What changed in this filing

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Item 1. Financial Statements

2024-10-29 compared with 2024-07-30 · 188 added, 145 removed, 593 unchanged (36% of the section changed)

3 unchanged sentences

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

September 30,

2024 December 31,

1 unchanged sentence

Cash and cash equivalents $ 1,304,109 $ 3,213,376

Marketable securities—available-for-sale (amortized cost $ 464,272 and $ 442,816 as of June 30, 2024 and December 31, 2023, respectively;

allowance for credit losses $ 0 as of June 30, 2024 and December 31, 2023)

Marketable securities—available-for-sale (amortized cost $ 463,921 and $ 442,816 as of September 30, 2024 and December 31, 2023, respectively;

allowance for credit losses $ 0 as of September 30, 2024 and December 31, 2023)

467,235 442,667

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400,000,000 shares authorized;

191,572,449 and 224,286,862 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively

192,798,328 and 224,286,862 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively

Additional paid-in capital 4,429,466 5,016,122

Accumulated other comprehensive (loss) income ( 5,420 ) 13,106

Accumulated other comprehensive income 15,655 13,106

(Accumulated deficit) retained earnings ( 1,274,093 ) 160,385

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

7 unchanged sentences

Selling, general and administrative 309,209 267,893 915,447 867,428

Loss on change in fair value of acquisition-related contingent consideration 893 8,374 437 14,570

(Profit) and loss sharing under collaboration agreements — ( 549 ) ( 1,025 ) ( 1,911 )

Loss (gain) on change in fair value of acquisition-related contingent consideration 23,410 ( 426 ) 23,847 14,144

Loss and (profit) sharing under collaboration agreements — 1,053 ( 1,025 ) ( 858 )

Total costs, expenses and other 991,786 704,320 3,302,666 2,249,053

(Loss) income from operations ( 478,130 ) 193,780 ( 386,232 ) 218,550

Income (loss) from operations 146,085 214,705 ( 240,147 ) 433,255

Interest income and other, net 24,195 46,371 118,708 121,912

Interest expense ( 774 ) ( 623 ) ( 1,861 ) ( 1,747 )

Realized and unrealized gain on equity investments 39,241 41,811 139,188 36,493

(Loss) income before provision for income taxes ( 389,777 ) 277,604 ( 153,618 ) 329,460

Realized and unrealized (loss) gain on equity investments ( 12,982 ) ( 26,654 ) 126,206 9,839

Income before provision for income taxes 156,524 233,799 2,906 563,259

Provision for income taxes 50,068 62,530 171,503 166,739

Net (loss) income $ ( 444,601 ) $ 203,548 $ ( 275,053 ) $ 225,251

Net (loss) income per share:

Net income (loss) $ 106,456 $ 171,269 $ ( 168,597 ) $ 396,520

Net income (loss) per share:

Basic $ 0.55 $ 0.76 $ ( 0.80 ) $ 1.77

Diluted $ 0.54 $ 0.76 $ ( 0.80 ) $ 1.76

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

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

Basic 192,629 224,078 211,763 223,428

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

Net (loss) income $ ( 444,601 ) $ 203,548 $ ( 275,053 ) $ 225,251

Net income (loss) $ 106,456 $ 171,269 $ ( 168,597 ) $ 396,520

Other comprehensive income (loss):

Foreign currency translation gain (loss) 15,228 ( 4,855 ) ( 2,185 ) 3,594

Unrealized (loss) gain on marketable securities, net of tax ( 254 ) 489 ( 2,000 ) 2,909

Unrealized gain on marketable securities, net of tax 5,463 768 3,463 3,677

Defined benefit pension gain, net of tax 384 175 1,271 554

Other comprehensive income (loss) 21,075 ( 3,912 ) 2,549 7,825

Comprehensive (loss) income $ ( 443,849 ) $ 209,412 $ ( 293,579 ) $ 236,988

Comprehensive income (loss) $ 127,531 $ 167,357 $ ( 166,048 ) $ 404,345

See accompanying notes.

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Paid-in Capital Accumulated Other

Comprehensive (Loss) Income Retained Earnings (Accumulated Deficit) Total

Comprehensive Income Retained Earnings (Accumulated Deficit) Total

Stockholders’

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Balances at June 30, 2024 $ 191 $ 4,382,734 $ ( 5,420 ) $ ( 1,380,446 ) $ 2,997,059

Issuance of 1,060,300 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units, net of shares withheld for taxes

1 ( 31,270 ) — — ( 31,269 )

Issuance of 1,242 shares of Common Stock for services rendered

Stock compensation — 77,922 — — 77,922

Repurchases of common stock — — — ( 103 ) ( 103 )

Other comprehensive income — — 21,075 — 21,075

Net income — — — 106,456 106,456

Balances at September 30, 2024 $ 192 $ 4,429,466 $ 15,655 $ ( 1,274,093 ) $ 3,171,220

INCYTE CORPORATION

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Balances at June 30, 2023 $ 223 $ 4,925,626 $ 26,806 $ ( 211,963 ) $ 4,740,692

Issuance of 762,231 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units, net of shares withheld for taxes

1 ( 24,682 ) — — ( 24,681 )

Issuance of 1,278 shares of Common Stock for services rendered

Stock compensation — 47,999 — — 47,999

Other comprehensive loss — — ( 3,912 ) — ( 3,912 )

Net income — — — 171,269 171,269

Balances at September 30, 2023 $ 224 $ 4,949,023 $ 22,894 $ ( 40,694 ) $ 4,931,447

See accompanying notes.

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(unaudited, in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

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Cash flows from investing activities:

Purchase of long term investments — ( 10,000 )

Sale of equity investments 282,866 45

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Payment of contingent consideration ( 11,216 ) ( 18,114 )

Net cash (used in) provided by financing activities ( 2,009,590 ) 16,877

Net cash used in financing activities ( 2,041,941 ) ( 20,379 )

Effect of exchange rates on cash, cash equivalents, and restricted cash ( 535 ) 625

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

September 30, 2024

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), as well as NIKTIMVO™ (axatilimab-csfr), which was approved for medical use in the United States in August 2024 and will be co-commercialized.

Our operations are treated as one operating segment.

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The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

The condensed consolidated balance sheet as of June 30, 2024, the condensed consolidated statements of operations, comprehensive income (loss), and stockholders’ equity for the three and six months ended June 30, 2024 and 2023, and the condensed consolidated statements of cash flows for the six months ended June 30, 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 as of September 30, 2024, the condensed consolidated statements of operations, comprehensive income (loss), and stockholders’ equity for the three and nine months ended September 30, 2024 and 2023, and the condensed consolidated statements of cash flows for the nine months ended September 30, 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.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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The following is a summary of our marketable security portfolio for the periods presented (in thousands):

Unrealized Gains

(Losses) Estimated

June 30, 2024

September 30, 2024

Debt securities (government) $ 463,921 $ 3,314 $ 467,235

3 unchanged sentences

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

As of June 30, 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.

As of September 30, 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

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Additionally, we have short term equity investments, which we intended to sell within one year, classified as Level 1 that were valued using their respective closing stock prices on The Nasdaq Stock Market.

At June 30, 2024 and December 31, 2023, our Level 2 U.S.

At September 30, 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 equity 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 six months ended June 30, 2024.

We did not experience any transfers of financial instruments between the fair value hierarchy levels during the nine months ended September 30, 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):

6 unchanged sentences

(Level 3) Balance as of

June 30, 2024

September 30, 2024

Cash and cash equivalents $ 1,304,109 $ — $ — $ 1,304,109

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(Level 3) Balance as of

June 30, 2024

September 30, 2024

Acquisition-related contingent consideration $ — $ — $ 207,000 $ 207,000

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Change in fair value of contingent consideration 23,847

Balance at June 30, $ 194,000

Balance at September 30, $ 207,000

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 June 30, 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 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 valuation inputs utilized to estimate the fair value of the contingent consideration as of September 30, 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 and nine months ended September 30, 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 June 30, 2024 and December 31, 2023, contingent consideration earned but not yet paid was $ 8.9 million and $ 10.3 million, respectively, and was included in accrued and other current liabilities on the condensed consolidated balance sheets.

At September 30, 2024 and December 31, 2023, contingent consideration earned but not yet paid was $ 19.3 million and $ 10.3 million, respectively, and was included in accrued and other current liabilities on the condensed consolidated balance sheets.

Concentration of Credit Risk and Current Expected Credit Losses

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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, 18 % and 20 % of the accounts receivable balance as of June 30, 2024 and December 31, 2023, respectively.

The above collaboration partners comprised, in aggregate, 21 % and 20 % of the accounts receivable balance as of September 30, 2024 and December 31, 2023, respectively.

For further information relating to these collaboration and license agreements, refer to Note 8.

6 unchanged sentences

Product Revenues for the

Six Months Ended

June 30, June 30,

Nine Months Ended

September 30, September 30,

2024 2023 2024 2023

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

Customers A, B, C, D, E and F comprised, in aggregate, 52 % and 48 % of the accounts receivable balance as of June 30, 2024 and December 31, 2023, respectively.

Customers A, B, C, D, E and F comprised, in aggregate, 53 % and 48 % of the accounts receivable balance as of September 30, 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 June 30, 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 June 30, 2024 and December 31, 2023, we had no allowance for doubtful accounts.

We assessed our collaborative and customer receivable assets as of September 30, 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 September 30, 2024 and December 31, 2023, we had no allowance for doubtful accounts.

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).

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On May 30, 2024 we acquired all of the outstanding shares of common stock of Escient, a clinical-stage drug development company advancing novel small molecule therapeutics for systemic immune and neuro-immune disorders, for $ 782.5 million cash consideration, which included Escient's net cash remaining at the close of the transaction, subject to adjustments set forth in the merger agreement.

Escient’s lead molecule, EP262, is a first-in-class oral Mas-related G protein-coupled receptor X2 (MRGPRX2) antagonist that has the potential to treat a broad range of inflammatory disorders.

Escient’s lead molecule, INCB000262 (formerly EP262), is a first-in-class oral Mas-related G protein-coupled receptor X2 (MRGPRX2) antagonist that has the potential to treat a broad range of inflammatory disorders.

We accounted for the Escient transaction as an asset acquisition under U.S.

GAAP because EP262 represents substantially all of the fair value of the gross assets acquired.

GAAP because INCB000262 represents substantially all of the fair value of the gross assets acquired.

In addition to the $ 782.5 million closing cash consideration per the terms of the merger agreement, we incurred $ 2.5 million of direct transaction costs that were included in the total consideration to be allocated to the acquired net assets.

Of the $ 785.0 million total consideration, we recognized related compensation expense of $ 31.5 million associated with the accelerated vesting for certain Escient stock awards in connection with the acquisition on our condensed consolidated statements of operations for the quarter ended June 30, 2024.

The following table summarizes allocation of the remaining U.S.

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In-process research and development (“IPR&D”) assets are related to acquired clinical-stage product candidates:

lead candidate, EP262, and secondary candidate, EP547.

lead candidate, INCB000262, and secondary candidate, INCB000547 (formerly EP547).

The fair value of IPR&D assets was based on the present value of future discounted cash flows, which was based on significant estimates.

These estimates included the number of potential patients and market prices of future product candidates, costs required to conduct clinical trials, future milestones and royalties payable under acquired license agreements, costs to receive regulatory approval and potentially commercialize product candidates, as well as estimates for probability of success and the discount rate.

The concluded allocated fair values for EP262 and EP547 was $ 644.8 million and $ 34.6 million, respectively.

As both acquired IPR&D assets do not have an alternative future use at the acquisition date, we recognized the full amount of $ 679.4 million as research and development expenses on our condensed consolidated statement of operations for the three and six months ended June 30, 2024.

The concluded allocated fair values for INCB000262 and INCB000547 was $ 644.8 million and $ 34.6 million, respectively.

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

September 30,

2024 December 31,

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

At June 30, 2024, $ 100.7 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 June 30, 2024, $ 255.3 million of inventory was classified as non-current on the condensed consolidated balance sheet as we did not expect this inventory to be consumed for commercial use within the next twelve months.

At September 30, 2024, $ 70.4 million of inventory was classified as current on the condensed consolidated balance sheet as we expect this inventory to be consumed for commercial use within the next twelve months.

At September 30, 2024, $ 298.0 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.

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

At June 30, 2024, inventory with approximately $ 34.9 million of product costs incurred prior to regulatory approval had not yet been sold.

At September 30, 2024, inventory with approximately $ 32.3 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 7 to 27 months and, as a result, cost of product revenues will reflect a lower average per unit cost of materials.

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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 June 30, 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.

Since the inception of the agreement through September 30, 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 and six months ended June 30, 2024, such royalties on net sales within the United States totaled $ 34.6 million and $ 57.6 million, respectively, and were reflected in cost of product revenues on the condensed consolidated statements of operations.

During the three and six months ended June 30, 2023, such royalties on net sales within the United States totaled $ 33.5 million and $ 56.9 million, respectively, and were reflected in cost of product revenues on the condensed consolidated statements of operations.

At June 30, 2024 and December 31, 2023, $ 433.2 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.

During the three and nine months ended September 30, 2024, such royalties on net sales within the United States totaled $ 36.3 million and $ 93.9 million, respectively, and were reflected in cost of product revenues on the condensed consolidated statements of operations.

During the three and nine months ended September 30, 2023, such royalties on net sales within the United States totaled $ 31.1 million and $ 88.0 million, respectively, and were reflected in cost of product revenues on the condensed consolidated statements of operations.

At September 30, 2024 and December 31, 2023, approximately $ 469.5 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 and six months ended June 30, 2024 was $ 99.3 million and $ 188.9 million, respectively.

Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States for the three and six months ended June 30, 2023 was $ 90.4 million and $ 167.1 million, respectively.

Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three and six months ended June 30, 2024 was $ 5.3 million and $ 10.5 million, respectively.

Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three and six months ended June 30, 2023 was $ 4.8 million and $ 9.0 million, respectively.

We had no milestone and contract revenue under the Novartis agreement for the three and nine months ended September 30, 2024.

Milestone and contract revenue under the Novartis agreement was $ 5.0 million for both the three and nine months ended September 30, 2023.

Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States for the three and nine months ended September 30, 2024 was $ 115.7 million and $ 304.7 million, respectively.

Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States for the three and nine months ended September 30, 2023 was $ 96.6 million and $ 263.7 million, respectively.

Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three and nine months ended September 30, 2024 was $ 5.9 million and $ 16.5 million, respectively.

Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three and nine months ended September 30, 2023 was $ 4.1 million and $ 13.1 million, respectively.

Lilly – Baricitinib

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Under this agreement, we were initially eligible to receive up to $ 150.0 million for the achievement of development milestones, up to $ 365.0 million for the achievement of regulatory milestones and up to $ 150.0 million for the achievement of sales milestones.

Since the inception of the agreement through June 30, 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.

Since the inception of the agreement through September 30, 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 and six months ended June 30, 2024 was $ 31.7 million and $ 62.3 million, respectively.

Product royalty revenue related to Lilly net sales of OLUMIANT outside of the United States for the three and six months ended June 30, 2023 was $ 32.0 million and $ 66.2 million, respectively.

Product royalty revenue related to Lilly net sales of OLUMIANT outside of the United States for the three and nine months ended September 30, 2024 was $ 34.8 million and $ 97.1 million, respectively.

Product royalty revenue related to Lilly net sales of OLUMIANT outside of the United States for the three and nine months ended September 30, 2023 was $ 29.6 million and $ 95.8 million, respectively.

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

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

Since the inception of the agreement through June 30, 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 June 30, 2024, we held an investment of approximately 0.6 million shares of Agenus Inc.

common stock, which reflects a one-for-twenty reverse stock split effected by Agenus Inc.

in April 2024.

Since the inception of the agreement through September 30, 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 September 30, 2024, we held an investment of approximately 0.6 million shares of Agenus Inc.

common stock.

The fair market value of our equity investment in Agenus Inc.

at June 30, 2024 and December 31, 2023 was $ 10.1 million and $ 10.0 million, respectively.

For the three and six months ended June 30, 2024, we recorded an unrealized gain of $ 3.1 million and $ 0.1 million, respectively, based on the change in fair value of Agenus Inc.’s common stock during the respective periods.

For the three and six months ended June 30, 2023, we recorded an unrealized gain of $ 0.9 million and an unrealized loss of $ 9.7 million, respectively, based on the change in fair value of Agenus Inc.’s common stock during the respective periods.

at September 30, 2024 and December 31, 2023 was $ 3.3 million and $ 10.0 million, respectively.

For the three and nine months ended September 30, 2024, we recorded an unrealized loss of $ 6.8 million and $ 6.7 million, respectively, based on the change in fair value of Agenus Inc.’s common stock during the respective periods.

For the three and nine months ended September 30, 2023, we recorded an unrealized loss of $ 5.6 million and $ 15.3 million, respectively, based on the change in fair value of Agenus Inc.’s common stock during the respective periods.

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

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The collaboration encompasses up to ten independent programs.

Since the inception of the agreement through June 30, 2024, we have paid and expensed Merus milestones totaling $ 10.0 million.

During the second quarter of 2024, we sold approximately 3.0 million of Merus' common shares for proceeds of $ 160.6 million.

As of June 30, 2024, we held an investment of approximately 1.0 million common shares.

The fair market value of our equity investment in Merus at June 30, 2024 and December 31, 2023 was $ 59.6 million and $ 110.1 million, respectively.

For the three and six months ended June 30, 2024, we recorded realized and unrealized gains of $ 40.0 million and $ 110.2 million, respectively, based on the sale of shares and change in fair value of remaining Merus’ common shares during the respective periods.

For the three and six months ended June 30, 2023, we recorded an unrealized gain of $ 28.2 million and $ 38.6 million, respectively, based on the change in fair value of Merus’ common shares during the respective periods.

Since the inception of the agreement through September 30, 2024, we have paid and expensed Merus milestones totaling $ 10.0 million.

During the three months ended June 30, 2024, we sold approximately 3.0 million of Merus’ common shares for proceeds of $ 160.6 million.

During the three months ended September 30, 2024, we sold our remaining approximately 1.0 million of Merus’ common shares for proceeds of $ 55.5 million.

As of September 30, 2024, we had no remaining investment of Merus’ common shares.

The fair market value of our equity investment in Merus at December 31, 2023 was $ 110.1 million.

For the three and nine months ended September 30, 2024, we recorded realized and unrealized losses of $ 4.1 million and realized and unrealized gains of $ 106.1 million, respectively, based on the sale of shares and change in fair value of remaining Merus’ common shares during the respective periods.

For the three and nine months ended September 30, 2023, we recorded an unrealized loss of $ 9.1 million and an unrealized gain of $ 29.5 million, respectively, based on the change in fair value of Merus’ common shares during the respective periods.

In October 2017, we entered into a Global Collaboration and License Agreement with MacroGenics, Inc.

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In 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 June 30, 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 June 30, 2024, we have paid MacroGenics developmental and regulatory milestones totaling $ 115.0 million.

On July 24, 2024, the parties further amended the agreement, with Incyte agreeing to pay MacroGenics $ 100.0 million now in exchange for MacroGenics’ agreement to waive future milestones for squamous cell anal cancer and non-small cell lung cancer.

This milestone payment was capitalized as an intangible asset and included in Other intangible assets, net on the condensed consolidated balance sheet as of September 30, 2024, and is being amortized through cost of product revenues over the estimated useful life of 13.5 years.

On July 24, 2024, the parties amended the agreement, and Incyte agreed to pay MacroGenics $ 100.0 million in exchange for MacroGenics’ agreement that all milestones for squamous cell anal cancer and non-small cell lung cancer have been deemed either achieved or inapplicable and certain future milestones for non-small cell lung cancer were waived.

This $ 100.0 million milestone payment was recorded as research and development expense in our condensed consolidated statements of operations during the three and nine months ended September 30, 2024.

Since the inception of the agreement, inclusive of the July 2022 and July 2024 amendments to the agreement, through September 30, 2024, we have paid MacroGenics developmental and regulatory milestones totaling $ 215.0 million.

After these amendments and subsequent payments, MacroGenics will be eligible to receive up to an additional $ 210.0 million in future contingent development and regulatory milestones, and up to $ 330.0 million in sales milestones as well as tiered royalties ranging from 15 % to 24 % of global net sales.

Research and development expenses for the three and six months ended June 30, 2024 also included $ 13.2 million and $ 25.3 million, respectively, of development costs incurred pursuant to the MacroGenics agreement.

Research and development expenses for the three and six months ended June 30, 2023 also included $ 12.1 million and $ 29.9 million, respectively, of development costs incurred pursuant to the MacroGenics agreement.

At June 30, 2024 and December 31, 2023, a total of $ 0.6 million and $ 0.3 million of such costs were included in accrued and other liabilities on the condensed consolidated balance sheets.

Research and development expenses for the three and nine months ended September 30, 2024 also included $ 15.5 million and $ 40.8 million, respectively, of development costs incurred pursuant to the MacroGenics agreement.

Research and development expenses for the three and nine months ended September 30, 2023 also included $ 12.9 million and $ 42.8 million, respectively, of development costs incurred pursuant to the MacroGenics agreement.

At September 30, 2024 and December 31, 2023, a total of $ 0.9 million and $ 0.3 million of such costs were included in accrued and other liabilities on the condensed consolidated balance sheets.

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).

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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.

During May 2024, as part of the Novartis tender offer for MorphoSys' outstanding shares, we sold all of our 3.6 million American Depository Shares, each representing 0.25 of an ordinary share of MorphoSys AG, for proceeds of $ 66.6 million.

The fair market value of our equity investment in MorphoSys AG as of June 30, 2024 and December 31, 2023 was $ 0.0 million and $ 35.9 million, respectively.

For the three and six months ended June 30, 2024, we recorded realized and unrealized gains of $ 0.8 million and $ 30.7 million, respectively, based on the sale of shares and change in fair value of MorphoSys AG's ordinary shares during the respective periods.

For the three and six months ended June 30, 2023, we recorded an unrealized gain of $ 12.7 million and $ 14.1 million, respectively, based on the change in fair value of MorphoSys AG's ordinary shares during the respective periods.

During May 2024, as part of the Novartis tender offer for MorphoSys AG’s outstanding shares, we sold all of our 3.6 million American Depository Shares, each representing 0.25 of an ordinary share of MorphoSys AG, for proceeds of $ 66.6 million.

The fair market value of our equity investment in MorphoSys AG as of December 31, 2023 was $ 35.9 million.

For the nine months ended September 30, 2024, we recorded a realized gain of $ 30.7 million, based on the sale of shares and change in fair value of MorphoSys AG’s ordinary shares during the period.

For the three and nine months ended September 30, 2023, we recorded an unrealized loss of $ 2.7 million and an unrealized gain of $ 11.4 million, respectively, based on the change in fair value of MorphoSys AG’s ordinary shares during the respective periods.

Our 50 % share of the United States loss 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 and six months ended June 30, 2023 was a profit of $ 0.5 million and $ 1.9 million, respectively, 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 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 and nine months ended September 30, 2023 was a profit of $ 1.1 million and $ 0.9 million, respectively, 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 and six months ended June 30, 2023, includes $ 20.3 million and $ 45.5 million, respectively, related to our 55 % share of the co-development costs for tafasitamab.

At June 30, 2024 and December 31, 2023, $ 0.0 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.

Research and development expenses for the three and nine months ended September 30, 2023, includes $ 13.0 million and $ 58.5 million, respectively, related to our 55 % share of the co-development costs for tafasitamab.

At September 30, 2024 and December 31, 2023, $ 0.0 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.

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

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Each company is responsible for funding any independent development activities.

Inclusive of an upfront, non-refundable payment, since the inception of the agreement through June 30, 2024, we have made payments of $ 117.0 million to Syndax, which were previously recorded in research and development expense.

In August 2024, we made a $ 12.5 million regulatory milestone payment to Syndax for the FDA approval of NIKTIMVO for the treatment of GVHD.

This milestone payment was capitalized as an intangible asset and included in other intangible assets, net on the condensed consolidated balance sheet as of September 30, 2024, and is being amortized through cost of product revenues over the estimated useful life of 10 years.

Inclusive of an upfront, non-refundable payment, since the inception of the agreement through September 30, 2024, we have made payments of $ 129.5 million to Syndax, which were previously recorded in research and development expense or in other intangible assets, as discussed above.

Syndax is eligible to receive up to $ 207.5 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 June 30, 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 June 30, 2024 and December 31, 2023 was $ 29.2 million and $ 30.7 million.

For the three and six months ended June 30, 2024, we recorded an unrealized loss of $ 4.6 million and $ 1.5 million, respectively, based on the change in fair value of Syndax’s common stock during the respective periods.

For the three and six months ended June 30, 2023, we recorded an unrealized loss of $ 0.2 million and $ 6.4 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 and six months ended June 30, 2024, includes $ 4.7 million and $ 11.8 million, respectively, related to our 55 % share of the co-development costs for axatilimab.

Research and development expenses for the three and six months ended June 30, 2023, includes $ 6.2 million and $ 11.8 million, respectively, related to our 55 % share of the co-development costs for axatilimab.

At June 30, 2024 and December 31, 2023, $ 2.6 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.

As of September 30, 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 September 30, 2024 and December 31, 2023 was $ 27.4 million and $ 30.7 million, respectively.

For the three and nine months ended September 30, 2024, we recorded an unrealized loss of $ 1.9 million and $ 3.4 million, respectively, based on the change in fair value of Syndax’s common stock during the respective periods.

For the three and nine months ended September 30, 2023, we recorded an unrealized loss of $ 9.2 million and $ 15.6 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 and nine months ended September 30, 2024, includes $ 5.8 million and $ 17.6 million, respectively, related to our 55 % share of the co-development costs for axatilimab.

Research and development expenses for the three and nine months ended September 30, 2023, includes $ 5.1 million and $ 16.9 million, respectively, related to our 55 % share of the co-development costs for axatilimab.

At September 30, 2024 and December 31, 2023, $ 1.8 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

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

September 30,

2024 December 31,

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In May 2024, we purchased additional property in Wilmington, Delaware including land, office buildings and parking garages for a purchase price of $ 48.7 million.

As of June 30, 2024 we capitalized $ 4.9 million of land and recorded approximately $ 43.8 million of construction in progress relating to the office buildings and parking garages.

During the nine months ended September 30, 2024, we capitalized $ 4.9 million of land and recorded approximately $ 47.2 million of construction in progress relating to the office buildings and parking garages.

Accrued and Other Current Liabilities

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

September 30,

2024 December 31,

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A modified “Dutch Auction” tender offer allows stockholders to indicate how much stock they wish to tender and at what price within the range described above.

Based on the number of shares tendered and the prices specified by the tendering stockholders, we determined the lowest price per share that enabled us to purchase $ 1.672 billion of common stock at such price, or a lower amount depending on the number of shares that are properly tendered and not properly withdrawn.

On June 13, 2024 we completed the tender offer and repurchased 27,866,666 shares at a price of $ 60.00 per share for an aggregate price of approximately $ 1.672 billion, excluding fees and related expenses, pursuant to the tender offer which expired at 12:00 midnight, at the end of the day, New York City time on June 10, 2024.

In addition, on May 12, 2024, we entered into a separate stock purchase agreement with Julian C.

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Under this method, the issued and outstanding shares of common stock are reduced by the number of shares of common stock repurchased, and no treasury stock is recognized on the condensed consolidated financial statements.

A total of 33,325,849 common shares were repurchased during June 2024 at a price of $ 60.00 for an aggregate purchase price of approximately $ 2.0 billion.

A total of 33,325,849 common shares were repurchased during June 2024 at a price of $ 60.00 per share for an aggregate purchase price of approximately $ 2.0 billion.

We incurred $ 24.4 million in fees and expenses associated with the share repurchase, which included $ 19.2 million for excise taxes on share repurchases in accordance with the Inflation Reduction Act of 2022.

We currently expect to pay the excise tax in the second quarter of 2025.

These costs were recognized within (Accumulated deficit) retained earnings on the condensed consolidated balance sheet during the three months ended June 30, 2024 as costs to repurchase the Company’s common stock.

We currently expect to pay the excise tax in the first half of 2025.

These costs are recognized within (accumulated deficit) retained earnings on the condensed consolidated balance sheet as of September 30, 2024 as costs to repurchase our common stock.

The purchased shares were cancelled and ceased to be outstanding.

Stock Compensation

We recorded $ 56.6 million and $ 116.4 million of stock compensation expense on our condensed consolidated statements of operations for the three and six months ended June 30, 2024, respectively.

We recorded $ 54.5 million and $ 107.9 million of stock compensation expense on our condensed consolidated statements of operations for the three and six months ended June 30, 2023, respectively.

Stock compensation expense included within our condensed consolidated statements of operations included research and development expense of $ 34.5 million, $ 71.3 million, $ 32.8 million and $ 63.8 million for the three and six months ended June 30, 2024 and 2023, respectively.

Stock compensation expense included within our condensed consolidated statements of operations also included selling, general and administrative expense of $ 21.7 million, $ 44.1 million, $ 20.9 million and $ 42.5 million for the three and six months ended June 30, 2024 and 2023, respectively.

Stock compensation expense included within our condensed consolidated statements of operations also included cost of product revenues of $ 0.4 million, $ 1.0 million, $ 0.8 million and $ 1.6 million, respectively, for the three and six months ended June 30, 2024 and 2023.

Additionally, as described in Note 6, as part of the Escient acquisition, during the three and six months ended June 30, 2024, we recognized related compensation expense of $ 31.5 million associated with the accelerated vesting for certain Escient stock awards in connection with the acquisition on our condensed consolidated statements of operations.

We recorded $ 77.9 million and $ 194.3 million of stock compensation expense on our condensed consolidated statements of operations for the three and nine months ended September 30, 2024, respectively.

We recorded $ 48.0 million and $ 155.9 million of stock compensation expense on our condensed consolidated statements of operations for the three and nine months ended September 30, 2023, respectively.

Stock compensation expense included within our condensed consolidated statements of operations included research and development expense of $ 45.8 million, $ 117.1 million, $ 26.9 million and $ 90.7 million for the three and nine months ended September 30, 2024 and 2023, respectively.

Stock compensation expense included within our condensed consolidated statements of operations also included selling, general and administrative expense of $ 31.5 million, $ 75.6 million, $ 20.3 million and $ 62.8 million for the three and nine months ended September 30, 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, $ 1.6 million, $ 0.8 million and $ 2.4 million, respectively, for the three and nine months ended September 30, 2024 and 2023.

Additionally, as described in Note 6, as part of the Escient acquisition, during the nine months ended September 30, 2024, we recognized related compensation expense of approximately $ 31.5 million associated with the accelerated vesting for certain Escient stock awards in connection with the acquisition on our condensed consolidated statements of operations.

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 Six Months Ended For the Three Months Ended For the Six Months Ended

June 30, June 30,

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

September 30, September 30,

2024 2023 2024 2023 2024 2023 2024 2023

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Options cancelled ( 472,808 ) $ 87.31

Balance at June 30, 2024 12,942,495 $ 84.15

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.

Balance at September 30, 2024 13,246,321 $ 83.16

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, subject to customary retirement provisions that may accelerate the requisite service period for expense recognition purposes.

RSU and PSU award activity under the 2010 Stock Plan and 2024 Inducement Plan was as follows:

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RSUs granted 3,392,462 $ 63.77

PSUs granted 321,582 $ 65.40

Additional PSUs earned 21,866 $ 83.58

RSUs released ( 1,859,539 ) $ 75.70

PSUs released ( 105,453 ) $ 83.58

RSUs cancelled ( 244,641 ) $ 69.91

Balance at June 30, 2024 7,080,132 $ 71.11

PSUs cancelled ( 7,795 ) $ 83.58

Balance at September 30, 2024 8,683,824 $ 67.79

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 , subject to customary retirement provisions that may accelerate the requisite service period for expense recognition purposes.

We grant PSUs with performance and/or service-based milestones with graded and/or cliff vesting over three to four years .

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Compensation expense for PSUs with market performance conditions is calculated using a Monte Carlo simulation model as of the date of grant and recorded over the requisite service period.

For the three and six months ended June 30, 2024 we recorded $ 3.5 million and $ 6.9 million, respectively, of stock compensation expense for PSUs on our condensed consolidated statements of operations.

For the three and six months ended June 30, 2023 we recorded $ 2.7 million and $ 9.2 million of stock compensation expense for PSUs on our condensed consolidated statements of operations.

For the three and nine months ended September 30, 2024 we recorded $ 12.3 million and $ 19.2 million, respectively, of stock compensation expense for PSUs on our condensed consolidated statements of operations.

For the three and nine months ended September 30, 2023 we recorded $ 4.2 million and $ 13.4 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.

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Options, RSUs and PSUs cancelled 977,680

Balance at June 30, 2024 10,698,039

Balance at September 30, 2024 4,000,301

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 June 30, 2024, was $ 24.1 million, which is expected to be recognized over the weighted average period of approximately 1.0 years.

Total compensation cost of RSUs granted but not yet vested, as of June 30, 2024, was $ 165.1 million, which is expected to be recognized over the weighted average period of approximately 1.4 years.

Total compensation cost of PSUs granted but not yet vested, as of June 30, 2024, was $ 10.1 million, which is expected to be recognized over the weighted average period of 1.0 years, should the underlying performance conditions be deemed probable of achievement.

For the three and six months ended June 30, 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):

Total compensation cost of options granted but not yet vested, as of September 30, 2024, was $ 26.2 million, which is expected to be recognized over the weighted average period of approximately 1.1 years.

Total compensation cost of RSUs granted but not yet vested, as of September 30, 2024, was $ 280.1 million, which is expected to be recognized over the weighted average period of approximately 1.8 years.

Total compensation cost of PSUs granted but not yet vested, as of September 30, 2024, was $ 25.4 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.

For the three and nine months ended September 30, 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

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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Effective tax rate 32.0 % 26.7 % 5901.7 % 29.6 %

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 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.

Our effective tax rate for the three months ended September 30, 2024 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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This was partially offset by tax rate benefits associated with research and development and orphan drug tax credit generations and the foreign derived intangible income deduction.

The effective tax rate for the three and six months ended June 30, 2024 was unfavorable as compared to the prior year period primarily due to the non-deductible charges associated with the Escient acquisition.

Our effective tax rate for the nine months ended September 30, 2024 was higher than the U.S.

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

Our effective tax rate for the three and nine months ended September 30, 2023 was higher than the U.S.

statutory rate primarily due to foreign losses with no associated tax benefit and an increase in our valuation allowance against certain U.S.

federal and state deferred tax assets.

This was partially offset by tax rate benefits associated with research and development and orphan drug tax credit generations and the foreign derived intangible income deduction.

The effective tax rate for the three months ended September 30, 2024 was unfavorable as compared to the prior year period primarily due to an increase in our valuation allowance against certain U.S.

federal and state deferred tax assets, partially offset by a decrease in foreign losses with no associated tax benefit.

The effective tax rate for the nine months ended September 30, 2024 was unfavorable as compared to the prior year period primarily due to the non-deductible charges associated with the Escient acquisition.

As described in Note 6, as part of the Escient acquisition, we recorded $ 44.8 million of deferred tax assets predominately related to net operating losses and capitalized researched and development costs.

The balance of our unrecognized tax benefits (including penalties and interest) increased by $ 19.3 million during the six months ended June 30, 2024.

This movement was primarily driven by increases related to prior period tax positions of $ 7.5 million, increases related to acquired reserves of $ 8.8 million, and $ 3.0 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 balance of our unrecognized tax benefits (including penalties and interest) increased by $ 22.5 million during the nine months ended September 30, 2024.

This movement was primarily driven by net increases related to prior period tax positions of $ 6.1 million, increases related to current period tax positions of $ 2.8 million, increases related to acquired reserves of $ 9.1 million, and $ 4.7 million of interest and penalties.

We accrue interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes.

We do not expect any significant decreases in unrecognized tax benefits within the next 12 months.

One or more of our legal entities file income tax returns in the U.S.

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Although many aspects of Pillar 2 remain to be clarified, at this time there are no material impacts on our effective tax rate .

Net (Loss) Income Per Share

Net (loss) income per share was calculated as follows for the periods indicated below:

Net Income (Loss) Per Share

Net income (loss) per share was calculated as follows for the periods indicated below:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

Basic net (loss) income $ ( 444,601 ) $ 203,548 $ ( 275,053 ) $ 225,251

Basic net income (loss) $ 106,456 $ 171,269 $ ( 168,597 ) $ 396,520

Weighted average common shares outstanding 192,629 224,078 211,763 223,428

Basic net (loss) income per share $ ( 2.04 ) $ 0.91 $ ( 1.24 ) $ 1.01

Diluted net (loss) income $ ( 444,601 ) $ 203,548 $ ( 275,053 ) $ 225,251

Basic net income (loss) per share $ 0.55 $ 0.76 $ ( 0.80 ) $ 1.77

Diluted net income (loss) $ 106,456 $ 171,269 $ ( 168,597 ) $ 396,520

Weighted average common shares outstanding 192,629 224,078 211,763 223,428

Dilutive stock options and awards 3,209 2,089 — 2,328

Weighted average shares used to compute diluted net (loss) income per share 218,175 225,649 221,329 225,541

Diluted net (loss) income per share $ ( 2.04 ) $ 0.90 $ ( 1.24 ) $ 1.00

All stock options and stock awards were excluded from the diluted share calculation for the three and six months ended June 30, 2024 because their effect would have been anti-dilutive, as we were in a net loss position.

The potential common shares that were excluded from the diluted net (loss) income per share computation are as follows:

Weighted average shares used to compute diluted net income (loss) per share 195,838 226,167 211,763 225,756

Diluted net income (loss) per share $ 0.54 $ 0.76 $ ( 0.80 ) $ 1.76

All stock options and stock awards were excluded from the diluted share calculation for the nine months ended September 30, 2024 because their effect would have been anti-dilutive, as we were in a net loss position.

The potential common shares that were excluded from the diluted net income (loss) per share computation are as follows:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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Employees may contribute a portion of their compensation, which is then matched by us, subject to certain limitations.

Defined contribution expense for the three and six months ended June 30, 2024 was $ 5.2 million and $ 10.6 million, respectively.

Defined contribution expense for the three and six months ended June 30, 2023 was $ 4.0 million and $ 9.6 million, respectively.

Defined contribution expense for the three and nine months ended September 30, 2024 was $ 5.2 million and $ 15.8 million, respectively.

Defined contribution expense for the three and nine months ended September 30, 2023 was $ 5.0 million and $ 14.6 million, respectively.

Defined Benefit Pension Plans

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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We may, at our option, prepay any borrowings under the Credit Agreement, in whole or in part, at any time and from time to time without premium or penalty, subject to customary exceptions.

As of June 30, 2024 and December 31, 2023, we had no outstanding borrowings and were in compliance with all covenants under this facility.

As of September 30, 2024 and December 31, 2023, we had no outstanding borrowings and were in compliance with all covenants under this facility.

Contingencies

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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 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 %.

As of September 30, 2024, we have accrued approximately $ 106.9 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 September 30, 2024 is approximately 6.7 %.

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

What changed 10-Q

Item 1. Financial Statements