What changed in this filing

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Item 1. Financial Statements

2021-08-03 compared with 2021-05-04 · 221 added, 165 removed, 860 unchanged (31% of the section changed)

5 unchanged sentences

Cash and cash equivalents

Marketable securities—available-for-sale (amortized cost $292,278 ;

allowance for credit losses $ 0 )

Marketable securities—available-for-sale (amortized cost $ 283,380 and $ 288,199 as of June 30, 2021 and December 31, 2020;

allowance for credit losses $ 0 and $ 0 as of June 30, 2021 and December 31, 2020)

Accounts receivable

23 unchanged sentences

5,000,000 shares authorized;

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

none issued or outstanding as of June 30, 2021 and December 31, 2020

Common stock, $ 0.001 par value;

400,000,000 shares authorized;

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

220,424,569 and 219,489,329 shares issued and outstanding as of June 30, 2021 and December 31, 2020 , respectively

Additional paid-in capital

11 unchanged sentences

Three Months Ended

Six Months Ended

Product revenues, net

Product royalty revenues

Milestone and contract revenues

Total revenues

9 unchanged sentences

Interest expense

Unrealized loss on long term investments

Unrealized gain (loss) on long term investments

Income (loss) before provision for income taxes

8 unchanged sentences

Three Months Ended

Six Months Ended

Net income (loss)

9 unchanged sentences

(unaudited, in thousands, except number of shares)

For the Three Months Ended March 31, 2020

For the Six Months Ended June 30, 2021

Accumulated Other

7 unchanged sentences

Stock compensation

Other comprehensive income

Other comprehensive loss

Balances at March 31, 2021

( 1,672,920 )

For the Three Months Ended March 31, 2021

Issuance of 390,001 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units and 153,082 shares of Common Stock under the ESPP

Issuance of 1,288 shares of Common Stock for services rendered

Stock compensation

Other comprehensive income

Balances at June 30, 2021

( 1,523,464 )

INCYTE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

(unaudited, in thousands, except number of shares)

For the Six Months Ended June 30, 2020

Accumulated Other

7 unchanged sentences

Stock compensation

Other comprehensive loss

Other comprehensive income

Balances at March 31, 2020

( 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 )

See accompanying notes.

2 unchanged sentences

(unaudited, in thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities :

3 unchanged sentences

Stock-based compensation

Unrealized loss on long term investments

Deferred income taxes

Unrealized loss (gain) on long term investments

Change in fair value of acquisition-related contingent consideration

6 unchanged sentences

Cash flows from investing activities :

Purchase of long term investment

Sale of long term investment

Purchase of long term investments

Sale of long term investments

Capital expenditures

12 unchanged sentences

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

March 31, 2021

June 30, 2021

Organization and business

5 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 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 as of June 30, 2021, the condensed consolidated statements of operations, comprehensive income (loss), and stockholders’ equity for the three and six months ended June 30, 2021 and 2020, and the condensed consolidated statements of cash flows for the six months ended June 30, 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.

22 unchanged sentences

Cash, cash equivalents, marketable securities, and trade receivables are financial instruments which potentially subject us to concentrations of credit risk.

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

By policy, we invest our excess available funds

primarily in U.S.

The estimated fair value of financial instruments

approximates the carrying value based on available market information.

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.

23 unchanged sentences

Accounts Receivable.

As of March 31, 2021 and December 31, 2020, we had no allowance for doubtful accounts.

As of June 30, 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.

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

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

As of June 30, 2021, there were no entities in which we held a variable interest which we determined to be VIEs.

Long Term Investments.

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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 March 31, 2021.

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 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 Item 1.

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

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 impact and risks of the COVID-19 pandemic on our business in Item 1.

Business and in Item 1A.

2 unchanged sentences

Our basic and diluted net income (loss) per share is calculated by dividing the net income (loss) by the weighted average number of shares of common stock outstanding during all periods presented.

Options to purchase stock, restricted stock units, performance stock units and shares issuable upon the conversion of convertible debt are included in diluted earnings per share calculations, unless the effects are anti-dilutive.

Options to purchase stock, restricted stock units and performance stock units are included in diluted earnings per share calculations, unless the effects are anti-dilutive.

Accumulated Other Comprehensive Income (Loss).

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

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

Revenue Recognition.

10 unchanged sentences

Product Revenues

Our product revenues consist of U.S.

sales of JAKAFI and PEMAZYRE and European sales of ICLUSIG.

Our product revenues consist of sales of JAKAFI and PEMAZYRE in the U.S., sales of PEMAZYRE and ICLUSIG in Europe, and sales of PEMAZYRE in Japan.

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

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

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

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

We sell PEMAZYRE in Japan to an exclusive wholesaler.

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

48 unchanged sentences

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 the three and six months ended June 30, 2021 and 2020, we had no revenues from intellectual property 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.

50 unchanged sentences

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.

For the three and six months ended June 30, 2021, advertising expenses were approximately $ 7.5 million and $ 18.3 million, respectively.

For the three and six months ended June 30, 2020, advertising expenses were approximately $ 5.3 million and $ 10.1 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 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.

For the three and six months ended June 30, 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

1 unchanged sentence

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.

5 unchanged sentences

Three Months Ended

Six Months Ended

JAKAFI revenues, net

6 unchanged sentences

Total product royalty revenues

Milestone and contract revenues

Total revenues

12 unchanged sentences

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

At March 31, 2021 and December 31, 2020, our Level 2 U.S.

At June 30, 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 three months ended March 31, 2021.

We did not experience any transfers of financial instruments between the fair value hierarchy levels during the six months ended June 30, 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

March 31, 2021

June 30, 2021

Cash and cash equivalents

18 unchanged sentences

Balance as of

March 31, 2021

June 30, 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 March 31,

Balance at June 30,

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 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.

The valuation inputs utilized to estimate the fair value of the contingent consideration as of June 30, 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 and six months ended June 30, 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 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.

At June 30, 2021 and December 31, 2020, contingent consideration earned but not yet paid was $ 8.6 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):

March 31, 2021

June 30, 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 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.

As of June 30, 2021 and December 31, 2020, 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.

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, 26 % and 42 % of the accounts receivable balance as of March 31, 2021 and December 31, 2020, respectively.

The above collaboration partners comprised, in aggregate, 28 % and 42 % of the accounts receivable balance as of June 30, 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.

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

Our product revenues are concentrated in a

number of these customers.

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

Percentage of Total Net

Product Revenues for the

Three Months Ended

Six Months Ended

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, 35 % and 29 % of the accounts receivable balance as of March 31, 2021 and December 31, 2020, respectively.

Customers A, B, C and D comprised, in aggregate, 34 % and 29 % of the accounts receivable balance as of June 30, 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 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.

We assessed our collaborative and customer receivable assets as of June 30, 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):

5 unchanged sentences

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

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.

At June 30, 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 June 30, 2021, $ 35.6 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.

3 unchanged sentences

Office equipment

Laboratory equipment

Manufacturing and laboratory equipment

Computer equipment

5 unchanged sentences

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.

As of June 30, 2021, we have capitalized approximately $ 125.6 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 .

2 unchanged sentences

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 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.

2 unchanged sentences

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

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.

Construction activity commenced in July 2018 and as of June 30, 2021, we have capitalized approximately $ 188.8 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.

8 unchanged sentences

Total lease liabilities

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 cash paid for amounts included in the measurement of our operating lease liabilities for the six months ended June 30, 2021 and 2020 was $ 6.9 million and $ 5.9 million, respectively, in operating cash flows.

The cash paid for amounts included in the measurement of our finance lease liabilities for the six months ended June 30, 2021 and 2020 was $ 1.2 million and $ 0.4 million, respectively, in financing cash flows.

As of June 30, 2021, our finance and operating leases had a weighted average lease term of approximately 13.8 and 4.7 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 3.9 % and 6.7 %, respectively.

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.

For the three and six months ended June 30, 2021, we incurred approximately $ 3.7 million and $ 7.2 million, respectively, of expense related to our operating leases, approximately $ 0.7 million and $ 1.3 million, respectively, of amortization on our finance lease right-of-use assets and approximately $ 0.3 million and $ 0.6 million, respectively, of interest expense on our finance lease liabilities.

For the three and six months ended June 30, 2020, we incurred approximately $ 2.9 million and $ 6.1 million, respectively, of expense related to our operating leases, approximately $ 0.7 million and $ 1.3 million, respectively, of amortization on our finance lease right-of-use assets and approximately $ 0.3 million and $ 0.6 million, respectively, of interest expense on our finance lease liabilities.

For the three and six months ended June 30, 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 March 31, 2021

Balance at June 30, 2021

Balance at December 31, 2020

4 unchanged sentences

Amortization expense

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

There were no changes to the carrying amount of goodwill for the six months ended June 30, 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 $ 200.0 million for the achievement of sales milestones through March 31, 2021.

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 June 30, 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.

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 %.

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.

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 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.

During the three and six months ended June 30, 2021, such royalties payable to Novartis on net sales within the United States totaled $ 25.9 million and $ 43.7 million, respectively, and were reflected in cost of product revenues on the condensed consolidated statements of operations.

During the three and six months ended June 30, 2020, such royalties payable to Novartis on net sales within the United States totaled $ 23.2 million and $ 40.7 million, respectively, and were reflected in cost of product revenues on the condensed consolidated statements of operations.

At June 30, 2021 and December 31, 2020, $ 118.6 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.

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

Novartis is also responsible for all costs relating to the development and commercialization of capmatinib.

4 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 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.

Research and development expenses for the three and six months ended June 30, 2021 were net of $ 0.0 million and $ 0.1 million, respectively, of costs reimbursed by Novartis.

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

At June 30, 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 and six months ended June 30, 2021 was $ 0.0 million.

Milestone and contract revenue under the Novartis agreement for the three and six months ended June 30, 2020 was $ 90.0 million.

Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States for the three and six months ended June 30, 2021 was $ 82.0 million and $ 147.6 million, respectively.

Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States for the three and six months ended June 30, 2020 was $ 66.2 million and $ 122.6 million, respectively.

Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three and six months ended June 30, 2021 was $ 2.5 million and $ 4.5 million, respectively.

Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three and six months ended June 30, 2020 was $ 0.7 million.

Lilly – Baricitinib

2 unchanged sentences

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.

18 unchanged sentences

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 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.

Milestone and contract revenue under the Lilly agreement for the three and six months ended June 30, 2021 and 2020 was $ 0.0 million.

Product royalty revenue related to Lilly global net sales of OLUMIANT for the three and six months ended June 30, 2021 was $ 36.0 million and $ 68.3 million, respectively.

Product royalty revenue related to Lilly global net sales of OLUMIANT for the three and six months ended June 30, 2020 was $ 25.8 million and $ 51.3 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.

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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.

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.

In the second quarter of 2021, we sold approximately 1.6 million shares of

common stock priced at market, with per share pricing ranging from $ 4.59 to $ 5.41 , resulting in gross proceeds of approximately $ 8.2 million.

As of June 30, 2021, we owned approximately 6 % of the outstanding shares of Agenus Inc.

common stock.

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

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.

For the three and six months ended June 30, 2021, we recorded an unrealized gain of $ 37.8 million and $ 31.9 million, respectively, based on the change in fair value of Agenus Inc.’s common stock during these periods.

For the three and six months ended June 30, 2020, we recorded an unrealized gain of $ 26.2 million and an unrealized loss of $ 2.7 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 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.

at June 30, 2021 and December 31, 2020 was $ 67.3 million and $ 44.7 million, respectively.

Research and development expenses for the three and six months ended June 30, 2021 also included $ 0.2 million and $ 0.7 million, respectively, of development costs incurred pursuant to the Agenus arrangement.

Research and development expenses for the three and six months ended June 30, 2020 also included $ 0.2 million and $ 0.3 million, respectively, of development costs incurred pursuant to the Agenus arrangement.

At June 30, 2021 and December 31, 2020, a total of $ 0.6 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.

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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

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 %.

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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.

The fair market value of our total long term investment in Merus at June 30, 2021 and December 31, 2020 was $ 74.8 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 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.

As of June 30, 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 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.

For the three and six months ended June 30, 2021, we recorded an unrealized gain of $ 0.6 million and $ 10.0 million, respectively, based on the change in fair value of Merus’ common shares during these periods.

For the three and six months ended June 30, 2020, we recorded an unrealized gain of $ 12.7 million and $ 6.4 million, respectively, based on the change in fair value of Merus’ common shares during these periods.

Research and development expenses for the three and six months ended June 30, 2021 included $ 5.5 million and $ 7.8 million, respectively, of additional development costs incurred pursuant to the Merus agreement.

Research and development expenses for the three and six months ended June 30, 2020 included $ 1.9 million and $ 4.2 million, respectively, of additional development costs incurred pursuant to the Merus agreement.

At June 30, 2021 and December 31, 2020, a total of $ 2.2 million and $ 1.6 million, respectively, 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.

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

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

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.

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.

As of June 30, 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.

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.

Calithera is 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.

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

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

The fair market value of our long term investment in Calithera at June 30, 2021 and December 31, 2020 was $ 3.6 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 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 of June 30, 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.

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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 $ 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.

For the three and six months ended June 30, 2021 we recorded an unrealized loss of $ 0.5 million and $ 4.8 million, respectively, based on the change in fair value of Calithera’s common stock during these periods.

For the three and six months ended June 30, 2020 we recorded an unrealized gain of $ 1.5 million and an unrealized loss of $ 0.7 million, respectively, based on the change in fair value of Calithera’s common stock during these periods.

Research and development expenses for the three and six months ended June 30, 2021 also included $ 2.0 million and $ 4.5 million, respectively, of additional development costs incurred pursuant to the Calithera agreement.

Research and development expenses for the three and six months ended June 30, 2020 also included $ 1.9 million and $ 4.4 million, respectively, of additional development costs incurred pursuant to the Calithera agreement.

At June 30, 2021 and December 31, 2020, a total of $ 0.0 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.

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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.

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

As of June 30, 2021, we have paid MacroGenics an upfront payment of $ 150.0 million and developmental milestones totaling $ 70.0 million.

MacroGenics is eligible to receive up to an additional $ 350.0 million in future contingent development and regulatory milestones, and up to $ 330.0 million in commercial milestones as well as tiered royalties ranging from 15 % to 24 % of global net sales.

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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 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.

Research and development expenses for the three and six months ended June 30, 2021 also included $ 17.6 million and $ 31.2 million, respectively, of additional development costs incurred pursuant to the MacroGenics agreement.

Research and development expenses for the three and six months ended June 30, 2020 also included $ 16.3 million and $ 32.7 million, respectively, of additional development costs incurred pursuant to the MacroGenics agreement.

At June 30, 2021 and December 31, 2020, a total of $ 0.9 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.

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

The shares were acquired in February 2018 and the $ 1.4 million aggregate purchase price was recorded within long term investments on the condensed consolidated balance sheets.

The shares were acquired in February 2018

and the $ 1.4 million aggregate purchase price was recorded within long term investments on the condensed consolidated balance sheets.

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 March 31, 2021 and December 31, 2020 was $ 7.0 million and $ 10.2 million, respectively.

The fair market value of our long term investment in Syros as of June 30, 2021 and December 31, 2020 was $ 5.1 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 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 of June 30, 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 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.

For the three and six months ended June 30, 2021, we recorded an unrealized loss of $ 1.9 million and $ 5.1 million, respectively, based on the change in fair value of Syros’ common stock during these periods.

For the three and six months ended June 30, 2020, we recorded an unrealized gain of $ 4.4 million and $ 3.5 million, respectively, based on the change in fair value of Syros’ common stock during these periods.

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

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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 June 2021, we recognized a $ 10.0 million milestone for approval of PEMAZYRE in Taiwan, which was recorded in milestone and contract revenues.

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.

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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 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.

Research and development expenses for the three and six months ended June 30, 2021 were net of $ 2.3 million of costs reimbursed by Innovent.

Research and development expenses for the three and six months ended June 30, 2020 were net of $ 2.6 million of costs reimbursed by Innovent.

At June 30, 2021 and December 31, 2020, $ 0.9 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.

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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 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.

Research and development expenses for the three and six months ended June 30, 2021 were net of $ 0.0 million of costs reimbursed by Zai Lab.

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

At June 30, 2021 and December 31, 2020, $ 0.9 million and $ 0.6 million, respectively, of reimbursable costs were included in accounts receivable on the condensed consolidated balance sheets.

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

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

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

to mid-twenties of net sales outside of the United States.

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

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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 March 31, 2021 and December 31, 2020, was $ 79.1 million and $ 102.9 million, respectively.

The fair market value of our long term investment in MorphoSys as of June 30, 2021 and December 31, 2020 was $ 69.9 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 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 of June 30, 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.

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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.

For the three and six months ended June 30, 2021, we recorded an unrealized loss of $ 9.2 million and $ 32.9 million, respectively, based on the change in fair value of MorphoSys’ common stock during these periods.

For the three and six months ended June 30, 2020, we recorded an unrealized gain of $ 27.5 million and $ 17.6 million, respectively, based on the change in fair value of MorphoSys’ common stock during these periods.

Our 50 % share of the United States loss for the commercialization of tafasitamab for the three and six months ended June 30, 2021 was $ 9.8 million and $ 20.3 million, respectively, and is recorded as collaboration loss sharing on the condensed consolidated statement of operations.

Our 50 % share of the United States loss for the commercialization of tafasitamab for the three and six months ended June 30, 2020 was $ 13.3 million and $ 15.4 million, respectively, and is recorded as collaboration loss sharing on the condensed consolidated statement of operations.

Research and development expenses for the three and six months ended June 30, 2021, includes $ 19.4 million and $ 34.3 million, respectively, related to our 55 % share of the co-development costs for tafasitamab.

Research and development expenses for the three and six months ended June 30, 2020, includes $ 15.7 million and $ 27.3 million, respectively, related to our 55 % share of the co-development costs for tafasitamab.

At June 30, 2021 and December 31, 2020, $ 34.2 million and $ 54.2 million, respectively, was included in accrued and other liabilities on the condensed consolidated balance sheets 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.

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 $ 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 recorded $ 44.8 million and $ 92.1 million of stock compensation expense on our condensed consolidated statements of operations for the three and six months ended June 30, 2021, respectively.

We recorded $ 46.3 million and $ 88.8 million of stock compensation expense on our condensed consolidated statements of operations for the three and six months ended June 30, 2020, respectively.

Stock compensation expense included within our condensed consolidated statements of operations included research and development expense of $ 28.0 million, $ 57.9 million, $ 32.5 million and $ 61.2 million for the three and six months ended June 30, 2021 and 2020, respectively.

Stock compensation expense included within our condensed consolidated statements of operations also included selling, general and administrative expense of $ 16.4 million, $ 33.6 million, $ 13.6 million and $ 27.1 million for the three and six months ended June 30, 2021 and 2020, respectively.

Stock compensation expense included within our condensed consolidated statements of operations also included cost of product revenues of $ 0.4 million, $ 0.6 million, $ 0.2 million and $ 0.5 million, respectively, for the three and six months ended June 30, 2021 and 2020.

For the three and six months ended June 30, 2021 and 2020, we capitalized $ 0.7 million, $ 1.2 million, $ 0.1 million and $ 0.3 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:

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Employee Stock Purchase Plan

For the Three Months Ended March 31,

For the Three Months Ended

For the Six Months Ended

For the Three Months Ended

For the Six Months Ended

Average risk-free interest rates

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Options cancelled

Balance at March 31, 2021

Balance at June 30, 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.

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RSUs released

PSUs released

RSUs cancelled

PSUs cancelled

Balance at March 31, 2021

Balance at June 30, 2021

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

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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.

For the remaining long term incentive plan, under which 290,000 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 % based on the level at which the performance conditions were achieved.

The actual number of shares of our common stock into which each PSU will convert is at a multiplier of 50 % based on the performance conditions achieved as of the June 30, 2021 end of the performance period and will cliff vest in June 2022.

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

For 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.

For the period ended June 30, 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 June 30, 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 .

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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 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.

For the period ended June 30, 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 June 30, 2021, no stock compensation expense was recognized.

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

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Balance at December 31, 2020

Additional authorization

Options, RSUs and PSUs granted

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Options, RSUs and PSUs cancelled

Balance at March 31, 2021

Balance at June 30, 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 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.

Total compensation cost of options granted but not yet vested, as of June 30, 2021, was $ 65.3 million, which is expected to be recognized over the weighted average period of approximately 1.1 years.

Total compensation cost of RSUs granted but not yet vested, as of June 30, 2021, was $ 110.7 million, which is expected to be recognized over the weighted average period of approximately 1.7 years.

Total compensation cost of PSUs granted but not yet vested, as of June 30, 2021, was $ 13.5 million, which is expected to be recognized over the weighted average period of 1.2 years, should the underlying performance conditions be deemed probable of achievement.

Accrued and other current liabilities

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

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

Defined contribution expense for the three and six months ended June 30, 2021 was $ 4.3 million and $ 8.4 million, respectively.

Defined contribution expense for the three and six months ended June 30, 2020 was $ 3.3 million and $ 6.6 million, respectively.

Defined Benefit Pension Plans

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Three Months Ended

Six Months Ended

Interest cost

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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.

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.

For the three and six months ended June 30, 2021, we recorded income tax expense of approximately $ 22.2 million and $ 38.0 million, respectively.

For the three and six months ended June 30, 2020, we recorded income tax expense of approximately $ 17.0 million and $ 33.5 million, respectively.

The tax expense for the three and six months ended June 30, 2021 and 2020 represents primarily federal and state tax liabilities that are not fully sheltered by net operating losses or research and development tax credit carryforwards.

As of June 30, 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 March 31, 2021.

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 June 30, 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 $ 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.

The balance of our unrecognized tax benefits (including penalties and interest) increased by approximately $ 1.7 million during the six months ended June 30, 2021.

The overall net 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 $ 0.1 million decrease 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

Six Months Ended

(in thousands, except per share data)

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Three Months Ended

Six Months Ended

Outstanding stock options and awards

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Department of Justice (“DOJ”) for documents and information relating to our speaker programs and patient assistance programs, including our support of non-profit organizations that provide financial assistance to eligible patients.

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 (“Relator”).

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.

While we deny that any improper claims were submitted to government payers, we agreed on May 4, 2021 to settle the matter with the DOJ Civil Division for $ 12.6 million, plus certain statutory fees, which was recorded in selling, general and administrative expense during the six months ended June 30, 2021.

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.

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

What changed 10-Q

Item 1. Financial Statements