What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-03 compared with 2021-05-04 · 128 added, 84 removed, 721 unchanged (23% of the section changed)

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

The following discussion of our financial condition and results of operations as of and for the three months ended March 31, 2021 should be read in conjunction with the unaudited condensed consolidated financial statements and notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements as of and for the year ended December 31, 2010 included in our Annual Report on Form 10-K for the year ended December 31, 2020 previously filed with the SEC.

The following discussion of our financial condition and results of operations as of and for the three and six months ended June 30, 2021 should be read in conjunction with the unaudited condensed consolidated financial statements and notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements as of and for the year ended December 31, 2020 included in our Annual Report on Form 10-K for the year ended December 31, 2020 previously filed with the SEC.

Forward-Looking Statements

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Incyte is a biopharmaceutical company focused on the discovery, development and commercialization of proprietary therapeutics.

Our global headquarters is located in Wilmington, Delaware, where we conduct global commercial and clinical development operations.

Our global headquarters is located in Wilmington, Delaware, where we conduct global clinical development and commercial operations.

We also conduct commercial and clinical development operations from our European headquarters in Morges, Switzerland and our Japanese office in Tokyo.

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One therapeutic area is Hematology/Oncology, which is comprised of Myeloproliferative Neoplasms (MPNs) and Graft-Versus-Host Disease (GVHD), as well as solid tumors and hematologic malignancies.

The other therapeutic area is Inflammation and Autoimmunity (IAI)/Dermatology commercial franchise.

The other therapeutic area is Inflammation and Autoimmunity (IAI), which includes our newly established Dermatology commercial franchise.

We are also eligible to receive milestones and royalties on molecules discovered by us and licensed to third parties.

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We estimate that there are ~10,000 patients diagnosed in the United States each year with relapsed or refractory diffuse large B-cell lymphoma (r/r DLBCL) who are not eligible for ASCT.

In the EU, we estimate there are ~14,000 patients diagnosed each year with r/r DLBCL who are not eligible for ASCT.

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

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

Updated three-year data from L-MIND were presented at the American Society of Clinical Oncology (ASCO) 2021.

PEMAZYRE (pemigatinib)

PEMAZYRE is the first internally discovered product to be internationally commercialized by us.

In April 2020, we announced that the FDA approved PEMAZYRE (pemigatinib), a selective fibroblast growth factor receptor (FGFR) kinase inhibitor, for the treatment of adults with previously treated, unresectable locally advanced or metastatic cholangiocarcinoma with an FGFR2 fusion or other rearrangement as detected by an FDA-approved test.

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

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

In March 2021, PEMAZYRE was approved by the Japanese Ministry of Health, Labour and Welfare (MHLW) for the treatment of patients with unresectable biliary tract cancer (BTC) with an FGFR2 fusion gene, worsening after cancer chemotherapy.

Also in March 2021, PEMAZYRE was approved by the European Commission (EC) for the treatment of adults with locally advanced or metastatic cholangiocarcinoma with an FGFR2 fusion or rearrangement that have progressed after at least one prior line of systemic therapy.

PEMAZYRE is the first internally discovered product to be globally commercialized by us.

In June 2021, PEMAZYRE was approved in Taiwan for the treatment of adults with previously treated, unresectable locally advanced or metastatic cholangiocarcinoma with a fibroblast growth factor receptor 2 (FGFR2) fusion gene.

In July 2021, the UK’s National Institute for Health and Care Excellence (NICE) recommended PEMAZYRE for patients with cholangiocarcinoma with a fibroblast growth factor receptor 2 (FGFR2) fusion or rearrangement that have progressed after at least one prior line of systemic therapy.

NICE’s guidance enables all eligible patients in England and Wales to have access to PEMAZYRE through the National Health Service (NHS).

Cholangiocarcinoma is a rare cancer that arises from the cells within the bile ducts.

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An sNDA seeking FDA approval of ruxolitinib in steroid-refractory chronic GVHD has been accepted for Priority Review.

In June 2021, we announced that the FDA extended the PDUFA action date by three months to allow time to review additional data submitted by us in response to the FDA’s information request.

In July 2021, we and Novartis announced that data from REACH3 were published in the New England Journal of Medicine.

A second JAK inhibitor in development is itacitinib, which is a selective JAK1 inhibitor.

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As part of our ongoing LIMBER (Leadership In MPNs BEyond Ruxolitinib) clinical development initiative, which is designed to improve and expand therapeutic options for patients with myeloproliferative neoplasms, we are evaluating combinations of ruxolitinib with other therapeutic modalities, as well as developing a once-a-day formulation of ruxolitinib for potential use as monotherapy and combination therapy.

Bioavailability and bioequivalence data were published for ruxolitinib’s once-daily (QD) extended release (XR) formulation at the European Hematology Association (EHA) 2021 Virtual Congress in June 2021.

Based on positive Phase II data, we opened two pivotal trials of ruxolitinib in combination with parsaclisib (PI3Kδ) in first-line MF (LIMBER-313) and in MF patients with a suboptimal response to ruxolitinib monotherapy (LIMBER-304), respectively, and both trials are ongoing.

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

firstMIND is a Phase Ib safety trial of tafasitamab as a first-line therapy for patients with DLBCL, and frontMIND, a placebo-controlled Phase III trial evaluating tafasitamab in

combination with lenalidomide added to rituximab plus chemotherapy (R-CHOP) as a first-line therapy for patients with DLBCL, is planned to begin in 2021.

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

A placebo-controlled Phase III trial (inMIND) of tafasitamab added to lenalidomide plus rituximab (R 2 ) in patients with relapsed or refractory follicular or marginal zone lymphomas is ongoing, and we are preparing to initiate both a proof-of-concept study (topMIND) of tafasitamab in combination with parsaclisib (PI3Kδ) in patients with relapsed or refractory B-cell malignancies and a proof-of-concept study of tafasitamab, lenalidomide and plamotamab in patients with r/r DLBCL.

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In January 2021, the FDA granted orphan drug designation to tafasitamab as a treatment for patients with follicular lymphoma.

In June 2021, we and MorphoSys announced that the European Medicines Agency’s (EMA) Committee for Medicinal Products for Human Use (CHMP) issued a positive opinion recommending the conditional marketing authorization of tafasitamab in combination with lenalidomide, followed by tafasitamab monotherapy, for the treatment of patients with relapsed or refractory DLBCL who are not eligible for autologous stem cell transplantation (ASCT).

Pemigatinib is a potent and selective inhibitor of the fibroblast growth factor receptor (FGFR) isoforms 1, 2 and 3 with demonstrated activity in preclinical studies.

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

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

Pemigatinib has Breakthrough Therapy designation as a treatment for patients with myeloid/lymphoid neoplasms with FGFR1 rearrangement (8p11 MPN) who have relapsed or are refractory to initial chemotherapy.

Based on data generated from these ongoing trials, we have initiated additional trials.

FIGHT-207, a solid tumor-agnostic trial evaluating pemigatinib in patients with driver-alterations of FGF/FGFR, is now closed to recruitment.

Based on findings from this study, we have identified populations that may potentially benefit from treatment with pemigatinib and intend to initiate Phase II studies in glioblastoma and non-small cell lung cancer.

Pemigatinib has Breakthrough Therapy designation as a treatment for patients with myeloid/lymphoid neoplasms (MLN) with FGFR1 rearrangement who have relapsed or are refractory to initial chemotherapy.

The PI3Kδ pathway mediates oncogenic signaling in B cell malignancies.

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announced an exclusive global collaboration and license agreement for MacroGenics’ retifanlimab (formerly INCMGA0012), an investigational monoclonal antibody that inhibits PD-1.

Under this collaboration, we obtained exclusive worldwide rights for the development and commercialization of

retifanlimab in all indications.

Under this collaboration, we obtained exclusive worldwide rights for the development and commercialization of retifanlimab in all indications.

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

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

In January 2021, we announced that the FDA had accepted for Priority Review the Biologics License Application (BLA) for retifanlimab as a treatment for previously treated patients with advanced squamous cell carcinoma of the anal canal (SCAC) who have progressed following standard platinum-based chemotherapy.

In March 2021, the Marketing Authorization Application (MAA) seeking approval of retifanlimab in SCAC was validated by the European Medicines Agency (EMA).The submissions were based on data from the Phase II POD1UM-202 trial of retifanlimab in patients with locally advanced or metastatic SCAC who have progressed following standard platinum-based chemotherapy, preliminary results of which were presented at ESMO in September 2020.

In March 2021, the Marketing Authorization Application (MAA) seeking approval of retifanlimab in SCAC was validated by the European Medicines Agency (EMA).The submission was based on data from the Phase II POD1UM-202 trial of retifanlimab in patients with locally advanced or metastatic SCAC who have progressed following standard platinum-based chemotherapy, preliminary results of which were presented at ESMO in September 2020.

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

In July 2021, we announced that the FDA issued a complete response letter (CRL) for the BLA of retifanlimab for the treatment of squamous cell carcinoma of the anal canal.

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

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Steroid-refractory chronic GVHD 1 :

sNDA under Priority Review

sNDA under review

itacitinib (JAK1)

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Myelofibrosis:

Phase II (low platelets)

Phase II (second-line therapy)

ruxolitinib + CK0804 2

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Phase III (B-MIND);

MAA and NDS under review

CHMP+ opinion;

NDS under review

Phase Ib (firstMIND);

Phase III (frontMIND) in preparation

Phase III (frontMIND)

r/r follicular & marginal zone lymphomas:

Phase III (inMIND)

r/r chronic lymphocytic leukemia:

Phase II (coreMIND) in preparation

r/r B-cell malignancies:

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

Myeloid/lymphoid neoplasms (MLN):

Phase II (FIGHT-203)

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Phase II (FIGHT-207)

Glioblastoma:

Phase II in preparation

r/r follicular lymphoma:

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Phase II (CITADEL-205)

r/r follicular or marginal zone lymphoma:

r/r follicular and marginal zone lymphoma:

Phase III (CITADEL-302) in preparation

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Phase III (PODIUM-303);

BLA under Priority Review;

CRL from FDA;

MAA under review

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MCLA-145 (PD-L1xCD137) 3

INCB01158 licensed from Calithera Biosciences, Inc.

INCB01158 development in collaboration with Calithera Biosciences, Inc.

Discovery collaboration with Agenus Inc.

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We do not yet have any approved products in IAI.

In anticipation of the potential FDA approval of our most advanced program, ruxolitinib cream for use in mild-to-moderate atopic dermatitis (AD), we recently established Incyte Dermatology as a new commercial franchise in the United States.

Clinical Programs in Dermatology

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both trials met their primary endpoints.

The 44-week long-term safety and efficacy portion of both the TRuE-AD1 and TRuE-AD2 trials have been completed.

Additional pooled analysis from the TRuE-AD program were presented at the American Academy of Dermatology (AAD) in April 2021, with results demonstrating ruxolitinib cream’s safety and efficacy across various patient subgroups.

Updated 52-week data from both trials were presented at the RAD virtual symposium in June 2021.

In September 2020, we purchased a priority review voucher (PRV) from a third party, with the intent to use it in connection with our submission seeking FDA approval of ruxolitinib cream for the treatment of mild-to-moderate AD.

In February 2021, we announced that the NDA seeking approval for ruxolitinib cream as a treatment for patients with mild-to-moderate AD was accepted for Priority Review by the FDA.

The Prescription Drug User Fee Act (PDUFA) action date is June 21, 2021.

In June 2021, the FDA extended the PDUFA action date to September 2021 to allow time to review additional subgroup analyses of data we submitted in response to the FDA’s information request.

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

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

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

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

In April 2021, updated 104-week data from the Phase II trial were presented at AAD, with results showing continued efficacy in patients treated with ruxolitinib cream through 104 weeks, with a longer duration of treatment being associated with greater levels of repigmentation.

In May 2021, we announced positive topline results from the Phase III TRuE-V program evaluating ruxolitinib cream as a treatment for adolescent and adult patients with vitiligo.

Both TRuE-V1 and TRuE-V2 studies met the primary and key secondary endpoints, including patient reported outcomes.

The overall efficacy and safety profile of ruxolitinib cream was consistent with previously reported Phase II data, and no new safety signals were observed.

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

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

In June 2021, Phase II data evaluating parsaclisib in AIHA were presented at EHA.

The majority of patients achieved a response with parsaclisib over the initial 12-week treatment period.

Treatment with parsaclisib was generally well tolerated.

Based on these results, we expect to initiate a Phase III trial.

The FDA has granted orphan drug designation to parsaclisib as a treatment for patients with AIHA.

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Atopic dermatitis:

Phase III (TRuE-AD1, TRuE-AD2;

primary endpoint met);

NDA under Priority Review

NDA under review;

Phase III pediatric study ongoing (TRuE-AD3)

Phase III (TRuE-V1, TRuE-V2;

recruitment complete in both trials)

primary endpoint met in both studies);

sNDA in preparation

INCB54707 (JAK1)

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Autoimmune hemolytic anemia:

Phase III in preparation

INCB00928 (ALK2)

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

An sNDA for baricitinib has been submitted by Lilly for the treatment of patients with AD.

In April 2021, we and Lilly announced the FDA extended the review period for the sNDA for baricitinib for the treatment of moderate to severe atopic dermatitis by three months to allow time for additional data analyses.

An sNDA for baricitinib has been submitted by Lilly for the treatment of patients with moderate to severe AD.

In April 2021, we and Lilly announced the FDA extended the review period for the sNDA for baricitinib for the treatment of moderate to severe AD by three months to allow time for additional data analyses.

In July 2021, we and Lilly announced that the FDA will not meet the PDUFA action date for the sNDA for baricitinib for the treatment of adults with moderate to severe AD due to the FDA's ongoing assessment of JAK inhibitors.

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

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Under the terms of this agreement, as amended in February 2017, we received exclusive worldwide development and commercialization rights to four checkpoint modulators directed against GITR, OX40, LAG-3 and TIM-3.

In addition to the initial four program targets, we and Agenus have the option to jointly nominate and pursue additional targets within the framework of the collaboration, and in November 2015, three more targets were added, two of which were removed from the collaboration under the February 2017 amendments.

In addition to the initial four program targets, we and Agenus have the option to jointly nominate

and pursue additional targets within the framework of the collaboration, and in November 2015, three more targets were added, two of which were removed from the collaboration under the February 2017 amendments.

Takeda (ARIAD)

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

Under this agreement, we received exclusive development and commercialization rights worldwide to MacroGenics’ INCMGA0012,

an investigational monoclonal antibody that inhibits PD-1.

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

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

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In December 2020, we and Lilly announced that data from ACTT-2 supportive of the EUA were published in the New England Journal of Medicine.

In July 2021, we and Lilly announced that the FDA broadened the EUA for baricitinib to allow for treatment with or without remdesivir.

The EUA now provides for the use of baricitinib for treatment of COVID-19 in hospitalized adults and pediatric patients two years of age or older requiring supplemental oxygen, non-invasive or invasive mechanical ventilation or extracorporeal membrane oxygenation (ECMO).

In April 2021, we and Lilly announced that the primary endpoint was not met in COV-BARRIER, the Phase III randomized, double-blind, placebo–controlled study to evaluate the efficacy and safety of baricitinib in hospitalized adults not on mechanical ventilation and who have COVID-19.

There was, however, a 38% reduction in mortality by Day 28 in patients treated with baricitinib in addition to SoC.

In August 2021, we and Lilly announced new data from an additional cohort of 101 adult patients from the COV-BARRIER trial.

In this sub-study, patients with COVID-19 on mechanical

ventilation or extracorporeal membrane oxygenation (ECMO) who received baricitinib plus standard of care were 46% less likely to die by Day 28 compared to patients who received placebo plus standard of care.

Critical Accounting Policies and Significant Estimates

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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, PEMAZYRE and ICLUSIG.

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

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Our estimates for expected utilization of rebates are based on data received from our customers.

Rebates are generally invoiced and paid in arrears so that the accrual balance consists

of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarters’ unpaid rebates.

Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarters’ unpaid rebates.

If actual future rebates vary from estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

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The wholesalers, in turn, charges back to us the difference between the price initially paid by the wholesalers and the discounted price paid by the contracted customers.

In addition to actual chargebacks received, we maintain an accrual for chargebacks based on the estimated contractual discounts on the inventory levels on hand in our distribution channel.

In addition to actual chargebacks received, we maintain an accrual for chargebacks based on the estimated contractual discounts on the inventory levels on

hand in our distribution channel.

If actual future chargebacks vary from these estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

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

The fair value of stock options, which are subject to

graded vesting, are recognized as compensation expense over the requisite service period using the accelerated attribution method.

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

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

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We assess the probability of achievement of performance conditions, including projected product revenues and clinical development milestones, as of the end of each reporting period.

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

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.

Income Taxes.

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

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

differ significantly.

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

Changes to one or multiple inputs could have a material impact on the amount of acquisition-related contingent consideration expense recorded during the reporting period.

Recent Accounting Pronouncements

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.

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

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.

Results of Operations

We recorded net income of $53.5 million and basic and diluted net income per share of $0.24 for the three months ended March 31, 2021, as compared to net loss of $720.6 million and basic and diluted net loss per share of $3.33 in the corresponding period in 2020.

We recorded net income of $149.5 million and basic net income per share of $0.68 and diluted net income per share of $0.67 for the three months ended June 30, 2021, as compared to net income of $290.3 million and basic net income per share of $1.33 and diluted net income per share of $1.32 in the corresponding period in 2020.

We recorded net income of $203.0 million and basic net income per share of $0.92 and diluted net income per share of $0.91 for the six months

ended June 30, 2021, as compared to net loss of $430.3 million and basic and diluted net loss per share of $1.98 in the corresponding period in 2020.

For the Three Months Ended,

For the Six Months Ended,

(in millions)

JAKAFI revenues, net

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Total product royalty revenues

Milestone and contract revenues

Total revenues

The increase in JAKAFI product revenues for the three months ended March 31, 2021 as compared to the corresponding period in 2020 was comprised of a volume decrease of $4.9 million, including the impact of a decline in new patient starts due to the COVID-19 pandemic, and higher patient demand and channel inventory stocking in the prior year comparative period, due to the potential for COVID-19 related supply disruptions, offset by a price increase of $11.1 million.

The increase in JAKAFI product revenues for the three months ended June 30, 2021 as compared to the corresponding period in 2020 was comprised of a volume increase of $31.7 million and a price increase of $23.7 million.

The increase in JAKAFI product revenues for the six months ended June 30, 2021 as compared to the corresponding period in 2020 was comprised of a volume increase of $25.8 million and a price increase of $35.8 million.

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

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Discounts and

Three Months Ended March 31, 2021

Six Months Ended June 30, 2021

Balance at January 1, 2021

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Credits/payments for prior period sales

Balance at March 31, 2021

Balance at June 30, 2021

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

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

Claims by third-party payors for rebates and chargebacks are frequently submitted after the period in which the related sales occurred, which may result in adjustments to prior period accrual balances in the period in which the new information becomes available.

the new information becomes available.

We also adjust our allowance for product returns based on new information regarding actual returns as it becomes available.

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

Our milestone and contract revenues for the six months ended June 30, 2021, were derived from a $10.0 million milestone under the Innovent research and collaboration and licensing agreement.

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

Cost of Product Revenues.

For the Three Months Ended,

For the Six Months Ended,

(in millions)

Product costs

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For the Three Months Ended,

For the Six Months Ended,

(in millions)

Salary and benefits related

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

The increase in salary and benefits related expense for the three months ended March 31, 2021 as compared to the corresponding period in 2020 was due primarily to increased development headcount to sustain our development pipeline.

The increase in salary and benefits related expense for the three and six months ended June 30, 2021 as compared to the corresponding periods in 2020 was due primarily to increased development headcount to sustain our development pipeline.

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

The decrease in clinical research and outside services expense for the three months ended March 31, 2021 as compared to the corresponding period in 2020 was primarily due to upfront consideration related to our collaborative agreement with MorphoSys recorded during 2020.

Research and development expenses include upfront and milestone expenses related to our collaborative agreements of $11.5 million and $805.5 million, respectively, for the three months ended March 31, 2021 and 2020.

Research and development expenses for the three months ended March 31, 2021 and 2020 were net of $3.6 million and $1.7 million, respectively, of costs reimbursed by our collaborative partners.

The increase in clinical research and outside services expense for the three months ended June 30, 2021 as compared to the corresponding period in 2020 was primarily due to the progression of our pipeline including parsaclisib and our 55% share of the global and U.S.

specific development costs for tafasitamab as well as product supply related costs to support the potential launch of ruxolitinib cream as a treatment for atopic dermatitis.

The decrease in clinical research and outside services expense for the six months ended June 30, 2021 as compared to the corresponding period in 2020 was primarily due to upfront consideration related to our collaborative agreement with MorphoSys recorded during 2020.

Research and development expenses include upfront and milestone expenses related to our collaborative agreements of $5.0 million and $16.5 million, respectively, for the three and six months ended June 30, 2021.

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

Research and development expenses for the three and six months ended June 30, 2021 and 2020 were net of $8.9 million, $12.5 million, $3.2 million and $4.9 million, respectively, of costs reimbursed by our collaborative partners.

In addition to one-time expenses resulting from upfront fees in connection with the entry into any new or amended collaboration agreements and payment of milestones under those agreements, research and development expenses may fluctuate from period to period depending upon the stage of certain projects and the level of pre-clinical and clinical trial related activities.

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For the Three Months Ended,

For the Six Months Ended,

(in millions)

Salary and benefits related

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Total selling, general and administrative expenses

The increase in salary and benefits related expense for the three months ended March 31, 2021 as compared to the corresponding period in 2020 was due primarily to increased headcount.

The increase in salary and benefits related expense for the three and six months ended June 30, 2021 as compared to the corresponding period in 2020 was due primarily to increased headcount.

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

The increase in other contract services and outside costs for the three months ended March 31, 2021, as compared to the corresponding

period in 2020, was due primarily to expenses related to the establishment of our dermatology commercial organization, expenses related to activities to support the potential launch of ruxolitinib cream for the treatment of atopic dermatitis, expense recognized in connection with a legal reserve, as discussed in Note 15 of notes to our condensed consolidated financial statements, and the timing of certain expenses.

The increase in other contract services and outside costs for the three and six months ended June 30, 2021, as compared to the corresponding period in 2020, was due primarily to expenses related to the establishment of our dermatology commercial organization and expenses related to activities to support the potential launch of ruxolitinib cream for the treatment of atopic dermatitis.

The six months ended June 30, 2021 also included expense recognized in connection with a legal settlement, as discussed in Note 15 of notes to our condensed consolidated financial statements.

Change in fair value of acquisition-related contingent consideration

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

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

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

The change in fair value of the acquisition-related contingent consideration for the three months ended March 31, 2021 and 2020 was $5.5 million and $6.6 million, respectively, which is recorded in change in fair value of acquisition-related contingent consideration on the condensed consolidated statements of operations.

The change in fair value for the three months ended March 31, 2021 and 2020 was due primarily to the passage of time as there were no other significant changes in the key assumptions during the periods.

The change in fair value of the acquisition-related contingent consideration for the three and six months ended June 30, 2021 was $4.6 million and $10.2 million, respectively, which is recorded in change in fair value of acquisition-related contingent consideration on the condensed consolidated statements of operations.

The change in fair value of the acquisition-related contingent consideration for the three and six months ended June 30, 2020 was $6.1 million and $12.7

million, respectively, which is recorded in change in fair value of acquisition-related contingent consideration on the condensed consolidated statements of operations.

The change in fair value for the three and six months ended June 30, 2021 and 2020 was due primarily to the passage of time as there were no other significant changes in the key assumptions during the periods.

Collaboration loss sharing

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

For the three months ended March 31, 2021 and 2020, our 50% share of the costs for tafasitamab was $10.5 million and $2.1 million, respectively, as recorded in collaboration loss sharing on the condensed consolidated statement of operations.

For the three and six months ended June 30, 2021, our 50% share of the losses for tafasitamab was $9.8 million and $20.3 million, respectively, as recorded in collaboration loss sharing on the condensed consolidated statement of operations.

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

Other income (expense).

Other income (expense), net.

Other income (expense), net for the three months ended March 31, 2021 and 2020 was ($1.4) million and $8.7 million, respectively.

The decrease in other income (expense), net primarily relates to lower interest income for the three months ended March 31, 2021.

Other income (expense), net for the three and six months ended June 30, 2021 was $4.4 million and $3.0 million, respectively.

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

The decrease in other income (expense), net for the six months ended June 30, 2021 primarily relates to a decrease in interest income.

Interest expense.

Interest expense for the three months ended March 31, 2021 and 2020 was $0.4 million and $0.6 million, respectively.

Included in interest expense for the three months ended March 31, 2020 was $0.2 million of non-cash charges to amortize the discounts on our convertible senior notes due November 2020.

Included in interest expense for the three months ended March 31, 2021 and 2020 was $0.3 million of interest expense on our finance lease liabilities.

Interest expense for the three and six months ended June 30, 2021 was $0.4 million and $0.7 million, respectively.

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

Included in interest expense for the three and six months ended June 30, 2021 was approximately $0.3 million and $0.6 million, respectively, of interest expense on our finance lease liabilities.

Included in interest expense for the three and six months ended June 30, 2020 was $0.2 million and $0.4 million, respectively, of non-cash charges to amortize the discount on our convertible senior notes due November 2020 and approximately $0.3 million and $0.6 million, respectively, of interest expense on our finance lease liabilities.

Unrealized gain (loss) on long term investments.

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For the Three Months Ended,

For the Six Months Ended,

(in millions)

Total unrealized loss on long term investments

(in millions)

Total unrealized gain (loss) on long term investments

Provision for income taxes.

The provision for income taxes for the three months ended March 31, 2021 and 2020 was $15.8 million and $16.6 million, respectively.

The provision for income taxes for the three and six months ended June 30, 2021 was $22.2 million and $38.0 million, respectively.

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

The 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.

Liquidity and Capital Resources

Due to historical net losses, we had an accumulated deficit of $1.7 billion as of March 31, 2021.

Due to historical net losses, we had an accumulated deficit of $1.5 billion as of June 30, 2021.

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

At March 31, 2021, we had available cash, cash equivalents and marketable securities of $2.0 billion.

At June 30, 2021, we had available cash, cash equivalents and marketable securities of $2.1 billion.

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

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

Net cash provided by operating activities for the three months ended March 31, 2021 was $206.1 million and net cash used in operating activities for the three months ended March 31, 2020 was $683.4 million.

Net cash provided by operating activities for the six months ended June 30, 2021 was $379.0 million and net cash used in operating activities for the six months ended June 30, 2020 was $414.0 million.

The $793.0 million increase in cash provided by operating activities was due primarily to cash outflows in March 2020 related to our collaboration and license agreement with MorphoSys and changes in working capital.

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

Net cash used in investing activities was $59.8 million for the three months ended March 31, 2021, which represented purchases of marketable securities of $39.3 million, capital expenditures of $48.1 million and purchase of long term equity investment of $8.7 million, offset in part by the sale and maturity of marketable securities of $35.2 million and the sale of long term investment of $1.1 million.

Net cash used in investing activities was $108.6 million for the three months ended March 31, 2020, which represented purchases of marketable securities of $147.4 million, capital expenditures of $39.3 million, and purchase of long term equity investment of $95.5 million, offset in part by the sale and maturity of marketable securities of $173.6 million.

In the future, net cash used by investing activities may fluctuate significantly from period to period due to the timing of strategic equity investments, acquisitions, capital expenditures and maturities/sales and purchases of marketable securities.

Net cash provided by financing activities was $12.8 million and $2.5 million, respectively, for the three months ended March 31, 2021 and 2020, primarily representing proceeds from the issuance of common stock under our stock plans, offset in part by cash paid to ARIAD/Takeda for contingent consideration.

Net cash used by investing activities was $108.9 million for the six months ended June 30, 2021, which represented purchases of marketable securities of $102.3 million, capital expenditures of $114.4 million and purchases of long term equity investments of $8.7 million, offset in part by the sale of long term investment of $9.3 million and the sale and maturities of marketable securities of $107.1 million.

Net cash used in investing activities was $151.8 million for the six months ended June 30, 2020, which represented purchases of marketable securities of $287.4 million, capital expenditures of $83.1 million, and purchases of long term equity investments of $95.5 million, offset in part by the sale of long term investment of $4.5 million and the sales and maturities of marketable securities of $309.7 million.

In the future, net cash used by investing activities may fluctuate significantly from period to period due to the timing of strategic equity investments, acquisitions, and capital expenditures and maturities/sales and purchases of marketable securities.

Net cash provided by financing activities was $16.5 million and $58.9 million, respectively, for the six months ended June 30, 2021 and 2020, primarily representing proceeds from the issuance of common stock under our stock plans, offset in part by cash paid to ARIAD/Takeda for contingent consideration.

Our capital expenditures for construction activities and our non-operating contractual operating and finance lease obligations are discussed in Note 7 of notes to our condensed consolidated financial statements.

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

The sale of equity or additional convertible debt securities in the future may be dilutive to our stockholders, and may provide for rights, preferences or privileges senior to those of our holders of common stock.

The sale of equity or convertible debt securities in the future may be dilutive to our stockholders, and may provide for rights, preferences or privileges senior to those of our holders of common stock.

Debt financing arrangements may require us to pledge certain assets or enter into covenants that could restrict our operations or our ability to incur further indebtedness.

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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 2. Management’s Discussion and Analysis