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Item 7. Management’s Discussion and Analysis

2021-02-09 compared with 2020-02-13 · 113 added, 231 removed, 191 unchanged (64% of the section changed)

6 unchanged sentences

Our global headquarters is located in Wilmington, Delaware.

We conduct our European clinical development and commercial operations from our offices in Geneva, Switzerland and Lausanne, Switzerland, and we conduct our Japanese operations from our office in Tokyo.

JAKAFI (ruxolitinib) is our first product to be approved for sale in the United States.

It is an oral JAK1 and JAK2 inhibitor and was approved by the U.S.

Food and Drug Administration (FDA) in November 2011 for the treatment of patients with intermediate or high-risk myelofibrosis, in December 2014 for the treatment of patients 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 rare blood cancers, and GVHD is an adverse immune response to an allogeneic hematopoietic stem cell transplant.

In June 2016, we acquired from ARIAD Pharmaceuticals, Inc.

(ARIAD) all of the outstanding shares of ARIAD Pharmaceuticals (Luxembourg) S.à.r.l., the parent company of ARIAD’s European subsidiaries responsible for the

development and commercialization of ICLUSIG in the European Union and other countries, including Switzerland, Norway, Turkey, Israel and Russia.

We obtained an exclusive license to develop and commercialize ICLUSIG in those countries.

ICLUSIG is approved in the European Union for the treatment of patients with chronic myeloid leukemia and Philadelphia-positive acute lymphoblastic leukemia who are resistant to or intolerant of certain second-generation BCR-ABL inhibitors and all patients who have the T3151 mutation.

Under our collaboration agreement with Novartis International Pharmaceutical Ltd., 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.

In April 2016, we amended this agreement to provide that Novartis has exclusive research, development and commercialization rights outside of the United States to ruxolitinib (excluding topical formulations) in the GVHD field.

Under our collaboration agreement with Eli Lilly and Company, Lilly received exclusive worldwide development and commercialization rights to our second oral JAK1 and JAK2 inhibitor, baricitinib, for inflammatory and autoimmune diseases.

In January 2016, Lilly submitted a New Drug Application (NDA) to the FDA and a Marketing Authorization Application (MAA) to the European Medicines Agency for baricitinib as treatment for rheumatoid arthritis.

In February 2017, we and Lilly announced that the European Commission approved baricitinib as OLUMIANT for the treatment of moderate-to-severe rheumatoid arthritis in adult patients who have responded inadequately to, or who are intolerant to, one or more disease-modifying antirheumatic drugs.

In July 2017, Japan's Ministry of Health, Labor and Welfare granted marketing approval for OLUMIANT for the treatment of rheumatoid arthritis in patients with inadequate response to standard-of-care therapies.

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

Since we began our drug-discovery and development activities in early 2002, we have filed numerous Investigational New Drug (IND) applications and progressed multiple internally developed proprietary compounds into clinical development.

Two New Drug Applications (NDAs) seeking marketing approval for drug candidates discovered by Incyte are currently under review by the FDA;

the NDA for pemigatinib was submitted by Incyte in September 2019 and the NDA for capmatinib was submitted by Novartis in December 2019.

We conduct our international clinical development and commercial operations from our European office in Morges, Switzerland, our Japanese office in Tokyo and our Canadian office in Montreal.

Our portfolio includes compounds in various stages, ranging from preclinical to late stage development, and commercialized products JAKAFI (ruxolitinib), ICLUSIG (ponatinib), PEMAZYRE (pemigatinib) and MONJUVI (tafasitamab-cxix) which is co-commercialized with MorphoSys.

Effects of the COVID-19 Pandemic on Our Business

In December 2019, coronavirus disease of 2019, or COVID-19, was first reported in Wuhan, China.

In March 2020, the World Health Organization declared COVID-19 a pandemic (“the COVID-19 Pandemic”) and certain governments, including the State of Delaware where our primary offices and laboratory spaces are located, enacted stay-at-home orders and sweeping restrictions to travel and business activity were initiated by corporations and governments.

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 Asia.

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.

As a result, it is not currently possible to ascertain or predict the overall long-term impact of the COVID-19 Pandemic on our business.

To date, we have not experienced 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 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.

For example, while we expect ongoing monitoring of already-enrolled patients to continue, difficulties in monitoring may result as a consequence of shelter in place orders and other protective measures implemented by governmental authorities or clinical trial sites.

In addition, new patient recruitment in certain clinical trials has been and may in the future be impacted, in particular with respect to our earlier stage clinical trials.

We also expect the conduct of clinical trials may continue to vary by disease state and by severity of disease, as well as by geography, as some regions are more adversely impacted.

Until our return to full laboratory work, our discovery laboratories were staffed by essential personnel, and hence certain discovery programs experienced delays.

Still, we caution that the duration and severity of the continuing COVID-19 Pandemic remains uncertain and we may not yet be able to assess its consequences accurately or fully at this time.

Regulatory Achievements

In April 2020, PEMAZYRE (pemigatinib), a selective fibroblast growth factor receptor (FGFR) inhibitor, was approved by the U.S.

Food and Drug Administration (FDA) 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.

PEMAZYRE is the first and only FDA-approved treatment for this indication, which was approved under accelerated approval based on overall response rate and duration of response.

We have retained all rights to PEMAZYRE globally, other than those granted to Innovent Biologics, Inc.

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

In May 2020, under our collaboration agreement with Novartis International Pharmaceutical Ltd., the FDA approved TABRECTA (capmatinib) for the treatment of adult patients with metastatic non-small cell lung cancer (NSCLC) whose tumors have a mutation that leads to MET exon 14 skipping (METex14) as detected by an FDA-approved test.

TABRECTA is the first and only treatment approved to specifically target NSCLC with this driver mutation and is approved for first-line and previously treated patients regardless of prior treatment type.

In June 2020, the Japanese Ministry of Health, Labour and Welfare granted marketing approval for TABRECTA for METex14 mutation-positive advanced and/or recurrent unresectable NSCLC.

In July 2020, under our collaboration and license agreement with MorphoSys AG, we received FDA approval of MONJUVI (tafasitamab-cxix), 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.

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 October 2020, under our collaboration agreement with Eli Lilly and Company, the European Commission approved OLUMIANT (baricitinib) for the treatment of moderate-to-severe atopic dermatitis in adult patients who are candidates for systemic therapy and in December 2020, Japan’s Ministry of Health, Labor and Welfare (MHLW) approved OLUMIANT for the treatment of moderate-to-severe atopic dermatitis in adult patients who are candidates for systemic therapy.

License Agreements and Business Relationships

We establish business relationships, including collaborative arrangements with other companies and medical research institutions to assist in the clinical development and/or commercialization of certain of our drugs and drug candidates and to provide support for our research programs.

We also evaluate opportunities for acquiring products or rights to products and technologies that are complementary to our business from other companies and medical research institutions.

Below is a brief description of our significant business relationships and collaborations and related license agreements that expand our pipeline and provide us with certain rights to existing and potential new products and technologies.

In November 2009, we entered into a Collaboration and License Agreement with Novartis.

Under the terms of the agreement, Novartis received exclusive development and commercialization rights outside of the United States to ruxolitinib and certain back-up compounds for hematologic and oncology indications, including all hematological malignancies, solid tumors and myeloproliferative diseases.

We retained exclusive development and commercialization rights to JAKAFI (ruxolitinib) in the United States and in certain other indications.

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

We retained options to co-develop and to co-promote capmatinib in the United States.

Under this agreement, we received an upfront payment and immediate milestone payment totaling $210.0 million and were initially eligible to receive additional payments of up to approximately $1.2 billion if defined development and

commercialization milestones are achieved.

We are also eligible to receive tiered, double-digit royalties ranging from the upper-teens to the mid-twenties percent on future ruxolitinib net sales outside of the United States, and tiered, worldwide royalties on future capmatinib net sales that range from 12% to 14%.

In addition, Novartis has received reimbursement and pricing approval for ruxolitinib in a specified number of countries, and we are now obligated to pay to Novartis tiered royalties in the low single-digits on future ruxolitinib net sales within the United States.

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.

Under this amendment, we received a $5.0 million payment in exchange for the development and commercialization rights to ruxolitinib in GVHD outside of the United States and became eligible to receive up to $75.0 million of additional potential development and regulatory milestones relating to GVHD.

In March 2017, we recognized a $25.0 million milestone for the first patient first visit in a GVHD study and in December 2017, we recognized a $40.0 million milestone for Novartis achieving annual net sales of a JAK licensed product of $600.0 million.

In December 2018, we recognized a $60.0 million milestone for Novartis achieving annual net sales of a JAK licensed product of $900.0 million.

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.

Royalties are payable by Novartis on a product-by-product and country-by-country basis until the latest to occur of (i) the expiration of the last valid claim of the licensed patent rights covering the licensed product in the relevant country, (ii) the expiration of regulatory exclusivity for the licensed product in such country and (iii) a specified period from first commercial sale in such country of the licensed product by Novartis or its affiliates or sublicensees.

The agreement may be terminated in its entirety or on a program-by-program basis by Novartis for convenience.

The agreement may also be terminated by either party under certain other circumstances, including material breach.

In December 2009, we entered into a License, Development and Commercialization Agreement with Lilly.

Under the terms of the agreement, Lilly received exclusive worldwide development and commercialization rights to baricitinib and certain back-up compounds for inflammatory and autoimmune diseases.

We received an initial payment of $90.0 million, and were initially eligible to receive additional payments of up to $665.0 million based on the achievement of defined development, regulatory and commercialization milestones.

We retained options to co-develop our JAK1/JAK2 inhibitors with Lilly on a compound-by-compound and indication-by-indication basis.

Lilly is responsible for all costs relating to the development and commercialization of the compounds unless we elect to co-develop any compounds or indications.

If we elect to co-develop any compounds and/or indications, we would be responsible for funding 30% of the associated future global development costs from the initiation of a Phase IIb trial through regulatory approval, including post-launch studies required by a regulatory authority.

We would receive an incremental royalty rate increase across all tiers resulting in effective royalty rates ranging up to the high twenties on potential future global net sales for compounds and/or indications that we elect to co-develop.

For indications that we elect not to co-develop, we would receive tiered, double-digit royalty payments on future global net sales with rates ranging up to 20% if the product is successfully commercialized.

If we have started co-development funding for any indication, we can at any time opt out and stop future co-development cost sharing.

If we elect to do this we would still be eligible for our base royalties plus an incremental pro-rated royalty commensurate with our contribution to the total co-development cost for those indications for which we co-funded.

We previously had retained an option to co-promote products in the United States but, in March 2016, we waived our co-promotion option as part of an amendment to the agreement.

In July 2010, we elected to co-develop baricitinib with Lilly in rheumatoid arthritis, and subsequently in several additional indications, and became responsible for funding 30% of the associated global development costs for such indications from the initiation of the Phase IIb trial through regulatory approval, including post-launch studies required by a regulatory authority.

In April 2019, we elected to end additional co-funding of the development of baricitinib in all

indications, effective as of January 1, 2019.

Pursuant to the terms of the Lilly agreement, we will continue to receive base tiered royalties on global net sales of OLUMIANT in all indications, as well as pro-rated incremental royalties, as described above.

In March 2016, we entered into an amendment to the agreement with Lilly that allows us to engage in the development and commercialization of ruxolitinib in the GVHD field.

Upon execution of the amendment, we paid Lilly an upfront payment of $35.0 million and Lilly is eligible to receive up to $40.0 million in regulatory milestone payments relating to ruxolitinib in the GVHD field.

In May 2019, the approval of JAKAFI in steroid-refractory acute GVHD triggered a $20.0 million milestone payment to Lilly.

In February 2017, the European Commission announced the approval of baricitinib as OLUMIANT, triggering a $65.0 million milestone payment from Lilly.

In July 2017, Japan's MHLW granted marketing approval for OLUMIANT, triggering a $15.0 million milestone payment from Lilly.

In December 2017, we recognized a $30.0 million milestone payment for the first patient treated in the atopic dermatitis Phase III program for baricitinib.

In June 2018, the FDA approved the 2mg dose of OLUMIANT, triggering a $100.0 million milestone payment from Lilly.

In September 2018, we recognized a $20.0 million milestone payment for the first patient treated in the systemic lupus erythematosus Phase III program for baricitinib.

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.

Royalties are payable by Lilly on a product-by-product and country-by-country basis until the latest to occur of (i) the expiration of the last valid claim of the licensed patent rights covering the licensed product in the relevant country, (ii) the expiration of regulatory exclusivity for the licensed product in such country and (iii) a specified period from first commercial sale in such country of the licensed product by Lilly or its affiliates or sublicensees.

The agreement may be terminated by Lilly for convenience, and may also be terminated under certain other circumstances, including material breach.

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

and its wholly-owned subsidiary, 4-Antibody AG (now known as Agenus Switzerland Inc.), which we collectively refer to as Agenus.

Under this agreement, the parties have agreed to collaborate on the discovery of novel immuno-therapeutics using Agenus’ antibody discovery platforms.

In February 2017, we and Agenus amended this agreement.

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

In addition to the initial four program targets, we and Agenus have the option to jointly nominate and pursue additional targets within the framework of the collaboration, and in November 2015, three more targets were added.

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

The programs relating to GITR and OX40 and two of the undisclosed targets were profit-share programs until February 2017, while the other targets currently under collaboration are royalty-bearing programs.

The February 2017 amendment converted the programs relating to GITR and OX40 to royalty-bearing programs and removed from the collaboration the profit-share programs relating to the two undisclosed targets, with one reverting to us and one reverting to Agenus.

Should any of those removed programs be successfully developed by a party, the other party will be eligible to receive the same milestone payments as the royalty-bearing programs and royalties at a 15% rate on global net sales.

There are currently no profit-share programs.

For each royalty-bearing product other than GITR and OX40, Agenus will be eligible to receive tiered royalties on global net sales ranging from 6% to 12%.

For GITR and OX40, Agenus will be eligible to receive 15% royalties on global net sales.

Under the February 2017 amendment, we paid Agenus $20.0 million in accelerated milestones relating to the clinical development of the GITR and OX40 programs.

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

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.

Takeda (ARIAD)

In June 2016, we acquired from ARIAD Pharmaceuticals, Inc.

all of the outstanding shares of ARIAD Pharmaceuticals (Luxembourg) S.à.r.l., the parent company of ARIAD’s European subsidiaries responsible for the development and commercialization of ICLUSIG in the European Union and other countries.

We obtained an exclusive license to develop and commercialize ICLUSIG in Europe and other select countries.

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.

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

Under this agreement, which became effective in January 2017, the parties have agreed to collaborate with respect to the research, discovery and development of bispecific antibodies utilizing Merus’ technology platform.

The collaboration encompasses up to eleven independent programs.

The most advanced collaboration program is MCLA-145, a bispecific antibody targeting PD-L1 and CD137, for which we received exclusive development and commercialization rights outside of the United States.

Merus retained exclusive development and commercialization rights in the United States to MCLA-145.

Each party will share equally the costs of mutually agreed global development activities for MCLA-145, and fund itself any independent development activities in its territory.

Merus will be responsible for commercializing MCLA-145 in the United States and we will be responsible for commercializing it outside of the United States.

In addition to receiving rights to MCLA-145 outside of the United States, we received worldwide exclusive development and commercialization rights to up to ten additional programs.

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

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

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

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

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

In February 2017, we paid Merus an upfront non-refundable payment of $120.0 million.

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

For each program as to which Merus exercises its option to co-fund development, Merus will be eligible to receive a 50% share of profits (or sustain 50% of any losses) in the United States and be eligible to receive tiered royalties ranging from 6% to 10% of net sales of products outside of the United States.

If Merus opts to cease co-funding a program as to which it exercised its co-development option, then Merus will no longer receive a share of profits in the United States but will be eligible to receive the same milestones from the co-funding termination date and the same tiered royalties described above with respect to programs where Merus does not have a right to co-fund development and, depending on the stage at which Merus chose to cease co-funding development costs, Merus will be eligible to receive additional royalties ranging up to 4% of net sales in the United States.

For MCLA-145, we and Merus will each be eligible to receive tiered royalties on net sales in the other party’s territory at rates ranging from 6% to 10%.

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

The agreement may be terminated in its entirety or on a program-by-program basis by us for convenience.

The agreement may also be terminated by either party under certain other circumstances, including material

breach, as set forth in the agreement.

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

In 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.

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.

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.

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.

The agreement may be terminated in its entirety or on a product-by-product and/or a country-by-country basis by us for convenience.

The agreement may also be terminated by us for Calithera’s uncured material breach, by Calithera for our uncured material breach and by either party for bankruptcy or patent challenge.

If the agreement is terminated early with respect to one or more products or countries, all rights in the terminated products and countries revert to Calithera.

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

Under this agreement, we received exclusive development and commercialization rights worldwide to MacroGenics’ INCMGA0012, an investigational monoclonal antibody that inhibits PD-1.

Except as set forth in the succeeding sentence, we will have sole authority over and bear all costs and expenses in connection with the development and commercialization of INCMGA0012 in all indications, whether as a monotherapy or as part of a combination regimen.

MacroGenics has retained the right to develop and commercialize, at its cost and expense, its pipeline assets in combination with INCMGA0012.

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

In 2017, we paid MacroGenics an upfront payment of $150.0 million and in 2018, we paid MacroGenics milestones totaling $15.0 million.

MacroGenics will be eligible to receive up to an additional $405.0 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.

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

The agreement may be terminated in its entirety or on a licensed product by licensed product basis by us for convenience.

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

In January 2018, we entered into a target discovery, research collaboration and option agreement with Syros Pharmaceuticals, Inc.

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

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

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

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

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

Syros is also eligible to receive low single-digit royalties on net sales of products resulting from the collaboration.

In December 2018, we entered into a research collaboration and licensing agreement with Innovent Biologics, Inc.

Under the terms of this agreement, Innovent received exclusive development and commercialization rights to our clinical-stage product candidates pemigatinib, itacitinib and parsaclisib in hematology and oncology in mainland China, Hong Kong, Macau and Taiwan.

In January 2019, we recognized an upfront payment under this agreement of $40.0 million upon our transfer of the intellectual property related to the clinical-stage product candidates to Innovent.

In addition, we are eligible to receive $20.0 million in connection with the first related IND filing in China, up to $129.0 million in potential development and regulatory milestones, and up to $202.5 million in potential commercial milestones.

We are also eligible to receive tiered royalties from the high-teens to the low-twenties on future sales of products resulting from the collaboration.

We retain an option to assist in the promotion of the three product candidates in the Innovent territories.

In June 2019, we recognized the $20.0 million milestone for the first related IND filing in China.

In July 2019, we entered into a collaboration and license agreement with a subsidiary of Zai Lab Limited.

Under the terms of this agreement, Zai Lab received development and exclusive commercialization rights to INCMGA0012 in hematology and oncology in mainland China, Hong Kong, Macau and Taiwan.

We recognized an upfront payment under this agreement of $17.5 million in August 2019 upon our transfer of technology related to the licensed product candidate to Zai Lab, and are eligible to receive an additional $60.0 million in potential development, regulatory and commercial milestones, as well as tiered royalties from the low to mid-twenties.

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.

In December 2019, MorphoSys submitted a Biologics License Application to the FDA for tafasitamab for the treatment of relapsed or refractory diffuse large B cell lymphoma.

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

MorphoSys will be responsible for leading the commercialization strategy and booking all revenue from sales of tafasitamab in the United States, and we and MorphoSys will both be 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

We also establish business relationships with other companies and medical research institutions to acquire products or rights to products and technologies that are complementary to our business.

Below summarizes the significant achievements under our existing collaboration and license agreements and additional agreements we entered into during the year ended December 31, 2020.

In May 2020, we recognized a $25.0 million development milestone and a $45.0 million regulatory milestone for the FDA approval of capmatinib as TABRECTA.

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

In December 2020, we recognized a $80.0 million sales milestone for Novartis achieving annual net sales of a JAK licensed product of $1.2 billion.

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 $200.0 million for the achievement of sales milestones through December 31, 2020.

In October 2020, we recognized a $20.0 million regulatory milestone for the European Commission approval of OLUMIANT and in December 2020, we recognized a $10.0 million regulatory milestone for the MHLW approval of OLUMIANT for the treatment of moderate-to-severe atopic dermatitis in adult patients who are candidates for systemic therapy.

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 $265.0 million for the achievement of regulatory milestones through December 31, 2020.

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.

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.

Each company will be responsible for funding any independent development activities, and we will be responsible for funding development activities specific to our territory.

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

We have agreed to pay MorphoSys an upfront non-refundable payment of $750.0 million.

MorphoSys will be eligible to receive up to $740.0 million in future contingent development and regulatory milestones and up to $315.0 million in commercialization milestones as well as tiered royalties ranging from the mid-teens to mid-twenties of net sales outside of the United States.

MorphoSys’ right to receive royalties in any particular country will expire upon the last to occur of (a) the expiration of patent rights in that particular country, (b) a specified period of time after the first post-marketing authorization sale of a licensed product comprising tafasitamab in that country, and (c) the expiration of any regulatory exclusivity for that licensed product in that country.

The effectiveness of the agreement is conditioned on the early termination or expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 as well as clearance by the German and Austrian antitrust authorities.

In March 2020, we paid MorphoSys an upfront non-refundable payment of $750.0 million and, under a related agreement, purchased American Depositary Shares (ADSs) of MorphoSys for an aggregate purchase price of $150.0 million.

Of the $150.0 million aggregate purchase price paid for the ADSs, $95.5 million was allocated to our stock purchase in MorphoSys and was recorded within long term investments and $54.5 million, representing the premium paid on the purchase, was

allocated to research and development expense.

MorphoSys is eligible to receive up to $740.0 million in future contingent development and regulatory milestones and up to $315.0 million in commercialization milestones as well as tiered royalties ranging from the mid-teens to mid-twenties of net sales outside of the United States.

In September 2020, we entered into a collaboration and license agreement with Nimble Therapeutics, Inc.

Under the terms of this agreement, Nimble will utilize their peptide synthesis, screening and optimization platform for discovery and validation of peptides against specified targets.

Under the agreement, Nimble is eligible to receive up to $8.0 million in future contingent discovery milestones and up to $127.0 million in future contingent development and regulatory milestones.

Additionally, in the event of successful commercialization, Nimble is eligible to receive up to $130.0 million in future contingent sales milestones and tiered royalty payments in the low single digits.

Additional information regarding our collaboration agreements, including their financial and accounting impact on our business and results of operations, can be found in Note 6 of Notes to the Consolidated Financial Statements.

Critical Accounting Policies and Significant Estimates

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Revenue Recognition.

We recognize revenue only when we have satisfied a performance obligation through transferring control of the promised good or service to a customer.

Control, in this instance, may mean the ability to prevent other entities from directing the use of, and receiving benefit from, a good or service.

The standard indicates that an entity must determine at contract inception whether it will transfer control of a promised good or service over time or satisfy the performance obligation at a point in time through analysis of the following criteria:

(i) the entity has a present right to payment, (ii) the customer has legal title, (iii) the customer has physical possession, (iv) the customer has the significant risks and rewards of ownership and (v) the customer has accepted the asset.

We assess collectability based primarily on the customer’s payment history and on the creditworthiness of the customer.

We recognize revenue only when we have satisfied a performance obligation through transferring control of the promised good or service to a customer in an amount that reflects the consideration we expect to receive in exchange for those goods or services.

We apply the following five-step model in order to determine this amount:

(i) identification of the promised goods or services in the contract;

(ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract;

(iii) measurement of the transaction price, including the constraint on variable consideration;

(iv) allocation of the transaction price to the performance obligations;

and (v) recognition of revenue when (or as) the Company satisfies each performance obligation, which for the Company is generally at a point in time.

We also assess collectability based primarily on the customer’s payment history and on the creditworthiness of the customer.

Product Revenues

Our product revenues consist of U.S.

sales of JAKAFI and European sales of ICLUSIG.

sales of JAKAFI and PEMAZYRE and European sales of ICLUSIG.

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

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

These sales allowances and accruals are recorded based on estimates which are described in detail below.

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We believe that our sales allowances and accruals are reasonable and appropriate based on current facts and circumstances.

Changes in estimates for sales allowances and accruals for product shipped in prior periods have resulted in immaterial adjustments to product revenues.

Customer Credits:

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We expect our customers will earn prompt payment discounts and, therefore, we deduct the full amount of these discounts from total product sales when revenues are recognized.

Service fees are also deducted from total product sales as they are earned.

Service fees are also deducted

from total product sales as they are earned.

Rebates and Discounts:

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.

We accrue rebates for mandated discounts under the Medicaid Drug Rebate Program in the United States 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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If actual future funding varies from estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

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

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

Co-payment Assistance:

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Product Royalty Revenues

Royalty revenues on commercial sales for JAKAVI by Novartis are estimated based on information provided by Novartis.

Royalty revenues on commercial sales for JAKAVI and TABRECTA by Novartis are estimated based on information provided by Novartis.

Royalty revenues on commercial sales for OLUMIANT by Lilly are estimated based on information provided by Lilly.

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Milestone and Contract Revenues

At the inception of the contract, the transaction price reflects the amount of consideration we expect to be entitled to in exchange for transferring promised goods or services to our collaborator.

At the inception of a contract, we determine the transaction price, in addition to any upfront payment, by estimating the amount of variable consideration, including milestone payments, at the outset of the contract utilizing the most likely amount method.

Our contractual milestones typically relate to the achievement of pre-specified development, regulatory and commercialization events outside of our control, such as regulatory approval of a compound, first patient dosing or achievement of sales-based thresholds.

We include milestones in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the milestone is subsequently resolved.

Given the high level of uncertainty of achievement, variable consideration associated with milestones are fully constrained until confirmation of the satisfaction or completion of the milestone by the third-party.

We review our estimate of the transaction price each period, and make revisions to such estimates as necessary.

Milestone and contract revenues from collaborative agreements with multiple performance obligations is determined based upon assessment of each distinct promised good or service’s estimated fair value and recognized based upon the transfer of the promised good or service to our collaborator.

Our license agreements often include contractual milestones, which typically relate to the achievement of pre-specified development, regulatory and commercialization events outside of our control, such as regulatory approval of a compound, first patient dosing or achievement of sales-based thresholds.

As such, milestones associated with our collaborations involve a substantial degree of uncertainty and risk that they may never be received.

Given the uncertainty associated with achieving these milestones, a constraint on the allocated consideration is assessed each reporting period.

Revenues are recognized when achievement is probable, which may not be until achieved.

Stock Compensation.

Share-based payment transactions with employees, which include stock options, restricted stock units (RSUs) and performance shares (PSUs), are recognized as compensation expense over the requisite service period based on their estimated fair values at the date of grant as well as expected forfeiture rates based on actual

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.

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

We record estimates and prepare and file tax returns in various jurisdictions across the U.S., Europe, and Asia based upon our interpretation of local tax laws and regulations.

We record estimates and prepare and file tax returns in various jurisdictions across the United States, Canada, Europe, and Asia based upon our interpretation of local tax laws and regulations.

While we exercise significant judgment when applying complex tax laws and regulations in these various taxing jurisdictions, many of our tax returns are open to audit, and may be subject to future tax, interest, and penalty assessments.

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Acquisition-related contingent consideration.

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

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

The fair value of the contingent consideration was determined using an income approach based on estimated ICLUSIG revenues in the European Union and other countries.

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The fair value of the acquisition-related contingent consideration is remeasured each reporting period, with changes in fair value recorded in the consolidated statements of operations.

The assumptions used to determine the fair value of the acquisition-related contingent consideration include projected ICLUSIG revenues and discount rates which,

require significant judgement and are analyzed on a quarterly basis.

The assumptions used to determine the fair value of the acquisition-related contingent consideration include projected ICLUSIG revenues and a discount rate which, require significant judgement and are analyzed on a quarterly basis.

While we use the best available information to prepare our projected ICLUSIG revenues and discount rate assumptions, actual ICLUSIG revenues and/or market conditions could differ significantly.

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Years Ended December 31, 2020 and 2019

We recorded net income for the year ended December 31, 2019 of $446.9 million and net income for the year ended December 31, 2018 of $109.5 million.

On a per share basis, basic net income was $2.08 and diluted net income was $2.05 for the year ended December 31, 2019.

We recorded net loss for the year ended December 31, 2020 of $295.7 million and net income for the year ended December 31, 2019 of $446.9 million.

On a per share basis, basic and diluted net loss was $1.36 for the year ended December 31, 2020.

On a per share basis, basic net income was $2.08 and diluted net income was $2.05 for the year ended December 31, 2019.

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ICLUSIG revenues, net

PEMAZYRE revenues, net

Total product revenues, net

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OLUMIANT product royalty revenues

TABRECTA product royalty revenues

Total product royalty revenues

Milestone and contract revenues

Other revenues

Total revenues

Our product revenues, net for the years ended December 31, 2019 and 2018, were $1.8 billion and $1.5 billion, respectively.

The increase in JAKAFI product revenues was comprised of a volume increase of $204.5 million and a price increase of $93.5 million.

The increase in JAKAFI product revenues from 2019 to 2020 was comprised of a volume increase of $220.4 million and a price increase of $32.5 million.

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

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Our revenue recognition policies require estimates of the aforementioned sales allowances each period.

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

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

Discounts and

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

Increases in certain government reimbursement rates are limited to a measure of inflation, and when the price of a drug increases faster than this measure of inflation it will result in a penalty adjustment factor that causes a larger sales allowance to those

government related entities.

We expect government rebates and chargebacks as a percentage of our gross product sales will continue to increase in connection with any future JAKAFI price increases greater than the rate of inflation, and any such increase in these government rebates and chargebacks will have a negative impact on our reported product revenues, net.

We expect government rebates and chargebacks as a percentage of our gross product sales will continue to increase in connection with any future product price increases greater than the rate of inflation, and any such increase in these government rebates and chargebacks will have a negative impact on our reported product revenues, net.

We adjust our estimates for government rebates and chargebacks based on new information regarding actual rebates as it becomes available.

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We expect our sales allowances to fluctuate from quarter to quarter as a result of the Medicare Part D Coverage Gap, the volume of purchases eligible for government mandated discounts and rebates as well as changes in discount percentages which are impacted by potential future price increases, rate of inflation, and other factors.

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

Product royalty revenues on commercial sales of JAKAVI and TABRECTA by Novartis are based on net sales of licensed products in licensed territories as provided by Novartis.

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 were $205.0 million and $77.5 million for the years ended December 31, 2020 and 2019, respectively.

During the year ended December 31, 2019, under the Innovent agreement, we recognized a $40.0 million upfront payment and a $20.0 million milestone and under the Zai Lab agreement, we recognized a $17.5 million upfront payment.

During the year ended December 31, 2018, under the Lilly agreement, we recognized a $20.0 million development milestone for the first patient treated in systemic lupus erythematosus Phase III program for baricitinib and a $100.0 million regulatory milestone for the approval of the 2mg dose of OLUMIANT for the treatment of moderately-to-severely active rheumatoid arthritis in adult patients by the FDA and under the Novartis agreement, we recognized a $60.0 million milestone for Novartis achieving annual net sales of a JAK licensed product of $900.0 million.

During the year ended December 31, 2020, our milestone and contract revenues were derived from a $5.0 million milestone under the Innovent agreement, $170.0 million in milestones under the Novartis agreement and $30.0 million in milestones under the Lilly agreement.

During the year ended December 31, 2019, our milestone and contract revenues were derived from a $40.0 million upfront payment and a $20.0 million milestone under the Innovent agreement and a $17.5 million upfront payment under the Zai Lab agreement.

Cost of Product Revenues

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Total cost of product revenues

Cost of product revenues includes all JAKAFI and ICLUSIG 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.

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.

Cost of product revenues increased from 2019 to 2020 due primarily to increased royalties to Novartis on all JAKAFI sales in the United States.

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

The decrease in clinical research and outside services expense from 2018 to 2019 was primarily due to upfront and milestone expenses related to our collaborative agreements and the election to end additional co-funding of the development of baricitinib with Lilly effective as of January 1, 2019.

Research and development expenses include upfront and milestone expenses related to our collaborative agreements of $27.8 million and $52.4 million for the years ended 2019 and 2018, respectively.

For the year ended 2019, we recorded no research and development expense under the Lilly agreement for co-funding the development of baricitinib.

For the year ended 2018, we recorded $68.6 million in research and development expenses under the Lilly agreement representing 30% of the global development costs for baricitinib.

The increase in clinical research and outside services expense from 2019 to 2020 was primarily due to upfront consideration of $804.5 million related to our collaborative agreement with MorphoSys, the cost of purchasing an FDA priority review voucher for $120.0 million, which we used in connection with our submission seeking FDA approval of ruxolitinib cream for the treatment of atopic dermatitis, and milestones achieved under our collaboration and license agreement with MacroGenics of $40.0 million.

Research and development expenses include upfront and milestone expenses related to our collaborative agreements of $976.1 million and $27.8 million for the years ended December 31, 2020 and 2019, respectively.

Research and development expenses for the years ended December 31, 2020 and 2019 were net of $8.5 million and $15.1 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.

Many factors can affect the cost and timing of our clinical trials, including requests by regulatory agencies for more information, inconclusive results requiring additional clinical trials, slow patient enrollment, adverse side effects among patients, insufficient supplies for our clinical trials and real or perceived lack of effectiveness or safety of our investigational drugs in our clinical trials.

Many factors can affect the cost and timing of our clinical trials, including requests by regulatory agencies for more information, inconclusive results requiring additional clinical trials, slow patient enrollment, adverse side effects among patients, insufficient supplies for our clinical trials, timing of drug supply, including API, and real or perceived lack of effectiveness or safety of our investigational drugs in our clinical trials.

In addition, the development of all of our products will be subject to extensive governmental regulation.

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Total selling, general and administrative expenses

Salary and benefits related expense increased from 2018 to 2019 due to increased headcount.

Salary and benefits related expense increased from 2019 to 2020 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.

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 other contract services and outside costs was primarily due to an increase in sales and marketing spend to support the commercialization of Pemazyre in the United States and to prepare for the potential launch of ruxolitinib cream in the United States and pemigatinib and tafasitamab in the European Union.

Change in fair value of acquisition-related contingent consideration

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

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

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

The change in fair value of the acquisition-related contingent consideration for the years ended December 31, 2019 and 2018 was $19.7 million and $26.2 million, respectively.

The change in fair value of the acquisition-related contingent consideration for the years ended December 31, 2020 and 2019 was expense of $23.4 million and $19.7 million, respectively, which is recorded in change in fair value of acquisition-related contingent consideration on the consolidated statements of operations.

The change in fair value of the contingent consideration for the years ended December 31, 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 year ended December 31, 2020, our 50% share of the costs for tafasitamab was $42.8 million, as recorded in collaboration loss sharing on the consolidated statement of operations.

Other income (expense)

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Other income (expense), net, for the years ended December 31, 2020 and 2019 was $23.2 million and $52.2 million, respectively.

The increase in other income (expense), net primarily relates to interest income and refundable research and development credits from the state of Delaware.

The decrease in other income (expense), net primarily relates to a decrease in interest income earned from our investments in marketable securities and money market accounts.

Interest expense.

Interest expense for the years ended December 31, 2020 and 2019, was $2.2 million and $1.9 million, respectively.

Included in interest expense for the years ended December 31, 2019 and 2018 was $0.9 million and $1.2 million, respectively, of non-cash charges to amortize the discounts on our convertible senior notes due November 2018 and November 2020.

Included in interest expense for the years ended December 31, 2020 and 2019 was $0.7 million and $0.9 million, respectively, of non-cash charges to amortize the discounts on our convertible senior notes that matured in November 2020 and approximately $1.2 million and $0.6 million, respectively, of interest expense on our finance lease liabilities.

Unrealized gain (loss) on long term investments.

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(in millions)

Total unrealized gain (loss) on long term investments

Total unrealized gain on long term investments

Provision for income taxes.

The provision for income taxes for the years ended December 31, 2020 and 2019 was $63.5 million and $39.9 million, respectively.

The increase in provision for income taxes primarily relates to federal and state tax liabilities that are not fully sheltered by net operating losses or research and development tax credit carryforwards.

This is partially offset by higher tax benefits associated with stock-based compensation.

The increase in provision for income taxes primarily relates to 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

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Due to historical net losses, we had an accumulated deficit of $1.7 billion as of December 31, 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.

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

At December 31, 2020, we had available cash, cash equivalents and marketable securities of $1.8 billion.

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

government securities.

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

government debt securities.

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

Cash provided by operating activities.

The $374.5 million increase in cash provided by operating activities from 2018 to 2019 was due primarily to our increased product revenues and changes in working capital.

Cash (used in) provided by operating activities.

The $835.3 million decrease in cash provided by operating activities from 2019 to 2020 was due primarily to cash outflows related to our collaboration and license agreements, in particular, the $804.5 million upfront consideration paid to MorphoSys, and, to a lesser extent, changes in working capital.

Cash used in investing activities.

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

During 2019, net cash used in investing activities was $87.5 million, which represents purchases of marketable securities of $374.8 million and capital expenditures of $78.1 million, offset in part by the sale and maturity of marketable securities of $365.4 million.

During 2018, net cash used in investing activities was $86.4 million, which represents purchases of marketable securities of $159.9 million, capital expenditures of $73.5 million, and purchases of long term investments of $8.9 million, offset in part by the sale and maturity of marketable securities of $155.9 million.

During 2020, net cash used in investing activities was $269.0 million, which represents purchase of long term equity investments of $95.5 million, purchases of marketable securities of $516.9 million and capital expenditures of $187.4 million, offset in part by the sale and maturity of marketable securities of $513.5 million and the sale of long term investment of $17.3 million.

During 2019, net cash used in investing activities was $87.5 million, which represents purchases of marketable securities

of $374.8 million and capital expenditures of $78.1 million, offset in part by the sale and maturity of marketable securities of $365.4 million.

Cash provided by financing activities.

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Contractual Obligations:

Principal on convertible senior debt

Interest on convertible senior debt

Finance lease liabilities

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Total contractual obligations

We have entered into and may in the future seek to license additional rights relating to technologies or drug development candidates in connection with our drug discovery and development programs.

Under these licenses, we may

be required to pay upfront fees, milestone payments, and royalties on sales of future products, which are not reflected in the table above.

In October 2019, we entered into an agreement with Wilmington Friends School Inc., to purchase property for $50.0 million to expand our global headquarters.

Under that agreement, closing of the purchase is subject to certain standard closing conditions, including an initial diligence period and a subsequent approval period.

In January 2020, we entered into a collaboration and license agreement and related purchase agreement with MorphoSys, under which we agreed to pay MorphoSys and upfront non-refundable payment of $750.0 million and to purchase American Depositary Shares (ADSs) representing ordinary shares of MorphoSys for an aggregate purchase price of $150.0 million.

The effectiveness of the collaboration and license agreement is conditioned on the early termination or expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 as well as clearance by the German and Austrian antitrust authorities, and closing of the purchase of the ADSs is subject to customary conditions, as well as the effectiveness of the collaboration and license agreement.

We believe that our cash flow from operations, together with our cash, cash equivalents and marketable securities, will be adequate to satisfy our capital needs for the foreseeable future.

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costs for future facility requirements;

our receipt of any milestone or other payments under any collaborative agreements we may enter into, including the agreements with Novartis, Lilly, Innovent and Zai Lab;

and expenditures in connection with strategic relationships and license agreements, including our agreements with Agenus, ARIAD/Takeda, Calithera, Lilly, MacroGenics, MorphoSys, Merus and Syros, strategic equity investments or potential acquisitions.

and expenditures for future strategic equity investments or potential acquisitions.

We have entered into and may in the future seek to license additional rights relating to technologies or drug development candidates in connection with our drug discovery and development programs.

Under these licenses, we may be required to pay upfront fees, milestone payments, and royalties on sales of future products.

Due to the contingent nature of these future payments, they are not included in the contractual obligations table above;

however, are discussed in detail in Note 6 of notes to our consolidated financial statements included in Item 8 of this report.

To the extent we seek to augment our existing cash resources and cash flow from operations to satisfy our cash requirements for future acquisitions or other strategic purposes, we expect that additional funding can be obtained through equity or debt financings or from other sources.

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What changed 10-K

Item 7. Management’s Discussion and Analysis