What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-04 compared with 2020-11-05 · 249 added, 390 removed, 776 unchanged (45% of the section changed)

3 unchanged sentences

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

September 30,

Current assets:

15 unchanged sentences

Accrued compensation

Interest payable

Accrued and other current liabilities

Finance lease liabilities

Convertible senior notes

Acquisition-related contingent consideration

4 unchanged sentences

Total liabilities

Commitments and contingencies (Note 15)

Stockholders’ equity:

1 unchanged sentence

5,000,000 shares authorized;

none issued or outstanding as of September 30, 2020 and December 31, 2019

none issued or outstanding as of March 31, 2021 and December 31, 2020

Common stock, $ 0.001 par value;

400,000,000 shares authorized;

218,903,097 and 216,177,830 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

219,880,198 and 219,489,329 shares issued and outstanding as of March 31, 2021 and December 31, 2020 , respectively

Additional paid-in capital

5 unchanged sentences

Total liabilities and stockholders’ equity

* The condensed consolidated balance sheet at December 31, 2019 has been derived from the audited financial statements at that date.

* The condensed consolidated balance sheet at December 31, 2020 has been derived from the audited consolidated financial statements at that date.

See accompanying notes .

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Product revenues, net

Product royalty revenues

Milestone and contract revenues

Total revenues

9 unchanged sentences

Interest expense

Unrealized gain (loss) on long term investments

Unrealized loss on long term investments

Income (loss) before provision for income taxes

8 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Net income (loss)

Other comprehensive income:

Other comprehensive income (loss):

Foreign currency translation

1 unchanged sentence

Defined benefit pension obligations, net of tax

Other comprehensive income

Other comprehensive income (loss)

Comprehensive income (loss)

3 unchanged sentences

(unaudited, in thousands, except number of shares)

For the Nine Months Ended September 30, 2020

For the Three Months Ended March 31, 2020

Accumulated Other

10 unchanged sentences

( 2,151,400 )

Issuance of 936,688 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units and 175,615 shares of Common Stock under the ESPP

Issuance of 1,403 shares of Common Stock for services rendered

Issuance of 3,187 shares of Common Stock upon conversion of Convertible Senior Notes due 2020

Stock compensation

Other comprehensive income

Balances at June 30, 2020

( 1,861,102 )

Issuance of 698,032 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units and performance shares

Issuance of 1,434 shares of Common Stock for services rendered

Issuance of 134,413 shares of Common Stock upon conversion of Convertible Senior Notes due 2020

Stock compensation

Other comprehensive income

Balances at September 30, 2020

( 1,876,305 )

INCYTE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

(unaudited, in thousands, except number of shares)

For the Nine Months Ended September 30, 2019

For the Three Months Ended March 31, 2021

Accumulated Other

7 unchanged sentences

Stock compensation

Adoption of ASU No.

Other comprehensive income

Other comprehensive loss

Balances at March 31, 2021

( 1,672,920 )

Issuance of 400,292 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units and 143,379 shares of Common Stock under the ESPP

Issuance of 1,444 shares of Common Stock for services rendered

Stock compensation

Other comprehensive income

Balances at June 30, 2019

( 1,670,034 )

Issuance of 506,199 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units

Issuance of 1,629 shares of Common Stock for services rendered

Stock compensation

Other comprehensive income

Balances at September 30, 2019

( 1,541,763 )

See accompanying notes.

2 unchanged sentences

(unaudited, in thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities :

3 unchanged sentences

Stock-based compensation

Unrealized gain on long term investments

Unrealized loss on long term investments

Change in fair value of acquisition-related contingent consideration

4 unchanged sentences

Accrued and other liabilities

Net cash (used in) provided by operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities :

Purchase of long term investments

Purchase of long term investment

Sale of long term investment

9 unchanged sentences

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

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

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

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

1 unchanged sentence

Supplemental Schedule of Cash Flow Information

Interest paid

Income taxes paid

Reclassification to common stock and additional paid in capital in connection with conversions of 1.25 % convertible senior notes due 2020

Unpaid purchases of property and equipment

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

March 31, 2021

Organization and business

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

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

Our operations are treated as one operating segment.

2 unchanged sentences

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

The condensed consolidated balance sheet as of September 30, 2020, the condensed consolidated statements of operations, comprehensive income (loss), and stockholders’ equity for the three and nine months ended September 30, 2020 and 2019, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

The condensed consolidated balance sheet as of March 31, 2021, the condensed consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the three months ended March 31, 2021 and 2020, are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

The condensed consolidated balance sheet at December 31, 2020 has been derived from our audited consolidated financial statements.

23 unchanged sentences

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.

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.

1 unchanged sentence

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.

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.

6 unchanged sentences

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.

These receivables are assessed for signs of credit deterioration and in the Company’s sales history and future expectations of economic conditions, there are minimal instances of bad debts or uncollected receivables.

Cash and Cash Equivalents.

9 unchanged sentences

Accounts Receivable.

As of September 30, 2020 and December 31, 2019, we had an immaterial 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 March 31, 2021 and December 31, 2020, 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, which 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 expected to be collected.

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.

10 unchanged sentences

If both of these criteria are satisfied, we are identified as the primary beneficiary of the VIE.

As of September 30, 2020, there were no entities in which we held a variable interest which we determined to be VIEs.

As of March 31, 2021, there were no entities in which we held a variable interest which we determined to be VIEs.

Long Term Investments.

10 unchanged sentences

Lease Accounting.

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

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.

14 unchanged sentences

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.

Goodwill is not amortized but is tested for impairment at the reporting unit level at least annually as of October 1 or when a triggering event occurs that could indicate a potential impairment by assessing qualitative factors or performing a quantitative analysis in determining whether it is more likely than not that the fair value of net assets are below their carrying amounts.

Goodwill is not amortized but is tested

for impairment at the reporting unit level at least annually as of October 1 or when a triggering event occurs that could indicate a potential impairment by assessing qualitative factors or performing a quantitative analysis in determining whether it is more likely than not that the fair value of net assets are below their carrying amounts.

A reporting unit is the same as, or one level below, an operating segment.

5 unchanged sentences

The primary factors used to assess the likelihood of realization are our recent history of cumulative earnings or losses, expected reversals of taxable temporary timing differences, forecasts of future taxable income and available tax planning strategies that could be implemented to realize the deferred tax assets.

Upon evaluating and weighting both positive and negative evidence, we concluded that we should continue to maintain the valuation allowance on the majority of our deferred tax assets as of September 30, 2020.

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.

6 unchanged sentences

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 nine months ended September 30, 2020, we have delayed the payment of certain employer payroll tax amounts to future periods as allowed under the Act.

During the three months ended March 31, 2021, we have continued to delay 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 the overview to Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Item 1A.

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.

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 condensed consolidated balance sheets.

Net Income (Loss) Per Share.

4 unchanged sentences

Revenue Recognition.

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

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

Product Revenues

28 unchanged sentences

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.

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.

9 unchanged sentences

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 revenue recognition guidance in ASC 606 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 and 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.

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 the three months ended March 31, 2021 and 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

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.

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

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

12 unchanged sentences

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.

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

To ensure that research and development costs are expensed as incurred, we record monthly accruals for clinical trials and preclinical testing costs based on the work performed under the contract.

2 unchanged sentences

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

These professional fees

are expensed based on their percentage of completion at a particular date.

Our CRO contracts generally include pass through fees.

These professional fees are expensed based on their percentage of completion at a particular date.

Our CRO contracts generally include pass

through fees.

Pass through fees include, but are not limited to, regulatory expenses, investigator fees, travel costs, and other miscellaneous costs, including shipping and printing fees.

12 unchanged sentences

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.

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 three months ended March 31, 2021 and 2020, advertising expenses were approximately $ 10.8 million and $ 4.8 million, respectively.

Long Term Incentive Plans.

8 unchanged sentences

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 condensed consolidated statement of operations.

For the three and nine months ended September 30, 2020, collaboration loss sharing represents our 50 % share of the United States loss for commercialization of tafasitamab under our agreement with MorphoSys, which is described in Note 9 below.

For the three months ended March 31, 2021 and 2020, collaboration loss sharing represents our 50 % share of the United States loss for commercialization of MONJUVI (tafasitamab) under our agreement with MorphoSys.

Recent Accounting Pronouncements

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 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.

The measurement of expected credit losses is based on relevant information about past events,

including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts.

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 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.

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.

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.

We adopted this guidance for the period beginning January 1, 2020 and enhanced our disclosures in Note 4 to the condensed consolidated financial statements to comply with the standard.

In August 2018, the FASB issued ASU No.

2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans – General,” an update to Subtopic ASC 715-20.

The guidance amended year-end disclosure requirements related to defined benefit pension plans, and does not affect interim disclosures.

The guidance is effective for fiscal years ending after December 15, 2020 and is permitted for early adoption.

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 the condensed consolidated financial statements.

In August 2018, the FASB issued ASU No.

2018-15, “Intangibles – Goodwill and Other – Internal-Use Software,” an update to Subtopic ASC 350-40.

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 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.

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

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

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 9 to the condensed consolidated financial statements.

In December 2019, the FASB issued ASU No.

2019-12, “Income Taxes (Topic 740):

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

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

while enhancing reporting disclosures.

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

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.

2019-12 on the condensed consolidated financial statements.

As discussed in Note 2, revenues are recognized under guidance within ASC 606 and ASC 808.

We adopted this guidance for the period beginning January 1, 2021.

Upon adoption, ASU No.

2019-12 had an immaterial impact on the condensed consolidated financial statements.

As discussed in Note 2, revenues are recognized under guidance within ASC 606.

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

Three Months Ended

Nine Months Ended

September 30,

JAKAFI revenues, net

6 unchanged sentences

Total product royalty revenues

Milestone and contract revenues

Total revenues

For further information on our revenue-generating contracts, refer to Note 9 to the condensed consolidated financial statements.

For further information on our revenue-generating contracts, refer to Note 9.

Fair value of financial instruments

10 unchanged sentences

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

At September 30, 2020 and December 31, 2019, our Level 2 U.S.

At March 31, 2021 and December 31, 2020, 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.

We did not experience any transfers of financial instruments between the fair value hierarchy levels during the nine months ended September 30, 2020.

We did not experience any transfers of financial instruments between the fair value hierarchy levels during the three months ended March 31, 2021.

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):

5 unchanged sentences

Balance as of

September 30, 2020

March 31, 2021

Cash and cash equivalents

18 unchanged sentences

Balance as of

September 30, 2020

March 31, 2021

Acquisition-related contingent consideration

12 unchanged sentences

Contingent consideration earned during the period but not yet paid

Payments made during the period

Change in fair value of contingent consideration

Balance at September 30,

Balance at March 31,

The fair value of the contingent consideration was determined on the date of acquisition, June 1, 2016, using an income approach based on estimated ICLUSIG revenues in the European Union and other countries for the approved third line treatment over 18 years , and discounted to present value at a rate of 10 %.

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

The valuation inputs utilized to estimate the fair value of the contingent consideration as of September 30, 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 three and nine months ended September 30, 2020 was due primarily to the passage of time as there were no other significant changes in the key assumptions during the period.

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

The valuation inputs utilized to estimate the fair value of the contingent consideration as of March 31, 2021 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 three months ended March 31, 2021 was due primarily to the passage of time as there were no other significant changes in the key assumptions during the period.

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

At September 30, 2020 and December 31, 2019, contingent consideration earned but not yet paid was $ 9.1 million and $ 23.0 million, respectively, and was included in accrued and other current liabilities.

At March 31, 2021 and December 31, 2020, contingent consideration earned but not yet paid was $ 8.5 million and $ 9.6 million, respectively, and was included in accrued and other current liabilities.

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

September 30, 2020

March 31, 2021

Debt securities (government)

3 unchanged sentences

Debt security assets were assessed for risk of expected credit losses per our accounting policy as described in Note 2.

As of September 30, 2020 and December 31, 2019, the available-for-sale debt securities were held in US-government backed funds and Treasury assets and were assessed on an individual security basis to have a de minimis risk of credit loss.

As of March 31, 2021 and December 31, 2020, 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.

Concentration of credit risk and current expected credit losses

4 unchanged sentences

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

For further information relating these collaboration and license agreements, refer to Note 9 to the condensed consolidated financial statements.

The above collaboration partners comprised, in aggregate, 26 % and 42 % of the accounts receivable balance as of March 31, 2021 and December 31, 2020, respectively.

For further information relating to these collaboration and license agreements, refer to Note 9.

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.

2 unchanged sentences

Percentage of Total Net

Product Revenues for the

Three Months Ended

Nine Months Ended

September 30,

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

Customers A, B, C and D comprised, in aggregate, 36 % and 39 % of the accounts receivable balance as of September 30, 2020 and December 31, 2019, respectively.

Customers A, B, C and D comprised, in aggregate, 35 % and 29 % of the accounts receivable balance as of March 31, 2021 and December 31, 2020, respectively.

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 September 30, 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.

We assessed our collaborative and customer receivable assets as of March 31, 2021 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):

September 30,

Raw materials

4 unchanged sentences

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

At September 30, 2020, $ 17.0 million of inventory was classified as current on the condensed consolidated balance sheet as we expect this inventory to be consumed for commercial use within the next twelve months.

At September 30, 2020, $ 8.7 million of inventory was classified as noncurrent on the condensed consolidated balance sheets as we did not expect this inventory to be consumed for commercial use within the next twelve months.

At March 31, 2021, $ 16.7 million of inventory was classified as current on the condensed consolidated balance sheet as we expect this inventory to be consumed for commercial use within the next twelve months.

At March 31, 2021, $ 23.7 million of inventory was classified as noncurrent on the condensed consolidated balance sheets 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.

2 unchanged sentences

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

September 30,

Office equipment

6 unchanged sentences

Property and equipment, net

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 March 31, 2021, we have capitalized approximately $ 103.3 million in on site preparation, design and construction costs and currently expect the building to be completed in the first half of 2022.

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 finance lease right-of-use asset of $ 29.1 million, net of a lease incentive from our landlord of $ 2.0 million.

As of September 30, 2020 we have capitalized approximately $ 23.8 million in on site preparation, design and construction costs.

The building serves as our 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.

At March 31, 2021, we capitalized approximately $ 19.1 million in leasehold improvements.

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

1 unchanged sentence

Upon this parcel, we are constructing a large molecule production facility.

Construction activity commenced in July 2018 and as of September 30, 2020, we have capitalized approximately $ 148.2 million in costs for construction, ground preparation and architectural and engineering studies.

We currently anticipate the facility will be completed in 2021.

Construction activity commenced in July 2018 and as of March 31, 2021, we have capitalized approximately $ 173.3 million in costs for construction, ground preparation and architectural and engineering studies.

We currently expect the facility will be operational in the first half of 2022.

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

2 unchanged sentences

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 condensed consolidated balance sheets and are as follows (in thousands):

September 30,

Operating lease liabilities

3 unchanged sentences

Total lease liabilities

The cash paid for amounts included in the measurement of our operating lease liabilities for the nine months ended September 30, 2020 and 2019 was $ 8.7 million and $ 8.6 million, respectively, in operating cash flows.

The cash paid for amounts included in the measurement of our finance lease liabilities for the nine months ended September 30, 2020 and 2019 was $ 0.6 million, in financing cash flows.

As of September 30, 2020, our finance and operating leases had a weighted average lease term of approximately 14.9 and 4.9 years, respectively.

The cash paid for amounts included in the measurement of our operating lease liabilities as of March 31, 2021 and 2020 was $ 3.5 million and $ 3.2 million, respectively, in operating cash flows.

The cash paid for amounts included in the measurement of our finance lease liabilities as of March 31, 2021 and 2020 was $ 0.6 million and $ 0.2 million, respectively, in financing cash flows.

As of March 31, 2021, our finance and operating leases had a weighted average lease term of approximately 14.1 and 4.9 years, respectively.

The discount rate of our leases is an approximation of an estimated incremental borrowing rate and is dependent upon the term and economics of each agreement.

The weighted average discount rate of our finance and operating leases is approximately 3.8 % and 5.5 %, respectively.

For the three and nine months ended September 30, 2020, we incurred approximately $ 2.9 million and $ 9.0 million, respectively, of expense related to our operating leases, approximately $ 0.7 million and $ 1.9 million, respectively, of amortization on our finance lease right-of-use assets and approximately $ 0.3 million and $ 0.9 million, respectively, of interest expense on our finance lease liabilities.

For the three and nine months ended September 30, 2019, we incurred approximately $ 3.6 million and $ 10.9 million, respectively, of expense related to our operating leases, approximately $ 0.7 million and $ 1.1 million, respectively, of amortization on our finance lease right-of-use assets and approximately $ 0.3 million of interest expense on our finance lease liabilities.

For the three and nine months ended September 30, 2020 and 2019, the cost of our short term leases with a term less than 12 months was de minimis.

For the three months ended March 31, 2021, we incurred approximately $ 3.5 million of expense related to our operating leases, approximately $ 0.6 million of amortization on our finance lease right-of-use assets and approximately $ 0.3 million of interest expense on our finance lease liabilities.

For the three months ended March 31, 2020, we incurred approximately $ 3.2 million of expense related to our operating leases, approximately $ 0.6 million of amortization on our finance lease right-of-use assets and approximately $ 0.3 million of interest expense on our finance lease liabilities.

For the three months ended March 31, 2021 and 2020, the cost of our short term leases with a term less than 12 months was de minimis.

Intangible assets and goodwill

1 unchanged sentence

The components of intangible assets were as follows (in thousands, except for useful life):

Balance at September 30, 2020

Balance at March 31, 2021

Balance at December 31, 2020

4 unchanged sentences

Amortization expense

There were no changes to the carrying amount of goodwill for the nine months ended September 30, 2020.

There were no changes to the carrying amount of goodwill for the three months ended March 31, 2021.

License agreements

6 unchanged sentences

We became eligible to receive up to $ 75.0 million of additional potential development and regulatory milestones relating to GVHD.

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

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 March 31, 2021.

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

In June 2020, we recognized 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.

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 TABRECTA 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 three and nine months ended September 30, 2020, such royalties payable to Novartis on net sales within the United States totaled $ 23.9 million and $ 64.6 million, respectively, and are reflected in cost of product revenues on the condensed consolidated statements of operations.

During the three and nine months ended September 30, 2019, such royalties payable to Novartis on net sales within the United States totaled $ 21.2 million and $ 54.7 million, respectively, and are reflected in cost of product revenues on the condensed consolidated statements of operations.

At September 30, 2020 and December 31, 2019, $ 83.0 million and $ 50.2 million, respectively, of accrued royalties payable to Novartis were included in accrued and other current liabilities on the condensed consolidated balance sheets.

During the three months ended March 31, 2021 and 2020, such royalties payable to Novartis on net sales within the United States totaled $ 17.8 million and $ 17.5 million, respectively, and were reflected in cost of product revenues on the condensed consolidated statements of operations.

At March 31, 2021 and December 31, 2020, $ 101.6 million and $ 96.4 million, respectively, of accrued royalties payable to Novartis were included in accrued and other current liabilities on the condensed consolidated balance sheets.

Each company is responsible for costs relating to the development and commercialization of ruxolitinib in its respective territories, with costs of collaborative studies shared equally.

5 unchanged sentences

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

Research and development expenses for the three and nine months ended September 30, 2020 were net of $ 0.0 million and $ 0.3 million, respectively, of costs reimbursed by Novartis.

Research and development expenses for the three and nine months ended September 30, 2019 were net of $ 0.0 million and $ 1.0 million, respectively, of costs reimbursed by Novartis.

At September 30, 2020 and December 31, 2019, $ 0.1 million and $ 0.4 million, respectively, of reimbursable costs were included in accounts receivable on the condensed consolidated balance sheets.

Milestone and contract revenue under the Novartis agreement for the three and nine months ended September 30, 2020 was $ 0.0 million and $ 90.0 million, respectively.

Milestone and contract revenue under the Novartis agreement for the three and nine months ended September 30, 2019 was $ 0.0 million.

Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States for the three and nine months ended September 30, 2020 was $ 68.3 million and $ 190.9 million, respectively.

Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States for the three and nine months ended September 30, 2019 was $ 58.4 million and $ 160.9 million, respectively.

Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three and nine months ended September 30, 2020 was $ 1.4 million and $ 2.1 million, respectively.

Research and development expenses for the three months ended March 31, 2021 and 2020 were net of $ 0.1 million and $ 0.3 million, respectively, of costs reimbursed by Novartis.

At March 31, 2021 and December 31, 2020, $ 0.1 million and $ 0.2 million, respectively, of reimbursable costs were included in accounts receivable on the condensed consolidated balance sheets.

Milestone and contract revenue under the Novartis agreement for the three months ended March 31, 2021 and 2020 was $ 0.0 million for each period.

Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States for the three months ended March 31, 2021 and 2020 was $ 65.6 million and $ 56.3 million, respectively.

Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three months ended March 31, 2021 and 2020 was $ 2.0 million and $ 0.0 million, respectively.

Lilly - Baricitinib

1 unchanged sentence

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 sales 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 $ 235.0 million for the achievement of regulatory milestones through September 30, 2020.

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 sales 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 March 31, 2021.

1 unchanged sentence

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.

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

In February 2017, we and Lilly

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

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

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

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.

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

13 unchanged sentences

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

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

its affiliates or sublicensees.

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

Milestone and contract revenue under the Lilly agreement for the three and nine months ended September 30, 2020 and 2019 was $ 0.0 million.

Product royalty revenue related to Lilly global net sales of OLUMIANT for the three and nine months ended September 30, 2020 was $ 28.6 million and $ 79.9 million, respectively.

Product royalty revenue related to Lilly global net sales of OLUMIANT for the three and nine months ended September 30, 2019 was $ 21.6 million and $ 56.8 million, respectively.

Milestone and contract revenue under the Lilly agreement for the three months ended March 31, 2021 and 2020 was $ 0.0 million for each period.

Product royalty revenue related to Lilly global net sales of OLUMIANT for the three months ended March 31, 2021 and 2020 was $ 32.3 million and $ 25.4 million, respectively.

Lilly - Ruxolitinib

In March 2016, we entered into an amendment to the agreement with Lilly that amended the non-compete provision of the agreement to allow us to engage in the development and commercialization of ruxolitinib in the GVHD field.

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

Upon execution of the amendment, we paid Lilly an upfront payment of $ 35.0 million and Lilly is eligible to receive

up to $ 40.0 million in regulatory milestone payments relating to ruxolitinib in the GVHD field.

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

14 unchanged sentences

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

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.

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.

As of March 31, 2021, we have paid Agenus additional milestones totaling $ 10.0 million and Agenus is eligible to receive up to an additional $ 500.0 million in future contingent development, regulatory and commercialization milestones across all programs in the collaboration.

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 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.

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

2 unchanged sentences

shares was $ 4.40 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 $ 4.5 million, which resulted in a net fair value of the shares on the issuance date of $ 39.5 million.

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 $ 4.5 million, which resulted in a net fair value of the shares on the issuance date of $ 39.5 million.

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

4 unchanged sentences

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.

common stock.

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 7.7 % as of September 30, 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.

While we believe that we continue to be the largest stockholder of Agenus Inc., 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.

common stock.

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.

In the first quarter of 2021, we sold approximately 0.2 million shares of Agenus Inc.

common stock priced at market at $ 5.45 , resulting in gross proceeds of approximately $ 1.1 million.

As of March 31, 2021, we owned approximately 7 % of the outstanding shares of Agenus Inc.

common stock.

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 will account for our investment in Agenus Inc.

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 three and nine months ended September 30, 2020, we recorded an unrealized gain of $ 3.9 million and $ 1.2 million, respectively, based on the change in fair market value of Agenus Inc.’s common stock during these periods.

For the three and nine months ended September 30, 2019, we recorded an unrealized loss of $ 7.5 million and an unrealized gain of $ 3.5 million, respectively, based on the change in fair market value of Agenus Inc.’s common stock during these periods.

For the three months ended March 31, 2021 and 2020, we recorded an unrealized loss of $ 5.9 million and $ 28.8 million, respectively, based on the change in fair value of Agenus Inc.’s common stock during these periods.

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

at September 30, 2020 and December 31, 2019 was $ 56.2 million and $ 72.3 million, respectively.

Research and development expenses for the three and nine months ended September 30, 2020 also included $ 0.1 million and $ 0.4 million, respectively, of development costs incurred pursuant to the Agenus arrangement.

Research and development expenses for the three and nine months ended September 30, 2019 also included $ 0.4 million and $ 1.3 million, respectively, of development costs incurred pursuant to the Agenus arrangement.

At September 30, 2020 and December 31, 2019, a total of $ 1.5 million and $ 1.6 million, respectively, of such costs were included in accrued and other liabilities on the condensed consolidated balance sheets.

at March 31, 2021 and December 31, 2020 was $ 37.7 million and $ 44.7 million, respectively.

Research and development expenses for the three months ended March 31, 2021 and 2020 also included $ 0.5 million and $ 0.1 million, respectively, of development costs incurred pursuant to the Agenus arrangement.

At March 31, 2021 and December 31, 2020, a total of $ 0.5 million and $ 0.5 million, respectively, of such costs were included in accrued and other liabilities on the condensed consolidated balance sheets.

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

7 unchanged sentences

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

If Merus exercises its co-funding option for a program, Merus would be responsible for funding 35 % of the associated future global

development costs and, for certain of such programs, would be responsible for reimbursing us for certain development costs incurred prior to the option exercise.

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

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

1 unchanged sentence

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

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

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

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

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

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

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

7 unchanged sentences

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 at September 30, 2020 and December 31, 2019 was $ 38.4 million and $ 45.1 million, respectively.

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.

The fair market value of our total long term investment in Merus at March 31, 2021 and December 31, 2020 was $ 74.2 million and $ 56.1 million, respectively.

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 September 30, 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.

As of March 31, 2021, we owned approximately 9 % 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.

We have elected the fair value option to account for our long term investment in Merus 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 three and nine months ended September 30, 2020, we recorded an unrealized loss of $ 13.1 million and $ 6.7 million, respectively, based on the change in fair market value of Merus’ common shares during these periods.

For the three and nine months ended September 30, 2019, we recorded an unrealized gain of $ 10.1 million and $ 12.2 million, respectively, based on the change in fair market value of Merus’ common shares during these periods.

For the three and six months ended June 30, 2020, Merus reported within its Form 10-Q total revenues of approximately $ 6.1 million and $ 12.4 million, respectively, and net loss of approximately $ 18.0 million and $ 34.5 million, respectively, within their condensed consolidated financial statements.

Research and development expenses for the three and nine months ended September 30, 2020 included $ 1.8 million and $ 6.0 million, respectively, of additional development costs incurred pursuant to the Merus agreement.

Research and development expenses for the three and nine months ended September 30, 2019 included $ 1.4 million and $ 5.7 million, respectively, of additional development costs incurred pursuant to the Merus agreement.

At September 30, 2020 and December 31, 2019, a total of $ 0.8 million and $ 1.6 million, respectively, of such costs were included in accrued and other liabilities on the condensed consolidated balance sheets.

For the three months ended March 31, 2021 and 2020 we recorded an unrealized gain of $ 9.4 million and an unrealized loss of $ 6.3 million, respectively, based on the change in fair value of Merus’ common shares during these periods.

Research and development expenses for the three months ended March 31, 2021 and 2020 included $ 2.3 million of additional development costs incurred pursuant to the Merus agreement.

At March 31, 2021 and December 31, 2020, a total of $ 1.6 million of such costs were included in accrued and other liabilities on the condensed consolidated balance sheets.

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

(“Calithera”).

Under this agreement, we received an exclusive, worldwide license to develop and commercialize small molecule arginase inhibitors, including INCB01158, 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.

1 unchanged sentence

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.

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 2017, we paid Calithera a $ 12.0 million milestone 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 of March 31, 2021, we have paid Calithera an upfront license fee of $ 45.0 million and an additional $ 12.0 million milestone payment.

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.

Calithera eligible to receive $ 738.0 million in potential future development, regulatory and sales milestone payments and will have no further rights to research, develop or co-detail INCB001158.

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.

7 unchanged sentences

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.

fair market value of our long term investment in Calithera at September 30, 2020 and December 31, 2019 was $ 5.9 million and $ 9.8 million, respectively.

The fair market value of our long term investment in Calithera at March 31, 2021 and December 31, 2020 was $ 4.2 million and $ 8.4 million, respectively.

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 September 30, 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 of March 31, 2021, 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.

1 unchanged sentence

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

For the three and nine months ended September 30, 2020 we recorded an unrealized loss of $ 3.2 million and $ 3.9 million, respectively, based on the change in fair market value of Calithera’s common stock during these periods.

For the three and nine months ended September 30, 2019 we recorded an unrealized loss of $ 1.4 million and $ 1.6 million, respectively, based on the change in fair market value of Calithera’s common stock during these periods.

Research and development expenses for the three and nine months ended September 30, 2020 also included $ 2.0 million and $ 6.4 million, respectively, of additional development costs incurred pursuant to the Calithera agreement.

Research and development expenses for the three and nine months ended September 30, 2019 also included $ 4.7 million and $ 14.7 million, respectively, of additional development costs incurred pursuant to the Calithera agreement.

At September 30, 2020 and December 31, 2019, a total of $ 0.5 million and $ 1.1 million, respectively, of such costs were included in accrued and other liabilities on the condensed consolidated balance sheets.

For the three months ended March 31, 2021 and 2020 we recorded an unrealized loss of $ 4.3 million and $ 2.2 million, respectively, based on the change in fair value of Calithera’s common stock during these periods.

Research and development expenses for the three months ended March 31, 2021 and 2020 included $ 2.5 million of additional development costs incurred pursuant to the Calithera agreement.

At March 31, 2021 and December 31, 2020, a total of $ 0.5 million and $ 0.6 million, respectively, of such costs were included in accrued and other liabilities on the condensed consolidated balance sheets.

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

2 unchanged sentences

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

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

MacroGenics has retained the right to develop and commercialize, at its cost and expense, its

pipeline assets in combination with INCMGA0012.

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

In 2017, we paid MacroGenics an upfront payment of $ 150.0 million, 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 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.

In September 2020, we paid MacroGenics a $ 15.0 million milestone for the achievement of a clinical milestone as part of our collaboration and license agreement, which was recorded in research and development expense.

As of March 31, 2021, we have paid MacroGenics an upfront payment of $ 150.0 million and developmental milestones totaling $ 65.0 million.

MacroGenics is eligible to receive up to an additional $ 355.0 million in future contingent development and regulatory milestones, and up to $ 330.0 million in commercial milestones as well as tiered royalties ranging from 15 % to 24 % of global net sales.

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

1 unchanged sentence

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

Research and development expenses for the three and nine months ended September 30, 2020 also included $ 10.6 million and $ 43.3 million, respectively, of additional development costs incurred pursuant to the MacroGenics agreement.

Research and development expenses for the three and nine months ended September 30, 2019 also included $ 14.1 million and $ 33.3 million, respectively, of additional development costs incurred pursuant to the MacroGenics agreement.

At September 30, 2020 and December 31, 2019, a total of $ 0.3 million and $ 1.0 million of such costs were included in accrued and other liabilities on the condensed consolidated balance sheets.

Research and development expenses for the three months ended March 31, 2021 and 2020 also included $ 13.6 million and $ 16.4 million, respectively, of additional development costs incurred pursuant to the MacroGenics agreement.

At March 31, 2021 and December 31, 2020, a total of $ 1.0 million and $ 0.1 million of such costs were included in accrued and other liabilities on the condensed consolidated balance sheets.

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

4 unchanged sentences

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.

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.

6 unchanged sentences

All acquired shares were subsequently registered under the Securities Act of 1933 in February 2018.

The fair market value of our long term investment in Syros as of September 30, 2020 and December 31, 2019 was $ 8.3 million and $ 6.5 million, respectively.

The fair market value of our long term investment in Syros as of March 31, 2021 and December 31, 2020 was $ 7.0 million and $ 10.2 million, respectively.

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 September 30, 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 of March 31, 2021, 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, and the investment is marked to market through earnings in each reporting period.

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 condensed consolidated balance sheets.

For the three and nine months ended September 30, 2020, we recorded an unrealized loss of $ 1.7 million and an unrealized gain of $ 1.8 million, respectively, based on the change in fair market value of Syros’ common stock during these periods.

For the three and nine months ended September 30, 2019, we recorded an unrealized gain of $ 1.1 million and $ 4.6 million, respectively, based on the change in fair market value of Syros’ common stock during these periods.

For the three months ended March 31, 2021 and 2020, we recorded an unrealized loss of $ 3.2 million and $ 0.9 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.

1 unchanged sentence

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 condensed consolidated statement of operations.

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 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.

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

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 are eligible to receive up to an additional $ 104.0 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 April 2020, we recognized a $ 5.0 million milestone for the FDA approval of pemigatinib as PEMAZYRE, which was recorded in milestone and contract revenues.

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.

2 unchanged sentences

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

Research and development expenses for the three and nine months ended September 30, 2020 were net of $ 1.7 million and $ 4.3 million, respectively, of costs reimbursed by Innovent.

Research and development expenses for the three and nine months ended September 30, 2019 were net of $ 3.6 million and $ 4.1 million, respectively, of costs reimbursed by Innovent.

At September 30, 2020 and December 31, 2019, $ 1.4 million and $ 3.0 million, respectively, of reimbursable costs were included in accounts receivable on the condensed consolidated balance sheets.

Research and development expenses for the three months ended March 31, 2021 and 2020 were net of $ 0.0 million of costs reimbursed by Innovent.

At March 31, 2021 and December 31, 2020, $ 2.4 million and $ 1.2 million, respectively, of reimbursable costs were included in accounts receivable on the condensed 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 the functional intellectual property related to the licensed product candidate to Zai Lab, which was recorded in milestone and contract revenues.

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.

In August 2019, we recognized an upfront payment under this agreement of $ 17.5 million.

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.

4 unchanged sentences

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

Research and development expenses for the three and nine months ended September 30, 2020 were net of $ 0.0 million and $ 0.2 million, respectively, of costs reimbursed by Zai Lab.

At September 30, 2020 and December 31, 2019, $ 0.4 million and $ 0.5 million, respectively, of reimbursable costs were included in accounts receivable on the condensed consolidated balance sheets.

Research and development expenses for the three months ended March 31, 2021 and 2020 were net of $ 0.0 million and $ 0.2 million, respectively, of costs reimbursed by Zai Lab.

At March 31, 2021 and December 31, 2020, $ 0.7 million

and $ 0.6 million, respectively, of reimbursable costs were included in accounts receivable on the condensed consolidated balance sheet.

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.

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

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.

16 unchanged sentences

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 September 30, 2020 was $ 113.9 million.

The fair market value of our long term investment in MorphoSys as of March 31, 2021 and December 31, 2020, was $ 79.1 million and $ 102.9 million, respectively.

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 September 30, 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 of March 31, 2021, 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

condensed consolidated balance sheets.

For the three and nine months ended September 30, 2020, we recorded an unrealized gain of $ 0.9 million and $ 18.5 million, respectively, based on the change in fair market value of MorphoSys’ common stock during these periods.

Our 50 % share of the United States loss for the commercialization of tafasitamab was $ 15.0 million and $ 30.4 million, respectively, for the three and nine months ended September 30, 2020 and is recorded as collaboration loss sharing on the condensed consolidated statement of operations.

Research and development expenses for the three and nine months ended September 30, 2020, includes $ 23.8 million and $ 51.1 million related to our 55 % share of the co-development costs for tafasitamab.

At September 30, 2020, $ 46.8 million was included in accrued and other liabilities on the condensed consolidated balance sheet for amounts due to MorphoSys under the agreement.

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

For the three months ended March 31, 2021 and 2020, we recorded an unrealized loss of $ 23.7 million and $ 9.9 million, respectively, based on the change in fair market value of MorphoSys’ common stock during these periods.

Our 50 % share of the United States loss for the commercialization of tafasitamab for the three months ended March 31, 2021 and 2020 was $ 10.5 million and $ 2.1 million, respectively, and is recorded as collaboration loss sharing on the condensed consolidated statement of operations.

Research and development expenses for the three months ended March 31, 2021 and 2020, includes $ 14.9 million and $ 11.6 million, respectively, related to our 55 % share of the co-development costs for tafasitamab.

At March 31, 2021 and December 31, 2020, $ 47.2 million and $ 54.2 million, respectively, was included in accrued and other liabilities on the condensed 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.

Stock compensation

We recorded $ 43.8 million and $ 132.6 million of stock compensation expense on our condensed consolidated statements of operations for the three and nine months ended September 30, 2020, respectively.

We recorded $ 43.4 million and $ 124.6 million of stock compensation expense on our condensed consolidated statements of operations for the three and nine months ended September 30, 2019, respectively.

Stock compensation expense included within our condensed consolidated statements of operations included research and development expense of $ 29.0 million, $ 90.2 million, $ 30.5 million and $ 85.5 million for the three and nine months ended September 30, 2020 and 2019, respectively.

Stock compensation expense included within our condensed consolidated statements of operations also included selling, general and administrative expense of $ 14.6 million, $ 41.7 million, $ 12.8 million and $ 38.6 million for the three and nine months ended September 30, 2020 and 2019, respectively.

Stock compensation expense included within our condensed consolidated statements of operations also included cost of product revenues of $ 0.2 million, $ 0.7 million, $ 0.1 million and $ 0.5 million, respectively, for the three and nine months ended September 30, 2020 and 2019.

For the three and nine months ended September 30, 2020 and 2019, we capitalized $ 0.2 million, $ 0.5 million, $ 0.1 million and $ 0.3 million, respectively, of stock compensation expense as part of the cost of an asset.

We recorded $ 47.3 million and $ 42.5 million, respectively, of stock compensation expense on the condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020.

Stock compensation expense included within our condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020 included research and development expense of $ 29.9 million and $ 28.7 million, respectively.

Stock compensation expense included within our condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020 also included selling, general and administrative expense of $ 17.2 million and $ 13.6 million, respectively.

Stock compensation expense included within our condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020 also included cost of product revenues of $ 0.2 million for each period.

For the three months ended March 31, 2021 and 2020, we capitalized $ 0.5 million and $ 0.2 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 compensation granted, with the following weighted-average assumptions:

1 unchanged sentence

Employee Stock Purchase Plan

For the Three Months Ended

For the Nine Months Ended

For the Three Months Ended

For the Nine Months Ended

September 30,

For the Three Months Ended March 31,

Average risk-free interest rates

15 unchanged sentences

Options exercised

( 1,975,908 )

Options cancelled

Balance at September 30, 2020

Balance at March 31, 2021

In July 2016, we revised the terms of our annual stock option grants to provide that new option grants would generally have a 10-year term and vest over four years , with 25 % vesting after one year and the remainder vesting in 36 equal monthly installments.

6 unchanged sentences

RSUs released

PSUs released

RSUs cancelled

PSUs cancelled

Balance at September 30, 2020

Balance at March 31, 2021

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

7 unchanged sentences

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 and will cliff vest in June 2021.

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 period ended September 30, 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 September 30, 2020, no stock compensation expense was recognized.

For the period ended March 31, 2021, 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 March 31, 2021, no stock compensation expense was recognized.

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

11 unchanged sentences

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 period ended September 30, 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 September 30, 2020, no stock compensation expense was recognized.

For the period ended March 31, 2021, 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 March 31, 2021, no stock compensation expense was recognized.

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

4 unchanged sentences

Options, RSUs and PSUs cancelled

Balance at September 30, 2020

Balance at March 31, 2021

Based on our historical experience of employee turnover, we have assumed an annualized forfeiture rate of 5 % for our options, RSUs and PSUs.

Under the true-up provisions of the stock compensation guidance, we will record additional expense if the actual forfeiture rate is lower than we estimated, and will record a recovery of prior expense if the actual forfeiture is higher than we estimated.

Total compensation cost of options granted but not yet vested, as of September 30, 2020, was $ 89.6 million, which is expected to be recognized over the weighted average period of approximately 1.3 years.

Total compensation cost of RSUs granted but not yet vested, as of September 30, 2020, was $ 139.0 million, which is expected to be recognized over the weighted average period of approximately 1.9 years.

Total compensation cost of PSUs granted but not yet vested, as of September 30, 2020, was $ 26.9 million, which is expected to be recognized over the weighted average period of 1.6 years, should the underlying performance conditions be deemed probable of achievement.

Total compensation cost of options granted but not yet vested, as of March 31, 2021, was $ 78.6 million, which is expected to be recognized over the weighted average period of approximately 1.2 years.

Total compensation cost of RSUs granted but not yet vested, as of March 31, 2021, was $ 131.1 million, which is expected to be recognized over the weighted average period of approximately 1.8 years.

Total compensation cost of PSUs granted but not yet vested, as of March 31, 2021, was $ 23.0 million, which is expected to be recognized over the weighted average period of 1.1 years, should the underlying performance conditions be deemed probable of achievement.

Accrued and other current liabilities

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

September 30,

Clinical related costs

4 unchanged sentences

Total accrued and other current liabilities

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

Carrying Amount,

Interest Rates

September 30,

September 30, 2020

1.25 % Convertible Senior Notes due 2020

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

September 30, 2020

December 31, 2019

1.25 % Convertible Senior Notes due 2020

The fair value of the 1.25 % Convertible Senior Notes due November 15, 2020 (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.

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:

(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;

(ii) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $ 1,000 principal amount of the 2020 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate for the 2020 Notes on each such trading day;

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.

The 2020 Notes are reflected in current liabilities on the condensed consolidated balance sheet as of September 30, 2020 due to their maturity date of November 15, 2020, unless earlier purchased or converted.

Employee benefit plans

3 unchanged sentences

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

Defined contribution expense for the three and nine months ended September 30, 2020 was $ 3.5 million and $ 10.1 million, respectively.

Defined contribution expense for the three and nine months ended September 30, 2019 was $ 3.0 million and $ 9.0 million, respectively.

Defined contribution expense for the three months ended March 31, 2021 and 2020 was $ 4.1 million and $ 3.3 million, respectively.

Defined Benefit Pension Plans

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Interest cost

5 unchanged sentences

We expect to contribute a total of $ 5.3 million to the pension plans in 2021 inclusive of the amounts contributed to the plan during the current period.

As of September 30, 2020 and December 31, 2019, $ 26.2 million and $ 24.1 million, respectively, of accrued pension obligation is recorded in other long term liabilities on the condensed consolidated balance sheets.

The Company is subject to U.S.

federal, state and foreign income taxes.

For the three and nine months ended September 30, 2020, we recorded income tax expense of approximately $ 11.7 million and $ 45.2 million, respectively.

For the three and nine months ended September 30, 2019, we recorded income tax expense of approximately $ 19.7 million and $ 24.9 million, respectively.

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

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

As of September 30, 2020, a full valuation allowance continues to be recorded against our U.S.

For the three months ended March 31, 2021 and 2020, we recorded income tax expense of approximately $ 15.8 million and $ 16.6 million, respectively.

The tax expense for the three months ended March 31, 2021 and 2020 represents primarily driven by federal and state tax liabilities that are not fully sheltered by net operating losses or research and development tax credit carryforwards.

As of March 31, 2021, a full valuation allowance continues to be recorded against our U.S.

and Swiss net deferred tax assets.

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, we believe 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 September 30, 2020.

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, we believe 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 March 31, 2021.

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 balance of our unrecognized tax benefits (including penalties and interest) increased by approximately $ 1.5 million during the nine months ended September 30, 2020.

The overall net increase is primarily driven by unrecognized tax benefits related to current year operations and research and development tax credits offset by audit settlements in Wisconsin and Italy.

After considering valuation allowance impacts, the change in unrecognized tax benefits resulted in a $ 0.1 million decrease to noncurrent other liabilities on the condensed consolidated balance sheet.

The balance of our unrecognized tax benefits (including penalties and interest) increased by approximately $ 0.9 million during the three months ended March 31, 2021.

The overall increase is primarily driven by unrecognized tax benefits related to current year operations and research and development tax credits.

After considering valuation allowance impacts, the change in unrecognized tax benefits resulted in a negligible increase to noncurrent other liabilities on the condensed consolidated balance sheet.

Net income (loss) per share

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

Three Months Ended

Nine Months Ended

September 30,

(in thousands, except per share data)

Basic Net Income (Loss) Per Share

Basic net income (loss) per share

Basic net income (loss)

Weighted average common shares outstanding

8 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Outstanding stock options and awards

Common shares issuable upon conversion of the 2020 Notes

Common shares issuable upon conversion of the 1.25% Convertible Senior Notes due 2020

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

Contingencies

We have entered into the collaboration agreements described in Note 9, 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.

1 unchanged sentence

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.

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 as of September 30, 2020.

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.

A trial date has not been set.

Incyte denies any improper claims were submitted to government payers;

however, we have reached a settlement in principle with the DOJ Civil Division.

A reserve of $13.2 million was recorded with respect to these matters as of March 31, 2021 and was included in accrued and other current liabilities.

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.

Subsequent event

We expect to recognize a $ 20.0 million milestone payment from Lilly during the fourth quarter of 2020.

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

What changed 10-Q

Item 1. Financial Statements