What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-30 compared with 2024-04-30 · 132 added, 111 removed, 728 unchanged (25% of the section changed)

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

The following discussion of our financial condition and results of operations as of and for the three months ended March 31, 2024 should be read in conjunction with the unaudited condensed consolidated financial statements and notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements as of and for the year ended December 31, 2023 included in our Annual Report on Form 10-K for the year ended December 31, 2023 previously filed with the SEC.

The following discussion of our financial condition and results of operations as of and for the three and six months ended June 30, 2024 should be read in conjunction with the unaudited condensed consolidated financial statements and notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements as of and for the year ended December 31, 2023 included in our Annual Report on Form 10-K for the year ended December 31, 2023 previously filed with the SEC.

Forward-Looking Statements

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◦ If we are unable to raise additional capital in the future when we require it, our efforts to broaden our product portfolio or commercialization efforts could be limited.

◦ Our marketable securities and long term investments are subject to risks that could adversely affect our overall financial position, and tax law changes could adversely affect our results of operations and financial condition.

◦ Our marketable securities, short term equity investments and long term equity investments are subject to risks that could adversely affect our overall financial position, and tax law changes could adversely affect our results of operations and financial condition.

◦ If we are unable to achieve milestones, develop product candidates to license or renew or enter into new collaborations, our royalty and milestone revenues and future prospects for those revenues may decrease.

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Under the terms of the collaboration and license agreement, we received rights to co-commercialize tafasitamab in the United States with MorphoSys, and exclusive development and commercialization rights outside of the United States.

As more fully described in Note 6 of Notes to the Condensed Consolidated Financial Statements, in February 2024, we entered into a purchase agreement with MorphoSys, the result of which we now hold exclusive global rights for tafasitamab, and the collaboration and license agreement was terminated.

As more fully described in Note 6 of Notes to the Condensed Consolidated Financial Statements, in February 2024, we entered into a purchase agreement with MorphoSys, and as a result, we now hold exclusive global rights for tafasitamab, and the collaboration and license agreement was terminated.

In July 2020, we and MorphoSys announced that the FDA had approved MONJUVI (tafasitamab-cxix), which is indicated in combination with lenalidomide for the treatment of adult patients with relapsed or refractory diffuse large B-cell lymphoma (DLBCL) not otherwise specified, including DLBCL arising from low grade lymphoma, and who are not eligible for autologous stem cell transplant (ASCT).

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In December 2023, we received FDA feedback and agreed on the requirements to address the complete response letter.

Phase 2 trials combining ruxolitinib with investigational agents from our portfolio such as INCB57643 (BET) and INCB00928 (Zilurgisertib) in patients with MF are ongoing, and updated data demonstrating early signals of clinical activity of both agents in monotherapy and in combination with ruxolitinib were presented in June 2023 at the American Society of Clinical Oncology (ASCO) annual meeting and in December 2023 at the American Society of Hematology (ASH) meeting.

Additional discovery and development initiatives are also ongoing, advancing two Phase 1 studies with INCA33989 (mCALR) and INCB160058 (JAK2V617Fi), both of which hold the potential to be disease modifying therapeutics and address significant unmet need in MF, PV and ET.

Phase 2 trials combining ruxolitinib with investigational agents from our portfolio such as INCB57643 (BET) and INCB00928 (Zilurgisertib) in patients with MF are ongoing with data presented demonstrating early signals of clinical activity of both agents in monotherapy and in combination with ruxolitinib.

Additional discovery and development initiatives are also ongoing with two Phase 1 studies in INCA33989 (mCALR) and INCB160058 (JAK2V617Fi), both of which hold the potential to be disease modifying therapeutics and address significant unmet need in MF, PV and ET.

In September 2021, we and Syndax Pharmaceuticals, Inc.

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In December 2023, a Biologics License Application (BLA) was submitted to the FDA for axatilimab for the treatment of patients with chronic GVHD after failure of two or more lines of systemic therapy and accepted for Priority Review in February 2024.

Plans are underway to initiate two combination trials with axatilimab in cGVHD in mid-2024, including a randomized Phase 2 combination trial with ruxolitinib and a randomized Phase 3 combination trial with steroids, both directed at treating patients with cGVHD in earlier lines of therapy.

Plans are underway to initiate two combination trials with axatilimab in cGVHD in 2024, including a randomized Phase 2 combination trial with ruxolitinib and a randomized Phase 3 combination trial with steroids, both directed at treating patients with cGVHD in earlier lines of therapy.

INCA33989 (mCALR)

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

Based on findings from this study, we have identified populations that potentially may benefit from treatment with pemigatinib, and a Phase 2 trial, FIGHT-209, in patients with glioblastoma is ongoing.

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

The Phase 3 POD1UM-303 trial of retifanlimab in combination with platinum-based chemotherapy as a first-line treatment for patients with squamous cell carcinoma of the anal canal (SCAC) is ongoing.

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

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

The Phase 3 POD1UM-304 trial is evaluating retifanlimab in combination with platinum-based chemotherapy as a first-line treatment for patients with non-small cell lung cancer (NSCLC).

In November 2021, we highlighted Phase 1 clinical safety and efficacy data for our oral PD-L1 program which included two compounds, INCB99280 and INCB99318.

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

We plan to evaluate INCB99280 in Phase 2 as monotherapy and in combination with other antitumor agents.

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

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

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

In July 2023, we initiated t wo Phase 1 studies evaluating INCB99280 in combination with axitinib (VEGF) and in combination with ipilimumab (CTLA-4).

A Phase 2 study evaluating INCB99280 in patients with select solid tumors who are checkpoint inhibitor naive also was initiated.

Additionally, we initiated a Phase 2 study evaluating INCB99280 in metastatic cutaneous squamous cell carcinoma (cSCC) or locally advanced cSCC.

W e and Replimune Group, Inc.

announced a clinical trial collaboration and supply agreement to investigate the combination of INCB99280 and RP1 in patients with cutaneous squamous cell carcinoma.

RP1 is Replimune’s lead oncolytic immunotherapy product candidate and is based on a proprietary new strain of herpes simplex virus engineered for robust tumor selective replication and genetically armed with a fusogenic protein (GALV-GP R-) and GM-CSF, intended to maximize tumor killing potency, the immunogenicity of tumor cell death and the activation of a systemic anti-tumor immune response.

In July 2024, we announced positive topline results from both the two Phase 3 clinical studies evaluating retifanlimab, a humanized monoclonal antibody targeting programmed cell death receptor-1 (PD-1), in squamous cell anal carcinoma (SCAC) and non-small cell lung cancer (NSCLC).

The phase 3 study in SCAC met its primary endpoint of progression free survival while the Phase 3 study in NSCLC meet its primary endpoint of overall survival.

The safety analysis from both studies showed retifanlimab was generally well-tolerated with no new safety signals observed.

We plan to share the full datasets from both studies in the second half of 2024.

POD1UM-303 is a Phase 3, global, multicenter, randomized, double-blind study evaluating carboplatin-paclitaxel with retifanlimab or placebo in patients with inoperable locally recurrent or metastatic SCAC who have not previously been treated with chemotherapy.

POD1UM-304 is a Phase 3, global, multicenter, randomized, double-blind study evaluating platinum-based chemotherapy with retifanlimab or placebo in patients with first-line, metastatic squamous or nonsquamous NSCLC.

MPN, GVHD and Oncology Programs Indication and Phase

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Ruxolitinib + zilurgisertib

(JAK1/JAK2 + ALK2) Myelofibrosis:

(JAK1/JAK2 + ALK2i) Myelofibrosis:

Ruxolitinib + INCB57643

(JAK1/JAK2 + BET) Myelofibrosis:

Ruxolitinib + CK0804 1

(JAK1/JAK2 + CB-Tregs)

Myelofibrosis:

(JAK1/JAK2 + BETi) Myelofibrosis:

Axatilimab (anti-CSF-1R) 1

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Phase 2 (POD1UM-101, POD1UM-204)

(Oral PD-L1) Solid tumors (combination):

Solid tumors (monotherapy):

Cutaneous squamous cell carcinoma (cSCC):

(Oral PD-L1) Solid tumors:

(CDK2i) Solid tumors with Amplification/ Overexpression of CCNE1:

(KRASG12D) Advanced metastatic solid tumors with a KRAS G12D mutation:

Development collaboration with Cellenkos, Inc.

(TGFßR2×PD-1) 3

Advanced or metastatic solid tumors:

Clinical development of axatilimab in GVHD conducted in collaboration with Syndax Pharmaceuticals.

Retifanlimab licensed from MacroGenics.

Development collaboration with Merus.

Earlier-Stage Development Programs in Hematology and Oncology

In July 2024, we announced a strategic review of our pipeline with an increased focus on high potential impact programs.

We will discontinue further development of both oral, small molecule PD-L1 inhibitors, as well as LAG-3 monoclonal antibody, TIM-3 monoclonal antibody and LAG-3xPD-1 bispecific.

INCB123667 (CDK2)

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Additional data from this trial is anticipated in 2024.

INCA32459 (LAG-3xPD-1)

In collaboration with Merus N.V.

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

INCB161734 (KRASG12D)

A Phase 1 study evaluating INCB161734 (KRASG12D) was initiated in the first quarter of 2024.

INCB161734 is a potent, selective and orally bioavailable KRAS G12D inhibitor and, as highlighted at AACR in April 2024, has shown excellent efficacy in several preclinical models.

With no currently approved G12D-targeting agents, INCB161734 could address an important patient need as the KRASG12D mutation is found in 40% of pancreatic ductal adenocarcinoma, 15% of colorectal cancers, and 5% of non-small cell lung cancers.

Data from the ongoing Phase 1 study is expected in 2025.

INCA33890 (TGFβR2xPD-1)

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In July 2023, we initiated a Phase 1 study evaluating INCA33890 in patients with select advanced solid tumors.

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

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

Modality Candidates

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

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

Discovery collaboration with Agenus Inc.

Development collaboration with Merus.

Data from the ongoing Phase 1 study is expected in 2025.

Inflammation and AutoImmunity (IAI)

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These results showed that patients who initially experienced limited or no facial or total body repigmentation at six months achieved improved repigmentation after continued treatment with OPZELURA for up to two years.

In January 2024, Incyte received approval in France to promote and distribute OPZELURA for vitiligo under a process called “Accès Direct.” This process is intended to allow for early access to a therapy while a final price is negotiated, which is expected to take up to twelve months.

In January 2024, we received approval in France to promote and distribute OPZELURA for vitiligo under a process called “Accès Direct.” This process is intended to allow for early access to a therapy while a final price is negotiated.

We achieved full reimbursement for OPZELURA in Spain and Italy at the end of the second quarter 2024 and in France in July 2024.

Clinical Programs in Dermatology

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Ruxolitinib cream was well tolerated and consistent with its known safety profile.

A Phase 3 study is currently under evaluation.

A Phase 3 study is expected to initiate in 2025.

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

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In October 2023 we announced that the Phase 2, randomized, double-blind, placebo-controlled, dose ranging study evaluating the efficacy and safety of povorcitinib in participants with PN had met its primary endpoint.

A Phase 3 study in PN is being planned.

A Phase 3 study in PN is expected to initiate in 2024.

Asthma and Chronic Spontaneous Urticaria.

In July 2023, we initiated two Phase 2 trials evaluating povorcitinib in patients with moderate to severe uncontrolled asthma and in chronic spontaneous urticaria.

INCB000262 (EP262) (MRGPRX2) & INCB000547 (EP547) (MRGPRX4)

As more fully described in Note 6 to the Condensed Consolidated Financial Statements, in May 2024, we acquired Escient Pharmaceuticals, Inc.

Escient is a clinical-stage drug discovery and development company advancing novel small molecule therapeutics for systemic immune and neuro-immune disorders.

Escient’s clinical development portfolio includes EP262, a first-in-class, potent, highly selective, once-daily small molecule antagonist of Mas-related G protein-coupled receptor (MRGPRX2) and EP547, a first-in-class oral MRGPRX4 antagonist.

MRGPRX2 is a specific, novel mechanism for blocking mast cell activation, independent from IgE, and has been a high priority target to add to our IAI pipeline.

EP262 is a first-in-class medicine that entered the clinic in January 2023 and is currently being evaluated in the clinic.

In the Phase 1 healthy volunteer study, EP262 was well-tolerated, had low inter-patient PK variability and achieved exposures well above predicted efficacious levels.

EP262 is currently in a phase 1b open label study in chronic inducible urticaria (CIndU) and in two randomized phase 2 studies in chronic spontaneous urticaria (CSU) and atopic dermatitis (AD) with data for all three studies expected by early 2025.

EP547 is a potent and highly-selective antagonist of MRGPRX4.

MRGPRX4 is expressed on neurons in the dorsal root ganglia and specifically activated by bile acids that are increased in cholestatic patients.

Initial evaluation is being conducted in cholestatic pruritus with clinical proof-of-concept for cholestatic pruritus associated with primary biliary cholangitis (PBC) and primary sclerosing cholangitis (PSC), anticipated by early 2025.

Indication expansion opportunities for both EP262 and EP547 are under evaluation.

IAI and Dermatology Programs Indication and Phase

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Hidradenitis suppurativa:

Phase 3 being evaluated

Phase 3 expected to initiate in 2025

Prurigo nodularis:

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Prurigo nodularis:

Phase 3 to start in 2024

Phase 3 expected to initiate in 2024

Chronic spontaneous urticaria:

INCB000262 (EP262)

(MRGPRX2) Chronic spontaneous urticaria:

Chronic inducible urticaria:

Atopic dermatitis:

INCB000547 (EP547)

(MRGPRX4) Cholestatic pruritus:

(anti-IL-15Rβ) Vitiligo:

Phase 1 initiated

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

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Approved in the U.S., Europe and Japan

ruxolitinib licensed to Novartis outside of the United States for use in hematology and oncology excluding topical administration.

baricitinib licensed to Lilly.

capmatinib licensed to Novartis.

Pending Acquisition

In April 2024, we entered into an agreement and plan of merger with Escient Pharmaceuticals, Inc.

(“Escient”), pursuant to which we will acquire Escient.

Escient is a clinical-stage drug development company advancing novel small molecule therapeutics for systemic immune and neuro-immune disorders.

Escient’s clinical development portfolio includes EP262, a first-in-class, potent, highly selective, once-daily small molecule antagonist of Mas-related G protein-coupled receptor X2 (MRGPRX2) and EP547, a first-in-class oral MRGPRX4 antagonist.

By blocking MRGPRX2 and degranulation of mast cells, EP262 has the potential to effectively treat multiple mast cell-mediated diseases including atopic dermatitis (AD), chronic inducible urticaria (CIndU) and chronic spontaneous urticaria (CSU).

EP262 is in Phase 1b/2 clinical trials for the treatment of AD, CIndU and CSU.

EP547 is in a Phase 1b/2 trial for the treatment of cholestatic pruritis and uremic pruritis.

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.

Ruxolitinib (Jakavi) licensed to Novartis outside of the United States for use in hematology and oncology excluding topical administration.

Baricitinib (Olumiant) licensed to Lilly:

approved as Olumiant in multiple territories globally for certain patients with moderate-to-severe rheumatoid arthritis;

approved as Olumiant in EU and Japan for certain patients with atopic dermatitis.

Capmatinib (Tabrecta) licensed to Novartis.

License Agreements and Business Relationships

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Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023.

There have been no significant changes to our critical accounting policies or estimates during the three months ended March 31, 2024.

There have been no significant changes to our critical accounting policies or estimates during the six months ended June 30, 2024.

Recent Accounting Pronouncements and Regulatory Updates

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Results of Operations

We recorded net income of $169.5 million and basic net income per share of $0.76 and diluted net income per share of $0.75 for the three months ended March 31, 2024, as compared to net income of $21.7 million and basic and diluted net income per share of $0.10 in the corresponding period in 2023.

We recorded net loss of $444.6 million and basic and diluted net loss per share of $2.04 for the three months ended June 30, 2024, as compared to net income of $203.5 million and basic net income per share of $0.91 and diluted net income per share of $0.90 in the corresponding period in 2023.

We recorded net loss of $275.1 million and basic and diluted net loss per share of $1.24 for the six months ended June 30, 2024, as compared to net income of $225.3 million and basic net income per share of $1.01 and diluted net income per share of $1.00 in the corresponding period in 2023.

Three Months Ended

(in millions)

June 30, Six Months Ended

2024 2023 2024 2023

(in millions) (in millions)

JAKAFI revenues, net $ 706.0 $ 682.4 $ 1,277.8 $ 1,262.4

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Total revenues $ 1,043.8 $ 954.6 $ 1,924.6 $ 1,763.3

The decrease in JAKAFI net product revenues for the three months ended March 31, 2024 as compared to the corresponding period in 2023 was comprised of a volume decrease of $17.8 million and a price increase of $9.6 million.

The JAKAFI net product revenues decrease for the three months ended March 31, 2024 as compared to the corresponding period in 2023 was primarily driven by a decrease in channel inventory.

The increase in OPZELURA net product revenues for the three months ended March 31, 2024 as compared to the corresponding period in 2023 was comprised of a volume increase of $26.8 million and a price increase of $2.3 million.

The increase in OPZELURA net product revenues for the three months ended March 31, 2024 was driven by growth in new patient starts and refills.

The increase in MINJUVI/MONJUVI net product revenues for the three months ended March 31, 2024 was driven by the asset acquisition completed in February 2024, under which we gained exclusive global rights to tafasitamab marketed in the United States as MONJUVI (tafasitamab-cxix).

Refer to Note 6 of Notes to the Condensed Consolidated Financial Statements for further information related to the asset acquisition.

The increase in JAKAFI product revenues for the three months ended June 30, 2024 as compared to the corresponding period in 2023 was comprised of a volume increase of $17.2 million and a price increase of $6.4 million.

The increase in JAKAFI net product revenues for the six months ended June 30, 2024 as compared to the corresponding period in 2023 reflected a price increase of $17.2 million, subject to a volume decrease of $1.8 million.

The increase for the three months ended June 30, 2024 as compared to the corresponding period in 2023 was primarily driven by an increase in paid demand across all indications.

For the six months ended June 30, 2024 as compared to the corresponding period in 2023, the increase in net product revenues due to the increase in paid demand was offset by higher channel inventory levels at the end of the second quarter of 2023 versus the second quarter of 2024.

The increase in OPZELURA net product revenues for the three months ended June 30, 2024 as compared to the corresponding period in 2023 was comprised of a volume increase of $36.4 million and a price increase of $5.1 million.

The increase in OPZELURA net product revenues for the six months ended June 30, 2024 as compared to the corresponding period in 2023 was comprised of a volume increase of $63.2 million and a price increase of $7.4 million.

The increase in OPZELURA net product revenues for the three and six months ended June 30, 2024 was driven by continued growth in new patient starts and refills and approximately $11.0 million of net product revenues in the second quarter of 2024 were from Europe.

The increase in MINJUVI/MONJUVI net product revenues for the three and six months ended June 30, 2024 was driven by the acquisition completed in February 2024, under which we gained exclusive global rights to tafasitamab marketed in the United States as MONJUVI (tafasitamab-cxix).

Refer to Note 6 of Notes to the Condensed Consolidated Financial Statements for further information related to the acquisition.

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

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

Three Months Ended March 31, 2024 Discounts and

Six Months Ended June 30, 2024 Discounts and

Fees Government

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Credits/payments for prior period sales (16,226) (97,788) (4,237) (5,708) (123,959)

Balance at March 31, 2024 $ 18,366 $ 323,035 $ 13,308 $ 11,744 $ 366,453

Balance at June 30, 2024 $ 21,226 $ 309,074 $ 10,600 $ 15,645 $ 356,545

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

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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%.

As of June 30, 2024, we have accrued approximately $91.1 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 June 30, 2024 is approximately 6.8%.

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.

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

Our milestone and contract revenues for the three months ended March 31, 2024, was derived from a $25.0 million upfront payment received upon our transfer of functional intellectual property to CMSHL.

Our milestone and contract revenues for the six months ended June 30, 2024, was derived from a $25.0 million upfront payment received during the first quarter of 2024 upon our transfer of functional intellectual property to CMSHL.

Cost of Product Revenues

Three Months Ended

(in millions)

June 30, Six Months Ended

2024 2023 2024 2023

(in millions) (in millions)

Product costs $ 31.2 $ 23.3 $ 58.6 $ 46.8

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

The increase in cost of product revenues for the three months ended March 31, 2024 as compared to the same periods in 2023 was primarily due to growth in net product revenues.

The increase in cost of product revenues for the three and six months ended June 30, 2024 as compared to the same periods in 2023 was primarily due to growth in net product revenues.

Operating Expenses

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Three Months Ended

(in millions)

June 30, Six Months Ended

2024 2023 2024 2023

(in millions) (in millions)

Salary and benefits related $ 120.5 $ 98.6 $ 243.2 $ 199.0

Stock compensation 34.5 32.8 71.3 63.8

Escient acquisition related compensation expense 11.3 — 11.3 —

Escient IPR&D expense 679.4 — 679.4 —

Clinical research and outside services 247.7 221.3 474.3 451.2

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

The increase in salary and benefits related expense for the three months ended March 31, 2024 as compared to the corresponding period in 2023 was due primarily to increased development headcount to sustain our development pipeline.

The increase in salary and benefits related expense for the three and six months ended June 30, 2024 as compared to the corresponding period in 2023 was due primarily to increased development headcount to sustain our development pipeline.

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

The decrease in clinical research and outside services expense for the three months ended March 31, 2024 as compared to the corresponding period in 2023 was primarily due to differences in the timing of certain expenses.

Research and development expenses include upfront and milestone expenses related to our collaborative agreements of $1.0 million and $2.7 million, respectively, for the three months ended March 31, 2024 and 2023.

Research and development expenses for the three months ended March 31, 2024 and 2023 were net of $17.1 million and $0.6 million, respectively, of costs reimbursed by our collaborative partners.

Additionally, as described in Note 6 to the Condensed Consolidated Financial Statements, as part of the Escient acquisition, during the three months ended June 30, 2024, we recognized compensation expense in research and development of $11.3 million associated with the accelerated vesting for certain Escient stock awards in connection with the acquisition on our condensed consolidated statements of operations.

Research and development expenses for the three and six months ended June 30, 2024 also include the $679.4 million of expense related to the acquired in-process research and development assets as part of the Escient acquisition, as described in Note 6 to the Condensed Consolidated Financial Statements.

The increase in clinical research and outside services expense for the three months ended June 30, 2024 as compared to the corresponding period in 2023, was primarily due to continued investment in our late stage development assets and timing of certain expenses.

Research and development expenses include upfront and milestone expenses related to our collaborative agreements of $0.4 million and $1.4 million, respectively, for the three and six months ended June 30, 2024.

Research and development expenses include upfront and milestone expenses related to our collaborative agreements of $7.0 million and $9.7 million, respectively, for the three and six months ended June 30, 2023.

Research and development expenses for the three and six months ended June 30, 2024 and 2023 were net of $4.2 million, $21.3 million, $25.1 million and $25.7 million, respectively, of costs reimbursed by our collaborative partners.

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

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Three Months Ended

(in millions)

June 30, Six Months Ended

2024 2023 2024 2023

(in millions) (in millions)

Salary and benefits related $ 83.4 $ 74.4 $ 166.6 $ 147.3

Stock compensation 21.7 20.9 44.1 42.5

Escient acquisition related compensation expense $ 20.2 — 20.2 —

Other contract services and outside costs 180.7 188.6 375.3 409.7

Total selling, general and administrative expenses $ 306.0 $ 283.9 $ 606.2 $ 599.5

The increase in salary and benefits related expense for the three months ended March 31, 2024 as compared to the corresponding period in 2023 was due primarily to increased headcount.

The increase in salary and benefits related expense for the three and six months ended June 30, 2024 as compared to the corresponding period in 2023 was due primarily to increased headcount.

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

The decrease in other contract services and outside costs for the three months ended March 31, 2024, as compared to the corresponding period in 2023, was primarily due to the timing of consumer marketing activities and of certain other expenses.

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

Additionally, as described in Note 6 to the Condensed Consolidated Financial Statements, as part of the Escient acquisition, during the three months ended June 30, 2024, we recognized compensation expense in selling, general and administrative expenses of $20.2 million associated with the accelerated vesting for certain Escient stock awards in connection with the acquisition on our condensed consolidated statements of operations.

The decrease in other contract services and outside costs for the three months ended June 30, 2024, as compared to the corresponding period in 2023, was primarily due to the timing of consumer marketing activities and of certain other expenses.

Loss on change in fair value of acquisition-related contingent consideration

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

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

The change in fair value of the acquisition-related contingent consideration for the three months ended March 31, 2024 and 2023 was a profit of $0.5 million and a loss of $6.2 million, respectively, which is recorded in (gain) loss on change in fair value of acquisition-related contingent consideration on the condensed consolidated statements of operations.

The 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.

The change in fair value of the acquisition-related contingent consideration for the three and six months ended June 30, 2024 was a loss of $0.9 million and $0.4 million, respectively, which is recorded in loss on change in fair value of acquisition-related contingent consideration on the condensed consolidated statements of operations.

The loss on change in fair value of the acquisition-related contingent consideration for the three and six months ended June 30, 2023 was $8.4 million and $14.6 million, respectively, which is recorded in loss on change in fair value of acquisition-related contingent consideration on the condensed consolidated statements of operations.

The change in fair value of the contingent consideration during the three and six months ended June 30, 2024 was due primarily to fluctuations in foreign currency exchange rates impacting future revenue projections of ICLUSIG and the passage of time.

The change in fair value of the contingent consideration during the three and six months ended June 30, 2023 was due primarily to the passage of time.

(Profit) and loss sharing under collaboration agreements

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For the period from January 1, 2024 through February 5, 2024, our 50% share of the profits for tafasitamab was $1.0 million, as recorded in (profit) and loss sharing under collaboration agreements on the condensed consolidated statement of operations.

For the three months ended March 31, 2023, our 50% share of the profits for tafasitamab was $1.4 million, as recorded in (profit) and loss sharing under collaboration agreements on the condensed consolidated statement of operations.

Interest income and other, net

For the three and six months ended June 30, 2023, our 50% share of the profits for tafasitamab was $0.5 million and $1.9 million, respectively, as recorded in (profit) and loss sharing under collaboration agreements on the condensed consolidated statement of operations.

Non-operating Income and Expenses

Interest income and other, net

Interest income and other, net for the three months ended March 31, 2024 and 2023 was $44.7 million and $32.9 million, respectively.

The increase in Interest income and other, net for the three months ended March 31, 2024 primarily relates to an increase in interest earned on our cash equivalents and marketable securities generally due to higher interest rates.

Unrealized gain (loss) on long term investments.

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

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

Interest income and other, net for the three and six months ended June 30, 2024 was $49.8 million and $94.5 million, respectively.

Interest income and other, net for the three and six months ended June 30, 2023 was $42.7 million and $75.5 million, respectively.

The increase in Interest income and other, net for the three and six months ended June 30, 2024 primarily relates to an increase in interest earned on our cash equivalents and marketable securities generally due to higher interest rates.

Realized and unrealized gain on equity investments

Realized and unrealized gains and losses on equity investments will fluctuate from period to period, based on sales of securities and the change in fair value of the securities we hold in our publicly held collaboration partners.

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

Three Months Ended

(in millions)

June 30, Six Months Ended

2024 2023 2024 2023

(in millions) (in millions)

Agenus $ 3.1 $ 0.9 $ 0.1 $ (9.7)

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Other (0.1) 0.2 (0.3) (0.1)

Total unrealized gain (loss) on long term investments $ 99.9 $ (5.3)

Total realized and unrealized gain on equity investments $ 39.2 $ 41.8 $ 139.2 $ 36.5

Provision for income taxes

The provision for income taxes for the three months ended March 31, 2024 and 2023 was $66.6 million and $30.2 million, respectively.

Our effective tax rate for each of the three months ended March 31, 2024 and 2023 were higher than the U.S.

The provision for income taxes for the three and six months ended June 30, 2024 was $54.8 million and $121.4 million, respectively.

The provision for income taxes for the three and six months ended June 30, 2023 was $74.1 million and $104.2 million, respectively.

Our effective tax rate for the three and six months ended June 30, 2024 was higher than the U.S.

statutory rate primarily due to the non-deductible charges of $710.9 million associated with the Escient acquisition.

Our effective tax rate for the three and six months ended June 30, 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.

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Liquidity and Capital Resources

At March 31, 2024, we had available cash, cash equivalents and marketable securities of $3.9 billion.

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

At June 30, 2024, we had available cash, cash equivalents and marketable securities of $1.4 billion.

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

government debt securities.

Additionally, we had short term equity investments of $69.9 million as of June 30, 2024.

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

Net cash provided by operating activities for the three months ended March 31, 2024 was $218.8 million and net cash used in operating activities for the three months ended March 31, 2023 was $105.6 million.

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

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

Net cash used in investing activities was $73.1 million for the three months ended March 31, 2024, which represented purchases of marketable securities of $165.8 million, and capital expenditures of $9.5 million, offset in part by the sale and maturities of marketable securities of $102.2 million.

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

Net cash used in operating activities for the six months ended June 30, 2024 was $356.8 million and net cash provided by operating activities for the six months ended June 30, 2023 was $200.9 million.

The decrease in cash provided by operating activities was due primarily to the Escient acquisition and changes in working capital.

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

Net cash provided by investing activities was $140.7 million for the six months ended June 30, 2024, which primarily represented sales of equity investments of $227.3 million and sale and maturities of marketable securities of $182.6 million, offset in part by purchases of marketable securities of $204.1 million, and capital expenditures of $63.7 million.

Net cash used in investing activities was $36.0 million for the six months ended June 30, 2023, which represented purchases of marketable securities of $152.3 million, payments for intangible assets of $15.0 million, and capital expenditures of $19.2 million, offset in part by the sales and maturities of marketable securities of $150.5 million.

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

Net cash used in financing activities was $12.4 million for the three months ended March 31, 2024, and net cash provided by financing activities was $4.0 million for the three months ended March 31, 2023, respectively, primarily representing cash paid to ARIAD/Takeda for contingent consideration, offset in part by proceeds from the issuance of common stock under our stock plans.

In August 2021, we entered into a $500.0 million, three-year senior unsecured revolving credit facility, which was subsequently amended in May 2023.

Net cash used in financing activities was $2.01 billion for the six months ended June 30, 2024 and was primarily driven by expenditures associated with the share repurchase of $2.00 billion.

Net cash provided by financing activities was $16.9 million for the six months ended June 30, 2023, primarily representing proceeds from the issuance of common stock under our stock plans, offset in part by cash paid to ARIAD/Takeda for contingent consideration.

In August 2021, we entered into a $500.0 million, revolving credit and guaranty facility, which was subsequently amended in May 2023 and June 2024 (as amended, the "Credit Agreement").

The June 2024 amendment to the Credit Agreement extended the maturity date of the revolving credit facility from August 2024 to June 2027.

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

As of March 31, 2024, we had no outstanding borrowings and were in compliance with all covenants under this facility.

As of June 30, 2024, we had no outstanding borrowings and were in compliance with all covenants under this facility.

Due to the full utilization of our research and development and orphan drug tax credit carryforwards generated in prior years, our U.S.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis