What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-08 compared with 2021-02-09 · 88 added, 80 removed, 224 unchanged (43% of the section changed)

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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.

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

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

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.

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

Effects of the COVID-19 Pandemic on Our Business

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

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

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

We took aggressive, proactive actions early on to protect the health of our employees, and their families, including voluntarily requiring almost all personnel across our global enterprise to work remotely and restricting access to our sites to personnel who were required to perform critical business continuity activities.

In May 2020, we initiated a return to full laboratory work at our facilities in Wilmington, Delaware, as well as a gradual return to office-based working, where allowed under local guidelines, at our offices in North America, Europe and Asia.

However, the spread of the Omicron variant beginning late in 2021 has led to renewed restrictions in some jurisdictions and a voluntary reduction in travel and in-person meetings even where restrictions were not imposed.

While we currently believe we are well-positioned to function in a hybrid on-site and virtual or remote fashion, the extent of the COVID-19 Pandemic’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, protective measures, and the reimposition of protective measures, implemented by governmental authorities or by us to protect our employees, and effects of the pandemic and such protective measures on our suppliers, collaborators, services providers and healthcare organizations serving patients, all of which are uncertain and difficult to predict considering the rapidly evolving landscape.

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

To date, we have not experienced a material effect on the results of our commercial operations, or our manufacturing supply chain, and we have increased manufacturing efforts of ruxolitinib to respond to the COVID-19 Pandemic and to pre-clinical and clinical study requests.

New patient starts for JAKAFI treatment decreased as a result of shelter in place and other protective measures, and if decreases in new patient starts occur in future periods, our revenues in future periods could be adversely affected.

To date, we have not experienced a material effect on the results of our commercial operations, or our manufacturing supply chain.

New patient starts for treatment decreased as a result of shelter in place and other protective measures, and if decreases in new patient starts occur in future periods, our revenues in future periods could be adversely affected.

We continue to anticipate that short-term effects may continue to emerge across different aspects of our global clinical trial programs.

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Regulatory Achievements

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

Food and Drug Administration (FDA) for the treatment of adults with previously treated, unresectable locally advanced or metastatic cholangiocarcinoma with an FGFR2 fusion or other rearrangement as detected by an FDA-approved test.

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

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

Also in March 2021, PEMAZYRE was approved by the European Commission 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 was approved by the Food and Drug Administration (FDA) in April 2020 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.

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

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

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

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

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

In July 2020, under our collaboration and license agreement with MorphoSys AG, we received FDA approval of MONJUVI (tafasitamab-cxix), in combination with lenalidomide for the treatment of adult patients with relapsed or refractory diffuse large B-cell lymphoma (DLBCL) not otherwise specified, including DLBCL arising from low grade lymphoma, and who are not eligible for autologous stem cell transplant.

In August 2021, under our collaboration and license agreement with MorphoSys AG, the European Commission granted conditional marketing authorization for MINJUVI (tafasitamab) in combination with lenalidomide, followed by MINJUVI monotherapy, for the treatment of adult patients with relapsed or refractory DLBCL who are not eligible for autologous stem cell transplant.

MONJUVI (tafasitamab-cxix) was approved by the FDA in July 2020 in combination with lenalidomide for the treatment of adult patients with relapsed or refractory diffuse large B-cell lymphoma (DLBCL) not otherwise specified, including DLBCL arising from low grade lymphoma, and who are not eligible for autologous stem cell transplant.

We have rights to co-commercialize tafasitamab in the United States with MorphoSys, and we have exclusive development and commercialization rights outside of the United States.

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

In September 2021, the FDA approved JAKAFI for the treatment of chronic GVHD after failure of one or two lines of systemic therapy in adult and pediatric patients 12 years and older.

We have retained all development and commercialization rights to JAKAFI in the United States and are eligible to receive development and sales milestones as

well as royalties from product sales outside the United States.

In September 2021, the FDA approved OPZELURA (ruxolitinib) cream, a novel cream formulation of our selective JAK1/JAK2 inhibitor ruxolitinib, for the topical short-term and non-continuous chronic treatment of mild to moderate atopic dermatitis in non-immunocompromised patients 12 years of age and older whose disease is not adequately controlled with topical prescription therapies, or when those therapies are not advisable.

License Agreements and Business Relationships

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

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

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

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

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

Exclusive of the upfront payment of $150.0 million received in 2009 and the immediate milestone of $60.0 million earned in 2010, we have recognized and received, in the aggregate, $157.0 million for the achievement of development milestones, $280.0 million for the achievement of regulatory milestones and $200.0 million for the achievement of sales milestones through December 31, 2020.

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

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

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

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

We and MorphoSys have agreed to co-develop tafasitamab and to share development costs associated with global and U.S.-specific clinical trials, with Incyte responsible for 55% of such costs and MorphoSys responsible for 45% of such costs.

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

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

allocated to research and development expense.

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

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

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

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

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

Summarized below are the significant achievements under our existing collaboration and license agreements and additional agreements we entered into during the year ended December 31, 2021.

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 August 2021, we entered into a Collaboration and License Agreement with a subsidiary of InnoCare Pharma Limited.

Under the terms of this agreement, InnoCare’s subsidiary received development and exclusive commercialization rights to tafasitamab in hematology and oncology in mainland China, Hong Kong, Macau and Taiwan.

In September 2021, we recognized an upfront payment under this agreement of $35.0 million upon our transfer of technology related to the licensed product candidate to InnoCare which was recorded in milestone and contract revenues.

Under the terms of this agreement, we are eligible to receive up to an additional $45.0 million in potential development and regulatory milestones and up to $37.5 million in potential sales milestones from InnoCare.

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

In September 2021, we entered into a Collaboration and License Agreement with Syndax covering the worldwide development and commercialization of SNDX-6352 (axatilimab), Syndax’s anti-CSF-1R monoclonal antibody.

The Agreement became effective in December 2021 with the expiration of the initial waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.

Under the terms of this agreement, we received exclusive commercialization rights outside of the United States, and Syndax has co-commercialization rights in the United States with respect to axatilimab.

We paid Syndax an upfront payment of $117.0 million upon effectiveness of the agreement.

Syndax is eligible to receive up to $220.0 million in future contingent development and regulatory milestones and $230.0 million in sales milestones as well as tiered royalties ranging in the mid-teens on net sales in Europe and Japan and low double digit percentage on net sales in the rest of the world outside of the United States.

In December 2021, we recognized a $50.0 million sales milestone for Lilly achieving annual net sales of a licensed product of $1.0 billion.

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

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Actual results may differ from those estimates under different assumptions or conditions.

We believe the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements.

We believe the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of the consolidated financial statements.

See Note 1 of Notes to the Consolidated Financial Statements for a complete list of our significant accounting policies.

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

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

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

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

Product Revenues

Our product revenues consist of U.S.

sales of JAKAFI and PEMAZYRE and European sales of ICLUSIG.

Our product revenues consist of sales of JAKAFI, OPZELURA, PEMAZYRE, ICLUSIG, and MINJUVI.

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

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

As of December 31, 2021, a 5% change in our sales allowance and accruals would have had an approximate $29.2 million impact on our income before taxes.

Customer Credits:

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

Service fees are also deducted

from total product sales as they are earned.

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

Rebates and Discounts:

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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.

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.

Medicare Part D Coverage Gap:

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

We recognize royalty revenues in the period the sales occur.

We exercise judgment in determining whether the information provided is sufficiently reliable for us to base our royalty revenue recognition thereon.

If actual royalties vary from estimates, we may need to adjust the prior period, which would affect royalty revenue and receivable in the period of adjustment.

Historically, adjustments to these estimates to reflect actual royalty revenues have not been material to our financial results and have been less than 1% of royalty revenues.

Milestone and Contract Revenues

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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.

For the years ending December 31, 2021 and 2020, our Black-Scholes assumptions have remained unchanged with a weighted-average stock price volatility of 39% to 40%, average expected option life of approximately five years and an estimated annualized forfeiture rate of 5%.

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.

period using the accelerated attribution method.

The fair value of PSUs are recognized as compensation expense beginning at the time in which the performance conditions are deemed probable of achievement.

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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.

Compensation expense for PSUs with market performance conditions is calculated using a Monte Carlo simulation model as of the date of grant and recorded over the requisite service period.

Income Taxes.

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We believe our estimates for the valuation allowances against certain deferred tax assets and the amount of benefits associated with uncertain tax positions recognized in our financial statements are appropriate based upon our assessment of the factors mentioned above.

As a result of releasing the valuation allowance on the majority of our U.S.

deferred tax assets in 2021, we expect that our reported income tax expense (current plus deferred) for future periods will be higher than that recorded for prior periods.

Acquisition-related contingent consideration.

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

As the fair value measurement is based on significant inputs that are unobservable in the market, this represents a Level 3 measurement.

Acquisition-related contingent consideration, which consists of our future royalty obligations to ARIAD/Takeda, was recorded on the acquisition date at the estimated fair value of the obligation, in accordance with the acquisition method of accounting using an income approach based on projected future net revenues of ICLUSIG in the European Union and other countries.

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

The assumptions used to determine the fair value of the acquisition-related contingent consideration include projected ICLUSIG revenues and 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.

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

As the fair value measurement is based on significant inputs that are unobservable in the market, this represents a Level 3 measurement.

The valuation inputs utilized to estimate the fair value of the contingent consideration as of December 31, 2021 and 2020 included a discount rate of 10% and updated projections of future net revenues of ICLUSIG in the European Union and other countries for the approved third line treatment.

While we use the best available information to prepare our projections of future net revenues of ICLUSIG 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.

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Years Ended December 31, 2021 and 2020

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

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

We recorded net income for the year ended December 31, 2021 of $948.6 million and net loss for the year ended December 31, 2020 of $295.7 million.

On a per share basis, basic net income was $4.30 and diluted net income was $4.27 for the year ended December 31, 2021.

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

For the year ended December 31, 2021, we recorded a benefit from income taxes of $569.0 million when we released the valuation allowance on the majority of our U.S.

deferred tax assets.

This benefit increased net income by $2.58 per basic and $2.56 per diluted share for the year ended December 31, 2021.

For the Year Ended,

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PEMAZYRE revenues, net

MINJUVI revenues, net

OPZELURA revenues, net

Total product revenues, net

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Our milestone and contract revenues were $95.0 million and $205.0 million for the years ended December 31, 2021 and 2020, respectively.

During the year ended December 31, 2021, our milestone and contract revenues were derived from a $50.0 million sales milestone under the Lilly license, development and commercialization agreement, a $10.0 million milestone under the Innovent research collaboration and licensing agreement and a $35.0 million upfront payment under the InnoCare collaboration and license agreement.

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

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

Cost of Product Revenues

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Total cost of product revenues

Cost of product revenues includes all JAKAFI, ICLUSIG and PEMAZYRE related product costs, employee personnel costs, including stock compensation, for those employees dedicated to the production of our commercial products, low single-digit royalties to Novartis on all sales of JAKAFI in the United States and amortization of our licensed intellectual property rights for ICLUSIG using the straight-line method over the estimated useful life of 12.5 years.

Cost of product revenues includes all product related costs, employee personnel costs, including stock compensation, for those employees dedicated to the production of our commercial products, low single-digit royalties to Novartis on all sales of JAKAFI in the United States and amortization of our licensed intellectual property rights for ICLUSIG using the straight-line method over the estimated useful life of 12.5 years.

Cost of product revenues increased from 2020 to 2021 due primarily to increased royalties to Novartis on all JAKAFI sales in the United States.

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

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

The decrease in clinical research and outside services expense from 2020 to 2021 was primarily due to expense related to the purchase of an FDA priority review voucher in the prior year that enabled OPZELURA to be the first JAK inhibitor approved in a topical formulation and due to upfront consideration related to our collaborative agreements recorded in the prior year.

Research and development expenses include upfront and milestone expenses related to our collaborative agreements of $149.0 million and $976.1 million for the years ended December 31, 2021 and 2020, respectively.

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Salary and benefits related expense increased from 2020 to 2021 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 the establishment of our dermatology commercial organization and activities to support the launch of OPZELURA for the treatment of atopic dermatitis.

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

The increase in other contract services and outside costs was primarily due to the establishment of our dermatology commercial organization, expenses related to activities to support the launch of OPZELURA and expense recognized in connection with a legal settlement, as discussed in Note 15 of Notes to the Consolidated Financial Statements.

Change in fair value of acquisition-related contingent consideration

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The change in fair value of the acquisition-related contingent consideration for the years ended December 31, 2021 and 2020 was expense of $14.7 million and $23.4 million, respectively, which is recorded in change in fair value of acquisition-related contingent consideration on the consolidated statements of operations.

The change in fair value of the contingent consideration for the years ended December 31, 2020 and 2019 was due primarily to the passage of time as there were no other significant changes in the key assumptions during the periods.

The change in fair value of the contingent consideration for the year ended December 31, 2021 was due primarily to the impact of updated projections of future net revenues of ICLUSIG in the European Union and the passage of time.

The change in fair value of the contingent consideration for the year ended December 31, 2020 was due primarily to the passage of time as there were no other significant changes in the key assumptions during the period.

Collaboration loss sharing

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

For the year ended December 31, 2020, our 50% share of the costs for tafasitamab was $42.8 million, as recorded in collaboration loss sharing on the consolidated statement of operations.

For the year ended December 31, 2021 and 2020, our 50% share of the costs for tafasitamab was $37.0 million and $42.8 million, respectively, as recorded in collaboration loss sharing on the consolidated statement of operations.

Other income (expense)

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Interest expense for the years ended December 31, 2021 and 2020, was $1.9 million and $2.2 million, respectively.

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

Included in interest expense for the years ended December 31, 2021 and 2020 was approximately $1.3 million and $1.2 million, respectively, of interest expense on our finance lease liabilities.

Also included in interest expense for the year ended December 31, 2020 was $0.7 million of non-cash charges to amortize the discount on our convertible senior notes that matured in November 2020.

Unrealized gain (loss) on long term investments.

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(in millions)

Total unrealized gain on long term investments

Provision for income taxes.

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

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

Total unrealized (loss) gain on long term investments

(Benefit) provision for income taxes.

The (benefit) provision for income taxes for the years ended December 31, 2021 and 2020 was a benefit of $378.1 million and a provision of $63.5 million, respectively.

The benefit for income taxes in 2021 is primarily driven by the release of the valuation allowance on the majority of our U.S.

deferred tax assets in the fourth quarter.

This benefit is partially offset by higher tax expense from U.S.

Further information on the release of the valuation allowance and significant judgments related to its release can be found in Note 12 of Notes to the Consolidated Financial Statements.

Liquidity and Capital Resources

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Due to historical net losses, we had an accumulated deficit of $0.8 billion as of December 31, 2021.

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

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

At December 31, 2021, we had available cash, cash equivalents and marketable securities of $2.3 billion.

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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.

Cash (used in) provided by operating activities.

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

Cash provided by (used in) operating activities.

The increase in cash provided by operating activities from 2020 to 2021 was due primarily to cash outflows in March 2020 related to our collaboration and license agreement with MorphoSys and changes in working capital.

Cash used in investing activities.

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

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

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

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

During 2021, net cash used in investing activities was $207.7 million, which represents purchases of marketable securities of $235.2 million, capital expenditures of $181.0 million and purchase of long term equity investments of $33.5 million, offset in part by the

sale and maturity of marketable securities of $231.5 million and the sale of long term investment of $10.5 million.

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

Cash provided by financing activities.

During 2020 and 2019, net cash provided by financing activities was $71.7 million and $45.7 million, respectively, consisting primarily of proceeds from the issuance of common stock under our stock plans, offset in part by cash paid to ARIAD/Takeda for contingent consideration.

The following summarizes our significant contractual obligations as of December 31, 2020 and the effect those obligations are expected to have on our liquidity and cash flow in future periods (in millions):

Contractual Obligations:

Finance lease liabilities

Operating lease liabilities

Other non-cancelable obligations

Total contractual obligations

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

During 2021 and 2020, net cash provided by financing activities was $6.2 million and $71.7 million, respectively, consisting primarily of proceeds from the issuance of common stock under our stock plans net of tax withholdings, 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 the Consolidated Financial Statements.

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

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

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

In August 2021, we entered into a $500.0 million, three-year senior unsecured revolving credit facility.

We may increase the maximum revolving commitments or add one or more incremental term loan facilities, subject to obtaining commitments from any participating lenders and certain other conditions, in an amount not to exceed $250.0 million plus a contingent additional amount that is dependent on our pro forma consolidated leverage ratio.

As of December 31, 2021, we had no outstanding borrowings and were in compliance with all covenants under this facility.

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

Our cash requirements depend on numerous factors, including our expenditures in connection with our drug discovery and development programs and commercialization operations;

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

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

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

These contingent future payments are discussed in detail in Note 6 of Notes to the Consolidated Financial Statements.

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.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements other than those that are discussed above.

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What changed 10-K

Item 7. Management’s Discussion and Analysis