What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-09 compared with 2020-02-13 · 393 added, 434 removed, 946 unchanged (47% of the section changed)

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowances for rebates to governmental entities

Allowances for rebates, discounts and chargebacks owed to governmental entities

Description of the Matter

As discussed in Note 1 to the consolidated financial statements, the Company recognizes revenues for product received by its customers net of allowances for customer credits, including estimated rebates, chargebacks, discounts, returns, distribution service fees, patient assistance programs, and government rebates.

Liabilities related to sales allowances are presented within accrued and other current liabilities on the consolidated balance sheet and totaled $73.2 million as of December 31, 2020.

Adjustments to gross product revenue include allowances for rebates to governmental entities.

Auditing the allowances for rebates to governmental entities was complex and highly judgmental due to the significant estimation uncertainty involved in management’s assumptions, including the levels of expected future claims and the amount of forecasted shipments from wholesalers that will be dispensed to eligible benefit plan participants , as well as the complexity of governmental

pricing calculations.

The allowances for rebates to governmental entities are sensitive to these significant assumptions and calculations.

Auditing the allowances for rebates, discounts and chargebacks owed to governmental entities was complex and highly judgmental due to the significant estimation uncertainty involved in management’s assumptions, including the levels of expected utilization of these rebates, discounts

and chargebacks based on the amount of drugs sold to eligible patients, as well as the complexity of the government mandated calculations.

The allowances for rebates, discounts and chargebacks owed to governmental entities are sensitive to these significant assumptions and calculations.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s review of the allowances for rebates to governmental entities.

For example, we tested controls over management’s review of the significant assumptions, such as the levels of expected future claims and the amount of forecasted shipments from wholesalers that will be dispensed to eligible benefit plan participants, as well as controls over management’s review of the application of the governmental pricing regulations.

To test the allowances for rebates to governmental entities, we performed audit procedures that included, among others, evaluating the methodologies used and testing the significant assumptions discussed above.

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s review of the allowances for rebates, discounts and chargebacks owed to governmental entities.

For example, we tested controls over management’s review of the significant assumptions, such as the utilization of these rebates, discounts and chargebacks as well as controls over management’s review of the application of the government mandated calculations.

To test the allowances for rebates, discounts, and chargebacks owed to governmental entities, we performed audit procedures that included, among others, evaluating the methodologies used and testing the significant assumptions discussed above.

We compared the significant assumptions used by management to historical trends, evaluated the change in the accruals from prior periods, and assessed the historical accuracy of management’s estimates against actual results.

We also tested the completeness and accuracy of the underlying data used in the Company’s calculations through reconciliation to third-party invoices, claims data and actual cash payments.

In addition, we involved our governmental pricing specialists to assist in evaluating management’s methodology and calculations used to measure certain estimated rebates.

In addition, we involved our governmental pricing specialists to assist in evaluating management’s methodology and calculations used to measure certain estimated rebates, discounts and chargebacks.

Valuation of acquisition-related contingent consideration liability

Description of the Matter

As discussed in Note 3 to the consolidated financial statements, the Company’s acquisition-related contingent consideration liability, which consists of certain future royalty obligations on future net sales of ICLUSIG, is remeasured to its estimated fair value each reporting period, with changes in fair value recorded in the consolidated statements of operations.

As of December 31, 2020, the acquisition-related contingent consideration liability was $266.0 million.

Auditing the valuation of the acquisition-related contingent consideration liability was complex and highly judgmental due to the significant estimation required in determining the fair value.

In particular, the fair value estimate was sensitive to significant assumptions such as the weighted average cost of capital and the revenue growth rates, which are affected by expectations about future industry, market or economic conditions, and are forward-looking and inherently uncertain.

In particular, the fair value estimate was sensitive to significant assumptions such as the weighted average cost of capital and projected future ICLUSIG revenues, which are affected by expectations about future industry, market or economic conditions, and are forward-looking and inherently uncertain.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s valuation of the acquisition-related contingent consideration liability.

For example, we tested the Company's controls over management’s review of the valuation model, including controls over the significant assumptions utilized in the calculation, such as the weighted average cost of capital and the forecasted revenue growth rates.

To test the estimated fair value of the acquisition-related contingent consideration liability, we performed audit procedures that included, among others, assessing the terms of the arrangement, evaluating the methodology used, and testing the significant assumptions discussed above used by the Company in its analysis.

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Cash and cash equivalents

Marketable securities—available-for-sale

Marketable securities—available-for-sale (amortized cost $ 288,199 ;

allowance for credit losses $ 0 )

Accounts receivable

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Accrued compensation

Interest payable

Accrued and other current liabilities

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Total current liabilities

Convertible senior notes

Acquisition-related contingent consideration

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Total liabilities

Commitments and contingencies (Note 16)

Stockholders’ equity:

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Change in fair value of acquisition-related contingent consideration

Collaboration loss sharing

Total costs and expenses

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Unrealized gain (loss) on long term investments

Expense related to senior note conversions

Income (loss) before provision for income taxes

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Net income (loss)

Other comprehensive loss:

Other comprehensive income (loss):

Foreign currency translation

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Defined benefit pension obligations, net of tax

Other comprehensive loss

Other comprehensive income (loss)

Comprehensive income (loss)

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( 1,990,005 )

Issuance of 3,012,937 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units and performance shares and 157,277 shares of Common Stock under the ESPP

Issuance of 7,095,350 shares of Common Stock upon conversion of Convertible Senior Notes due 2020

Issuance of 1,624,376 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units and 233,712 shares of Common Stock under the ESPP

Issuance of 148,761 shares of Common Stock upon conversion of Convertible Senior Notes due 2018

Issuance of 4,905 shares of Common Stock for services rendered

Issuance of 4,945,000 shares of Common Stock

Stock compensation

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Issuance of 2,657,892 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units and 239,590 shares of Common Stock under the ESPP

Issuance of 148,761 shares of Common Stock upon conversion of Convertible Senior Notes due 2018

Issuance of 5,688 shares of Common Stock for services rendered

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Adoption of ASU No.

2016-02 (Note 1)

Balances at December 31, 2019

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Issuance of 6,350 shares of Common Stock for services rendered

Issuance of 368,886 shares of Common Stock upon conversion of Convertible Senior Notes due 2020

Stock compensation

Other comprehensive loss

Adoption of ASU No.

2016-02 (Note 1)

Other comprehensive income

Balances at December 31, 2020

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Depreciation and amortization

In-process research and development impairment

Stock-based compensation

Expense related to senior note conversions

Deferred income taxes

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Accrued and other liabilities

Net cash provided by (used in) operating activities

Net cash (used in) provided by operating activities

Cash flows from investing activities :

Purchase of long term investments

Sale of long term investment

Capital expenditures

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Proceeds from issuance of common stock under stock plans

Proceeds from issuance of common stock, net

Cash paid in connection with senior note conversions

Payment of finance lease liabilities

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Effect of exchange rates on cash, cash equivalents, restricted cash and investments

Net increase in cash, cash equivalents, restricted cash and investments

Net (decrease) increase in cash, cash equivalents, restricted cash and investments

Cash, cash equivalents, restricted cash and investments at beginning of period

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Incyte Corporation (including its subsidiaries, “Incyte,” “we,” “us,” or “our”) is a biopharmaceutical company focused on developing and commercializing proprietary therapeutics.

Our portfolio includes compounds in various stages, ranging from preclinical to late stage development, and commercialized products JAKAFI® (ruxolitinib) and ICLUSIG® (ponatinib).

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.

Our operations are treated as one operating segment.

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All inter-company accounts, transactions, and profits have been eliminated in consolidation.

Acquisitions.

Acquired businesses are accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recorded at fair value, with limited exceptions.

Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill.

Transaction costs are expensed as incurred.

The operating results of the acquired business are reflected in our consolidated financial statements after the date of acquisition.

Foreign Currency Translation.

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The estimated fair value of financial instruments approximates the carrying value based on available market information.

We primarily invest our excess available funds in debt securities and, by policy, limit the amount of credit exposure to any one issuer and to any one type of investment, other than securities issued or guaranteed by the U.S.

government and money market funds that meet certain guidelines.

Our receivables mainly relate to our product sales of JAKAFI, ICLUSIG and collaborative agreements with pharmaceutical companies.

By policy, we invest our excess available funds primarily in U.S.

government debt securities which are securities issued or guaranteed by the U.S.

government and money market funds that meet certain guidelines, which limits exposure to potential credit losses.

Our receivables mainly relate to our product sales and collaborative agreements with pharmaceutical companies.

We have not experienced any significant credit losses on cash, cash equivalents, marketable securities, or trade receivables to date and do not require collateral on receivables.

Current Expected Credit Losses.

Effective January 1, 2020, financial assets measured at amortized cost are assessed for future expected credit losses under guidance within ASC 326, Financial Instruments – Credit Losses, to determine if application of an expected credit losses reserve is necessary.

On a quarterly basis, receivables that resulted from revenue transactions within the scope of ASC 606 and recognized on an amortized cost basis are reviewed on a customer-level basis to analyze expectations of future collections based upon past history of collections, payment, aging of receivables and viability of the customer to continue payment, as well as estimates of future economic conditions.

Receivables generally consist of two types:

receivables from collaborative agreements, including milestones, reimbursements for agreed-upon activities and sales royalties;

and receivables from customer product sales.

Collaborative agreement receivables are closely monitored relationships with select, reputable industry peers.

Collection of receivables is assessed within each collaborative partnership on a quarterly basis, including evaluation of each entity’s credit quality, financial health and past history of payment.

Customer product sales receivables are independently evaluated on a monthly basis, on which unusual items or aged receivables are closely monitored for signs of credit deterioration, or indications of payment refusal.

Customer product sales are with specialty pharmaceutical distributors, wholesalers, and certain public and private institutions, some of which whose financial obligations are funded by various government agencies.

Cash and Cash Equivalents.

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Marketable Securities—Available-for-Sale.

Our marketable securities consist of investments in corporate debt securities and U.S.

government securities that are classified as available-for-sale.

Our marketable securities consist of investments in U.S.

government debt securities that are classified as available-for-sale.

Available-for-sale securities are carried at fair value, based on quoted market prices and observable inputs, with unrealized gains and losses, net of tax, reported as a separate component of stockholders’ equity.

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Accounts Receivable.

As of December 31, 2019 and 2018, we had a de minimis allowance for doubtful accounts.

We provide an allowance for doubtful accounts based on experience and specifically identified risks.

Accounts receivable are carried at fair value and charged off against the allowance for doubtful accounts when we determine that recovery is unlikely and we cease collection efforts.

As of December 31, 2020 and 2019, we had no allowance for doubtful accounts.

We provide an allowance for doubtful accounts based on management’s assessment of the collectability of specific customer accounts and includes consideration of the credit worthiness and financial condition of those customers, aging of such receivables, history of collectability with the customer and the general economic environment.

We record an allowance to reduce the receivables to the amount that is reasonably believed to be collectible.

Inventories are determined at the lower of cost and net realizable value with cost determined under the specific identification method and may consist of raw materials, work in process and finished goods.

JAKAFI and ICLUSIG raw materials and work-in-process inventory are not subject to expiration and the shelf life of finished goods inventory is 36 months from the start of manufacturing of the finished goods.

We began capitalizing PEMAZYRE inventory after FDA approval in April 2020 as the related costs were expected to be recoverable through the commercialization of the product.

Costs incurred prior to FDA approval have been recorded as research and development expense in our statements of operations.

As a result, cost of product revenues for the next 48 months will reflect a lower average per unit cost of materials.

JAKAFI, ICLUSIG and PEMAZYRE raw materials and work-in-process inventory are not subject to expiration and the shelf life of finished goods inventory is 36 months from the start of manufacturing of the finished goods.

We evaluate for potential excess inventory by analyzing current and future product demand relative to the remaining product shelf life.

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Our equity investments are accounted for at fair value using readily determinable pricing available on a securities exchange on our consolidated balance sheets.

For the years ended December 31, 2019 and 2018, changes in fair value of our equity investments are reported on our consolidated statements of operations as an unrealized gain (loss) on long term investments.

For the year ended December 31, 2017, the change in fair value of our equity investment in Calithera Biosciences, Inc.

was recorded in accumulated other comprehensive income (loss) prior to the adoption of ASU No.

2016-01 on January 1, 2018.

All changes in fair value are reported in the consolidated statements of operations as an unrealized gain (loss) on long term investments.

In assessing whether we exercise significant influence over any of the companies in which we hold equity investments, we consider the nature and magnitude of our investment, any voting and protective rights we hold, any participation in the governance of the other company, and other relevant factors such as the presence of a collaboration or other business relationship.

Currently, none of our equity investments in publicly-held companies are considered relationships in which we are able to assert control.

Currently, none of our equity investments in publicly-held companies are considered

relationships in which we are able to assert control.

Property and Equipment, net.

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Lease Accounting.

The new accounting standard for leases, Accounting Standard Codification (“ASC”) 842, Leases, was adopted for the fiscal year beginning on January 1, 2019.

Per the new standard, all leases with a lease term greater than 12 months, regardless of lease type classification, are recorded as an obligation on the balance sheet with a corresponding right-of-use asset.

Under the prior standard for leases, only contracts assessed as capital leases were recorded on the balance sheet.

Accounting Standard Codification (“ASC”) 842, Leases, was adopted for the fiscal year beginning on January 1, 2019 using the modified retrospective method.

All leases with a lease term greater than 12 months, regardless of lease type classification, are recorded as an obligation on the balance sheet with a corresponding right-of-use asset.

Both finance and operating leases are reflected as liabilities on the commencement date of the lease based on the present value of the lease payments to be made over the lease term.

Current operating lease liabilities are reflected in accrued and other current liabilities and noncurrent operating lease liabilities are reflected in other liabilities on the consolidated balance sheet.

Right-of-use assets are valued at the initial measurement of the lease liability, plus any initial direct costs or rent prepayments, minus lease incentives and deferred lease payments.

Operating lease right-of-use assets are recorded in property and equipment, net on the consolidated balance sheet.

For operating leases, the expense

recognition is similar to that of operating leases under ASC 840, with a single lease cost recognized on a straight-line basis.

For finance leases, the expense recognition is similar to that of capital leases under ASC 840, with separate amortization and interest expense, with higher interest expense in the earlier periods of a lease.

Right-of-use assets are valued at the initial measurement of the lease liability, plus any initial direct costs or rent prepayments, minus lease incentives and any deferred lease payments.

Operating lease right-of-use assets are recorded in property and equipment, net on the consolidated balance sheet and lease cost is recognized on a straight-line basis.

For finance leases, expense is recognized as separate amortization and interest expense, with higher interest expense in the earlier periods of a lease.

Leases with an initial term of 12 months or less are not recorded on the balance sheet and we recognize lease expense for these leases on a straight-line basis over the term of the lease.

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If the expected cash flows are less than the carrying value of the asset, then the asset is considered to be impaired and its carrying value is written down to fair value, based on the related estimated discounted future cash flows.

Indefinite-lived intangible assets are tested for impairment annually as of October 1 or more frequently if events or changes in circumstances between annual tests indicate that the asset may be impaired.

Impairment losses on indefinite-lived intangible assets are recognized based solely on a comparison of the fair value of the asset to its carrying value.

Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed.

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We recognize the tax benefit from an uncertain tax position only if it is more-likely-than-not that the position will be sustained upon examination by the taxing authorities, including resolutions of any related appeals or litigation processes, based on the technical merits of the position.

The tax benefit that is recorded for these positions is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

The tax benefit that is recorded for these positions is measured at the largest

amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

We adjust the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions.

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

Financing Costs Related to Long-term Debt.

Costs associated with obtaining long-term debt are deferred and amortized over the term of the related debt using the effective interest method.

Such costs are presented as a direct deduction from the carrying amount of the long-term debt liability, consistent with debt discounts, on the consolidated balance sheets.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law in March 2020 to provide an estimated $2.2 trillion designed to stimulate the U.S.

economy during the COVID-19 pandemic.

The Act includes tax relief, government loans, grants and investments for entities in affected industries, which has related accounting and financial reporting impacts.

Disclosure for certain income tax accounting measures are required in the period of enactment and disclosure for government loans, investments, grants, and revenue recognition are required in future periods as federal agencies establish rules and procedures to implement the CARES Act.

During the year ended December 31, 2020, we have delayed the payment of certain employer payroll tax amounts to future periods as allowed under the Act.

However, we do not expect the CARES Act to have a material impact on our overall financial results, our income tax provision or our liquidity.

We have further described the expected impact and risks of COVID-19 on our business in Item 1.

Business and in Item 1A.

Risk Factors.

Net Income (Loss) Per Share.

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Accumulated other comprehensive income (loss) consists of unrealized gains or losses on marketable securities that are classified as available-for-sale, foreign currency translation gains or losses and defined benefit pension obligations.

For the year ended December 31, 2017, accumulated other comprehensive income (loss) included unrealized gains and losses on our long-term investment classified as available-for-sale in Calithera Biosciences, Inc.

Upon adoption of ASU No.

2016-01, we recorded a $ 2.8 million adjustment to retained earnings as of January 1, 2018 as changes in the fair value of our equity investments are reported on our consolidated statements of operations as an unrealized gain (loss) on long term investments.

Revenue Recognition.

Effective January 1, 2018, revenue-generating contracts are assessed under ASC 606, Revenue from contracts with customers, to identify distinct performance obligations, determine the transaction price of the contract and allocate the transaction price to each of the distinct performance obligations.

Revenue-generating contracts are assessed under ASC 606, Revenue from contracts with customers, to identify distinct performance obligations, determine the transaction price of the contract and allocate the transaction price to each of the distinct performance obligations.

Revenue is recognized 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.

We determine at contract inception whether we 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 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.

In November 2011, we began shipping JAKAFI to our customers in the U.S., which include specialty pharmacies and wholesalers.

In June 2016, we acquired the right to and began shipping ICLUSIG to our customers in the European Union and certain other jurisdictions, which include retail pharmacies, hospital pharmacies and distributors.

We sell JAKAFI and PEMAZYRE to our customers in the U.S., which include specialty pharmacies and wholesalers.

We sell ICLUSIG to our customers in the European Union and certain other jurisdictions, which include retail pharmacies, hospital pharmacies and distributors.

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.

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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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Royalty revenues on commercial sales for baricitinib (marketed as OLUMIANT) by Eli Lilly and Company (“Lilly”) are based on net sales of licensed products in licensed territories as provided by Lilly.

Royalty revenues on commercial sales for capmatinib (marketed as TABRECTA®) by Novartis are based on net sales of licensed products in the licensed territories as provided by Novartis.

We recognize royalty revenues in the period the sales occur.

Milestone and Contract Revenues

For each collaborative research, development and/or commercialization agreement that results in revenue under the guidance of ASC 606, Revenue from Contracts with Customers, we identify all material performance obligations, which may include the license to intellectual property and know-how, research and development activities and/or other activities.

In order to determine the transaction price, in addition to any upfront payment, we estimate the amount of variable consideration, including milestone payments, at the outset of the contract utilizing the most likely amount method.

The most likely amount method is used since the milestone payments have a binary outcome (i.e., we receive all or none of the milestone payment).

We constrain the estimate of variable consideration such that it is probable that a significant

reversal of previously recognized revenue will not occur.

When determining if variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue.

In making these assessments, management considers the likelihood and magnitude of a potential reversal of revenue.

These estimates are re-assessed each reporting period as required.

Once the estimated transaction price is established, amounts are allocated to the performance obligations that have been identified.

The transaction price is generally allocated to each separate performance obligation on a relative standalone selling price basis.

Out-licensing arrangements contain the right to use functional intellectual property, which is the underlying performance obligation of these collaborative arrangements.

If the license of our intellectual property is determined to be distinct from other performance obligations in the arrangement, the functional intellectual property that is transferred to the collaborative partner at the onset of the arrangement is concluded to have significant standalone functionality and value at the point in time at which the intellectual property is made available to the collaborative partner.

For licenses that are not distinct from other obligations identified in the arrangement, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time.

If the combined performance obligation is satisfied over time, we apply an appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront license fees.

We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

For each of the three years ended December 31, 2020, we had no revenues from intellectual licenses recognized over time.

For milestone revenues related to sales-based achievements, we recognize the milestone revenues in the corresponding period of the product sale, in accordance with the guidance of ASC 606-10-55-65 for contracts that include a license to intellectual property and the license is the predominant item to which the product sale relates.

Subsequent to the transfer of the intellectual property, we may earn milestones through achievement of pre-specified developmental or regulatory events and, as such, milestones are accounted for as variable consideration.

We include developmental or regulatory 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.

Under the agreements currently in place, we do not consider these events to be within our control, but rather dependent upon the development activities of our collaborative partners and the decisions made by regulatory agencies.

Accordingly, these milestones are not included in the transaction price until the counterparty, or third-party in the event of a regulatory submission, confirms the satisfaction or completion of the milestone triggering event.

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.

Generally, the milestone events contained in our collaboration agreements coincide with the progression of our drugs from development, to regulatory approval and then to commercialization.

The value of these milestones is dictated within the contract and is fixed upon achievement and reflects the amount of consideration which we expect to be entitled to in exchange for the satisfaction of that milestone.

The process of successfully discovering a new development candidate, having it approved and successfully commercialized is highly uncertain.

As such, the milestone payments we may earn from our partners involve a significant degree of risk to achieve and therefore, subsequent milestone payments due to Incyte are recognized as revenue at the point in time when such milestones are achieved.

Our collaboration agreements may also include an option for the collaborative partner to elect to participate in research and development activities, such as shared participation in additional clinical trials using the compound.

The presence of additional options for future participatory activities are assessed to determine if they represent material rights offered by us to the collaborative partner.

We also determine whether the reimbursement of research and development expenses should be accounted for as collaborative revenues or an offset to research and development expenses in accordance with the provisions of gross or net revenue presentation and recognize the corresponding revenues or records the corresponding offset to research and development expenses as incurred.

Our collaborative agreements may also include provisions for additional future collaborative efforts, such as options for shared commercialization staffing or licensing of additional molecules, involvement in joint committees, or options for inclusion in negotiations of future supply rights, which at the time of each collaborative agreement’s inception, are assessed to determine if these meet the definition of a performance obligation under ASC 606.

Cost of Product Revenues

Cost of product revenues includes all JAKAFI related product costs as well as ICLUSIG related product costs.

Cost of product revenues includes all JAKAFI, ICLUSIG and PEMAZYRE related product costs.

In addition, cost of product revenues include low single-digit royalties under our collaboration and license agreement to Novartis on all future sales of JAKAFI in the United States and the amortization of our licensed intellectual property for ICLUSIG using the straight-line method over the estimated useful life of 12.5 years from the date of acquisition on June 1, 2016 of all of the outstanding shares of ARIAD Pharmaceuticals (Luxembourg) S.à.r.l.

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Cost of product revenues also includes employee personnel costs, including stock compensation, for those employees dedicated to the production of our commercial products.

Milestone and Contract Revenues

Our license agreements, which fall within the scope of ASC 606, Revenue from Contracts with Customers, include distinct drug compound out-licensing, collection of upfront payments, milestones or royalty revenues from a counterparty, and provision of commercially available products to suppliers.

Our 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.

For such cases, we believe that revenue related to these events should not be recognized until the milestone has been achieved.

Some contracts form collaborative arrangements of various types with third-parties.

We assess whether the nature of the arrangement is within the scope of ASC 808, Collaborative Arrangements, in conjunction with the new revenue guidance to determine the nature of the performance obligations and associated transaction prices.

A collaborative relationship may exist when we participate in an activity or process with another party, such as performance of research

and development services or the exchange of intellectual property for use in clinical trials, when both parties share in the risks and rewards that result from the activity or participate and govern contract activities through a joint steering committee.

The regulatory review and approval process, which includes preclinical testing and clinical trials of each drug candidate, is lengthy, expensive and uncertain.

Securing approval by the U.S.

Food and Drug Administration (the “FDA”) requires the submission of extensive preclinical and clinical data and supporting information to the FDA for each indication to establish a drug candidate’s safety and efficacy.

The approval process takes many years, requires the expenditure of substantial resources, involves post-marketing surveillance and may involve ongoing requirements for post-marketing studies.

Before commencing clinical investigations of a drug candidate in humans, we must submit an Investigational New Drug application (“IND”), which must be reviewed by the FDA.

The steps generally required before a drug may be marketed in the United States include preclinical laboratory tests, animal studies and formulation studies, submission to the FDA of an IND for human clinical testing, performance of adequate and well-controlled clinical trials in three phases, as described below, to establish the safety and efficacy of the drug for each indication, submission of a new drug application (“NDA”) or biologics license application (“BLA”) to the FDA for review and FDA approval of the NDA or BLA.

Similar requirements exist within foreign regulatory agencies as well.

The time required satisfying the FDA requirements or similar requirements of foreign regulatory agencies may vary substantially based on the type, complexity and novelty of the product or the targeted disease.

Preclinical testing includes laboratory evaluation of product pharmacology, drug metabolism, and toxicity, which includes animal studies, to assess potential safety and efficacy as well as product chemistry, stability, formulation, development, and testing.

The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND.

The FDA may raise safety concerns or questions about the conduct of the clinical trials included in the IND, and any of these concerns or questions must be resolved before clinical trials can proceed.

We cannot be sure that submission of an IND will result in the FDA allowing clinical trials to commence.

Clinical trials involve the administration of the investigational drug or the marketed drug to human subjects under the supervision of qualified investigators and in accordance with good clinical practices regulations covering the protection of human subjects.

Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined.

Phase I usually involves the initial introduction of the investigational drug into healthy volunteers to evaluate its safety, dosage tolerance, absorption, metabolism, distribution and excretion.

Phase II usually involves clinical trials in a limited patient population to evaluate dosage tolerance and optimal dosage, identify possible adverse effects and safety risks, and evaluate and gain preliminary evidence of the efficacy of the drug for specific indications.

Phase III clinical trials usually further evaluate clinical efficacy and safety by testing the drug in its final form in an expanded patient population, providing statistical evidence of efficacy and safety, and providing an adequate basis for labeling.

We cannot guarantee that Phase I, Phase II or Phase III testing will be completed successfully within any specified period of time, if at all.

Furthermore, we, the institutional review board for a trial, or the FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

Generally, the milestone events contained in our collaboration agreements coincide with the progression of our drugs from development, to regulatory approval and then to commercialization.

The process of successfully discovering a new development candidate, having it approved and successfully commercialized is highly uncertain.

As such, the milestone payments we may earn from our partners involve a significant degree of risk to achieve.

Therefore, as a drug candidate progresses through the stages of its life-cycle, the value of the drug candidate generally increases.

Research and Development Costs.

Our policy is to expense research and development costs as incurred.

Our policy is to expense research and development costs as incurred, including amounts funded by research and development collaborations.

Research and development expenses are comprised of costs we incur in performing research and development activities, including salary and benefits;

stock-based compensation expense;

outsourced services and other direct expenses, including clinical trial and pharmaceutical development costs;

collaboration payments;

expenses associated with drug supplies that are not being capitalized;

and infrastructure costs, including facilities costs and depreciation expense.

If a collaboration is a cost-sharing arrangement in which both we and our collaborator perform development work and share costs, we also recognize, as research and development expense in the period when our collaborator incurs development expenses, our portion of the co-development expenses that we are obligated to reimburse.

We often contract with clinical research organizations (“CROs”) to facilitate, coordinate and perform agreed upon research and development of a new drug.

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These CRO contracts typically call for the payment of fees for services at the initiation of the contract and/or upon the achievement of certain clinical trial milestones.

In the event that we prepay CRO fees, we record the prepayment

as a prepaid asset and amortize the asset into research and development expense over the period of time the contracted research and development services are performed.

In the event that we prepay CRO fees, we record the prepayment as a prepaid asset and amortize the asset into research and development expense over the period of time the contracted research and development services are performed.

Most professional fees, including project and clinical management, data management, monitoring, and medical writing fees are incurred throughout the contract period.

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The fair value of PSUs are recognized as compensation expense beginning at the time in which the performance conditions are deemed probable of achievement, which we assess as of the end of each reporting period.

Once a performance condition is considered probable, we record compensation expense based on the portion of the service period elapsed to date with respect to that award, with a cumulative catch-up, net of estimated forfeitures, and recognize any remaining compensation expense, if any, over the remaining requisite service period using the straight-line attribution method for PSUs that are subject to cliff vesting and using the accelerated attribution method for PSUs that are subject to graded vesting.

the straight-line attribution method for PSUs that are subject to cliff vesting and using the accelerated attribution method for PSUs that are subject to graded vesting.

Advertising Expenses.

Advertising expenses, comprised primarily of television, radio, print media and Internet advertising, are expensed as incurred and are included in selling, general, and administrative expenses.

For the years ended December 31, 2020, 2019, and 2018, advertising expenses were approximately $ 28.9 million, $ 15.3 million, and $ 10.6 million, respectively.

Long Term Incentive Plans.

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Acquisition-Related Contingent Consideration.

Acquisition-related contingent consideration consists of our future royalty obligations on future net sales of ICLUSIG and certain potential milestone obligations for new oncology or non-oncology indications for ICLUSIG to Takeda Pharmaceutical Company Limited, which acquired ARIAD (“Takeda”).

Acquisition-related contingent consideration consists of our future royalty obligations on future net sales of ICLUSIG to Takeda Pharmaceutical Company Limited, which acquired ARIAD (“Takeda”).

Acquisition-related contingent consideration was recorded on the acquisition date of June 1, 2016 at the estimated fair value of the obligation, in accordance with the acquisition method of accounting.

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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.

Collaboration loss sharing.

Under collaboration and license agreements with shared commercialization efforts, we record our share of the losses from the co-commercialization efforts in collaboration loss sharing on the consolidated statement of operations.

For the year ended December 31, 2020, collaboration loss sharing represents our 50 % share of the United States loss for commercialization of MONJUVI (tafasitamab) under our agreement with MorphoSys, which is described in Note 6 below.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-02 (Topic 842 or “ASC 842”), “Leases”, that requires lessees to recognize assets and liabilities on the balance sheet for most leases including operating leases.

Additionally, the FASB issued clarifying guidance to the topic in ASUs No.

2018-20 and No.

2019-01 which clarified certain aspects of the new leases standard and provided an optional transition method.

The guidance requires that the lessees classify leases as either a finance or operating lease and lessors classify all leases as sales-type, direct financing or operating leases.

The statement of operations presentation and expense recognition for lessees for finance leases is similar to that of capital leases under ASC 840, with

separate interest and amortization expense with higher interest expense in the earlier periods of a lease.

For operating leases, the statement of operations presentation and expense recognition is similar to that of operating leases under ASC 840, with a single lease cost recognized on a straight-line basis.

We implemented a third-party information technology application to facilitate activities for the new accounting and disclosure requirements and implemented new internal control procedures to support the new accounting and reporting processes associated with adopting the guidance.

We elected the package of practical expedients and adopted the standard on January 1, 2019 utilizing the optional transition method as defined within ASU No.

Accordingly, prior periods were not restated to reflect the adopted standard.

We did not elect the hindsight expedient and did not elect to combine lease and non-lease components into a single lease component.

As a result of adoption on January 1, 2019, we recorded $ 23.6 million of lease right-of-use assets, $ 23.7 million of lease liabilities and an adjustment to retained earnings of $ 0.1 million.

In addition, our capital lease assets and liabilities are now classified as finance lease right-of-use assets and liabilities.

The capital asset and financing liability of $ 18.7 million recorded in 2018 related to the Morges office building and construction, was derecognized upon adoption.

The adoption of the standard did not materially impact our consolidated net income and had no impact on our consolidated cash flows.

In June 2016, the FASB issued ASU No.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2016-13, “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.” This guidance applies to all entities and impacts how entities account for credit losses for most financial assets and other instruments.

Measurement of Credit Losses on Financial Instruments.” This guidance applies to all entities and impacts how entities account for credit losses for financial assets measured at amortized cost and available for sale debt securities.

ASU 2016-13 requires financial assets measured at amortized cost to be presented at the net amount expected to be collected.

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An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances.

For trade receivables, loans and held-to-maturity debt securities, entities will be required to estimate expected credit losses over the lifetime of the asset.

For trade receivables, loans and held-to-maturity debt securities, entities are required to estimate expected credit losses over the lifetime of the asset.

For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than an other-than-temporary impairment that reduces the cost basis of the investment.

Further, an entity will recognize any improvements in estimated credit losses on its available-for-sale debt securities immediately in earnings.

The FASB also released clarifying guidance in April 2019 within ASU No.

2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses,” in May 2019 within ASU No.

2019-05, “Financial Instruments – Credit Losses (Topic 326):

Targeted Transition Relief,” and in November 2019 within ASUs No.

2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842),” and No.

2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” The updates provide guidance on estimating credit losses, including transition relief by allowing for election of the fair value methodology on an instrument-by-instrument basis for eligible financial instruments within the scope of ASC 825-10, and valuation of receivables from customers with troubled debt.

This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods therein.

Elections under ASU No.

2019-05 require a modified retrospective application through a cumulative-effect adjustment in the opening balance of retained earnings upon adoption.

We are currently analyzing the impact of the credit losses standard and do not anticipate the adoption of this ASU on January 1, 2020 to have a material impact on our consolidated financial statements.

In June 2018, the FASB issued ASU No.

2018-07, “Compensation – Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting.” This guidance expanded the scope of ASC 718 to include share-based payments granted to nonemployees in exchange for goods or services and supersedes the guidance in ASC 505-50.

Under this new standard, nonemployee awards are measured on the grant date by estimating the fair value of the equity instruments to be issued rather than the fair value of the goods or services received.

Entities may use the expected term when estimating the fair value of a nonemployee option or elect to use the contractual term as the expected term, on an award-by-award basis.

The cumulative effect of the transition adjustment is to be recorded as an adjustment to retained earnings as of the beginning of the annual period of adoption.

We adopted this standard for the period beginning January 1, 2019 and concluded there to be no change in our previous accounting for nonemployee awards and no impact on our consolidated financial statements.

Further, an entity recognizes any improvements in estimated credit losses on its available-for-sale debt securities immediately in earnings.

Upon adoption, we assessed each financial asset measured at amortized cost and each available-for-sale debt security held for the impact of the guidance as of January 1, 2020 and noted an insignificant impact due to the minimal credit risk associated with our financial assets subject to ASC 326.

As such, it was concluded that a reserve for credit losses was de minimis on the adoption date.

Financial assets will continue to be assessed on a quarterly basis in future periods.

In August 2018, the FASB issued ASU No.

2018-13, “Fair Value Measurement (Topic 820):

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which eliminates the required

disclosure of the amount of and reason for transfers between Level 1 and Level 2 of the fair value hierarchy.

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which eliminates the required disclosure of the amount of and reason for transfers between Level 1 and Level 2 of the fair value hierarchy.

The guidance also eliminates the required disclosure of the entity’s valuation process for Level 3 fair value measurements, however public entities are required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.

This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods therein.

Early adoption is permitted for any annual periods for which financial statements have not been issued and interim periods therein.

We are currently analyzing the impact of ASU No.

2018-13 and do not anticipate the adoption of this ASU on January 1, 2020 to have a material impact on our consolidated financial statements.

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

We adopted this guidance for the period beginning January 1, 2020 and enhanced our disclosures in Note 3 to the consolidated

financial statements to comply with the standard.

In August 2018, the FASB issued ASU No.

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The standard is to be applied on a retrospective basis.

Incyte sponsors defined benefit plans for employees located in Europe.

We are currently analyzing the impact of ASU No.

2018-14 on our consolidated financial statements.

Incyte sponsors defined benefit plans for employees located in Europe and have adopted this guidance for the period ending December 31, 2020 as reflected in our disclosures in Note 15.

In August 2018, the FASB issued ASU No.

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The guidance directs accounting for service contracts for cloud computing arrangements to follow guidance within ASC 350-40 to determine capitalization of implementation costs.

The guidance is effective for fiscal years beginning after December 15, 2019, and is permitted for early adoption.

The standard may be applied on either a retrospective or prospective basis.

We are currently analyzing the impact of ASU No.

2018-15 and do not anticipate the adoption of this ASU to have a material impact on our consolidated financial statements.

The guidance is effective for fiscal years beginning after December 15, 2019 and may be applied on either a retrospective or prospective basis.

We adopted this guidance for the period beginning January 1, 2020 on a prospective basis.

New contracts for development of internal-use software were assessed and no qualifying contracts were identified during the period.

We will continue to assess contracts and will disclose material, qualifying contracts if identified in future periods.

In November 2018, the FASB issued ASU No.

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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, and is permitted for early adoption.

The standard is to be applied on a retrospective basis to the date of the initial application of Topic 606.

We utilize collaborative arrangements as described in our license agreement footnote and are currently analyzing the impact of ASU No.

2018-18 on our consolidated financial statements.

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

We adopted this guidance for the period beginning January 1, 2020 retrospectively to the date of our initial application of ASC 606, and noted that in assessment of our collaborative agreements, there was no material financial statement impact.

Our collaborative arrangements and their associated accounting conclusions are described in detail within Note 6 to the consolidated financial statements.

In December 2019, the FASB issued ASU No.

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We are currently analyzing the impact of ASU No.

2019-12 and do not anticipate the adoption of this ASU to have a material impact on our consolidated financial statements.

Revenues for the year ended December 31, 2017 were recognized under ASC 605 when (i) persuasive evidence of an arrangement existed, (ii) delivery occurred or services were rendered, (iii) the price was fixed or determinable and (iv) collectability was reasonably assured.

Revenues were deferred for fees received before earned or until no further obligations existed.

We exercised judgment in determining that collectability was reasonably assured or that services were delivered in accordance with the arrangement.

We assessed whether the fee was fixed or determinable based on the payment terms associated with the transaction and whether the sales price was subject to refund or adjustment.

Revenues for the years ended December 31, 2019 and 2018 were recognized under ASC 606 as discussed in Note 1.

2019-12 on the consolidated financial statements.

As discussed in Note 1, revenues are recognized under guidance within ASC 606 and ASC 808.

The following table presents our disaggregated revenue for the periods presented (in thousands):

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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

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Total revenues

For further information on our revenue-generating contracts, refer to our license agreements footnote.

Marketable Securities

For further information on our revenue-generating contracts, refer to Note 6.

Fair Value of Financial Instruments

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

December 31, 2020

Debt securities (corporate and government)

Debt securities (government)

December 31, 2019

Debt securities (corporate and government)

Debt securities (government)

Our debt securities generally have contractual maturity dates of between 12 to 18 months .

Debt security assets were assessed for risk of expected credit losses per our accounting policy as described in Note 1.

As of December 31, 2020 and 2019, the available-for-sale debt securities were held in U.S.

government debt securities and Treasury assets and were assessed on an individual security basis to have a de minimis risk of credit loss.

Fair Value Measurements

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Recurring Fair Value Measurements

Our marketable securities consist of investments in corporate debt securities and U.S.

government securities that are classified as available-for-sale.

At December 31, 2019 and 2018, our Level 2 corporate debt securities and U.S government securities were valued using readily available pricing sources which utilize market observable inputs, including the current interest rate and other characteristics for similar types of investments.

Our marketable securities consist of investments in U.S.

government debt securities that are classified as available-for-sale.

At December 31, 2020 and 2019, our Level 2 U.S.

government debt securities were valued using readily available pricing sources which utilize market observable inputs, including the current interest rate and other characteristics for similar types of investments.

Our long term investments classified as Level 1 were valued using their respective closing stock prices on The Nasdaq Stock Market.

Our policy is to recognize transfers out of or into fair value hierarchy levels as of the end of the reporting period.

There were no transfers out of or into hierarchy levels during the years ended December 31, 2019 and 2018.

We did not experience any transfers of financial instruments between the fair value hierarchy levels during the years ended December 31, 2020 and 2019.

The following fair value hierarchy table presents information about each major category of our financial assets measured at fair value on a recurring basis (in thousands):

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Cash and cash equivalents

Debt securities (corporate and government)

Debt securities (government)

Long term investments (Note 6)

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Cash and cash equivalents

Debt securities (corporate and government)

Debt securities (government)

Long term investments (Note 6)

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

The change in fair value of the contingent consideration during the period ending December 31, 2019 and 2018 was due primarily to the passage of time as there were no other significant changes in the key assumptions.

The valuation inputs utilized to estimate the fair value of the contingent consideration as of December 31, 2020 included a weighted average cost of capital of 10 % and updated projections of future ICLUSIG revenues in the European Union and other countries for the approved third line treatment.

The change in fair value of the contingent consideration during 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.

We make payments to Takeda quarterly based on the royalties or any additional milestone payments earned in the previous quarter.

As of December 31, 2019, contingent consideration earned but not yet paid was $ 23.0 million and were included in accrued and other current liabilities.

As of December 31, 2018, contingent consideration earned but not yet paid was $ 13.2 million.

The royalties earned in the third quarter of $ 6.7 million were included in accounts payable and the royalties earned in the fourth quarter of $ 6.5 million were included in accrued and other current liabilities at December 31, 2018.

As of December 31, 2020 and 2019, contingent consideration earned but not yet paid was $ 9.6 million and $ 23.0 million, respectively, and was included in accrued and other current liabilities.

Non-Recurring Fair Value Measurements

During the years ended December 31, 2020 and 2019, there were no measurements required for any assets or liabilities at fair value on a non-recurring basis.

Concentrations of Credit Risk

In December 2009, we entered into a license, development and commercialization agreement with Lilly.

Concentrations of Credit Risk and Current Expected Credit Losses

In November 2009, we entered into a collaboration and license agreement with Novartis.

In December 2009, we entered into a license, development and commercialization agreement with Lilly.

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

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In July 2019, we entered into a collaboration and license agreement with Zai Lab (Shanghai) Co., Ltd., a subsidiary of Zai Lab Limited (collectively, “Zai Lab”).

The concentration of credit risk related to our collaborative partners is as follows:

Percentage of Total Milestone and

Contract Revenues for the

Collaboration Partner A

Collaboration Partner B

Collaboration Partner C

Collaboration Partner D

Collaboration Partners A, B, C and D comprised, in the aggregate, 30 % and 42 % of the accounts receivable balance as of December 31, 2019 and 2018, respectively.

In November 2011, we began commercialization and distribution of JAKAFI to a number of customers.

The above collaboration partners comprised, in aggregate, 42 % and 30 % of the accounts receivable balance as of December 31, 2020 and 2019, respectively.

For further information relating to these collaboration and license agreements, refer to Note 6.

In November 2011, we began commercialization and distribution of JAKAFI and in April 2020, we began commercialization and distribution of PEMAZYRE to a number of customers.

Our product revenues are concentrated in a number of these customers.

The concentration of credit risk related to our JAKAFI product revenues is as follows:

The concentration of credit risk related to our JAKAFI and PEMAZYRE product revenues is as follows:

Percentage of Total Net

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The concentration of credit risk relating to ICLUSIG product revenues or accounts receivable is not significant.

We assessed our collaborative and customer receivable assets as of December 31, 2020 according to our accounting policy for applying reserves for expected credit losses, noting minimal history of uncollectible receivables and the continued perceived creditworthiness of our third party sales relationships, upon which the expected credit losses were considered de minimis.

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

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

At December 31, 2019, $ 11.4 million of inventory was classified as current on the consolidated balance sheets as we expect this inventory to be consumed for commercial use within the next twelve months.

At December 31, 2019, $ 5.1 million of inventory was classified as non-current on the consolidated balance sheets as we did not expect this inventory to be consumed for commercial use within the next twelve months.

At December 31, 2020, $ 16.4 million of inventory was classified as current on the consolidated balance sheet as we expect this inventory to be consumed for commercial use within the next twelve months.

At December 31, 2020, $ 19.5 million of inventory was classified as non-current on the consolidated balance sheet as we did not expect this inventory to be consumed for commercial use within the next twelve months.

We obtain some inventory components from a limited number of suppliers due to technology, availability, price, quality or other considerations.

The loss of a supplier, the deterioration of our relationship with a supplier, or any unilateral violation of the contractual terms under which we are supplied components by a supplier could adversely affect our total revenues and gross margins.

JAKAFI and ICLUSIG raw materials and work-in-process inventory are not subject to expiration and the shelf life for finished goods inventory is 36 months from the start of manufacturing of the finished goods.

We evaluate for potential excess inventory by analyzing current and future product demand relative to the remaining product shelf life.

We build demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance and patient usage.

License Agreements

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

We retained exclusive development and

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

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 up to $ 1.2 billion in milestone payments across multiple indications upon the achievement of pre-specified events, including up to $ 174.0 million for the achievement of development milestones, up to $ 495.0 million for the achievement of regulatory milestones and up to $ 500.0 million for the achievement of commercialization milestones.

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 graft-versus-host-disease (“GVHD”) field.

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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.

We recognize development and regulatory milestones upon confirmation of achievement of the event, as development and regulatory approvals are events not controllable by us but rather development activities of Novartis and decisions made by regulatory agencies.

We recognize sales milestones in the corresponding period of the product sale upon confirmation of net sales milestone threshold achievement by Novartis.

In 2020, we recognized a $ 25.0 million development milestone and a $ 45.0 million regulatory milestone for the FDA approval of capmatinib as TABRECTA 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, a $ 20.0 million regulatory milestone for the Japanese Ministry of Health, Labour and Welfare approval of TABRECTA for METex14 mutation-positive advanced and/or recurrent unresectable non-small cell lung cancer and a $ 80.0 million sales milestone for Novartis achieving annual net sales of a JAK licensed product of $ 1.2 billion.

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

In 2017, we recognized a $ 40.0 million sales milestone for Novartis achieving annual net sales of a JAK licensed product of $ 600.0 million and a $ 25.0 million development milestone based on the formal initiation by Novartis of a Phase III clinical trial evaluating ruxolitinib in GVHD.

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

Since the achievement of the $ 60.0 million regulatory milestone related to reimbursement of JAKAVI in Europe in September 2014, we are obligated to pay to Novartis tiered royalties in the low single-digits on future JAKAFI net sales within the United States.

During the years ended December 31, 2019, 2018 and 2017, such royalties payable to Novartis on net sales within the United States totaled $ 77.6 million, $ 63.0 million and $ 50.5 million, respectively, and are reflected in cost of product revenues on the consolidated statements of operations.

During the years ended December 31, 2020, 2019 and 2018, such royalties payable to Novartis on net sales within the United States totaled $ 89.9 million, $ 77.6 million and $ 63.0 million, respectively, and were reflected in cost of product revenues on the consolidated statements of operations.

At December 31, 2020 and 2019, $ 96.4 million and $ 50.2 million, respectively, of accrued royalties payable to Novartis were included in accrued and other current liabilities on the consolidated balance sheets.

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Reimbursable costs incurred after the effective date of the agreement with Novartis are recorded net against the related research and development expenses.

At December 31, 2019 and 2018, $ 0.4 million and $ 0.7 million, respectively, of reimbursable costs were included in accounts receivable on the consolidated balance sheets.

Research and development expenses for the years ended December 31, 2020, 2019 and 2018 were net of $ 0.3 million, $ 1.5 million, and $ 3.2 million, respectively, of costs reimbursed by Novartis.

At December 31, 2020 and 2019, $ 0.2 million and $ 0.4 million, respectively, of reimbursable costs were included in accounts receivable on the consolidated balance sheets.

Milestone and contract revenue under the Novartis agreement was $ 170.0 million, $ 0.0 million and $ 60.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.

In addition, for the years ended December 31, 2020, 2019 and 2018, we recorded $ 277.9 million, $ 225.9 million and $ 194.7 million, respectively, of product royalty revenues related to Novartis net sales of JAKAVI outside the United States.

At December 31, 2019 and 2018, $ 65.0 million and $ 55.4 million, respectively, of product royalties were included in accounts receivable on the consolidated balance sheets.

For the year ended December 31, 2020 we recorded $ 4.1 million of product royalty revenues related to Novartis net sales of TABRECTA worldwide.

Lilly - Baricitinib

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

We received an upfront payment of $ 90.0 million, and were initially eligible to receive up to $ 665.0 million in substantive milestone payments across multiple indications upon the achievement of pre-specified events, including up to $ 150.0 million for the achievement of development milestones, up to $ 365.0 million for the achievement of regulatory milestones and up to $ 150.0 million for the achievement of commercialization milestones.

Exclusive of the upfront payment of $ 90.0 million received in 2009, we have recognized and received, in aggregate, $ 149.0 million for the achievement of development milestones and $ 265.0 million for the achievement of regulatory milestones through December 31, 2020.

We recognize sales milestones in the corresponding period of the product sale upon confirmation of net sales milestone threshold achievement by Lilly.

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

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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 who have had an inadequate response to one or more tumor necrosis factor inhibitor therapies.

In 2018, we recognized a $ 20.0 million development milestone for the first patient treated in the systemic lupus erythematosus Phase III program for baricitinib and a $ 100.0 million regulatory milestone for the FDA approval of the 2mg dose of OLUMIANT (baricitinib) for the treatment of adults with moderately-to-severely active rheumatoid arthritis.

In 2017, we recognized a $ 30.0 million development milestone for the first patient treated in the atopic dermatitis Phase III program for baricitinib, $ 15.0 million regulatory milestone for the approval of baricitinib for the treatment of rheumatoid arthritis by Japan’s Ministry of Health, Labor and Welfare and a $ 65.0 million regulatory milestone for the approval of baricitinib for the treatment of moderate-to-severe rheumatoid arthritis in adult patients by the European Commission.

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

In 2020, we recognized a $ 20.0 million regulatory milestone for the European Commission approval of OLUMIANT and 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.

In 2018, we recognized a $ 20.0 million development milestone for the first patient treated in the systemic lupus erythematosus Phase III program for baricitinib and a $ 100.0 million regulatory milestone for the FDA approval of the 2mg dose of OLUMIANT for the treatment of adults with moderately-to-severely active rheumatoid arthritis.

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

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We will continue to receive royalties on global net sales of OLUMIANT, pursuant to the terms in the Lilly agreement, as described above.

We recorded no research and development expense under the Lilly agreement for co-funding the development of

baricitinib for the year ended December 31, 2019.

Research and development expenses recorded under the Lilly agreement representing 30 % of the global development costs for baricitinib for the treatment of rheumatoid arthritis, psoriatic arthritis, atopic dermatitis, alopecia areata, systemic lupus erythematosus and axial spondyloarthritis for the years ended December 31, 2018 and 2017 were $ 68.6 million and $ 40.8 million, respectively.

At December 31, 2018, a total of $ 23.1 million of such costs were included in accrued and other liabilities on the consolidated balance sheets.

We recorded no research and development expense under the Lilly agreement for co-funding the development of baricitinib for the years ended December 31, 2020 and 2019.

In May 2020, we amended our agreement with Lilly to enable Lilly to develop and commercialize baricitinib for the treatment of COVID-19.

As part of the amended agreement, 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.

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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In addition, for the years ended December 31, 2020, 2019 and 2018, we recorded $ 110.9 million, $ 80.4 million and $ 40.1 million, respectively, of product royalty revenues related to Lilly net sales of OLUMIANT outside the United States.

At December 31, 2019 and 2018, $ 23.6 million and $ 14.0 million, respectively, of product royalties were included in accounts receivable on the consolidated balance sheets.

Lilly – Ruxolitinib

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Under the terms of the Amended Agreement, 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.

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.

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

Under the Amended Agreement, we paid Agenus $ 20.0 million in accelerated milestones relating to the clinical development of the GITR and OX40 programs, which was recorded in research and development expense on the consolidated statement of operations during the year ended December 31, 2017.

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.

In 2017 under the Amended Agreement, we paid Agenus $ 20.0 million in accelerated milestones relating to the clinical development of the GITR and OX40 programs, which was recorded in research and development expense.

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.

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.

In June 2018, we recorded a $ 5.0 million development milestone due to Agenus for the LAG-3 program and in September 2018 we recorded a $ 5.0 million development milestone due to Agenus for the TIM-3 program, which were recorded in research and development expense on the consolidated statement of operations for the year ended December 31, 2018.

In 2018, we paid Agenus a $ 5.0 million development milestone for the LAG-3 program and a $ 5.0 million development milestone for the TIM-3 program, which were recorded in research and development expense on the consolidated statement of operations for the year ended December 31, 2018.

In connection with the Amended Agreement, we also agreed to purchase 10.0 million shares of Agenus Inc.

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Therefore, of the total consideration paid of $ 60.0 million, $ 39.5 million was allocated to our stock purchase in Agenus Inc.

and was recorded within long term investments on the consolidated balance sheets and $ 20.5 million was allocated to research and development expense on the consolidated statement of operations during the year ended December 31, 2017.

We have concluded Agenus Inc.

and was recorded within long term investments and $ 20.5 million was allocated to research and development expense.

We concluded Agenus Inc.

is not a VIE because it has sufficient equity to finance its activities without additional subordinated financial support and its at-risk equity holders have the characteristics of a controlling financial interest.

From the date of our initial stock purchase in February 2015 and up to the date of our second stock purchase in February 2017, we owned between 9 % and 11 % of the outstanding shares of Agenus Inc.

common stock.

As a result of our February 2017 stock purchase, we owned approximately 13 % of the outstanding shares of Agenus Inc.

common stock as of December 31, 2019.

We concluded that we have the ability to exercise significant influence, but not control, over Agenus Inc.

based primarily on our ownership interest, the fact that we have been the largest Agenus stockholder since the date of our initial stock purchase, the level of intra-entity transactions between us and Agenus related to development expenses, as well as other qualitative factors.

We have elected the fair value option to account for our long term investment in Agenus Inc.

whereby the investment is marked to market through earnings in each reporting period.

We believe the fair value option to be the most appropriate accounting method to account for securities in publicly held collaborators for which we have significant influence.

For the years ended December 31, 2019, 2018 and 2017, we recorded an unrealized gain of $ 30.0 million, an unrealized loss of $ 15.6 million and an unrealized loss of $ 13.6 million, respectively, based on the change in fair value of Agenus Inc.’s common stock during these periods.

After completion of our stock purchases from Agenus Inc., we held an approximate ownership interest of 18 % and, under circumstances present at that time, concluded that we had the ability to exercise significant influence, but not control, over Agenus Inc., primarily due to the level of intra-entity transactions between us and Agenus related to development expenses, as well as other qualitative factors.

In the second quarter of 2020, we sold an aggregate of approximately 1.2 million shares of Agenus Inc.

common stock, reducing our ownership interest to approximately 9.8 % as of June 30, 2020.

The sales transactions were priced at market, with per share pricing ranging from $ 3.57 to $ 4.21 , resulting in gross proceeds of approximately $ 4.5 million.

In the third quarter of 2020, we sold an aggregate of approximately 2.5 million shares of Agenus Inc.

common stock, reducing our ownership interest to approximately 7 % as of December 31, 2020.

The sales transactions were priced at market, with per share pricing ranging from $ 4.28 to $ 5.25 , resulting in gross proceeds of approximately $ 12.7 million.

As a result of having a less than 10% ownership interest and the recent diversification of Agenus Inc.’s development pipeline with other collaboration partners, we concluded that we no longer have significant influence over Agenus Inc.

As such, we no longer account for our equity investment in Agenus Inc.

as an equity method investment previously accounted for under the fair value option.

We account for our investment in Agenus Inc.

at fair value, whereby the investment is marked to market through earnings in each reporting period.

For the years ended December 31, 2020, 2019 and 2018, we recorded an unrealized loss of $ 10.3 million, an unrealized gain of $ 30.0 million and an unrealized loss of $ 15.6 million, respectively, based on the change in fair market value of Agenus Inc.’s common stock during these periods.

The fair market value of our long term investment in Agenus Inc.

as of December 31, 2020 and 2019 was $ 44.7 million and $ 72.3 million, respectively.

For the three and nine months ended September 30, 2019, Agenus Inc.

reported total revenues of $ 19.9 million and $ 115.5 million, respectively, and net losses of $ 46.3 million and $ 80.7 million, respectively, within their consolidated financial statements.

For the three and nine months ended September 30, 2018, Agenus Inc.

reported total revenues of $ 12.8 million and $ 30.3 million, respectively, and net losses of $ 33.7 million and $ 113.2 million, respectively, within their consolidated financial statements.

As of September 30, 2019, Agenus Inc.

reported current assets of $ 107.2 million, noncurrent assets of $ 67.6 million, current liabilities of $ 132.9 million and noncurrent liabilities of $ 219.8 million.

As of December 31, 2018, Agenus Inc.

reported current assets of $ 74.8 million, noncurrent assets of $ 61.6 million, current liabilities of $ 68.1 million and noncurrent liabilities of $ 203.0 million.

Research and development expenses for the years ended December 31, 2020, 2019 and 2018, also included $ 0.0 million, $ 1.5 million and $ 4.6 million, respectively, of development costs incurred pursuant to the Agenus arrangement.

At December 31, 2019 and 2018, a total of $ 1.6 million and $ 2.3 million, respectively, of such costs were included in accrued and other liabilities on the consolidated balance sheet.

At December 31, 2020 and 2019, a total of $ 0.5 million and $ 1.6 million, respectively, of such costs were included in accrued and other liabilities on the consolidated balance sheets.

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.

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.

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We completed the purchase of the shares on January 23, 2017 when the closing price on The Nasdaq Stock Market for Merus shares was $ 24.50 per share.

The shares we acquired were not registered under the Securities Act of 1933 on the purchase date and were subject to certain security specific restrictions for a period of time, and accordingly, we estimated a discount for lack of marketability on the shares on the issuance date of $ 5.6 million, which resulted in a net fair value of the shares on the issuance date of $ 72.8 million.

Of the total consideration paid of $ 80.0 million, $ 72.8 million was allocated to our stock purchase in Merus and was recorded as a long term investment on the consolidated balance sheets and $ 7.2 million was allocated to research and development expense on the consolidated statement of operations during the year ended December 31, 2017.

The shares we acquired were not registered under the Securities Act

of 1933 on the purchase date and were subject to certain security specific restrictions for a period of time, and accordingly, we estimated a discount for lack of marketability on the shares on the issuance date of $ 5.6 million, which resulted in a net fair value of the shares on the issuance date of $ 72.8 million.

Of the total consideration paid of $ 80.0 million, $ 72.8 million was allocated to our stock purchase in Merus and was recorded as a long term investment and $ 7.2 million was allocated to research and development expense.

The fair market value of our total long term investment in Merus as of December 31, 2020 and 2019 was $ 56.1 million and $ 45.1 million, respectively.

We have concluded Merus is not a VIE because it has sufficient equity to finance its activities without additional subordinated financial support and its at-risk equity holders have the characteristics of a controlling financial interest.

In January 2021, we purchased 350,000 common shares in Merus’ underwritten public offering of 4,848,485 common shares at the public offering price of $ 24.75 per share, or an aggregate purchase price of $ 8.7 million.

We concluded Merus is not a VIE because it has sufficient equity to finance its activities without additional subordinated financial support and its at-risk equity holders have the characteristics of a controlling financial interest.

As of December 31, 2020, we owned approximately 11 % of the outstanding common shares of Merus and conclude that we have the ability to exercise significant influence, but not control, over Merus based primarily on our ownership interest, the level of intra-entity transactions between us and Merus related to development expenses, as well as other qualitative factors.

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We believe the fair value option to be the most appropriate accounting method to account for securities in publicly held collaborators for which we have significant influence.

For the years ended December 31, 2019, 2018 and 2017, we recorded an unrealized gain of $ 0.3 million, an unrealized loss of $ 17.3 million, and an unrealized loss of $ 10.7 million, respectively, based on the change in fair value of Merus’ common shares during these periods.

For the three and nine months ended September 30, 2019, Merus reported within its Form 6-K total revenues of approximately € 8.1 million and € 21.4 million, respectively, and net loss of approximately € 8.3 million and € 26.4 million, respectively, within its condensed consolidated financial statements.

For the three and nine months ended September 30, 2018, Merus reported within its Form 6-K total revenues of approximately € 6.5 million and € 23.0 million, respectively, and net loss of approximately € 10.7 million and € 23.7 million, respectively, within its condensed consolidated financial statements.

As of September 30, 2019, Merus reported within its Form 6-K current assets of € 166.7 million, noncurrent assets of € 23.1 million, current liabilities of € 29.7 million and noncurrent liabilities of € 89.8 million.

As of December 31, 2018, Merus reported within its Form 6-K current assets of € 195.6 million, noncurrent assets of € 22.9 million, current liabilities of € 29.0 million and noncurrent liabilities of € 97.7 million.

For the years ended December 31, 2020, 2019 and 2018, we recorded an unrealized gain of $ 11.0 million, an unrealized gain of $ 0.3 million, and an unrealized loss of $ 17.3 million, respectively, based on the change in fair market value of Merus’ common shares during these periods.

Research and development expenses for the years ended December 31, 2020, 2019 and 2018 included $ 8.9 million, $ 7.2 million and $ 10.3 million, respectively, of additional development costs incurred pursuant to the Merus agreement.

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(“Calithera”).

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

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

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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.

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 March 2017, Calithera earned a $ 12.0 million milestone payment from us for the achievement of pharmacokinetic and pharmacodynamics goals for CB-1158 which was recorded in research and development expense on our consolidated statement of operations.

In 2017, Calithera earned a $ 12.0 million milestone payment from us for the achievement of pharmacokinetic and pharmacodynamics goals for CB-1158 which was recorded in research and development expense.

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.

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.

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.

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We paid total consideration of $ 53.0 million to Calithera, composed of the $ 45.0 million upfront license fee and the $ 8.0 million stock purchase price.

Of the $ 53.0 million, $ 11.6 million was allocated to our stock purchase in Calithera and was recorded within long term investments on the consolidated balance sheets and $ 41.4 million was allocated to research and development expense on the consolidated statement of operations during the year ended December 31, 2017.

Of the $ 53.0 million, $ 11.6 million was allocated to our stock purchase in Calithera and was recorded within long term investments and $ 41.4 million was allocated to research and development expense.

The fair market value of our long term investment in Calithera as of December 31, 2020 and 2019 was $ 8.4 million and $ 9.8 million, respectively.

We have concluded Calithera is not a VIE because it has sufficient equity to finance its activities without additional subordinated financial support and its at-risk equity holders have the characteristics of a controlling financial interest.

We concluded Calithera is not a VIE because it has sufficient equity to finance its activities without additional subordinated financial support and its at-risk equity holders have the characteristics of a controlling financial interest.

As of December 31, 2020, we owned approximately 2 % of the outstanding shares of Calithera common stock and there are several other stockholders who hold larger positions of Calithera.

As we do not hold a significant position of the voting shares of Calithera and lack the qualitative characteristics associated with the ability to exercise significant influence, our ownership interest does not meet the criteria to be accounted for as an equity method investment.

We intend to hold the investment in Calithera for the foreseeable future, and thereby have classified the investment within long term investments on the accompanying consolidated balance sheets.

Under guidance implemented by ASU No.

2016-01, the investment is marked to market through earnings in each reporting period.

Prior to implementation, the unrealized gains and losses on our investment in Calithera were recorded in accumulated other comprehensive income (loss).

To adopt ASU No.

2016-01, the January 1, 2018 accumulated deficit balance decreased by $ 2.8 million to reflect these prior period unrealized gains.

For the year ended December 31, 2019, 2018 and 2017, we recorded an unrealized gain of $ 2.9 million, an unrealized loss of $ 7.5 million, and an unrealized gain of $ 2.8 million, respectively, based on the change in fair value of Calithera’s common stock during these periods.

We intend to hold the investment in Calithera for the foreseeable future and therefore, are accounting for our shares held in Calithera at fair value, and the investment is marked to market through earnings in each reporting period.

Given our intent to hold the investment for the foreseeable future, we have classified the investment within long term investments on the accompanying consolidated balance sheets.

For the years ended December 31, 2020, 2019 and 2018, we recorded an unrealized loss of $ 1.4 million, an unrealized gain of $ 2.9 million, and an unrealized loss of $ 7.5 million, respectively, based on the change in fair market value of Calithera’s common stock during these periods.

Research and development expenses for the years ended December 31, 2020, 2019 and 2018 also included $ 8.9 million, $ 17.9 million and $ 12.0 million, respectively, of additional development costs incurred pursuant to the Calithera 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.

In December 2017, we paid MacroGenics an upfront payment of $ 150.0 million which was recorded in research and development expense on the consolidated statement of operations.

In 2017, we paid MacroGenics an upfront payment of $ 150.0 million, which was recorded in research and development expense.

MacroGenics was initially eligible to receive up to $ 420.0 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.

In September 2018, we recorded $ 10.0 million and in November 2018 we recorded $ 5.0 million in aggregate milestones due to MacroGenics for the achievement of certain clinical milestones as part of our collaboration and license agreement, which were recorded in research and development expense on our consolidated statement of operations for the year ended December 31, 2018.

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.

In 2020, we paid MacroGenics $ 40.0 million in milestones for the achievement of certain clinical milestones as part of our collaboration and license agreement, which were recorded in research and development expense on our consolidated statement of operations for the year ended December 31, 2020.

In 2018, we paid MacroGenics a $ 10.0 million

and a $ 5.0 million milestone for the achievement of certain clinical milestones as part of our collaboration and license agreement, which were recorded in research and development expense on our consolidated statement of operations for the year ended December 31, 2018.

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.

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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 January 2018, we paid Syros an upfront non-refundable (except in the event of a material breach of the agreement by Syros) payment of $ 10.0 million, which was recorded in research and development expense during the year ended December 31, 2018.

In addition, in January 2018, we entered into a Stock Purchase Agreement with Syros for the purchase of 0.8 million common shares of Syros for an aggregate purchase price of $ 10.0 million in cash, or $ 12.61 per share.

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The shares we acquired were not registered on the purchase date, and accordingly, we estimated a discount for lack of marketability on the shares of $ 0.1 million, which resulted in a net fair value of the shares on the issuance date of $ 7.6 million.

Of the $ 10.0 million aggregate purchase price paid, $ 7.6 million was allocated to our stock purchase in Syros and was recorded within long term investments on the consolidated balance sheet and $ 2.4 million, representing premium paid on the purchase, was allocated to research and development expense on the consolidated statement of operations for the year ended December 31, 2018.

Of the $ 10.0 million aggregate purchase price paid, $ 7.6 million was allocated to our stock purchase in Syros and was recorded within long term investments and $ 2.4 million, representing premium paid on the purchase, was allocated to research and development expense on the consolidated statement of operations for the year ended December 31, 2018.

Also in January 2018, we entered into an Amended Stock Purchase Agreement with Syros for the purchase of an additional 0.1 million common shares of Syros for an aggregate purchase price of $ 1.4 million in cash, or $ 9.55 per share.

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The fair market value of our long term investment in Syros as of December 31, 2020 and 2019 was $ 10.2 million and $ 6.5 million, respectively.

We have concluded Syros is not a VIE because it has sufficient equity to finance its activities without additional subordinated financial support and its at-risk equity holders have the characteristics of a controlling financial interest.

We concluded Syros is not a VIE because it has sufficient equity to finance its activities without additional subordinated financial support and its at-risk equity holders have the characteristics of a controlling financial interest.

As of December 31, 2020, we owned approximately 2 % of the outstanding shares of Syros common stock and there are several other stockholders who hold larger positions of Syros.

As we do not hold a significant position of the voting shares of Syros and lack the qualitative characteristics associated with the ability to exercise significant influence, our ownership interest does not meet the criteria to be accounted for as an equity method investment.

We intend to hold the investment in Syros for the foreseeable future and therefore, are accounting for our shares held in Syros at fair value under ASU No.

2016-01, and the investment is marked to market through earnings in each reporting period.

Given our intent to hold the investment for the foreseeable future, we have classified the investment within long term investments on the accompanying consolidated balance sheet.

For the years ended December 31, 2019 and 2018, we recorded an unrealized gain of $ 1.3 million and an unrealized loss of $ 3.7 million, respectively, based on the change in fair value of Syros’ common stock during these periods.

We intend to hold the investment in Syros for the foreseeable future and therefore, are accounting for our shares held in Syros at fair value, and the investment is marked to market through earnings in each reporting period.

Given our intent to hold the investment for the foreseeable

future, we have classified the investment within long term investments on the accompanying consolidated balance sheets.

For the years ended December 31, 2020, 2019 and 2018, we recorded an unrealized gain of $ 3.7 million, an unrealized gain of $ 1.3 million and an unrealized loss of $ 3.7 million, respectively, based on the change in fair market value of Syros’ common stock during these periods.

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

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, which was recorded in milestone and contract revenues on the consolidated statement of operations for the year ended December 31, 2019.

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.

In January 2019, we recognized an upfront payment under this agreement of $ 40.0 million upon our transfer of the functional intellectual property related to the clinical-stage product candidates to Innovent, which was recorded in milestone and contract revenues on the consolidated statement of operations for the year ended December 31, 2019.

The upfront milestone was recognized as revenue at a point in time upon our transfer of the licenses to Innovent for the right to use the functional intellectual property.

In addition, we were initially eligible to receive up to an additional $ 129.0 million in potential development and regulatory milestones.

We recognize development and regulatory milestones upon confirmation of achievement of the event, as development and regulatory approvals are events not controllable by us but rather development activities of Innovent and decisions made by regulatory agencies.

In 2020, we recognized a $ 5.0 million milestone for the FDA approval of pemigatinib as PEMAZYRE.

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

In the event of commercialization of the licensed molecule, we are eligible to receive up to $ 202.5 million in potential sales milestones from Innovent.

We will recognize sales milestones in the corresponding period of the product sale upon confirmation of net sales milestone threshold achievement by Innovent.

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 which was recorded in milestone and contract revenues on the consolidated statement of operations for the year ended December 31, 2019.

Research and development expenses for the year ended December 31, 2019 were net of $ 6.2 million of costs reimbursed by Innovent.

At December 31, 2019, $ 3.0 million of reimbursable costs were included in accounts receivable on the consolidated balance sheets.

Research and development expenses for the years ended December 31, 2020 and 2019 were net of $ 5.4 million and $ 6.2 million, respectively, of costs reimbursed by Innovent.

At December 31, 2020 and 2019, $ 1.2 million and $ 3.0 million, respectively, of reimbursable costs were included in accounts receivable on the consolidated balance sheets.

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

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.

In August 2019, we recognized an upfront payment under this agreement of $ 17.5 million upon our transfer of technology related to the licensed product candidate to Zai Lab, which was recorded in milestone and contract revenues on the consolidated statement of operations for the year ended December 31, 2019.

We are eligible to receive up to an additional $ 60.0 million in potential development, regulatory and commercial milestones, as well as tiered royalties from the low to mid-twenties.

In August 2019, we recognized an upfront payment under this agreement of $ 17.5 million upon our transfer of the functional intellectual property related to the licensed product candidate to Zai Lab, which was recorded in milestone and contract revenues on the consolidated statement of operations for the year ended December 31, 2019.

The upfront milestone was recognized as revenue at a point in time upon our transfer of the license to Zai Lab for the right to use the functional intellectual property.

The agreement allows for Zai Lab to continue development of the licensed molecule and to submit the licensed molecule to authorities for regulatory approval within the agreement territory, upon which we are eligible for up to $ 22.5 million in potential development and regulatory milestones.

In the event of commercialization of the licensed molecule, we are eligible to receive up to $ 37.5 million in potential sales milestones from Zai Lab.

We will recognize sales milestones in the corresponding period of the product sale upon confirmation of net sales milestone threshold achievement by Zai Lab.

We are also eligible to receive tiered royalties from the low to mid-twenties on future product sales resulting from the collaboration.

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

Research and development expenses for the year ended December 31, 2020 were net of $ 0.2 million of costs reimbursed by Zai Lab.

At December 31, 2020 and 2019, $ 0.6 million and $ 0.5 million, respectively, of reimbursable costs were included in accounts receivable on the condensed consolidated balance sheets.

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 (together with MorphoSys AG, “MorphoSys”), 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.

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.

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 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 is responsible for funding any independent development activities, and we are responsible for funding development activities specific to territories outside of the United States.

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

In March 2020, we paid MorphoSys an upfront non-refundable payment of $ 750.0 million which was recorded in research and development expense on the consolidated statement of operations for the year ended December 31, 2020.

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.

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.

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

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

In addition, under the collaboration agreement and pursuant to a related purchase agreement, we agreed to purchase American Depositary Shares (“ADSs”), each representing 0.25 of an ordinary share of MorphoSys AG, for an aggregate purchase price of $ 150.0 million or $ 41.33 per ADS (such ADSs to be purchased, the “New ADSs”).

We agreed, subject to limited exceptions, not to sell or otherwise transfer any of the New ADSs for an 18-month period after the closing date of the sale.

We completed the purchase of the ADSs on March 3, 2020 when the closing price on The Nasdaq Stock Market was $ 27.65 per ADS.

The New ADSs were not registered under the Securities Act of 1933 on the purchase date, and accordingly, we estimated a discount for lack of marketability on the shares of $ 4.9 million, which resulted in a net fair value of the shares on the issuance date of $ 95.5 million.

Of the $ 150.0 million aggregate purchase price paid, $ 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.

The fair market value of our long term investment in MorphoSys as of December 31, 2020 was $ 102.9 million.

We concluded MorphoSys is not a VIE because it has sufficient equity to finance its activities without additional subordinated financial support and its at-risk equity holders have the characteristics of a controlling financial interest.

As of December 31, 2020, we owned approximately 3 % of the outstanding shares of MorphoSys common stock and there are several other stockholders who hold larger positions of MorphoSys.

As we do not hold a significant position of the voting shares of MorphoSys and lack the qualitative characteristics associated with the ability to exercise significant influence, our ownership interest does not meet the criteria to be accounted for as an equity method investment.

We intend to hold the investment in MorphoSys for the foreseeable future and therefore, are accounting for our shares held in MorphoSys at fair value, and the investment is marked to market through earnings in each reporting period.

Given our intent to hold the investment for the foreseeable future, we have classified the investment within long term investments on the accompanying consolidated balance sheets.

For the year ended December 31, 2020, we recorded an unrealized gain of $ 7.4 million based on the change in fair market value of MorphoSys’ common stock during the period.

Our 50 % share of the United States loss for the commercialization of tafasitamab was $ 42.8 million for the year ended December 31, 2020 and is recorded as collaboration loss sharing on the consolidated statement of operations.

Research and development expenses for the year ended December 31, 2020, included $ 88.2 million related to our 55 % share of the co-development costs for tafasitamab.

At December 31, 2020, $ 54.2 million was included in accrued and other liabilities on the consolidated balance sheet for amounts due to MorphoSys under the agreement.

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 royalties on net sales in the low single digits.

Property and Equipment, net

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Depreciation expense, including amortization expense of leasehold improvements, was $ 29.6 million, $ 32.1 million and $ 32.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.

In March 2017, we acquired additional adjacent buildings to our global headquarters in Wilmington, Delaware and in 2019, began demolition of these buildings and construction of a new laboratory and office building totaling approximately 200,000 square feet.

As of December 31, 2020, we have capitalized approximately $ 79.5 million in on site preparation, design and construction costs and currently expect the building to be completed in the second half of 2021.

In February 2018, we signed an agreement to rent a building in Morges, Switzerland for an initial term of 15 years plus one year of free rent, with multiple options to extend for an additional 20 years .

The building will serve as our new European headquarters and will consist of approximately 100,000 square feet of office space.

This building will allow for

consolidation of our European operations that are currently located in Geneva and Lausanne, Switzerland.

Building permits were granted by the local government authorities in September 2018 and construction activity began immediately thereafter.

In June 2019, we obtained control of the Morges building to begin our construction activity.

At that time, we determined the lease to be a finance lease and recorded a lease liability of $ 31.1 million and a lease right-of-use asset of $ 29.1 million, net of a lease incentive from our landlord of $ 2.0 million.

As of December 31, 2019, we have capitalized approximately $ 13.8 million in on site preparation, design and construction costs.

The building serves as our new

European headquarters and consists of approximately 100,000 square feet of office space.

This building allowed for consolidation of our European operations that were located in Geneva and Lausanne, Switzerland.

In June 2019, we obtained control of the Morges building to begin our construction activity, which was completed in 2020.

At that time, we determined the lease to be a finance lease and recorded a lease liability of $ 31.1 million and a finance lease right-of-use asset of $ 29.1 million, net of a lease incentive from our landlord of $ 2.0 million.

As of December 31, 2020, we have capitalized approximately $ 17.9 million in leasehold improvements.

In July 2018, we signed an agreement to purchase land located in Yverdon, Switzerland.

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Construction activity commenced in July 2018, and as of December 31, 2020, we have capitalized approximately $ 167.4 million in costs for construction, ground preparation and architectural and engineering studies.

We currently anticipate the facility will be completed in the second half of 2020.

As stated in Note 1, in January 2019, we adopted ASC 842, Leases, which changed the accounting and reporting of our lease activity.

We currently expect the facility will be operational in the second half of 2021.

We are the lessee of several contracts, including those to secure fleet vehicles, buildings and equipment.

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Some of our building leases include options to renew and the exercise of these options is at our discretion.

Our current operating lease liabilities are reflected in accrued and other current liabilities and our noncurrent operating lease liabilities are reflected in other liabilities on the consolidated balance sheets.

As of December 31, 2019 our lease liabilities are as follows (in thousands):

Operating lease liabilities

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Total lease liabilities

The cash paid for amounts included in the measurement of our operating lease liabilities for the year ended December 31, 2019 was $ 11.9 million in operating cash flows.

The cash paid for amounts included in the measurement of our finance lease liabilities for the year ended December 31, 2019 was $ 0.8 million in financing cash flows.

The maturity of our lease liabilities are as follows (in thousands):

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Present value of lease liabilities

The cash paid for amounts included in the measurement of our operating lease liabilities for the years ended December 31, 2020 and 2019 was $ 12.1 million and $ 11.9 million, respectively, in operating cash flows.

The cash paid for amounts included in the measurement of our finance lease liabilities for the years ended December 31, 2020 and 2019 was $ 0.8 million in financing cash flows.

As of December 31, 2020, our finance and operating leases had a weighted average lease term of approximately 14.2 and 4.7 years, respectively.

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The weighted average discount rate of our finance and operating leases is approximately 3.7 % and 4.7 %, respectively.

As of December 31, 2019, our finance and operating leases had a weighted average lease term of approximately 15.8 and 3.0 years, respectively, and the weighted average discount rate of our finance and operating leases was approximately 3.6 % and 4.5 %, respectively.

For the year ended December 31, 2020, we incurred approximately $ 12.5 million of expense related to our operating leases, approximately $ 2.6 million of amortization on our finance lease right-of-use assets and approximately $ 1.2 million of interest expense on our finance lease liabilities.

For the year ended December 31, 2019, the cost of our short term leases with a term less than 12 months was approximately $ 1.1 million.

We estimate rent expense for our short term leases for the next twelve months to be approximately $ 1.0 million.

Rent expense for all leases for the years ended December 31, 2019, 2018 and 2017, was approximately $ 14.2 million, $ 9.4 million and $ 8.2 million, respectively.

For the year ended December 31, 2019, we incurred approximately $ 12.7 million of expense related to our operating leases, approximately $ 1.7 million of amortization on our finance lease right-of-use assets and approximately $ 0.6 million of interest expense on our finance lease liabilities.

For the years ended December 31, 2020 and 2019, the cost of our short term leases with a term less than 12 months was approximately $ 1.9 million and $ 1.1 million, respectively.

Intangible Assets and Goodwill

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Amortization expense

For the year ended December 31, 2017, we considered our previously acquired indefinite-lived in-process research and development asset to be impaired and recorded a $ 12.0 million impairment charge in research and development expense on the consolidated statements of operations.

The impairment was due to the discontinuation of the ICLUSIG clinical study, OPTIC-2L, by ARIAD.

OPTIC-2L was included in the initial fair value assumptions upon acquisition on June 1, 2016.

There were no changes to the carrying amount of goodwill for the years ended December 31, 2020 and 2019.

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Construction in progress

Financing lease liability

Operating lease liabilities

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Convertible Notes

The components of the convertible notes were as follows (in thousands):

Carrying Amount

Interest Rates

December 31, 2019

1.25 % Convertible Senior Notes due 2020

The carrying amount and fair value of our convertible notes were as follows (in thousands):

1.25 % Convertible Senior Notes due 2020

On November 14, 2013, we issued, in a private placement, $ 375.0 million aggregate principal amount of 0.375 % Convertible Senior Notes (the “2018 Notes”) and $ 375.0 million aggregate principal amount of 1.25 % Convertible Senior Notes (the “2020 Notes”).

The 2018 Notes bore interest at a rate of 0.375 % per annum and the 2020 Notes bear interest at a rate of 1.25 % per annum, in each case payable semi-annually in arrears in cash on May 15 and November 15, beginning on May 15, 2014.

The 2018 Notes matured on November 15, 2018 and the 2020 Notes will mature on November 15, 2020, unless earlier purchased or converted.

We may not redeem the 2020 Notes prior to their relevant scheduled maturity dates.

The fair value of the 2020 Notes is based on data from readily available pricing sources which utilize market observable inputs and other characteristics for similar types of instruments, and, therefore, is classified within Level 2 in the fair value hierarchy.

The fair value as of December 31, 2019 of the 1.25 % Convertible Senior Notes that matured on November 15, 2020 (the “2020 Notes”) was based on data from readily available pricing sources which utilize market observable inputs and other characteristics for similar types of instruments, and, therefore, is classified within Level 2 in the fair value hierarchy.

Prior to May 14, 2014, the 2020 Notes were not convertible except in connection with a make-whole fundamental change, as defined in the indenture.

Beginning on, and including, May 15, 2014, the 2020 Notes are convertible prior to the close of business on the business day immediately preceding May 15, 2020 only under the following circumstances:

Beginning on, and including, May 15, 2014, the 2020 Notes were convertible prior to the close of business on the business day immediately preceding May 15, 2020 only under the following circumstances:

(i) during any calendar quarter commencing after the calendar quarter ending on March 31, 2014 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price for the 2020 Notes on each applicable trading day;

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or (iii) upon the occurrence of specified corporate events.

On or after May 15, 2020 until the close of business on the second scheduled trading day immediately preceding the relevant maturity date, the 2020 Notes are convertible at any time, regardless of the foregoing circumstances.

Upon conversion we will pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at our election.

Management’s intent is to settle any conversions of the 2020 Notes in shares of our common stock.

On January 1, 2020, the 2020 Notes became convertible through at least March 31, 2020, based on meeting the conversion criteria related to the sale price of our common stock during the calendar quarter ended December 31, 2019 as described in (i) above.

The initial conversion rate for the 2020 Notes is 19.3207 shares of common stock per $ 1,000 principal amount, equivalent to an initial conversion price of approximately $ 51.76 per share.

The conversion rate for the 2020 Notes will be subject to adjustment for certain events but will not be adjusted for any accrued and unpaid interest.

Upon the occurrence of certain fundamental changes, the holders of the 2020 Notes may require us to purchase all or a portion of their 2020 Notes for cash at a price equal to 100 % of the principal amount of the 2020 Notes, plus accrued and unpaid interest, including additional interest, if any, to, but excluding, the fundamental change purchase date.

In addition, if, and to the extent, a holder elects to convert any 2020 Notes in connection with a make-whole fundamental change transaction, as defined in the indenture, we will, under certain circumstances, increase the applicable conversion rate by a number of additional shares of our common stock.

Since the 2020 Notes can be settled in cash or common shares or a combination of cash and common shares at our option, we determined the embedded conversion options in the 2020 Notes are not required to be separately accounted for as a derivative.

However, since the 2020 Notes are within the scope of the accounting guidance for cash convertible instruments, we are required to separate the 2020 Notes into a liability and equity component.

The carrying amount of the liability component is calculated by measuring the fair value of a similar liability that does not have an associated equity component.

The carrying amount of the equity component representing the embedded conversion option is determined by deducting the fair value of the liability component from the initial proceeds.

The excess of the principal amount of the liability component over its carrying amount is amortized to interest expense over the expected life of a similar liability that does not have an associated equity component using the effective interest method.

The equity component is not re-measured as long as it continues to meet the conditions for equity classification in the accounting guidance for contracts in an entity’s own equity.

The liability component of the 2020 Notes on the date of issuance was estimated at $ 274.8 million, and accordingly, the equity component on the date of issuance was $ 100.2 million.

The discount on the 2020 Notes is being amortized to interest expense over the term of the 2020 Notes, using the effective interest method.

The carrying value of the 2020 Notes was $ 18.3 million and $ 17.4 million, respectively, (net of $ 0.8 million and $ 1.7 million debt discount and issuance costs, respectively) at December 31, 2019 and 2018.

During the year ended December 31, 2017, we recognized $ 54.9 million of expense related to senior note conversions on the consolidated statement of operations for the conversion of $ 367.2 million in aggregate principal amount of the 2018 Notes and $ 355.6 million in aggregate principal amount of the 2020 Notes in exchange for shares of our common stock and cash.

Included in the conversions were those with entities affiliated with Julian C.

Baker, one of our directors and principal stockholders, which agreed to exchange $ 259.0 million in aggregate principal amount of the 2018 Notes and $ 274.5 million in aggregate principal amount of the 2020 Notes for shares of our common stock.

On or after May 15, 2020 until the close of business on the second scheduled trading day immediately preceding the maturity date, the 2020 Notes were convertible at any time, regardless of the foregoing circumstances.

Upon conversion we had the option to pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock.

The initial conversion rate for the 2020 Notes was 19.3207 shares of common stock per $ 1,000 principal amount, equivalent to an initial conversion price of approximately $ 51.76 per share.

Prior to maturity on November 15, 2020, we settled, upon conversion, the remaining 2020 Notes principal balance in shares of common stock.

Stockholders’ Equity

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2010 Stock Incentive Plan.

In May 2010 the Board of Directors adopted the 2010 Stock Incentive Plan, which was amended and restated in April 2013 and in March 2019 (the “2010 Plan”), for issuance of common stock to employees, non-employee directors, consultants, and scientific advisors.

Options are granted to employees, consultants, and scientific advisors under the 2010 Plan, pursuant to a formula determined by our Board of Directors.

In May 2010 the Board of Directors adopted the 2010 Stock Incentive Plan (the “2010 Stock Plan”), which was most recently amended and restated in March 2019, for issuance of common stock to employees, non-employee directors, consultants, and scientific advisors.

Options are granted to employees, consultants, and scientific advisors under the 2010 Stock Plan, pursuant to a formula determined by our Board of Directors.

All options are exercisable at the fair market value of the stock on the date of grant.

Non-employee director options expire after ten years .

In April 2019, our stockholders approved an increase in the number of shares of common stock reserved for issuance under the 2010 Plan from 36,753,475 to 44,453,475 .

In April 2019, our stockholders approved an increase in the number of shares of common stock reserved for issuance under the 2010 Stock Plan from 36,753,475 to 44,453,475 .

Option activity under the 2010 Stock Plan was as follows:

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At December 31, 2020, the aggregate intrinsic value of options outstanding and vested options are $ 86.3 million and $ 84.3 million, respectively.

The following table summarizes information about stock options outstanding as of December 31, 2019 under the 2010 Plan:

The following table summarizes information about stock options outstanding as of December 31, 2020 under the 2010 Stock Plan:

Options Outstanding

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Restricted Stock Units and Performance Shares

In January 2014, we began granting RSUs and PSUs to our employees at the share price on the date of grant.

In January 2014, we began granting restricted stock units (“RSUs”) and performance shares (“PSUs”) to our employees at the share price on the date of grant.

Each RSU represents the right to acquire one share of our common stock.

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In July 2016, we revised the terms of our RSU grants to provide that the awards will vest 25 % annually over four years .

Also, in January 2014, Hervé Hoppenot, our President and Chief Executive Officer, was granted a one-time grant of 400,000 RSUs outside of our 2010 Stock Incentive Plan.

Vesting of the RSUs will be subject to Mr.

Hoppenot’s continued employment on the applicable vesting dates, with one-sixth of the RSUs vesting at the end of each of the calendar years 2014 through 2019, subject to earlier acceleration of vesting upon the occurrence of certain events in accordance with the terms of his employment agreement.

As of December 31, 2019, all of the RSUs granted to Mr.

Hoppenot were vested.

In June 2018, we granted 190,000 RSUs and 446,500 PSUs under long term incentive plans with performance and/or service-based milestones with graded and/or cliff vesting over three to four years .

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For one of the existing long term incentive plans, under which 106,500 PSUs were granted, the actual number of shares of our common stock into which each PSU may convert was subject to a multiplier of up to 267 % based on the level at which the performance conditions were achieved.

The actual number of shares of our common stock into which each PSU will convert is at a multiplier of 142 % based on the performance conditions being achieved as of March 31, 2019.

The actual number of shares of our common stock into which each PSU will convert is at a multiplier of 142 % based on the performance conditions being achieved as of March 31, 2019 and

will continue to vest through June 2022.

For an existing long term incentive plan, under which 150,000 PSUs were granted, the actual number of shares of our common stock into which each PSU may convert was subject to a multiplier of up to 100 % if all performance conditions were achieved or 0 % if no performance conditions were achieved.

The actual number of shares of our common stock into which each PSU will convert is at a multiplier of 100 % based on the performance conditions being achieved as of December 31, 2019.

The actual number of shares of our common stock into which each PSU will convert is at a multiplier of 100 % based on the performance conditions being achieved as of December 31, 2019 and will cliff vest in June 2021.

Compensation expense for the performance-based awards is recorded over the estimated service period for each milestone when the performance conditions are deemed probable of achievement.

For the year ended December 31, 2019, the stock compensation expense recorded during the period was for service-based awards and performance conditions deemed probable of achievement and/or achieved.

For the period ended December 31, 2020, the stock compensation expense recorded during the period was for service-based awards and performance conditions deemed probable of achievement and/or achieved.

For PSUs containing performance conditions which were not deemed probable of achievement at December 31, 2020, no stock compensation expense was recognized.

In July 2018, we granted 77,243 PSUs to executives with a performance milestone and graded vesting over four years .

In July 2018, we granted 77,243 PSUs to executives with performance milestones and graded vesting over four years .

The shares of our common stock into which each PSU may convert is subject to a multiplier up to 150 % based on the level at which the performance condition is achieved.

Compensation expense for the performance-based awards is recorded over the estimated service period when the performance condition is deemed probable of achievement.

The actual number of shares of our common stock into which each PSU will convert is at a multiplier of 83 % based on the performance condition being achieved as of December 31, 2018.

The actual number of shares of our common stock into which each PSU converted was at a multiplier of 83 % based on the performance condition being achieved as of December 31, 2018.

These PSUs will continue to vest through July 2022.

In July 2019, we granted 86,975 PSUs to executives with a performance milestone and graded vesting over four years .

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The actual number of shares of our common stock into which each PSU will convert is at a multiplier of 101.8 % based on the performance condition being achieved as of December 31, 2019.

These PSUs will continue to vest through July 2023.

In July 2020, we granted 92,347 PSUs to executives with performance milestones and cliff vesting on the third anniversary from date of grant.

The shares of our common stock into which each PSU may convert is subject to a multiplier up to 200 % based on the level at which the financial and developmental performance conditions are achieved over the service period which ends December 31, 2022.

Compensation expense for the performance-based awards is recorded over the estimated service period for each milestone when the performance conditions are deemed probable of achievement.

For PSUs containing performance conditions which were not deemed probable of achievement at December 31, 2020, no stock compensation expense was recognized.

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

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The following table summarizes our shares available for grant under the 2010 Plan.

E ach RSU and PSU grant reduces the available share pool by 2 shares.

Shares Available

Balance at December 31, 2019

Additional authorization

Options, RSUs and PSUs granted

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Employee Stock Purchase Plan.

On May 21, 1997, our stockholders adopted the 1997 Employee Stock Purchase Plan (the “ESPP”).

On May 21, 1997, our stockholders adopted the 1997 Employee Stock Purchase Plan, which was most recently amended in April 2020 (the “ESPP”).

Each regular full-time and part-time employee working 20 hours or more per week is eligible to participate after one month of employment.

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Stock compensation expense within our consolidated statements of operations also included selling, general and administrative expense for the years ended December 31, 2020, 2019 and 2018 of $ 56.6 million, $ 51.9 million and $ 47.1 million, respectively.

Stock compensation expense within our consolidated statements of operations also included cost of product revenues for the year ended December 31, 2019 of $ 0.7 million.

For the years ended December 31, 2019 and 2018, we capitalized $ 0.4 million and $ 0.1 million, respectively, of stock compensation expense as part of the cost of an asset.

Stock compensation expense within our consolidated statements of operations also included cost of product revenues for the years ended December 31, 2020 and 2019 of $ 1.0 million and $ 0.7 million respectively.

For the years ended December 31, 2020, 2019 and 2018, we capitalized $ 0.6 million, $ 0.4 million and $ 0.1 million, respectively, of stock compensation expense as part of the cost of an asset.

We utilized the Black-Scholes valuation model for estimating the fair value of the stock options granted, with the following weighted-average assumptions:

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federal statutory rate

Unbenefited net operating losses and tax credits

Unbenefited future tax deductions and tax credits

Excess tax benefits related to share-based compensation

Deferred tax impact of Tax Cuts and Jobs Act of 2017

Foreign tax rate differential

Non-deductible officer compensation

Foreign-derived intangible income

Provision for income taxes

Statutory U.S.

federal income tax rate of 21 % in 2019, 21 % in 2018 and 35 % in 2017.

The foreign tax rate differential in the table above reflects the impact of operations in jurisdictions with tax rates that differ from the U.S.

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2035 through 2040

The valuation allowance for deferred tax assets decreased by approximately $ 66.5 million during the year ended December 31, 2019, increased by approximately $ 2.2 million during the year ended December 31, 2018 and increased by approximately $ 14.6 million during the year ended December 31, 2017.

The net valuation allowance decreased during 2019 was primarily due to the utilization of NOLs and research and development (“R&D”) credits in the U.S., and a tax rate reduction impacting the value of certain foreign deferred tax assets.

This was partially offset by the generation of U.S.

federal R&D credits, orphan drug credits and foreign NOLs.

The valuation allowance for deferred tax assets increased by approximately $ 159.7 million during the year ended December 31, 2020, decreased by approximately $ 66.5 million during the year ended December 31, 2019 and increased by approximately $ 2.2 million during the year ended December 31, 2018.

The net valuation allowance increase during 2020 was primarily due to the generation of future deductible temporary differences and foreign NOLs offset by a net utilization of research and development (“R&D”) and orphan drug credits in the U.S.

Valuation allowances require an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable.

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Based upon our analysis of our historical operating results, as well as projections of our future taxable income (losses) during the periods in which the temporary differences will be recoverable, management believes the uncertainty regarding the realization of our U.S.

and Swiss net deferred tax assets requires a full valuation allowance against such net

assets as of December 31, 2019.

When performing our assessment on projections of future taxable income (losses), we consider factors such as the likelihood of regulatory approval and commercial success of products currently under development, among other factors.

and Swiss net deferred tax assets requires a full valuation allowance against such net assets as of December 31, 2020.

When performing our assessment on projections of future taxable income (losses), we

consider factors such as the likelihood of regulatory approval and commercial success of products currently under development, among other factors.

The financial statement recognition of the benefit for a tax position is dependent upon the benefit being more likely than not to be sustainable upon audit by the applicable taxing authority.

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Our policy is to recognize interest and penalties related to uncertain tax positions, if any, as a component of income tax expense.

During the years ended December 31, 2019, 2018 and 2017, we recorded interest and penalties as a component of income tax expense of $ 0.2 million, $ 0.1 million and $ 0.3 million, respectively.

During the year ended December 31, 2020, we recorded a negligible reduction to interest and penalties as a component of income tax expense.

During the years ending December 31, 2019 and 2018, we recorded interest and penalties as a component of income tax expense of $ 0.2 million and $ 0.1 million, respectively.

We do not anticipate any significant changes to our unrecognized tax benefits during the next twelve months.

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Our basic net income (loss) per share is computed by dividing the net income (loss) by the number of weighted average common shares outstanding during the period.

Our diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average common shares outstanding during the period assuming potentially dilutive common shares of stock options, RSUs, PSUs and common shares issuable upon conversion of the 2018 Notes and 2020 Notes using the if-converted method.

Common shares issuable upon conversion of the 2018 Notes and 2020 Notes were excluded from the diluted net income (loss) per share computation for all periods presented as their share effect was anti-dilutive.

Common shares issuable upon conversion of the 2020 Notes were excluded from the diluted net income (loss) per share computation for all periods presented as their share effect was anti-dilutive.

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

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Common shares issuable upon conversion of the 2020 Notes

Total potential common shares excluded from diluted net income (loss) per share computation

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The 2020 net periodic benefit cost for the plans was determined using discount rates of 0.30 %, rates of compensation increase of 2.25 % and long-term expected return on plan assets of 0.30 %.

The benefit obligation at December 31, 2018 for the plans was determined using a discount rate of 0.75 %, rate of compensation increase of 2.25 % and long-term expected return on plan assets of 0.75 %.

The 2018 net periodic benefit

cost for the plans was determined using discount rates of 0.75 % to 1.00 %, rates of compensation increase of 2.00 % to 2.25 % and long-term expected return on plan assets of 0.75 %.

The benefit obligation at December 31, 2019 for the plans was determined using a discount rate of 0.30 % and rate of compensation increase of 2.25 %.

The 2019 net periodic benefit cost for the plans was determined using discount rates of 0.75 %, rates of compensation increase of 2.25 % and long-term expected return on plan assets of 0.75 %.

Summarized information regarding changes in the obligations and plan assets, the funded status and the amounts recorded were as follows (in thousands):

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Expenses paid from assets

Translation loss (gain)

Translation loss

Benefit obligation, end of year

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Expenses paid from assets

Translation loss (gain)

Translation gain

Fair value of plan assets, end of year

Unfunded liability, end of year

The unfunded liability is reported in other liabilities on the consolidated balance sheet as of December 31, 2019 and 2018.

The unfunded liability is reported in other liabilities on the consolidated balance sheets as of December 31, 2020 and 2019.

The accumulated benefit obligation is $ 83.2 million and $ 52.9 million as of December 31, 2020 and 2019, respectively.

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Pension liability, end of year

The prior service cost for the pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $ 0.2 million.

The actuarial loss for the pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $ 0.7 million.

We expect to contribute a total of $ 6.0 million to the pension plans in 2021.

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Commitments and Contingencies

Future non-cancelable minimum lease payments as of December 31, 2019 are as follows (in thousands):

Operating Leases

Finance Leases

Total minimum lease payments

Future non-cancelable minimum lease payments as of December 31, 2018, prior to the adoption of ASC 842, were as follows (in thousands):

Operating Leases

Capital Leases

Financing Lease 1

Total minimum lease payments

Represents the future minimum lease payments related to a lease where we were deemed, for accounting purposes, to be the owner of the building.

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.

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.

Information on our future lease obligations are described in Note 7.

We have entered into the collaboration agreements described in Note 6, as well as various other collaboration agreements that are not individually, or in the aggregate, significant to our operating results or financial condition at this time.

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

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

In December 2018, we received a civil investigative demand from the U.S.

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We have cooperated with this inquiry.

In November 2019, the qui tam complaint underlying the DOJ inquiry was unsealed (“Complaint”), at which time we learned that a former employee whom we had terminated had made certain allegations relating to the programs described above.

We then became aware that the DOJ had not intervened in the qui tam action, and, to our knowledge, the DOJ has not intervened to date.

We filed an answer to the Complaint on January 22, 2020, and the action is proceeding.

The DOJ has not intervened to date.

We filed an Answer to the Complaint on January 22, 2020 and on November 12, 2020, we filed a Motion for Summary Judgment (Motion).

All briefing on the Motion was completed on December 22, 2020 and the Judge will rule on the Motion based on these filings in due course.

A trial date has not been set.

We intend to continue defending ourselves vigorously against these allegations.

We cannot predict the outcome or the timing of the ultimate resolution of the investigation or qui tam action, or reasonably estimate the possible range of loss, if any, that may result from these matters.

Accordingly, no reserve has been made with respect to these matters in the 2019 financial statements.

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.

Accordingly, no reserve has been made with respect to these matters as of December 31, 2020.

In the ordinary course of our business, we may become involved in lawsuits, proceedings, and other disputes, including commercial, intellectual property, regulatory, employment, and other matters.

We record a reserve for these matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

Segment Information

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During the year ended December 31, 2018, total revenues generated by subsidiaries in the United States was $ 1.8 billion and total revenues generated from subsidiaries in Europe was $ 79.9 million.

As of December 31, 2019, property and equipment, net was approximately $ 261.7 million in the United States and approximately $ 109.9 million in Europe.

As of December 31, 2020, property and equipment, net was approximately $ 336.9 million in the United States, approximately $ 218.0 million in Europe and approximately $4.7 million in Japan.

As of December 31, 2019, property and equipment, net was approximately $ 261.7 million in the United States and approximately $ 109.9 million in Europe.

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September 30,

Basic net income per share

Diluted net income per share

Shares used in computation of basic net income per share

Shares used in computation of diluted net income per share

Fiscal 2018 Quarter Ended

(in thousands, except per share data)

September 30,

Net income (loss)

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Shares used in computation of diluted net income (loss) per share

Fiscal 2019 Quarter Ended

(in thousands, except per share data)

September 30,

Basic net income per share

Diluted net income per share

Shares used in computation of basic net income per share

Shares used in computation of diluted net income per share

(1) The quarters ended March 31, 2020, June 30, 2020, September 30, 2020 and December 31, 2020 include $ 486.7 million, $ 500.3 million, $ 522.3 million, and $ 559.5 million, respectively, of product revenues, net, relating to JAKAFI, ICLUSIG and PEMAZYRE.

The quarters ended March 31, 2020, June 30, 2020, September 30, 2020 and December 31, 2020 include $ 81.8 million, $ 92.8 million, $ 98.4 million and $ 119.9 million, respectively, of product royalty revenues related to the sale of JAKAVI and OLUMIANT outside the United States and TABRECTA worldwide.

The quarters ended March 31, 2020, June 30, 2020, September 30, 2020 and December 31, 2020 include $ 0.0 million, $ 95.0 million, $ 0.0 million and $ 110.0 million, respectively, of milestone and contract revenues relating to the Innovent, Lilly and Novartis agreements.

(2) The quarters ended March 31, 2019, June 30, 2019, September 30, 2019 and December 31, 2019 include $ 396.2 million, $ 433.9 million, $ 454.0 million, and $ 490.8 million, respectively, of product revenues, net, relating to JAKAFI and ICLUSIG.

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In December 2018 and July 2019, we entered into collaborative research and license agreements with Innovent and Zai Lab, respectively.

The quarters ended March 31, 2019, June 30, 2019, September 30, 2019 and December 31, 2019 include $ 40.0 million, $ 20.0 million, $ 17.5 million and $ 0.0 million, respectively, of milestone and contract revenues relating to these agreements.

(2) The quarters ended March 31, 2018, June 30, 2018, September 30, 2018 and December 31, 2018 include $ 334.5 million, $ 365.5 million, $ 367.7 million, and $ 399.2 million, respectively, of product revenues, net, relating to JAKAFI and ICLUSIG.

The quarters ended March 31, 2018, June 30, 2018, September 30, 2018 and December 31, 2018 include $ 47.7 million, $ 56.0 million, $ 61.9 million and $ 69.2 million, respectively, of product royalty revenues related to the sale of JAKAVI and OLUMIANT outside the United States.

In November 2009 and December 2009, we entered into collaborative research and license agreements with Novartis and Lilly, respectively.

The quarters ended March 31, 2018, June 30, 2018, September 30, 2018 and December 31, 2018 include $ 0.0 million, $ 100.0 million, $ 20.0 million and $ 60.0 million, respectively, of milestone and contract revenues relating to these agreements.

Subsequent Event

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.

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.

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;

however, certain confidentiality and antitrust filing provisions became effective upon execution of the agreement.

In addition, under the collaboration agreement and pursuant to a related purchase agreement, we have agreed to purchase American Depositary Shares (“ADSs”), each representing 0.25 of an ordinary share of MorphoSys AG, for an aggregate purchase price of $ 150 million (such ADSs to be purchased, the “New ADSs”).

Under the purchase agreement, we have agreed, subject to limited exceptions, not to sell or otherwise transfer any of the New ADSs for an 18-month period.

Closing of the purchase of the New ADSs is subject to customary conditions, as well as the effectiveness of the collaboration agreement described above.

The quarters ended March 31, 2019, June 30, 2019, September 30, 2019 and December 31, 2019 include $ 40.0 million,

$ 20.0 million, $ 17.5 million and $ 0.0 million, respectively, of milestone and contract revenues relating to these agreements.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data