38.2 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 9 to 12 months and, as a result, cost of product revenues will reflect a lower average per unit cost of materials. Note 8. License Agreements Novartis In November 2009, we entered into a Collaboration and License Agreement with Novartis. Under the terms of the agreement, Novartis received exclusive development and commercialization rights outside of the United States to our JAK inhibitor ruxolitinib and certain back-up compounds for hematologic and oncology indications, including all hematological malignancies, solid tumors and myeloproliferative diseases. We retained exclusive development and commercialization rights to JAKAFI (ruxolitinib) in the United States and in certain other indications. Novartis also received worldwide exclusive development and commercialization rights to our MET inhibitor compound capmatinib and certain back-up compounds in all indications. 13 Table of Contents 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 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 March 31, 2024, 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 also are eligible to receive tiered, double-digit royalties ranging from the upper-teens to the mid-twenties on future JAKAVI net sales outside of the United States, and tiered, worldwide royalties on TABRECTA net sales that range from 12 % to 14 %. We are obligated to pay to Novartis tiered royalties in the low single-digits on future JAKAFI net sales within the United States contingent on certain conditions. During the three months ended March 31, 2024 and 2023, such royalties on net sales within the United States totaled $ 23.0 million and $ 23.4 million, respectively, and were reflected in cost of product revenues on the condensed consolidated statements of operations. At March 31, 2024 and December 31, 2023, $ 398.6 million and $ 375.6 million, respectively, of accrued royalties were included in accrued and other current liabilities on the condensed consolidated balance sheets, payment of which is dependent on the outcome of a contract dispute with Novartis. Each company is responsible for costs relating to the development and commercialization of ruxolitinib in its respective territories, with costs of collaborative studies shared equally. Novartis is also responsible for all costs relating to the development and commercialization of capmatinib. Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States for the three months ended March 31, 2024 and 2023 was $ 89.6 million and $ 76.7 million, respectively. Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three months ended March 31, 2024 and 2023 was $ 5.2 million and $ 4.2 million, respectively. Lilly – Baricitinib In December 2009, we entered into a License, Development and Commercialization Agreement with Lilly. Under the terms of the agreement, Lilly received exclusive worldwide development and commercialization rights to our JAK inhibitor baricitinib, and certain back-up compounds for inflammatory and autoimmune diseases. 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. Since the inception of the agreement through March 31, 2024, 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. Product royalty revenue related to Lilly net sales of OLUMIANT outside of the United States for the three months ended March 31, 2024 and 2023 was $ 30.6 million and $ 34.2 million, respectively. Agenus In January 2015, we entered into a License, Development and Commercialization Agreement with Agenus Inc. and its wholly-owned subsidiary, 4-Antibody AG (now known as Agenus Switzerland Inc.), which we collectively refer to as Agenus. 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. Since the inception of the agreement through March 31, 2024, we have paid Agenus milestones totaling $ 30.0 million, and Agenus is eligible to receive up to an additional $ 500.0 million in future contingent development, regulatory and commercialization milestones across all programs in the collaboration. As of March 31, 2024, 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 March 31, 2024 and December 31, 2023 was $ 7.0 million and $ 10.0 million, respectively. For the three months ended March 31, 2024 and 2023, we recorded an unrealized loss of $ 3.0 million and $ 10.6 million, respectively, based on the change in fair value of Agenus Inc.’s common stock during the respective periods. 14 Table of Contents Merus In December 2016, we entered into a Collaboration and License Agreement with Merus N.V. (“Merus”). Under this agreement, the parties have agreed to collaborate with respect to the research, discovery and development of bispecific antibodies utilizing Merus’ technology platform. The collaboration encompasses up to ten independent programs. Since the inception of the agreement through March 31, 2024, we have paid and expensed Merus milestones totaling $ 10.0 million. As of March 31, 2024, we held an investment of approximately 4.0 million common shares. The fair market value of our total long term investment in Merus at March 31, 2024 and December 31, 2023 was $ 180.3 million and $ 110.1 million, respectively. For the three months ended March 31, 2024 and 2023, we recorded an unrealized gain of $ 70.2 million and $ 10.4 million, respectively, based on the change in fair value of Merus’ common shares during the respective periods. MacroGenics In October 2017, we entered into a Global Collaboration and License Agreement with MacroGenics, Inc. (“MacroGenics”). Under this agreement, we received exclusive development and commercialization rights worldwide to MacroGenics’ INCMGA0012 (formerly MGA012), an investigational monoclonal antibody that inhibits PD-1. Except as set forth in the succeeding sentence, we have sole authority over and bear all costs and expenses in connection with the development and commercialization of INCMGA0012 in all indications, whether as a monotherapy or as part of a combination regimen. MacroGenics has retained the right to develop and commercialize, at its cost and expense, its pipeline assets in combination with INCMGA0012. In addition, MacroGenics has the right to manufacture a portion of both companies’ global clinical and commercial supply needs of INCMGA0012. In March 2023, we made a $ 15.0 million regulatory milestone payment to MacroGenics for the FDA approval of ZYNYZ for the treatment of adults with Merkel cell carcinoma. This milestone payment was capitalized as an intangible asset and included in Other intangible assets, net on the condensed consolidated balance sheet as of March 31, 2024, and is being amortized through cost of product revenues over the estimated useful life of 13.5 years. Since the inception of the agreement, inclusive of the July 2022 amendment to the agreement, through March 31, 2024, we have paid MacroGenics developmental and regulatory milestones totaling $ 115.0 million. After the amendment and subsequent payments, MacroGenics will be eligible to receive up to an additional $ 320.0 million in future contingent development and regulatory milestones, and up to $ 330.0 million in sales milestones as well as tiered royalties ranging from 15 % to 24 % of global net sales. Research and development expenses for the three months ended March 31, 2024 and 2023 also included $ 12.1 million and $ 17.8 million, respectively, of development costs incurred pursuant to the MacroGenics agreement. At March 31, 2024 and December 31, 2023, a total of $ 0.4 million and $ 0.3 million of such costs were included in accrued and other liabilities on the condensed consolidated balance sheets. MorphoSys As described in Note 6, on February 5, 2024, we entered into a purchase agreement with MorphoSys that became effective as of that date, as a result of which we now hold exclusive global rights for tafasitamab, a humanized Fc-modified CD19-targeting immunotherapy marketed in the United States as MONJUVI (tafasitamab-cxix) and outside of the United States as MINJUVI (tafasitamab). Prior to the acquisition, pursuant to a now-terminated collaboration and license agreement, we and MorphoSys agreed to co-develop tafasitamab and to share development costs associated with global and U.S.-specific clinical trials, with Incyte responsible for 55 % of such costs and MorphoSys responsible for 45 % of such costs. Each company was responsible for funding any independent development activities, and we were responsible for funding development activities specific to territories outside of the United States. As of March 31, 2024, 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 March 31, 2024 and December 31, 2023 was $ 65.8 million and $ 35.9 million, respectively. For the three months ended March 31, 2024 and 2023, we recorded an unrealized gain of $ 29.9 million and $ 1.4 million, respectively, based on the change in fair value of MorphoSys AG's ordinary shares during the respective periods. 15 Table of Contents Our 50 % share of the United States loss or profit for the commercialization of tafasitamab for the period from January 1, 2024 to the asset acquisition on February 5, 2024, was a profit of $ 1.0 million, and is recorded as (Profit) and loss sharing under collaboration agreements on the condensed consolidated statement of operations. As described in Note 6, subsequent to the asset acquisition, we will recognize revenue and costs for all commercialization and clinical development of tafasitamab in the United States. 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 is recorded as (Profit) and loss sharing under collaboration agreements on the condensed consolidated statement of operations. Research and development expenses for the period from January 1, 2024 to the asset acquisition on February 5, 2024, includes $ 10.7 million, related to our 55 % share of the co-development costs for tafasitamab. Research and development expenses for the three months ended March 31, 2023, includes $ 25.2 million, related to our 55 % share of the co-development costs for tafasitamab. At March 31, 2024 and December 31, 2023, $ 3.5 million and $ 18.8 million, respectively, was included in accrued and other liabilities on the condensed consolidated balance sheets for amounts due to MorphoSys under the former agreement. Syndax 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”). We and Syndax have agreed to co-develop axatilimab and to share development costs associated with global and U.S.-specific clinical trials, with Incyte responsible for 55 % of such costs and Syndax responsible for 45 % of such costs. Each company is responsible for funding any independent development activities. Inclusive of an upfront, non-refundable payment, since the inception of the agreement through March 31, 2024, we have made payments of $ 117.0 million to Syndax, which were previously recorded in research and development expense. 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. As of March 31, 2024, we held an investment of approximately 1.4 million shares of Syndax common stock. The fair market value of our long term investment in Syndax as of March 31, 2024 and December 31, 2023 was $ 33.8 million and $ 30.7 million. For the three months ended March 31, 2024 and 2023, we recorded an unrealized gain of $ 3.1 million and an unrealized loss of $ 6.2 million, respectively, based on the change in fair value of Syndax’s common stock during the respective periods. Research and development expenses for the three months ended March 31, 2024, includes $ 7.1 million related to our 55 % share of the co-development costs for axatilimab. At March 31, 2024 and December 31, 2023, $ 1.9 million and $ 1.8 million, respectively, was included in accrued and other liabilities on the condensed consolidated balance sheet for amounts due to Syndax under the agreement. China Medical Systems Holdings Limited In March 2024, we entered into a Collaboration and License Agreement with China Medical System Skinhealth, a wholly-owned dermatology medical aesthetic company and subsidiary of China Medical System Holdings Limited (“CMSHL”), for the development and commercialization of povorcitinib, a selective oral JAK1 inhibitor, in certain indications in certain Asian territories. In March 2024, we recognized an upfront payment under this agreement of $ 25.0 million upon our transfer of the functional intellectual property related to povorcitinib to CMSHL which was recorded in milestone and contract revenues on the condensed consolidated statement of operations for the three months ended March 31, 2024. We are eligible to receive additional potential development and commercial milestones, as well as royalties on net sales of the licensed product in CMSHL’s territory. CMSHL received an exclusive license to develop and commercialize and a non-exclusive license to manufacture povorcitinib in autoimmune and inflammatory dermatologic diseases, including non-segmental vitiligo, hidradenitis suppurativa, prurigo nodularis, asthma and chronic spontaneous urticaria, for patients in mainland China, Hong Kong, Macau, Taiwan and certain countries in Southeast Asia. 16 Table of Contents Other Agreements In addition to the license and collaboration agreements discussed above, we have various other license and collaboration agreements that are not individually material to our operating results or financial condition at this time. Pursuant to the terms of those agreements, we may be required to pay, or we may receive, additional amounts contingent upon the occurrence of various future events such as future discovery, development, regulatory or commercial milestones, which in the aggregate could be material. In addition, if any products related to these collaborations are approved for sale, we may be required to pay, or we may receive, royalties on future sales. The payment or receipt of these amounts, however, is contingent upon the occurrence of various future events, the likelihood of which cannot presently be determined. Note 9. Property and Equipment, net Property and equipment, net consists of the following (in thousands): March 31, 2024 December 31, 2023 Office equipment $ 23,417 $ 23,417 Laboratory equipment 217,437 220,677 Computer equipment 150,181 147,570 Land 10,561 10,931 Building and leasehold improvements 572,491 584,755 Operating lease right-of-use assets 18,037 20,553 Construction in progress 10,773 13,544 1,002,897 1,021,447 Less accumulated depreciation and amortization ( 282,898 ) ( 269,934 ) Property and equipment, net $ 719,999 $ 751,513 Note 10. Accrued and Other Current Liabilities Accrued and other current liabilities consisted of the following (in thousands): March 31, 2024 December 31, 2023 Royalties $ 410,312 $ 387,362 Clinical related costs 94,554 109,618 Sales allowances 358,541 279,914 Sales and marketing 41,971 37,369 Accrued Taxes 126,762 42,295 Operating lease liabilities 4,783 5,686 Other current liabilities 65,345 73,325 Total accrued and other current liabilities $ 1,102,268 $ 935,569 Note 11. Stock Compensation 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 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. 2024 Inducement Stock Incentive Plan. In January 2024, our Board of Directors adopted the Incyte Corporation 2024 Inducement Stock Incentive Plan (the “2024 Inducement Plan”). In reliance on Nasdaq Marketplace Rule 5635(c)(4), stockholder approval was not obtained. A total of 1,000,000 shares of common stock are reserved for issuance pursuant to the 2024 Inducement Plan. 17 Table of Contents We recorded $ 59.8 million and $ 53.4 million of stock compensation expense on our condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023, respectively. Stock compensation expense included within our condensed consolidated statements of operations included research and development expense of $ 36.8 million and $ 31.0 million for the three months ended March 31, 2024 and 2023, respectively. Stock compensation expense included within our condensed consolidated statements of operations also included selling, general and administrative expense of $ 22.4 million and $ 21.6 million for the three months ended March 31, 2024 and 2023, respectively. Stock compensation expense included within our condensed consolidated statements of operations also included cost of product revenues of $ 0.6 million and $ 0.8 million, respectively, for the three months ended March 31, 2024 and 2023. We utilized the Black-Scholes valuation model for estimating the fair value of the stock compensation granted, with the following weighted-average assumptions: Employee Stock Options Employee Stock Purchase Plan For the Three Months Ended For the Three Months Ended March 31, March 31, 2024 2023 2024 2023 Average risk-free interest rates 4.08 % 3.72 % 5.38 % 4.06 % Average expected life (in years) 4.71 4.73 0.50 0.50 Volatility 31 % 33 % 23 % 22 % Weighted-average fair value (in dollars) $ 20.67 $ 28.24 $ 10.85 $ 13.70 The risk-free interest rate is derived from the U.S. Federal Reserve rate in effect at the time of grant. The expected life calculation is based on the observed and expected time to the exercise of options by our employees based on historical exercise patterns for similar type options. Expected volatility is based on the historical volatility of our common stock over the period commensurate with the expected life of the options. A dividend yield of zero is assumed based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends. Nonemployee awards are measured on the grant date by estimating the fair value of the equity instruments to be issued using the expected term, similar to our employee awards. Option activity under our 2010 Stock Plan and 2024 Inducement Plan was as follows: Shares Subject to Outstanding Options Shares Weighted Average Exercise Price Balance at December 31, 2023 12,457,158 $ 85.40 Options granted 596,329 $ 61.35 Options exercised ( 7,500 ) $ 64.55 Options cancelled ( 131,662 ) $ 86.44 Balance at March 31, 2024 12,914,325 $ 84.29 Our annual stock option grants generally have a 10 -year term and vest over four years , with 25 % vesting after one year and the remainder vesting in 36 equal monthly installments. 18 Table of Contents Restricted stock unit (“RSU”) and performance share (“PSU”) award activity under the 2010 Stock Plan and 2024 Inducement Plan was as follows: Shares Subject to Outstanding Awards Shares Grant Date Value Balance at December 31, 2023 7,165,342 $ 72.17 RSUs granted 330,699 $ 61.16 Additional PSUs earned 21,866 $ 83.58 RSUs released ( 339,217 ) $ 80.82 RSUs cancelled ( 42,871 ) $ 70.83 Balance at March 31, 2024 7,135,819 $ 71.29 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. Each RSU granted in connection with our annual equity awards will vest 25 % annually over four years , while each RSU granted as outstanding merit awards or as part of retention award programs will vest in a single installment at the end of four years . We grant PSUs with performance and/or service-based milestones with graded and/or cliff vesting over three to four years . The shares of our common stock into which each PSU may convert is subject to a multiplier based on the level at which the financial, developmental and market performance conditions are achieved over the service period. Compensation expense for PSUs with financial and developmental performance conditions is recorded over the estimated service period for each milestone when the performance conditions are deemed probable of achievement. For PSUs containing performance conditions which were not deemed probable of achievement, no stock compensation expense is recorded. Compensation expense for PSUs with market performance conditions is calculated using a Monte Carlo simulation model as of the date of grant and recorded over the requisite service period. For the three months ended March 31, 2024 and 2023 we recorded $ 3.4 million and $ 6.5 million, respectively, of stock compensation expense for PSUs on our condensed consolidated statements of operations. The following table summarizes our shares available for grant under the 2010 Stock Plan and 2024 Inducement Plan. Each RSU and PSU grant reduces the available share pool by 2 shares. Shares Available for Grant Balance at December 31, 2023 10,815,026 Additional authorization - 2024 Inducement Plan 1,000,000 Options, RSUs and PSUs granted ( 1,279,593 ) Options, RSUs and PSUs cancelled 217,404 Balance at March 31, 2024 10,752,837 Based on our historical experience of employee turnover, we have assumed an annualized forfeiture rate of 5 % for our options, RSUs and PSUs. Under the true-up provisions of the stock compensation guidance, we will record additional expense if the actual forfeiture rate is lower than we estimated, and will record a recovery of prior expense if the actual forfeiture is higher than we estimated. Total compensation cost of options granted but not yet vested, as of March 31, 2024, was $ 30.6 million, which is expected to be recognized over the weighted average period of approximately 1.1 years. Total compensation cost of RSUs granted but not yet vested, as of March 31, 2024, was $ 204.3 million, which is expected to be recognized over the weighted average period of approximately 1.6 years. Total compensation cost of PSUs granted but not yet vested, as of March 31, 2024, was $ 13.3 million, which is expected to be recognized over the weighted average period of 1.2 years, should the underlying performance conditions be deemed probable of achievement. 19 Table of Contents Note 12. Income Taxes For the three months ended March 31, 2024 and 2023, we recorded the following provisions for income taxes and effective tax rates as compared to our income before provision for income taxes (in thousands): Three Months Ended March 31, 2024 2023 Income before provision for income taxes $ 236,159 $ 51,856 Provision for income taxes 66,611 30,153 Effective tax rate 28.2 % 58.1 % Our effective tax rate for the three months ended March 31, 2024 and 2023 was higher than the U.S. statutory rate primarily due to foreign losses with no associated tax benefit (i.e., full valuation allowance) and an increase in our valuation allowance against certain U.S. federal and state deferred tax assets offset to a lesser extent by tax rate benefits associated with research and development and orphan drug tax credit generations and the foreign derived intangible income deductions. The effective tax rate for the three months ended March 31, 2024 decreased as compared to the prior year period primarily due to the decrease in foreign losses with no associated tax benefit, and to a lesser extent, the tax effects of unrealized gains on long term investments. The balance of our unrecognized tax benefits (including penalties and interest) increased by $ 4.2 million during the three months ended March 31, 2024. This movement was primarily driven by increases related to prior period tax positions of $ 3.1 million and $ 1.4 million of interest and penalties. We accrue interest and penalties related to unrecognized tax benefits as a component of its provision for income taxes. The Organization for Economic Cooperation and Development Pillar 2 guidelines, which were supported by over 130 countries worldwide, are designed to impose a 15% global minimum tax on adjusted financial results. Certain aspects of Pillar 2 took effect on January 1, 2024, while other aspects go into effect on January 1, 2025. We are evaluating the potential impact of Pillar 2 on our business, as many of the countries in which we operate are enacting legislation implementing Pillar 2. Although many aspects of Pillar 2 remain to be clarified, at this time there are no material impacts on our effective tax rate . 20 Table of Contents Note 13. Net Income Per Share Net income per share was calculated as follows for the periods indicated below: Three Months Ended March 31, 2024 2023 Basic net income $ 169,548 $ 21,703 Weighted average common shares outstanding 224,484 222,960 Basic net income per share $ 0.76 $ 0.10 Diluted net income $ 169,548 $ 21,703 Weighted average common shares outstanding 224,484 222,960 Dilutive stock options and awards 2,735 2,629 Weighted average shares used to compute diluted net income per share 227,219 225,589 Diluted net income per share $ 0.75 $ 0.10 The potential common shares that were excluded from the diluted net income per share computation are as follows: Three Months Ended March 31, 2024 2023 Outstanding stock options and awards 13,165,842 10,078,342 Note 14. Employee Benefit Plans Defined Contribution Plans We have a defined contribution plan qualified under Section 401(k) of the Internal Revenue Code covering all U.S. employees and defined contribution plans for other Incyte employees in Europe and Japan. Employees may contribute a portion of their compensation, which is then matched by us, subject to certain limitations. Defined contribution expense for the three months ended March 31, 2024 and 2023 was $ 5.4 million and $ 5.6 million, respectively. Defined Benefit Pension Plans We have defined benefit pension plans for our employees in Europe which provide benefits to employees upon retirement, death or disability. The assets of the pension plans are held in collective investment accounts represented by the cash surrender value of an insurance policy and are classified as Level 2 within the fair value hierarchy. 21 Table of Contents The net periodic benefit cost was as follows (in thousands): Three Months Ended March 31, 2024 2023 Service cost $ 2,621 $ 2,088 Interest cost 441 617 Expected return on plan assets ( 1,483 ) ( 1,540 ) Amortization of prior service cost 201 103 Amortization of actuarial losses 87 90 Net periodic benefit cost $ 1,867 $ 1,358 The components of net periodic benefit cost other than the service cost component are included in Interest income and other, net on the condensed consolidated statements of operations. We expect to contribute a total of $ 10.0 million to the pension plans in 2024 inclusive of the amounts contributed to the plan during the current period. Note 15. Commitments and Contingencies We have entered into the collaboration agreements described in Note 8, as well as various other collaboration agreements that are not individually, or in the aggregate, significant to our operating results or financial condition at this time. We may in the future seek to license additional rights relating to technologies or drug development candidates in connection with our drug discovery and development programs. Under these agreements, we may be required to pay upfront fees, milestone payments, and royalties on sales of future products. In the ordinary course of our business, we may become involved in lawsuits, proceedings, and other disputes, including commercial, intellectual property, regulatory, employment, and other matters. We record a reserve for these matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We brought a lawsuit against the U.S. Centers for Medicare and Medicaid Services (“CMS”) alleging that a recent regulation issued by CMS on the definition of “line extension” for purposes of the Medicaid rebate program is too broad and has the unintended consequence of treating OPZELURA as a “line extension” of JAKAFI under this program. We believe that such a reading would violate CMS’s statutory authority and be arbitrary and capricious given that OPZELURA, among other differentiators, is indicated to treat entirely different medical conditions and entirely different patient populations than JAKAFI. As of March 31, 2024, we have accrued approximately $ 73.7 million within accrued and other current liabilities on the condensed consolidated balance sheet, relating to the incremental rebates that would be owed were OPZELURA considered a line extension of JAKAFI. The impact on OPZELURA gross to net deductions for the quarter ending March 31, 2024 is approximately 7.2 %. If OPZELURA is not treated as a line extension of JAKAFI, this would result in a reversal of our accrual and a lower future gross to net deduction for OPZELURA. In addition, as described in Note 8, we have an outstanding contractual dispute with Novartis relating to royalties on JAKAFI net sales within the United States. Note 16. Subsequent Event In April 2024, Incyte and a wholly-owned subsidiary of Incyte (“Merger Sub”) entered into an agreement and plan of merger (the “Merger Agreement”) with Escient Pharmaceuticals, Inc. (“Escient”), pursuant to which Merger Sub will merge with and into Escient and Escient will become a wholly-owned subsidiary of Incyt e. Escient is a clinical-stage drug development company advancing novel small molecule therapeutics for systemic immune and neuro-immune disorders. Upon the terms and subject to the conditions set forth in the Merger Agreement, we will acquire Escient for consideration of $ 750.0 million plus Escient’s net cash remaining at the close of the transaction, subject to adjustments set forth in the Merger Agreement . The acquisition is subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, among other customary conditions, and will become effective promptly following the satisfaction or waiver of these conditions. 22 Table of Contents