What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-05 compared with 2020-08-04 · 176 added, 153 removed, 734 unchanged (31% of the section changed)

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

The following discussion of our financial condition and results of operations as of and for the three and six months ended June 30, 2020 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, 2019 included in our Annual Report on Form 10-K for the year ended December 31, 2019 previously filed with the SEC.

The following discussion of our financial condition and results of operations as of and for the three and nine months ended September 30, 2020 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, 2019 included in our Annual Report on Form 10-K for the year ended December 31, 2019 previously filed with the SEC.

This report contains forward-looking statements that involve risks and uncertainties.

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● our expectations regarding competition;

● expectations relating to our new European headquarters, including construction activities, and the anticipated completion date for our large molecule production facility;

● expectations relating to our new European headquarters and the anticipated completion date for our large molecule production facility;

● our investments, including anticipated expenditures, losses and expenses;

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Our global headquarters is located in Wilmington, Delaware.

We conduct our European clinical development operations from our offices in Geneva, Switzerland, and Lausanne, Switzerland;

our Japanese office is in Tokyo.

We conduct our European clinical development operations from our offices in Morges, Switzerland, our Japanese office is in Tokyo and we have been conducting operations in Canada since April 2020.

Effects of the COVID-19 Pandemic on Our Business

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We took aggressive, proactive actions early on to protect the health of our employees, and their families, including voluntarily requiring almost all personnel across our global enterprise to work remotely and restricting access to our sites to personnel who were required to perform critical business continuity activities.

In May 2020, we initiated a return to full laboratory work at our facilities in Wilmington, Delaware, as well as a gradual return to office-based working, where allowed under local guidelines, at our offices in North America, Europe and Japan.

While we currently believe we are well-positioned to function in a hybrid on-site and virtual or remote fashion, the extent of the COVID-19 Pandemic’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, protective measures, and the reimposition of protective measures, implemented by governmental authorities or by us to protect our employees, and effects of the pandemic and such protective measures on our suppliers, collaborators, services providers and healthcare organizations serving patients, all of which are uncertain and difficult to predict considering the rapidly evolving landscape.

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To date, we have not seen a material effect on the results of our commercial operations, or our manufacturing supply chain, and we have increased manufacturing efforts of ruxolitinib to respond to the COVID-19 Pandemic and to pre-clinical and clinical study requests.

New patient starts for JAKAFI treatment decreased as a result of shelter in place and other protective measures, and if decreases in new patient starts continue, our revenues in future periods could be adversely affected.

New patient starts for JAKAFI treatment decreased as a result of shelter in place and other protective measures, and if decreases in new patient starts occur in future periods, our revenues in future periods could be adversely affected.

We continue to anticipate that short-term effects may continue to emerge across different aspects of our global clinical trial programs.

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Clinical Trials to Address COVID-19

In April 2020, we announced the initiation of a Phase III clinical trial (RUXCOVID) to evaluate the efficacy and safety of ruxolitinib plus standard-of-care (SoC), compared to SoC therapy alone, in patients with COVID-19 associated cytokine storm.

The SoC therapy is currently evolving and could be subject to change.

Patient recruitment into RUXCOVID has been completed and we expect results to be available before the end of 2020.

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

sponsors the study outside of the United States.

We have also opened a second Phase III clinical trial in the United States to evaluate the efficacy and safety of ruxolitinib plus SoC, compared to SoC therapy alone, in COVID-19 patients on mechanical ventilation and who have acute respiratory distress syndrome (ARDS), a type of respiratory failure characterized by rapid onset of widespread inflammation in the lungs.

We are also conducting a second Phase III clinical trial in multiple geographies, including the United States, to evaluate the efficacy and safety of ruxolitinib plus SoC, compared to SoC therapy alone, in COVID-19 patients on mechanical ventilation and who have acute respiratory distress syndrome (ARDS), a type of respiratory failure characterized by rapid onset of widespread inflammation in the lungs.

The SoC therapy is currently evolving and could be subject to change.

We have launched an Expanded Access Program in the United States to allow eligible patients with COVID-19 associated cytokine storm to receive ruxolitinib.

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

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

In addition, in June 2020, Lilly announced that the first patient had been enrolled in a Phase III randomized, double-blind, placebo–controlled study to evaluate the efficacy and safety of baricitinib in hospitalized adults with COVID-19.

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

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

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

In addition, in June 2020, Lilly announced that the first patient had been enrolled in a Phase III randomized, double-blind, placebo–controlled study (COV-BARRIER) to evaluate the efficacy and safety of baricitinib in hospitalized adults not on mechanical ventilation and who have COVID-19.

Marketed Indications - JAKAFI (ruxolitinib)

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

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

Myelofibrosis and polycythemia vera are both

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

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

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The overall survival information is based on three-year data from COMFORT-I and II, and shows that at three years the probability of survival for patients treated with JAKAFI in COMFORT-I was 70% and for those patients originally randomized to placebo it was 61%.

In COMFORT-II, at three years the probability of survival for patients treated with JAKAFI was 79% and for patients originally randomized to best

available therapy it was 59%.

In COMFORT-II, at three years the probability of survival for patients treated with JAKAFI was 79% and for patients originally randomized to best available therapy it was 59%.

In December 2016, we announced an exploratory pooled analysis of data from the five-year follow-up of the COMFORT-I and COMFORT-II trials of patients treated with JAKAFI, which further supported previously published overall survival findings.

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In GVHD, the donated bone marrow or peripheral blood stem cells view the recipient’s body as foreign and attack various tissues.

12-month survival rates in patients with Grade III or IV steroid-refractory acute GVHD are 50% or less, and the incidence of steroid-refractory acute and chronic GVHD is approximately 3,000 per year in the United States.

12-month survival rates in patients with Grade III or IV steroid-

refractory acute GVHD are 50% or less, and the incidence of steroid-refractory acute and chronic GVHD is approximately 3,000 per year in the United States.

In June 2016, we announced that the FDA granted Breakthrough Therapy designation for ruxolitinib in patients with acute GVHD.

In May 2019, the FDA approved JAKAFI for the treatment of steroid-refractory acute GVHD in adult and pediatric patients 12 years and older.

The approval was based on data from REACH1, an open-label, single-arm,

multicenter study of JAKAFI in combination with corticosteroids in patients with steroid-refractory grade II-IV acute GVHD.

The approval was based on data from REACH1, an open-label, single-arm, multicenter study of JAKAFI in combination with corticosteroids in patients with steroid-refractory grade II-IV acute GVHD.

The overall response rate (ORR) in patients refractory to steroids alone was 57% with a complete response (CR) rate of 31%.

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It is often diagnosed late (stages III and IV) and the prognosis is poor.

The incidence of cholangiocarcinoma with FGFR2 fusions or rearrangements is increasing, and it is currently estimated that there are 2,000-3,000 patients in the U.S., Europe and Japan.

The incidence of cholangiocarcinoma with FGFR2 fusions or rearrangements is increasing, and it is currently estimated that there are 2,000-3,000 patients in the United States, Europe and Japan.

The approval of PEMAZYRE was based on data from FIGHT-202, a multi-center, open-label, single-arm study evaluating PEMAZYRE as a treatment for adults with cholangiocarcinoma.

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to develop and commercialize pemigatinib in hematology and oncology in mainland China, Hong Kong, Macau and Taiwan.

Marketed Indications - MONJUVI (tafasitamab)

In July 2020, we and our collaboration partner MorphoSys AG announced that the FDA approved MONJUVI (tafasitamab-cxix), a CD19-directed cytolytic antibody that 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).

Marketed Indications - MONJUVI (tafasitamab-cxix)

In January 2020, we and MorphoSys AG entered into a collaboration and license agreement to further develop and commercialize MorphoSys' proprietary anti-CD19 antibody tafasitamab (MOR208) globally.

The agreement became effective March 2020.

Tafasitamab is an Fc-engineered antibody against CD19 currently in clinical development for the treatment of B cell malignancies.

We have rights to co-commercialize tafasitamab in the United States with MorphoSys, and we have exclusive development and commercialization rights outside of the United States.

In July 2020, we and MorphoSys announced that the FDA 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).

MONJUVI was approved under accelerated approval based on overall response rate.

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

DLBCL is the most common type of non-Hodgkin lymphoma in adults worldwide, comprising 40% of all cases.

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It is an aggressive disease with ~40% of patients not responding to initial therapy or relapsing thereafter.

We estimate that there are ~10.000 patients diagnosed in the U.S.

each year with relapsed or refractory diffuse large B-cell lymphoma (r/r DLBCL) who are not eligible for ASCT.

We estimate that there are ~10.000 patients diagnosed in the United States each year with relapsed or refractory diffuse large B-cell lymphoma (r/r DLBCL) who are not eligible for ASCT.

The approval of MONJUVI was based on data from the MorphoSys-sponsored Phase II L-MIND study, an open label, multicenter, single arm trial of MONJUVI in combination with lenalidomide as a treatment for adult patients with r/r DLBCL.

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

In January 2020, we entered into a collaboration and licensing agreement with MorphoSys to further develop and commercialize MONJUVI globally.

We will co-commercialize MONJUVI with MorphoSys in the United States, and we have exclusive commercialization rights outside the United States.

Clinical Programs in Oncology

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Additional Phase II trials combining ruxolitinib with investigational agents from our portfolio such as INCB57643 (BET) and INCB00928 (ALK2) in patients with MF are in preparation.

Development of the combination of ruxolitinib and INCB53914 (PIM) has been discontinued.

There are currently no plans for the further development of INCB53914.

As part of our development efforts to evaluate JAK inhibition in GVHD, the REACH clinical program is evaluating ruxolitinib in patients with steroid-refractory GVHD and includes REACH2, a Novartis-sponsored Phase III trial in steroid-refractory acute GVHD, and REACH3, a Phase III trial in steroid-refractory chronic GVHD that is co-sponsored by Incyte and Novartis.

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The program initially included three Phase II trials – FIGHT-201 in patients with bladder cancer, FIGHT-202 in patients with cholangiocarcinoma, and FIGHT-203 in patients with 8p11 myeloproliferative syndrome (8p11 MPN).

Based on data generated from these ongoing trials, we have initiated additional trials, including FIGHT-205, which is evaluating pemigatinib plus pembrolizumab versus pemigatinib alone versus standard of care for metastatic or unresectable urothelial carcinoma in cisplatin-ineligible patients whose tumors express FGFR3 mutation or rearrangement, and FIGHT-207 which is a solid tumor-agnostic trial evaluating pemigatinib in patients with driver-alterations of FGF/FGFR.

Based on data generated from these ongoing trials, we have initiated additional trials, including FIGHT-207, which is a solid tumor-agnostic trial evaluating pemigatinib in patients with driver-alterations of FGF/FGFR.

In April 2020, we announced the FDA approval of pemigatinib as PEMAZYRE for the treatment of adults with previously treated, unresectable locally advanced or metastatic cholangiocarcinoma with an FGFR2 fusion or other rearrangement as detected by an FDA-approved test.

Pemigatinib was previously granted Breakthrough Therapy designation by the FDA as a treatment for patients with previously treated, advanced/metastatic or unresectable FGFR2 translocated cholangiocarcinoma and has Breakthrough Therapy designation as a treatment for patients with myeloid/lymphoid neoplasms with FGFR1 rearrangement (8p11 MPN) who have relapsed or are refractory to initial chemotherapy.

In January 2020, we announced that the Marketing Authorization Application (MAA) for pemigatinib as a treatment of adults with locally advanced or metastatic cholangiocarcinoma with an FGFR2 fusion or rearrangement that is relapsed or refractory after at least one line of systemic therapy had been validated by the European Medicines Agency (EMA).

In January 2020, we announced that the Marketing Authorization Application (MAA) for pemigatinib as a treatment of adults with locally advanced or metastatic cholangiocarcinoma (CCA) with an FGFR2 fusion or rearrangement that is relapsed or refractory after at least one line of systemic therapy had been validated by the European Medicines Agency (EMA).

In September 2020, we submitted a J-NDA seeking approval for pemigatinib as a treatment for CCA in Japan.

In October 2020, we announced that Health Canada accepted the New Drug Submission (NDS) for pemigatinib as a treatment for adults with previously treated, locally advanced or metastatic cholangiocarcinoma with FGFR2 fusion or other rearrangement.

Given the rapidly evolving treatment landscape for bladder cancer and recent regulatory feedback, we are reevaluating our development strategy for pemigatinib in bladder cancer.

As part of that reevaluation, new patient recruitment into FIGHT-205, which is assessing pemigatinib in cisplatin-ineligible bladder cancer patients whose tumors express FGFR3 mutation or rearrangement, has been stopped, and we no longer intend to use data from FIGHT-201 to seek accelerated approval for pemigatinib in patients with previously treated bladder cancer whose tumors express FGFR3 mutation or rearrangement.

CD19 antagonism

In January 2020, we and MorphoSys announced a collaboration and license agreement to further develop and commercialize MorphoSys' proprietary anti-CD19 antibody tafasitamab (MOR208) globally.

The agreement became effective March 2020.

Tafasitamab is an Fc-engineered antibody against CD19 currently in clinical development for the treatment of B cell malignancies.

We have rights to co-commercialize tafasitamab in the U.S.

with MorphoSys, and we have exclusive development and commercialization rights outside of the U.S.

Tafasitamab is being investigated as a therapeutic option in B cell malignancies in a number of ongoing combination trials.

An open-label Phase II combination trial (L-MIND) is investigating the safety and efficacy of tafasitamab in combination with lenalidomide in patients with relapsed or refractory diffuse large B cell lymphoma (r/r DLBCL), and the ongoing Phase III B-MIND trial is assessing the combination of tafasitamab and bendamustine versus rituximab and bendamustine in r/r DLBCL.

First-MIND is a Phase Ib safety trial of tafasitamab as a first-line therapy for patients with DLBCL.

PI3K-delta Inhibition

The PI3K-delta pathway mediates oncogenic signaling in B cell malignancies.

Parsaclisib is a PI3K-delta inhibitor that has demonstrated potency and selectivity in preclinical studies and has potential therapeutic utility in the treatment of patients with lymphoma.

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

An open-label Phase II combination trial (L-MIND) is investigating

the safety and efficacy of tafasitamab in combination with lenalidomide in patients with relapsed or refractory diffuse large B-cell lymphoma (r/r DLBCL), and the ongoing Phase III B-MIND trial is assessing the combination of tafasitamab and bendamustine versus rituximab and bendamustine in r/r DLBCL.

First-MIND is a Phase Ib safety trial of tafasitamab as a first-line therapy for patients with DLBCL, and Front-MIND, a placebo-controlled Phase III trial evaluating tafasitamab in combination with lenalidomide added to rituximab plus chemotherapy (R-CHOP) as a first-line therapy for patients with DLBCL, is planned to begin in 2021.

A proof-of-concept study of tafasitamab in combination with parsaclisib (PI3Kδ) in patients with relapsed or refractory B-cell malignancies is in preparation, as is a placebo-controlled Phase III trial of tafasitamab added to lenalidomide plus rituximab in patients with relapsed or refractory follicular lymphoma.

PI3Kδ Inhibition

The PI3Kδ pathway mediates oncogenic signaling in B cell malignancies.

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

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

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

PD-1 Antagonism

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

Potentially registration-enabling trials in squamous cell carcinoma of the anal canal (SCAC), microsatellite instability-high (MSI-H) endometrial cancer and Merkel cell carcinoma are ongoing.

Preparations are ongoing to initiate both the Phase III POD1UM-304 trial of retifanlimab in combination with platinum-based chemotherapy as a first-line treatment for patients with non-small cell lung cancer (NSCLC) and the Phase III POD1UM-303 trial of retifanlimab in combination with platinum-based chemotherapy as a first-line treatment for patients with SCAC.

Potentially registration-enabling trials in squamous cell anal carcinoma (SCAC), microsatellite instability-high (MSI-H) endometrial cancer and Merkel cell carcinoma are ongoing.

In September 2020, we announced initial results from the Phase II POD1UM-202 trial of retifanlimab in patients with advanced SCAC who have progressed following standard platinum-based chemotherapy.

The Phase III POD1UM-303 trial of retifanlimab in combination with platinum-based chemotherapy as a first-line treatment for patients with SCAC is open for recruitment.

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

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

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

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

Indication and status

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Phase III (REACH3) 1 primary endpoint met

Refractory myelofibrosis:

Phase III with parsaclisib (PI3Kδ) in preparation;

Phase II with INCB57643 (BET) in preparation

Myelofibrosis:

Phase II with INCB00928 (ALK2) in preparation

Phase III with parsaclisib (PI3Kδ) in preparation (1L and inadequate responders to ruxolitinib);

Phase II with INCB57643 (BET) and with INCB00928 (ALK2) in preparation

Once-a-day ruxolitinib (JAK1/JAK2)

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Phase III (GRAVITAS-309)

Cholangiocarcinoma:

Phase II (FIGHT-202), Phase III (FIGHT-302);

MAA under review

Bladder cancer:

Phase II (FIGHT-201, FIGHT-205)

MAA, NDS and J-NDA under review

Phase II (FIGHT-203)

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Phase Ib (First-MIND);

Phase III (Front-MIND) in preparation

r/r follicular lymphoma:

Phase III in preparation

r/r B-cell malignancies:

PoC with parsaclisib (PI3Kδ) in preparation

parsaclisib (PI3Kδ)

Follicular lymphoma:

r/r follicular lymphoma:

Phase II (CITADEL-203)

Marginal zone lymphoma:

r/r marginal zone lymphoma:

Phase II (CITADEL-204)

Mantle cell lymphoma:

r/r mantle cell lymphoma:

Phase II (CITADEL-205)

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Phase II (POD1UM-101);

Phase II (POD1UM-204) in preparation

Merkel cell carcinoma:

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Phase II (POD1UM-202);

Phase III (PODIUM-303) in preparation

Phase III (PODIUM-303) open for recruitment

Phase III (POD1UM-304) in preparation

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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.

Based on emerging data from the LSD1 inhibitor program, development of INCB59872 has been discontinued.

Small molecules

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MCLA-145 (PD-L1xCD137) 3

INCB01158 development in collaboration with Calithera Biosciences, Inc.

INCB01158 licensed from Calithera Biosciences, Inc.

Discovery collaboration with Agenus Inc.

MCLA-145 development in collaboration with Merus N.V.

Clinical Programs outside Oncology

Ruxolitinib cream

Atopic dermatitis.

Atopic dermatitis is a skin disorder that causes the skin to become red, scaly, and itchy.

Onset can occur at any age, but is more common in infants and children.

In the United States, we estimate that there are approximately 10 million diagnosed and treated adolescent and adult patients with mild to moderate atopic dermatitis.

In April 2020, safety and efficacy data from the two Phase III trials in the TRuE-AD program evaluating ruxolitinib cream in mild-to-moderate atopic dermatitis were presented at the Revolutionizing Atopic Dermatitis (RAD) virtual symposium;

Clinical Programs in Inflammation and AutoImmunity (IAI)

Incyte Dermatology has been established as a new franchise in the U.S., which will include dedicated teams for the development and commercialization of our dermatology portfolio.

virtual symposium;

both trials met their primary endpoints.

The 44-week long-term safety and efficacy portion of both the TRuE-AD1 and TRuE-AD2 trials are ongoing.

In September 2020, we purchased a priority review voucher from a third party, which had received it through the FDA’s Rare Pediatric Disease Priority Review Voucher Program.

The priority review voucher entitles the holder to designate a human drug application for priority review.

In September 2020, we notified the FDA that we intend to use the priority review voucher in connection with our submission seeking FDA approval of ruxolitinib cream for the treatment of atopic dermatitis.

Atopic dermatitis (AD) is a skin disorder that causes long term inflammation of the skin resulting in itchy, red, swollen and cracked skin.

Onset can occur at any age, but is more common in infants and children.

In the United States, we estimate that there are approximately 10 million diagnosed and treated adolescent and adult patients with mild to moderate AD.

In June 2019, primary endpoint data after 6 months of therapy from the Phase II trial of ruxolitinib cream in patients with vitiligo showed a significant benefit over vehicle control, and a global, pivotal Phase III program was initiated in September 2019.

In October 2019, updated data from the Phase II trial showed, after 12 months of therapy, additional improvement in the repigmentation of vitiligo lesions.

Vitiligo is a long-term skin condition characterized by patches of the skin losing their pigment.

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There are no FDA approved treatments for repigmentation of vitiligo lesions.

In October 2019, updated data from the Phase II trial showed, after 12 months of therapy, additional improvement in the repigmentation of vitiligo lesions.

A Phase II trial of INCB54707, a JAK1 selective inhibitor, is ongoing in patients with hidradenitis suppurativa, an inflammatory skin disease.

INCB54707 is a JAK1 selective inhibitor undergoing evaluation in patients with hidradenitis suppurativa (HS), a chronic skin condition where lesions develop as a result of inflammation and infection of the sweat glands.

In October 2020, initial results from the clinical program were presented and a randomized Phase IIb trial of INCB54707 is now underway in patients with HS.

A Phase II trial of parsaclisib in patients with autoimmune hemolytic anemia (AIHA), a rare red blood cell disorder, is also ongoing.

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We have a second JAK1 and JAK2 inhibitor, baricitinib, which is subject to our collaboration agreement with Lilly, in which Lilly received exclusive worldwide development and commercialization rights to the compound for inflammatory and autoimmune diseases.

Rheumatoid Arthritis.

Rheumatoid arthritis is an autoimmune disease characterized by aberrant or abnormal immune mechanisms that lead to joint inflammation and swelling and, in some patients, the progressive destruction of joints.

Rheumatoid arthritis can also affect connective tissue in the skin and organs of the body.

Current rheumatoid arthritis treatments include the use of non-steroidal anti-inflammatory drugs, disease-modifying anti-rheumatic drugs, such as methotrexate, and the newer biological response modifiers that target pro-inflammatory cytokines, such as tumor necrosis factor, implicated in the pathogenesis of rheumatoid arthritis.

None of these approaches to treatment is curative;

therefore, there remains an unmet need for new safe and effective treatment options for these patients.

Rheumatoid arthritis is estimated to affect about 1% of the world’s population.

The Phase III program of baricitinib in patients with rheumatoid arthritis incorporated all three rheumatoid arthritis populations (methotrexate naïve, biologic naïve, and tumor necrosis factor (TNF) inhibitor inadequate responders);

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

Rheumatoid Arthritis.

Rheumatoid arthritis can also affect connective tissue in the skin and organs of the body.

None of these approaches to treatment is curative;

therefore, there remains an unmet need for new safe and effective treatment options for these patients.

Rheumatoid arthritis is estimated to affect about 1% of the world’s population.

Atopic Dermatitis.

Atopic dermatitis (AtD) is a condition that makes the skin red and itchy and which is common in children but can occur at any age.

Atopic dermatitis is long lasting and tends to flare periodically and then subside.

Lilly has conducted a Phase IIa trial and a Phase III program to evaluate the safety and efficacy of baricitinib in patients with moderate-to-severe atopic dermatitis.

The JAK-STAT pathway has been shown to play an essential role in the dysregulation of immune responses in atopic dermatitis.

Therefore, we believe that inhibiting cytokine pathways dependent on JAK1 and JAK2 may lead to positive clinical outcomes in atopic dermatitis.

In February 2019, we and Lilly announced that baricitinib met the primary endpoint in BREEZE-AD1 and BREEZE-AD2, two Phase III studies evaluating the efficacy and safety of baricitinib monotherapy for the treatment of adult patients with moderate to severe AtD and, in August 2019, we and Lilly announced that baricitinib met the primary endpoint in BREEZE-AD7, a Phase III study evaluating the efficacy and safety of baricitinib in combination with standard-of-care topical corticosteroids in patients with moderate to severe AtD.

In January 2020, we and Lilly announced that baricitinib met the primary endpoint in both BREEZE-AD4 and BREEZE-AD5, the results of which complete the placebo-controlled data program intended to support global registrations.

In January 2020, Lilly announced that baricitinib had been submitted for regulatory review in Europe as a treatment for patients with moderate to severe AtD.

Therefore, we believe that inhibiting cytokine pathways dependent on JAK1 and JAK2 may lead to positive clinical outcomes in AD.

In February 2019, we and Lilly announced that baricitinib met the primary endpoint in BREEZE-AD1 and BREEZE-AD2, two Phase III studies evaluating the efficacy and safety of baricitinib monotherapy for the treatment of adult patients with moderate to severe AD and, in August 2019, we and Lilly announced that baricitinib met the primary endpoint in BREEZE-AD7, a Phase III study evaluating the efficacy and safety of baricitinib in combination with standard-of-care topical corticosteroids in patients with moderate to severe AD.

In January 2020, we and Lilly announced that baricitinib met the primary endpoint in both BREEZE-AD4 and BREEZE-AD5, the results of which completed the placebo-controlled data program intended to support global registrations.

In January 2020, Lilly announced that baricitinib had been submitted for regulatory review in Europe as a treatment for patients with moderate to severe AD.

In October 2020, Lilly announced that the European Commission approved baricitinib as OLUMIANT for the treatment of moderate-to-severe AD in adult patients who are candidates for systemic therapy.

Systemic Lupus Erythematosus.

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In addition to affecting the skin and joints, it can affect other organs in the body such as the kidneys, the tissue lining the lungs and heart, and the brain.

Lilly has conducted a Phase II trial to evaluate the safety and efficacy of baricitinib in patients with SLE.

Lilly has conducted a Phase II trial to evaluate the safety and efficacy of

baricitinib in patients with SLE.

Baricitinib’s activity profile suggests that it inhibits cytokines implicated in SLE such as type I interferon (IFN), type II IFN-γ, IL-6, and IL-23 as well as other cytokines that may have a role in SLE, including granulocyte macrophage colony stimulating factor (GM-CSF) and IL-12.

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In March 2020, Lilly announced that baricitinib received Breakthrough Therapy designation for the treatment of alopecia areata, based on the positive Phase II results of Lilly’s adaptive Phase II/III study BRAVE-AA1.

The Phase III portion of BRAVE-AA1 is ongoing.

The Phase III portion of BRAVE-AA1 is ongoing, as is a second Phase III study, BRAVE-AA2, in adults with severe or very severe alopecia areata.

Capmatinib is a potent and highly selective MET inhibitor.

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The most common treatment-related adverse events (AEs) (incidence ≥20%) are peripheral edema, nausea, fatigue, vomiting, dyspnea, and decreased appetite.

In September 2020, we and Novartis announced that GEOMETRY mono-1 results were published in The New England Journal of Medicine.

In June 2020, we and Novartis announced that the MHLW approved TABRECTA for METex14 mutation-positive advanced and/or recurrent unresectable NSCLC.

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Phase III (BREEZE-AD);

approved in EU

Systemic lupus erythematosus:

Severe alopecia areata:

Phase III (BRAVE-AA1)

Phase III (BRAVE-AA1, BRAVE-AA2)

capmatinib (MET) 2

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In June 2020, we recognized a $20.0 million regulatory milestone for the MHLW approval of TABRECTA.

Exclusive of the upfront payment of $150.0 million received in 2009 and the immediate milestone of $60.0 million earned in 2010, we have recognized and received, in the aggregate, $157.0 million for the achievement of development milestones, $280.0 million for the achievement of regulatory milestones and $120.0 million for the achievement of sales milestones through June 30, 2020.

Exclusive of the upfront payment of $150.0 million received in 2009 and the

immediate milestone of $60.0 million earned in 2010, we have recognized and received, in the aggregate, $157.0 million for the achievement of development milestones, $280.0 million for the achievement of regulatory milestones and $120.0 million for the achievement of sales milestones through September 30, 2020.

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

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In addition to the royalties described above, we will be entitled to receive additional royalty payments with rates in the low teens on global net sales of baricitinib for the treatment of COVID-19 that exceed a specified aggregate global net sales threshold.

Exclusive of the upfront payment of $90.0 million received in 2009, we have recognized and received, in the aggregate, $149.0 million for the achievement of development milestones and $235.0 million for the achievement of regulatory milestones through June 30, 2020.

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

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Agenus was initially eligible to receive up to an additional $510.0 million in future contingent development, regulatory and commercialization milestones across all programs in the collaboration.

As of June 30, 2020, we have paid Agenus an aggregate of $10.0 million in development milestones.

As of September 30, 2020, we have paid Agenus an aggregate of $10.0 million in development milestones.

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

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

As such, Takeda will be eligible to receive from us tiered royalties on net sales of ICLUSIG in our territory and up to $135.0 million in potential future oncology development and regulatory

approval milestone payments, together with additional milestone payments for non-oncology indications, if approved, in our territory.

As such, Takeda will be eligible to receive from us tiered royalties on net sales of ICLUSIG in our territory and up to $135.0 million in potential future oncology development and regulatory approval milestone payments, together with additional milestone payments for non-oncology indications, if approved, in our territory.

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

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

Under this agreement, we received an exclusive, worldwide license to develop and commercialize small molecule arginase

inhibitors, including INCB01158 (CB-1158), which is currently in Phase I clinical trials, for hematology and oncology indications.

Under this agreement, we received an exclusive, worldwide license to develop and commercialize small molecule arginase inhibitors, including INCB01158 (CB-1158), which is currently in Phase I clinical trials, for hematology and oncology indications.

We have agreed to co-fund 70% of the global development costs for the development of the licensed products for hematology and oncology indications.

Calithera will have the right to conduct certain clinical development under the collaboration, including combination studies of a licensed product with a proprietary compound of Calithera.

Calithera will have the right to conduct certain clinical development under the

collaboration, including combination studies of a licensed product with a proprietary compound of Calithera.

We will be entitled to 60% of the profits and losses from net sales of licensed product in the United States, and Calithera will have the right to co-detail licensed products in the United States, and we have agreed to pay Calithera tiered royalties ranging from the low to mid-double digits on net sales of licensed products outside the United States.

Calithera may opt out of its co-funding obligation, in which case the U.S.

profit sharing will no longer be in effect, and we have agreed to pay Calithera tiered royalties ranging from the low to mid-double digits on net sales of licensed products both in the United States and outside the United States, and additional royalties to reimburse Calithera for previously incurred development costs.

Calithera retains rights to certain arginase inhibitors that are not part of the collaboration for specific orphan indications outside of hematology and oncology, subject to our rights to negotiate a license for any such programs under specified circumstances if Calithera elects to out-license them.

In January 2017, we paid Calithera an upfront license fee of $45.0 million and have agreed to pay potential development, regulatory and sales milestone payments of over $430.0 million if the profit share is in effect, or $750.0 million if the profit share terminates.

In August 2020, Calithera delivered notice of its decision to opt out of its co-funding obligation, effective on September 30, 2020.

As a result, the U.S.

profit sharing will no longer be in effect, we will be responsible for funding all of the development costs of INCB01158 and any other licensed products, and the agreement provides that we will pay Calithera tiered royalties ranging from the low to mid-double digits on net sales of licensed products both in the United States and outside the United States and additional royalties to reimburse Calithera for previously incurred development costs.

In addition, the total remaining potential development, regulatory and sales milestone payments will be $738.0 million and Calithera will have no further rights to research, develop or co-detail INCB001158 and we will have the right to take over the conduct of all activities related to the research, development and commercialization of INCB001158 for all indications in the hematology/oncology field.

The Calithera agreement will continue on a product-by-product and country-by-country basis for so long as we are developing or commercializing products in the United States (if the parties are sharing profits in the United States) and until we have no further royalty payment obligations, unless earlier terminated according to the terms of the agreement.

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In addition, MacroGenics has the right to manufacture a portion of both companies’ global clinical and commercial supply needs of INCMGA0012.

As of June 30, 2020, we have paid MacroGenics an upfront payment of $150.0 million and milestones totaling $15.0 million.

As of September 30, 2020, we have paid MacroGenics an upfront payment of $150.0 million and milestones totaling $30.0 million.

MacroGenics will be eligible to receive up to an additional $390.0 million in future contingent development and regulatory milestones, and up to $330.0 million in commercial milestones as well as tiered royalties ranging from 15% to 24% of global net sales.

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

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

validated targets.

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

We paid Syros $2.5 million in cash for access to proprietary technology and $7.5 million in cash for research and development services.

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We also retain an option to assist in the promotion of INCMGA0012 in Zai Lab’s licensed territories.

In January 2020, we entered into a Collaboration and License Agreement with MorphoSys AG and MorphoSys US Inc., a wholly-owned subsidiary of MorphoSys AG, covering the worldwide development and commercialization of MOR208 (tafasitamab), an investigational Fc engineered monoclonal antibody directed against the target molecule CD19 that is currently in clinical development by MorphoSys.

MorphoSys has exclusive worldwide development and commercialization rights to tafasitamab under a June 2010 collaboration and license agreement with Xencor, Inc.

The agreement became effective in March 2020 after clearance by the German and Austrian antitrust authorities and expiration of the waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976.

MorphoSys gained exclusive worldwide development and commercialization rights to tafasitamab under a June 2010 collaboration and license agreement with Xencor, Inc.

Our agreement with MorphoSys became effective in March 2020 after clearance by the German and Austrian antitrust authorities and expiration of the waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976.

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

MorphoSys is responsible for leading the commercialization strategy and booking all revenue from sales of tafasitamab in the United States, and we and MorphoSys are both responsible for commercialization efforts in the United States and will share equally the profits and losses from the co-commercialization efforts.

We will lead the commercialization strategy outside of the United States, and will be responsible for commercialization efforts and book all revenue from sales of tafasitamab outside of the United States, subject to our royalty payment obligations set forth below.

We will lead the commercialization strategy outside of the United States, and will be responsible for commercialization efforts and book all revenue from sales of tafasitamab

outside of the United States, subject to our royalty payment obligations set forth below.

We and MorphoSys have agreed to co-develop tafasitamab and to share development costs associated with global and U.S.-specific clinical trials, with Incyte responsible for 55% of such costs and MorphoSys responsible for 45% of such costs.

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We accrue rebates for mandated discounts under the Medicaid Drug Rebate Program in the U.S.

and mandated discounts in Europe in markets where government-sponsored healthcare systems are the primary payers for healthcare.

and mandated discounts in Europe in markets where government-sponsored healthcare systems are the primary

payers for healthcare.

These accruals are based on statutory discount rates and expected utilization as well as historical data we have accumulated since product launch.

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The stock compensation process requires significant judgment and the use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility over the option term and expected option lives, as well as expected forfeiture rates and the probability of PSUs vesting.

The fair value of stock options, which are subject to graded vesting, are recognized as compensation expense over the requisite service period using the accelerated attribution

The fair value of stock options, which are subject to graded vesting, are recognized as compensation expense over the requisite service period using the accelerated attribution method.

The fair value of RSUs that are subject to cliff vesting are recognized as compensation expense over the requisite service period using the straight-line attribution method, and the fair value of RSUs that are subject to graded vesting are recognized as compensation expense over the requisite service period using the accelerated attribution method.

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2018-18, “Collaborative Arrangements (Topic 808):

Clarifying the Interaction Between Topic 808 and Topic 606.” The guidance clarifies the interactions between Topic 808 and Topic 606, including clarifications on revenue recognition, unit of account, and reporting disclosure requirements.

Clarifying the Interaction Between Topic 808 and Topic 606.” The guidance clarifies the interactions between Topic 808 and Topic

606, including clarifications on revenue recognition, unit of account, and reporting disclosure requirements.

The guidance is effective for fiscal years beginning after December 15, 2019.

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2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.” This guidance applies to all entities and aims to reduce the complexity of tax accounting standards

while enhancing reporting disclosures.

Simplifying the Accounting for Income Taxes.” This guidance applies to all entities and aims to reduce the complexity of tax accounting standards while enhancing reporting disclosures.

This guidance is effective for fiscal years beginning after December 15, 2020 and interim periods therein.

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Results of Operations

We recorded net income of $290.3 million and basic net income per share of $1.33 and diluted net income per share of $1.32 for the three months ended June 30, 2020, as compared to net income of $105.3 million and basic net income per share of $0.49 and diluted net income per share of $0.48 in the corresponding period in 2019.

We recorded net loss of $430.3 million and basic and diluted net loss per share of $1.98 for the six months ended June 30, 2020, as compared to net income of $207.6 million and basic net income per share of $0.97 and diluted net income per share of $0.96 in the corresponding period in 2019.

We recorded net loss of $15.2 million and basic and diluted net loss per share of $0.07 for the three months ended September 30, 2020, as compared to net income of $128.3 million and basic net income per share of $0.60 and diluted net income per share of $0.59 in the corresponding period in 2019.

We recorded net loss of $445.5 million and basic and diluted net loss per share of $2.05 for the nine months ended September 30, 2020, as compared to net income of $335.9 million and basic net income per share of $1.57 and diluted net income per share of $1.55 in the corresponding period in 2019.

For the Three Months Ended,

For the Six Months Ended,

For the Nine Months Ended,

September 30,

(in millions)

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Total revenues

The increase in JAKAFI product revenues for the three months ended June 30, 2020 as compared to the corresponding period in 2019 was comprised of a volume increase of $52.9 million and a price increase of $11.3 million.

The increase in JAKAFI product revenues for the six months ended June 30, 2020 as compared to the corresponding period in 2019 was comprised of a volume increase of $135.1 million and a price increase of $13.0 million.

The increase in JAKAFI product revenues for the three months ended September 30, 2020 as compared to the corresponding period in 2019 was comprised of a volume increase of $40.8 million and a price increase of $13.6 million.

The increase in JAKAFI product revenues for the nine months ended September 30, 2020 as compared to the corresponding period in 2019 was comprised of a volume increase of $176.4 million and a price increase of $26.1 million.

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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Discounts and

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Balance at January 1, 2020

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Credits/payments for prior period sales

Balance at June 30, 2020

Balance at September 30, 2020

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

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

Our milestone and contract revenues for the six months ended June 30, 2020, were derived from a $5.0 million milestone under the Innovent research collaboration and licensing agreement and $90.0 million in milestones under the Novartis collaboration and license agreement.

Our milestone and contract revenues for the six months ended June 30, 2019, were derived from a $40.0 million upfront payment and a $20.0 million milestone under the Innovent research collaboration and licensing agreement.

Our milestone and contract revenues for the nine months ended September 30, 2020, were derived from a $5.0 million milestone under the Innovent research collaboration and licensing agreement and $90.0 million in milestones under the Novartis collaboration and license agreement.

Our milestone and contract revenues for the nine months ended September 30, 2019, were derived from a $40.0 million upfront payment and a $20.0 million milestone under the Innovent research collaboration and licensing agreement and a $17.5 million upfront payment under the Zai Lab collaboration and license agreement.

Cost of Product Revenues.

For the Three Months Ended,

For the Six Months Ended,

For the Nine Months Ended,

September 30,

(in millions)

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Total cost of product revenues

products, low single-digit royalties to Novartis on all sales of JAKAFI in the United States and amortization of our licensed intellectual property rights for ICLUSIG using the straight-line method over the estimated useful life of 12.5 years.

The increase in cost of product revenues for the three and six months ended June 30, 2020 as compared to the corresponding periods in 2019 was due primarily to increased royalties to Novartis on all JAKAFI sales in the United States.

Cost of product revenues includes all JAKAFI, ICLUSIG and PEMAZYRE related product costs, employee personnel costs, including stock compensation, for those employees dedicated to the production of our commercial products, low single-digit royalties to Novartis on all sales of JAKAFI in the United States and amortization of our licensed intellectual property rights for ICLUSIG using the straight-line method over the estimated useful life of 12.5 years.

The increase in cost of product revenues for the three and nine months ended September 30, 2020 as compared to the corresponding periods in 2019 was due primarily to increased royalties to Novartis on all JAKAFI sales in the United States.

Operating Expenses.

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For the Three Months Ended,

For the Six Months Ended,

For the Nine Months Ended,

September 30,

(in millions)

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

The increase in salary and benefits related expense for the three and six months ended June 30, 2020 as compared to the corresponding periods in 2019 was due primarily to increased development headcount to sustain our development pipeline.

The increase in salary and benefits related expense for the three and nine months ended September 30, 2020 as compared to the corresponding periods in 2019 was due primarily to increased development headcount to sustain our development pipeline.

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

The increase in clinical research and outside services expense for the six months ended June 30, 2020 as compared to the corresponding period in 2019 was primarily due to upfront consideration related to our collaborative agreement with MorphoSys recorded during 2020.

Research and development expenses include upfront and milestone expenses related to our collaborative agreements of $3.5 million and $809.0 million, respectively, for the three and six months ended June 30, 2020.

Research and development expenses include upfront and milestone expenses related to our collaborative agreements of $25.0 million and $25.3 million, respectively, for the three and six months ended June 30, 2019.

Research and development expenses for the three and six months ended June 30, 2020 and 2019 were net of $3.2 million, $4.9 million, $2.4 million and $6.4 million, respectively, of costs reimbursed by our collaborative partners.

The increase in clinical research and outside services expense for the three months ended September 30, 2020 as compared to the corresponding period in 2019 was primarily due to milestone achievement of $15.0 million under our collaboration and license agreement with MacroGenics and the cost of purchasing an FDA priority review voucher for $120.0 million, which we intend to use in connection with our submission seeking FDA approval of ruxolitinib cream for the treatment of atopic dermatitis.

In addition, clinical research and outside services expense for the nine months ended September 30, 2020 included upfront consideration of $804.5 million related to our collaborative agreement with MorphoSys contributing to the increase as compared to the corresponding period in 2019.

Research and development expenses include upfront and milestone expenses related to our collaborative agreements and priority review voucher of $141.5 million and $950.5 million, respectively, for the three and nine months ended September 30, 2020.

Research and development expenses include upfront and milestone expenses related to our collaborative agreements of $0.0 million and $25.3 million, respectively, for the three and nine months ended September 30, 2019.

Research and development expenses for the three and nine months ended September 30, 2020 and 2019 were net of $2.1 million, $7.0 million, $5.3 million and $11.6 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 pre-clinical and clinical trial related activities.

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For the Three Months Ended,

For the Six Months Ended,

For the Nine Months Ended,

September 30,

(in millions)

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Total selling, general and administrative expenses

The increase in salary and benefits related expense for the six months ended June 30, 2020 as compared to the corresponding period in 2019 was due primarily to increased headcount.

The increase in salary and benefits related expense for the three and nine months ended September 30, 2020 as compared to the corresponding periods in 2019 was due primarily to increased headcount.

This increased headcount was due primarily to the ongoing commercialization efforts related to JAKAFI for intermediate or high-risk myelofibrosis, uncontrolled polycythemia vera and GVHD as well as increased headcount related to our European operations.

The decrease in other contract services and outside costs for the six months ended June 30, 2020 as compared to the corresponding period in 2019 was due primarily to a decrease in donations to independent non-profit patient assistance organizations in the United States.

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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 and six months ended June 30, 2020 was $6.1 million and $12.7 million, respectively, which is recorded in change in fair value of acquisition-related contingent consideration on the condensed consolidated statements of operations.

The change in fair value of the acquisition-related contingent consideration for the three and six months ended June 30, 2019 was $6.6 million and $13.3 million, respectively, which is recorded in change in fair value of acquisition-related contingent consideration on the condensed consolidated statements of operations.

The change in fair value for the three and six months ended June 30, 2020 and 2019 was due primarily to the passage of time as there were no other significant changes in the key assumptions during the periods.

The change in fair value of the acquisition-related contingent consideration for the three and nine months ended September 30, 2020 was $7.1 million and $19.8 million, respectively, which is recorded in change in fair value of acquisition-related contingent consideration on the condensed consolidated statements of operations.

The change in fair value of the acquisition-related contingent consideration for the three and nine months ended September 30, 2019 was $3.3 million and $16.6 million, respectively, which is recorded in change in fair value of acquisition-related contingent consideration on the condensed consolidated statements of operations.

The change in fair value for the three and nine months ended September 30, 2020 and 2019 was due primarily to the passage of time as there were no other significant changes in the key assumptions during the periods.

Collaboration loss sharing

Under the collaboration and license agreement with MorphoSys, which was executed in March 2020, we and MorphoSys are both responsible for the commercialization efforts of tafasitamab in the United States and will share equally the profits and losses from the co-commercialization efforts.

For the three and six months ended June 30, 2020, our 50% share of the costs for tafasitamab was $13.3 million and $15.4 million, respectively, as recorded in collaboration loss sharing on the condensed consolidated statement of operations.

For the three and nine months ended September 30, 2020, our 50% share of the costs for tafasitamab was $15.0 million and $30.4 million, respectively, as recorded in collaboration loss sharing on the condensed consolidated statement of operations.

Other income (expense).

Other income (expense), net.

Other income (expense), net for the three and six months ended June 30, 2020 was $4.8 million and $13.5 million, respectively.

Other income (expense), net for the three and six months ended June 30, 2019 was $15.0 million and $24.4 million, respectively.

The decrease in other income (expense), net for the six months ended June 30, 2020 primarily relates to a decrease in interest income.

Other income (expense), net for the three and nine months ended September 30, 2020 was $4.9 million and $18.4 million, respectively.

Other income (expense), net for the three and nine months ended

September 30, 2019 was $12.0 million and $36.3 million, respectively.

The decrease in other income (expense), net for the three and nine months ended September 30, 2020 primarily relates to a decrease in interest income.

Interest expense.

Interest expense for the three and six months ended June 30, 2020 was $0.6 million and $1.2 million, respectively.

Interest expense for the three and six months ended June 30, 2019 was $0.3 million and $0.7 million, respectively.

Included in interest expense for the three and six months ended June 30, 2020 was $0.2 million and $0.4 million, respectively, of non-cash charges to amortize the discount on the 2020 Notes and approximately $0.3 million

and $0.6 million, respectively, of interest expense on our finance lease liabilities.

Included in interest expense for the three and six months ended June 30, 2019 was $0.2 million and $0.4 million, respectively, of non-cash charges to amortize the discount on the 2020 Notes.

Interest expense for the three and nine months ended September 30, 2020 was $0.5 million and $1.7 million, respectively.

Interest expense for the three and nine months ended September 30, 2019 was $0.6 million and $1.2 million, respectively.

Included in interest expense for the three and nine months ended September 30, 2020 was $0.2 million and $0.6 million, respectively, of non-cash charges to amortize the discount on the 2020 Notes and approximately $0.3 million and $0.9 million, respectively, of interest expense on our finance lease liabilities.

Included in interest expense for the three and nine months ended September 30, 2019 was $0.2 million and $0.6 million, respectively, of non-cash charges to amortize the discount on the 2020 Notes and approximately $0.3 million of interest expense on our finance lease liabilities.

Unrealized gain (loss) on long term investments.

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For the Three Months Ended,

For the Six Months Ended,

For the Nine Months Ended,

September 30,

(in millions)

2 unchanged sentences

Provision for income taxes.

The provision for income taxes for the three and six months ended June 30, 2020 and was $17.0 million and $33.5 million, respectively.

The provision for income taxes for the three and six months ended June 30, 2019 and was $3.4 million and $5.1 million, respectively.

The increase in provision for income taxes for the three and six months ended June 30, 2020 primarily relates to federal and state tax liabilities that are not fully sheltered by net operating losses or research and development tax credit carryforwards.

The increase was also driven by reduced tax benefits for stock-based compensation in the current period.

The provision for income taxes for the three and nine months ended September 30, 2020 and was $11.7 million and $45.2 million, respectively.

The provision for income taxes for the three and nine months ended September 30, 2019 and was $19.7 million and $24.9 million, respectively.

The decrease in tax expense for the three months ended September 30, 2020 was primarily driven by increased tax benefits for stock-based compensation and foreign derived intangible income.

The increase in tax expense for the nine months ended September 30, 2020 was primarily driven by increased federal and state tax liabilities that are not fully sheltered by net operating losses or research and development tax credit carryforwards.

Liquidity and Capital Resources

Due to historical net losses, we had an accumulated deficit of $1.9 billion as of June 30, 2020.

Due to historical net losses, we had an accumulated deficit of $1.9 billion as of September 30, 2020.

We have funded our research and development operations through sales of equity securities, the issuance of convertible notes, cash received from customers, and collaborative arrangements.

At June 30, 2020, we had available cash, cash equivalents and marketable securities of $1.6 billion.

At September 30, 2020, we had available cash, cash equivalents and marketable securities of $1.7 billion.

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

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

Net cash used in operating activities for the six months ended June 30, 2020 was $414.0 million and net cash provided by operating activities for the six months ended June 30, 2019 was $308.6 million.

The $722.6 million decrease in cash provided by operating activities was due primarily to cash outflows in March 2020 related to our collaboration and license agreement with MorphoSys and changes in working capital.

Net cash used in operating activities for the nine months ended September 30, 2020 was $231.9 million and net cash provided by operating activities for the nine months ended September 30, 2019 was $579.0 million.

The $810.9 million decrease in cash provided by operating activities was due primarily to cash outflows related to our collaboration and license agreements and 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 by investing activities was $151.8 million for the six months ended June 30, 2020, which represented purchases of marketable securities of $287.4 million, capital expenditures of $83.1 million and purchases of long term equity investments of $95.5 million, offset in part by the sale of long term investment of $4.5 million and the sale and maturity of marketable securities of $309.7 million.

Net cash used in investing activities was $69.7 million for the six months ended June 30, 2019, which represented purchases of marketable securities of $104.0 million and capital expenditures of $65.6 million, offset in part by the sale and maturity of marketable securities of $99.8 million.

Net cash used by investing activities was $166.3 million for the nine months ended September 30, 2020, which represented purchases of marketable securities of $418.7 million, capital expenditures of $135.9 million and purchases of long term equity investments of $95.5 million, offset in part by the sale of long term investment of $17.3 million and the sale and maturity of marketable securities of

$466.6 million.

Net cash used in investing activities was $57.4 million for the nine months ended September 30, 2019, which represented purchases of marketable securities of $222.2 million and capital expenditures of $48.7 million, offset in part by the sale and maturity of marketable securities of $213.5 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 provided by financing activities was $58.9 million and $13.5 million, respectively, for the six months ended June 30, 2020 and 2019, 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.

The following summarizes our significant contractual obligations as of June 30, 2020 and the effect those obligations are expected to have on our liquidity and cash flow in future periods (in millions):

Net cash provided by financing activities was $59.8 million and $16.4 million, respectively, for the nine months ended September 30, 2020 and 2019, 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.

The following summarizes our significant contractual obligations as of September 30, 2020 and the effect those obligations are expected to have on our liquidity and cash flow in future periods (in millions):

Contractual Obligations:

21 unchanged sentences

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