What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-08 compared with 2021-02-09 · 306 added, 432 removed, 907 unchanged (45% of the section changed)

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Consolidated Financial Statements of Incyte Corporation

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of December 31, 2021 and 2020

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Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2021, 2020 and 2019

Consolidated Statement of Stockholders’ Equity for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2021, 2020 and 2019

Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019

Notes to the Consolidated Financial Statements

Interim Consolidated Financial Information (unaudited)

Report of Independent Registered Public Accounting Firm

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

Allowances for rebates, discounts and chargebacks owed to governmental entities

Allowances for rebates and discounts owed to governmental entities

Description of the Matter

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Liabilities related to sales allowances are presented within accrued and other current liabilities on the consolidated balance sheet and totaled $136.5 million as of December 31, 2021.

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

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

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

Auditing the allowances for rebates and discounts owed to governmental entities, including the Medicaid Drug Rebate Program in the U.S.

and Medicare Part D Coverage Gap, was complex and highly judgmental due to the significant estimation uncertainty involved in management’s assumptions, including the levels of expected utilization of these rebates and discounts based on the amount of drugs sold to eligible patients, as well as the complexity of the government mandated calculations.

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

How We Addressed the Matter in Our Audit

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

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

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

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

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

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

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

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

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

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

Valuation of acquisition-related contingent consideration liability

Description of the Matter

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

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

As of December 31, 2021, the acquisition-related contingent consideration liability was $244.0 million.

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

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

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

How We Addressed the Matter in Our Audit

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

For example, we tested the Company's controls over management’s review of the valuation model, including controls over the significant assumptions utilized in the calculation, such as the weighted average cost of capital and the projected future ICLUSIG revenues.

For example, we tested the Company's controls over management’s review of the valuation model, including controls over the significant assumptions utilized in the calculation, such as the discount rate and the projected future net revenues of ICLUSIG.

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

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In addition, we assessed the historical accuracy of management’s estimates against actual performance.

Realizability of deferred tax assets

Description of the Matter

As discussed in Note 12 to the consolidated financial statements, at December 31, 2021, the Company had deferred tax assets related to deductible temporary differences and tax credit carryforwards of $507.9 million, net of a $408.2 million valuation allowance.

Deferred tax assets are reduced by a valuation allowance if, based on the weight of all available evidence, in management’s judgment it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.

During the fiscal year ended December 31, 2021, the Company concluded that certain of its deferred tax assets were more likely than not to be realized in the future and released the valuation allowance on a portion of its U.S.

deferred tax assets resulting in a tax benefit.

Auditing management’s assessment of the realizability of its deferred tax assets involved complex auditor judgment because management’s estimate of future taxable income is highly judgmental and based on significant assumptions that may be affected by future market or economic conditions and the Company’s performance.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s assessment of the realizability of deferred tax assets.

For example, we tested controls over management’s review of the significant assumptions used in estimating the projections of future taxable income, exclusive of reversing temporary differences, as well as controls over management’s review of the scheduling of the future reversals of existing temporary differences.

To test the realizability of deferred tax assets, we performed audit procedures that included, among others, evaluating the assumptions used by the Company to develop projections of future taxable income, exclusive of reversing temporary differences, and tested the completeness and accuracy of the underlying data used in its projections.

For example, we compared the projections with the actual results of prior periods, as well as management’s consideration of current industry and economic trends.

We also assessed the historical accuracy of management’s projections and compared the projections with other forecasted financial information prepared by the Company.

Additionally, we performed sensitivity analyses over the forecasted financial information.

We also tested the scheduling of the future reversals of existing temporary differences.

/s/ Ernst & Young LLP

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Cash and cash equivalents

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

allowance for credit losses $ 0 )

Marketable securities—available-for-sale (amortized cost $ 291,871 and $ 288,199 as of December 31, 2021 and 2020, respectively;

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

Accounts receivable

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Other intangible assets, net

Deferred income tax asset

Other assets, net

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Finance lease liabilities

Convertible senior notes

Acquisition-related contingent consideration

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5,000,000 shares authorized;

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

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

Common stock, $ 0.001 par value;

400,000,000 shares authorized;

219,489,329 and 216,177,830 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively

221,084,433 and 219,489,329 shares issued and outstanding as of December 31, 2021 and 2020, respectively

Additional paid-in capital

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( 1,726,455 )

( 1,430,758 )

Total stockholders’ equity

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Milestone and contract revenues

Other revenues

Total revenues

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Interest expense

Unrealized gain (loss) on long term investments

Income (loss) before provision for income taxes

Provision for income taxes

Unrealized (loss) gain on long term investments

Income (loss) before (benefit) provision for income taxes

(Benefit) provision for income taxes

Net income (loss)

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Other comprehensive income (loss):

Foreign currency translation

Unrealized gain on marketable securities, net of tax

Defined benefit pension obligations, net of tax

Foreign currency translation (loss) gain

Unrealized (loss) gain on marketable securities, net of tax

Defined benefit pension gain (loss), net of tax

Other comprehensive income (loss)

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( 1,877,759 )

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

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

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

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

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( 1,430,758 )

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

Issuance of 2,677,810 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units and performance shares, net of shares withheld for taxes, and 258,453 shares of Common Stock under the ESPP

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

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

Stock compensation

Other comprehensive loss

Adoption of ASU No.

2016-02 (Note 1)

Other comprehensive income

Balances at December 31, 2020

( 1,726,455 )

Issuance of 2,677,810 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units and 258,453 shares of Common Stock under the ESPP

Issuance of 1,324,926 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units and performance shares, net of shares withheld for taxes, and 264,503 shares of Common Stock under the ESPP

Issuance of 5,675 shares of Common Stock for services rendered

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

Stock compensation

Other comprehensive income

Other comprehensive loss

Balances at December 31, 2021

( 1,726,455 )

See accompanying notes.

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Stock-based compensation

Deferred income taxes

Unrealized (gain) loss on long term investments

Deferred income taxes (including benefit from valuation allowance release)

Unrealized loss (gain) on long term investments

Change in fair value of acquisition-related contingent consideration

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Accrued and other liabilities

Net cash (used in) provided by operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities :

Purchase of long term investments

Sale of long term investment

Sale of long term investments

Capital expenditures

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Proceeds from issuance of common stock under stock plans

Tax withholdings related to restricted and performance share vesting

Payment of finance lease liabilities

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

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

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

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

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

Unpaid purchases of property and equipment

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

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

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.

Our operations are treated as one operating segment.

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Current Expected Credit Losses.

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

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

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

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

Receivables generally consist of two types:

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

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

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

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

We record an allowance to reduce the receivables to the amount that is expected to be collected.

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

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

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

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

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

We capitalize inventory after FDA approval as the related costs are expected to be recoverable through the commercialization of the product.

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

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

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

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Our long term investments consist of equity investments in common stock of publicly-held companies with whom we have entered into collaboration and license agreements.

We classify all of our equity investments in common stock of publicly-held companies as long term investments on our consolidated balance sheets.

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

We classify all of our equity investments in common stock of publicly-held companies as long term investments on the consolidated balance sheets.

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

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

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

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

relationships in which we are able to assert control.

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

Property and Equipment, net.

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Lease Accounting.

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

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

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

Upon evaluating and weighting both positive and negative evidence, we concluded that we should continue to maintain the valuation allowance on the majority of our deferred tax assets as of December 31, 2020.

Upon evaluating and weighting both positive and negative evidence, we concluded that we should release the valuation allowance on the majority of our U.S.

deferred tax assets as of December 31, 2021.

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

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

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

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

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

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

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

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

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

Business and in Item 1A.

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

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

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

Risk Factors.

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

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

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

Accumulated Other Comprehensive Income (Loss).

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

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

Revenue Recognition.

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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, OPZELURA and PEMAZYRE in the U.S., sales of MINJUVI, PEMAZYRE and ICLUSIG in Europe, and sales of PEMAZYRE in Japan.

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

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

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

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

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

We sell PEMAZYRE in Japan to an exclusive wholesaler.

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

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Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program in the U.S.

and mandated discounts in Europe in markets where government-sponsored healthcare systems are the primary payers for healthcare.

and mandated discounts in Europe in markets where government-sponsored healthcare systems are

the primary payers for healthcare.

Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or legal requirements with public sector benefit providers.

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Milestone and Contract Revenues

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

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

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

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

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

reversal of previously recognized revenue will not occur.

We constrain the estimate of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not occur.

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

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

In making these assessments,

management considers the likelihood and magnitude of a potential reversal of revenue.

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

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

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

For each of the three years ended December 31, 2021, we had no revenues from intellectual property licenses recognized over time.

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

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Cost of Product Revenues

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

Cost of product revenues includes all product related costs.

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

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

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

Costs incurred under the collaboration arrangement that are reimbursable to us are recorded net against the related research and development expenses.

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

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

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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.

Advertising Expenses.

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Acquisition-Related Contingent Consideration.

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

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

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

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Collaboration loss sharing.

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

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

For the year ended December 31, 2021 and 2020, collaboration loss sharing represents our 50 % share of the United States loss for commercialization of MONJUVI (tafasitamab-cxix) under our agreement with MorphoSys, which is described in Note 6 below.

Recent Accounting Pronouncements

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

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

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

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

The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts.

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

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

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

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

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

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

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

In August 2018, the FASB issued ASU No.

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

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

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

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

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

financial statements to comply with the standard.

In August 2018, the FASB issued ASU No.

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

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

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

The standard is to be applied on a retrospective basis.

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

In August 2018, the FASB issued ASU No.

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

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

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

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

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

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

In November 2018, the FASB issued ASU No.

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

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

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

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

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

In December 2019, the FASB issued ASU No.

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

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

We are currently analyzing the impact of ASU No.

2019-12 on the consolidated financial statements.

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

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

Upon adoption, ASU No.

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

As of December 31, 2021, there were no other recently issued accounting standards that may have a material impact on the Company's financial position, results of operations, or cash flows upon their adoption.

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

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

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PEMAZYRE revenues, net

MINJUVI revenues, net

OPZELURA revenues, net

Total product revenues, net

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Milestone and contract revenues

Other revenues

Total revenues

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Debt securities (government)

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

Our available-for-sale debt securities generally have contractual maturity dates of between 12 to 18 months .

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

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

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

As of December 31, 2021 and 2020, the available-for-sale debt securities were held in U.S.-government backed securities and in Treasury bonds and were assessed on an individual security basis to have a de minimis risk of credit loss.

Fair Value Measurements

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Balance at December 31,

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

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

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

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

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

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.

The change in fair value of the contingent consideration during 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 during 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.

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

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

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

In November 2011, we began commercialization and distribution of JAKAFI, in April 2020, we began commercialization and distribution of PEMAZYRE and in October 2021, we began commercialization and distribution of OPZELURA to a number of customers.

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

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

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

Percentage of Total Net

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

Customers A, B, C and D comprised, in the aggregate, 29 % and 39 % of the accounts receivable balance as of December 31, 2020 and 2019, respectively.

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

Customers A, B, C, D and E comprised, in the aggregate, 31 % and 33 % of the accounts receivable balance as of December 31, 2021 and 2020, respectively.

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

We assessed our collaborative and customer receivable assets as of December 31, 2021 according to our accounting policy for applying reserves for expected credit losses, noting minimal history of uncollectible receivables and the continued perceived creditworthiness of our third party sales relationships, upon which the expected credit losses were considered de minimis.

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Finished goods

Inventories-current

Inventories-noncurrent

Total inventory

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

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

We capitalize inventory after FDA approval as the related costs are expected to be recoverable through the commercialization of the product.

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

At December 31, 2021, inventory with approximately $ 71.9 million of product costs incurred prior to FDA approval had not yet been sold.

We expect to sell the pre commercialization inventory over the next 36 months and, as a result, cost of product revenues will reflect a lower average per unit cost of materials.

License Agreements

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

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

We retained exclusive development and

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

Novartis also received worldwide exclusive development and commercialization rights to our MET inhibitor compound capmatinib and certain back-up compounds in all indications.

Under this agreement, we received an upfront payment and immediate milestone payment totaling $ 210.0 million and were initially eligible to receive up to $ 1.2 billion in milestone payments across multiple indications upon the achievement of pre-specified events, including up to $ 174.0 million for the achievement of development milestones, up to $ 495.0 million for the achievement of regulatory milestones and up to $ 500.0 million for the achievement of sales milestones.

In April 2016, we amended this agreement to provide that Novartis has exclusive research, development and commercialization rights outside of the United States to ruxolitinib (excluding topical formulations) in the graft-versus-host-disease (“GVHD”) field.

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

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

Under this agreement, we were initially eligible to receive up to $ 174.0 million for the achievement of development milestones, up to $ 495.0 million for the achievement of regulatory milestones and up to $ 500.0 million for the achievement of sales milestones.

In addition, we are eligible to receive up to $ 75.0 million of additional potential development and regulatory milestones relating to GVHD.

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, 2021.

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

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In 2020, we recognized a $ 25.0 million development milestone and a $ 45.0 million regulatory milestone for the FDA approval of capmatinib as TABRECTA for the treatment of adult patients with metastatic non-small cell lung cancer (NSCLC) whose tumors have a mutation that leads to MET exon 14 skipping (METex14) as detected by an FDA-approved test, a $ 20.0 million regulatory milestone for the Japanese Ministry of Health, Labour and Welfare approval of TABRECTA for METex14 mutation-positive advanced and/or recurrent unresectable non-small cell lung cancer and a $ 80.0 million sales milestone for Novartis achieving annual net sales of a JAK licensed product of $ 1.2 billion.

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

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

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

We are obligated to pay to Novartis tiered royalties in the low single-digits on future JAKAFI net sales within the United States.

During the years ended December 31, 2021, 2020 and 2019, such royalties payable to Novartis on net sales within the United States totaled $ 99.6 million, $ 89.9 million and $ 77.6 million, respectively, and were reflected in cost of product revenues on the consolidated statements of operations.

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The agreement may also be terminated by either party under certain other circumstances, including material breach.

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

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

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

Milestone and contract revenue under the Novartis agreement was $ 0.0 million, $ 170.0 million and $ 0.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.

In addition, for the years ended December 31, 2021, 2020 and 2019, we recorded $ 338.0 million, $ 277.9 million and $ 225.9 million, respectively, of product royalty revenues related to Novartis net sales of JAKAVI outside the United States.

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

For the years ended December 31, 2021 and 2020 we recorded $ 10.4 million and $ 4.1 million, respectively, of product royalty revenues related to Novartis net sales of TABRECTA worldwide.

Lilly - Baricitinib

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

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

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

Under this agreement, we were initially eligible to receive up to $ 150.0 million for the achievement of development milestones, up to $ 365.0 million for the achievement of regulatory milestones and up to $ 150.0 million for the achievement of sales milestones.

We have recognized and received, in aggregate, $ 149.0 million for the achievement of development milestones, $ 265.0 million for the achievement of regulatory milestones and $ 50.0 million for the achievement of sales milestones through December 31, 2021.

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

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

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

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

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

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

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

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

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

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

Lilly is responsible for all costs relating to the development and commercialization of the compounds unless we elect to co-develop any compounds or indications.

If we elect to co-develop any compounds and/or indications, we would be responsible for funding 30 % of the associated future global development costs from the initiation of a Phase IIb trial through regulatory approval, including post-launch studies required by a regulatory authority.

We would receive an incremental royalty rate increase across all tiers resulting in effective royalty rates ranging up to the high twenties on potential future global net sales for compounds and/or indications that we elect to co-develop.

For indications that we elect not to co-develop, we would receive tiered, double-digit royalty payments on future global net sales with rates ranging up to 20 % if the product is successfully commercialized.

If we have started co-development funding for any indication, we can at any time opt out and stop future co-development cost sharing.

If we elect to do this we would still be eligible for our base royalties plus an incremental pro-rated royalty commensurate with our contribution to the total co-development cost for those indications for which we co-funded.

We previously had retained an option to co-promote products in the United States but, in March 2016, we waived our co-promotion option as part of an amendment to the agreement.

In July 2010, we elected to co-develop baricitinib with Lilly in rheumatoid arthritis and became responsible for funding 30 % of the associated future global development costs for this indication from the initiation of the Phase IIb trial through regulatory approval, including post-launch studies required by a regulatory authority.

We subsequently elected to co-develop baricitinib with Lilly in psoriatic arthritis, atopic dermatitis, alopecia areata, systemic lupus erythematosus and axial spondyloarthritis and were responsible for funding 30 % of future global development costs for those indications through regulatory approval, including post-launch studies required by a regulatory authority.

In April 2019, we elected to end additional co-funding of the development of baricitinib effective as of January 1, 2019.

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

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

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

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

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

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

Lilly is eligible to receive up to $ 40.0 million in regulatory milestone payments relating to ruxolitinib in the GVHD field.

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

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and its wholly-owned subsidiary, 4-Antibody AG (now known as Agenus Switzerland Inc.), which we collectively refer to as Agenus.

Under this agreement, the parties have agreed to collaborate on the discovery of novel immuno-therapeutics using Agenus’ antibody discovery platforms.

The agreement became effective on February 18, 2015, upon the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

Upon closing of the agreement, we paid Agenus total consideration of $ 60.0 million.

In February 2017, we and Agenus amended this agreement (the “Amended Agreement”).

Under the terms of the Amended Agreement, we received exclusive worldwide development and commercialization rights to four checkpoint modulators directed against GITR, OX40, LAG-3 and TIM-3.

In addition to the initial four program targets, we and Agenus have the option to jointly nominate and pursue additional targets within the framework of the collaboration, and in

November 2015, three more targets were added.

Under this agreement, which was amended in February 2017, the parties have agreed to collaborate on the discovery of novel immuno-therapeutics using Agenus’ antibody discovery platforms.

Under the terms of the amended

agreement, we received exclusive worldwide development and commercialization rights to four checkpoint modulators directed against GITR, OX40, LAG-3 and TIM-3 as well as two undisclosed targets.

Targets may be designated profit-share programs, where all costs and profits are shared equally by us and Agenus, or royalty-bearing programs, where we are responsible for all costs associated with discovery, preclinical, clinical development and commercialization activities.

The programs relating to GITR and OX40 and two of the undisclosed targets were profit-share programs until February 2017, while the other targets currently under collaboration are royalty-bearing programs.

The Amended Agreement converted the programs relating to GITR and OX40 to royalty-bearing programs and removed from the collaboration the profit-share programs relating to the two undisclosed targets, with one reverting to us and one reverting to Agenus.

Should any of those removed programs be successfully developed by a party, the other party will be eligible to receive the same milestone payments as the royalty-bearing programs and royalties at a 15 % rate on global net sales.

There are currently no profit-share programs.

For each royalty-bearing product other than GITR and OX40, Agenus will be eligible to receive tiered royalties on global net sales ranging from 6 % to 12 %.

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

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

Agenus was initially eligible to receive up to an additional $ 510.0 million in future contingent development, regulatory and commercialization milestones across all programs in the collaboration.

For each royalty-bearing product other than GITR, OX40 and one undisclosed target, Agenus will be eligible to receive tiered royalties on global net sales ranging from 6 % to 12 %.

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

The agreement may be terminated by us for convenience upon 12 months’ notice and may also be terminated under certain other circumstances, including material breach.

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

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

common stock for an aggregate purchase price of $ 60.0 million in cash, or $ 6.00 per share.

We completed the purchase of the shares on February 14, 2017, when the closing price on The Nasdaq Stock Market for Agenus Inc.

shares was $ 4.40 per share.

The shares we acquired were not registered under the Securities Act of 1933 on the purchase date and were subject to certain security specific restrictions for a period of time, and accordingly, we estimated a discount for lack of marketability on the shares on the issuance date of $ 4.5 million, which resulted in a net fair value of the shares on the issuance date of $ 39.5 million.

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

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

We concluded Agenus Inc.

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

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

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

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

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

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

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

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

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

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

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

We account for our investment in Agenus Inc.

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

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

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

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

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

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

As of December 31, 2021, we have paid Agenus milestones totaling $ 30.0 million and Agenus is eligible to receive up to an additional $ 500.0 million in future contingent development, regulatory and commercialization milestones across all programs in the collaboration.

In addition, in 2017 we also agreed to purchase 10.0 million shares of Agenus common stock for an aggregate purchase price of $ 60.0 million in cash, or $ 6.00 per share.

The fair market value of our long term investment in Agenus as of December 31, 2021 and 2020 was $ 38.9 million and $ 44.7 million, respectively.

In 2020, we sold an aggregate of approximately 3.7 million shares of Agenus common stock resulting in gross proceeds of approximately $ 17.2 million.

In 2021, we sold an aggregate of approximately 2.0 million shares of Agenus common stock resulting in gross proceeds of approximately $ 10.5 million.

As of December 31, 2021, we owned less than 5 % of the outstanding shares of Agenus common stock.

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

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

For the years ended December 31, 2021, 2020 and 2019, we recorded an unrealized gain of $ 4.6 million, an unrealized loss of $ 10.3 million and an unrealized gain of $ 30.0 million, respectively, based on the change in fair value of Agenus Inc.’s common stock during the respective periods.

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

Under this agreement, which became effective in January 2017, the parties have agreed to collaborate with respect to the research, discovery and development of bispecific antibodies utilizing Merus’ technology platform.

The collaboration encompasses up to eleven independent programs.

The most advanced collaboration program is MCLA-145, a bispecific antibody targeting PD-L1 and CD137, for which we received exclusive development and commercialization rights outside of the United States.

Merus retained exclusive development and commercialization rights in the United States to MCLA-145.

Each party will share equally the costs of mutually agreed global development activities for MCLA-145, and fund itself any independent development activities in its territory.

Merus will be responsible for commercializing MCLA-145 in the United States and we will be responsible for commercializing it outside of the United States.

In addition to receiving rights to MCLA-145 outside of the United States, we received worldwide exclusive development and commercialization rights to up to ten additional programs.

Under this agreement, the parties have agreed to collaborate with respect to the research, discovery and development of bispecific antibodies utilizing Merus’ technology platform.

The collaboration encompasses up to ten independent programs.

In January 2022, we decided to opt-out of the continued development of MCLA-145, a bispecific antibody targeting PD-L1 and CD137.

We continue to collaborate with Merus and leverage the Merus platform to develop a pipeline of novel agents, as we continue to hold worldwide exclusive development and commercialization rights to up to ten additional programs.

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

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

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

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

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

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

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

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

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

If Merus opts to cease co-funding a program as to which it exercised its co-development option, then Merus will no longer receive a share of profits in the United States but will be eligible to

receive the same milestones from the co-funding termination date and the same tiered royalties described above with respect to programs where Merus does not have a right to co-fund development and, depending on the stage at which Merus chose to cease co-funding development costs, Merus will be eligible to receive additional royalties ranging up to 4 % of net sales in the United States.

As of December 31, 2021, we have paid Merus milestones totaling $ 2.0 million.

The Merus agreement will continue on a program-by-program basis until we have no royalty payment obligations with respect to such program or, if earlier, the termination of the agreement or any program in accordance with the terms of the agreement.

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If the agreement is terminated with respect to one or more programs, all rights in the terminated programs revert to Merus, subject to payment to us of a reverse royalty of up to 4 % on sales of future products, if Merus elects to pursue development and commercialization of products arising from the terminated programs.

In addition, in December 2016, we entered into a Share Subscription Agreement with Merus, pursuant to which we agreed to purchase 3.2 million common shares of Merus for an aggregate purchase price of $ 80.0 million in cash, or $ 25.00 per share.

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

The shares we acquired were not registered under the Securities Act

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

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

In addition, in 2016 we entered into a Share Subscription Agreement with Merus, pursuant to which we agreed to purchase 3.2 million common shares of Merus for an aggregate purchase price of $ 80.0 million in cash, or $ 25.00 per share.

The fair market value of our total long term investment in Merus as of December 31, 2021 and 2020 was $ 112.9 million and $ 56.1 million, respectively.

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

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

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

As of December 31, 2021, we owned approximately 8 % of the outstanding common shares of Merus.

We have concluded that we have the ability to exercise significant influence, but not control, over Merus based primarily on our ownership interest, the level of intra-entity transactions between us and Merus related to development expenses, as well as other qualitative factors.

We have elected the fair value option to account for our long term investment in Merus whereby the investment is marked to market through earnings in each reporting period.

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

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

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

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

For the years ended December 31, 2021, 2020 and 2019, we recorded an unrealized gain of $ 48.1 million, $ 11.0 million, and $ 0.3 million, respectively, based on the change in fair value of Merus’ common shares during the respective periods.

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

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

In January 2017, we paid Calithera an upfront license fee of $ 45.0 million and have agreed to pay potential development, regulatory and sales milestone payments of over $ 430.0 million if the profit share is in effect, or $ 750.0 million if the profit share terminates.

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

In August 2020, Calithera delivered notice of its decision to opt out of its co-funding obligation, effective on September 30, 2020.

As of December 31, 2021, we have paid Calithera milestones totaling $ 12.0 million.

Calithera delivered notice of its decision to opt out of its co-funding obligation, effective on September 30, 2020.

As a result, the U.S.

profit sharing will no longer be in effect, we will be responsible for funding all of the development costs of INCB01158 and any other licensed products, and the agreement provides that we will pay Calithera tiered royalties ranging from the low to mid-double digits on net sales of licensed products both in the United States and outside the United States and additional royalties to reimburse Calithera for previously incurred development costs.

In addition, the total remaining potential development, regulatory and sales milestone payments will be $ 738.0 million and Calithera will have no further rights to research, develop or co-detail INCB001158 and we will have the right to take over the conduct of all activities related to the research, development and commercialization of INCB001158 for all indications in the hematology/oncology field.

Calithera is eligible to receive $ 720.0 million in potential future development, regulatory and sales milestone payments and will have no further rights to research, develop or co-detail INCB001158.

We will have the right to take over the conduct of all activities related to the research, development and commercialization of INCB001158 for all indications in the hematology/oncology field.

The Calithera agreement will continue on a product-by-product and country-by-country basis for so long as we are developing or commercializing products in the United States (if the parties are sharing profits in the United States) and until we have no further royalty payment obligations, unless earlier terminated according to the terms of the agreement.

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If the agreement is terminated early with respect to one or more products or countries, all rights in the terminated products and countries revert to Calithera.

In addition, in January 2017, we entered into a Stock Purchase Agreement with Calithera for the purchase of 1.7 million common shares of Calithera for an aggregate purchase price of $ 8.0 million in cash, or $ 4.65 per share.

We completed the purchase of the shares on January 30, 2017 when the closing price on The Nasdaq Stock Market was $ 6.75 per share.

The shares we acquired were registered under the Securities Act of 1933 on the purchase date and there were no security specific restrictions for these shares, and therefore the value of the 1.7 million shares acquired by us was $ 11.6 million.

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

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

In addition, in 2017, we entered into a Stock Purchase Agreement with Calithera for the purchase of 1.7 million common shares of Calithera for an aggregate purchase price of $ 8.0 million in cash, or $ 4.65 per share.

The fair market value of our long term investment in Calithera as of December 31, 2021 and 2020 was $ 1.1 million and $ 8.4 million, respectively.

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

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

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

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

As of December 31, 2021, we owned approximately 2 % of the outstanding shares of Calithera common stock.

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

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

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

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

At December 31, 2020 and 2019, a total of $ 0.6 million and $ 1.1 million, respectively, of such costs were included in accrued and other liabilities on the consolidated balance sheets.

For the years ended December 31, 2021, 2020 and 2019, we recorded an unrealized loss of $ 7.3 million, an unrealized loss of $ 1.4 million, and an unrealized gain of $ 2.9 million, respectively, based on the change in fair value of Calithera’s common stock during the respective periods.

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

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Under this agreement, we received exclusive development and commercialization rights worldwide to MacroGenics’ INCMGA0012 (formerly MGA012), an investigational monoclonal antibody that inhibits PD-1.

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

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

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

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

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

MacroGenics was initially eligible to receive up to $ 420.0 million in future contingent development and regulatory milestones and up to $ 330.0 million in commercial milestones as well as tiered royalties ranging from 15 % to 24 % of global net sales.

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

In 2018, we paid MacroGenics a $ 10.0 million

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

As of December 31, 2021, we have paid MacroGenics developmental milestones totaling $70.0 million.

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

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

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We have agreed to pay Syros up to $ 54.0 million in target selection and option exercise fees should we decide to exercise all of our options under the agreement.

For products resulting from the collaboration against each of the seven selected and validated targets, we have agreed to pay up to $ 50.0 million in potential development and regulatory milestones and up to $ 65.0 million in potential sales milestones.

For products resulting from the collaboration against each of the

seven selected and validated targets, we have agreed to pay up to $ 50.0 million in potential development and regulatory milestones and up to $ 65.0 million in potential sales milestones.

Syros is also eligible to receive low single-digit royalties on net sales of products resulting from the collaboration.

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

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

We agreed to not sell or otherwise transfer any of our Syros shares for a period, referred to as the Lock-Up Period, of 12 months after the closing date of the sale.

We completed the purchase of the shares on January 8, 2018 when the closing price on The Nasdaq Stock Market was $ 9.77 per share.

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

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

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

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

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

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

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

The fair market value of our long term investment in Syros as of December 31, 2021 and 2020 was $ 3.1 million and $ 10.2 million, respectively.

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

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

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

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

Given our intent to hold the investment for the foreseeable

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

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

As of December 31, 2021, we owned approximately 2 % of the outstanding shares of Syros common stock.

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

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

For the years ended December 31, 2021, 2020 and 2019, we recorded an unrealized loss of $ 7.1 million, an unrealized gain of $ 3.7 million and an unrealized gain of $ 1.3 million, respectively, based on the change in fair value of Syros’ common stock during the respective periods.

In December 2018, we entered into a Research Collaboration and Licensing Agreement with Innovent.

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

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

In addition, we are eligible to receive up to an additional $ 94.0 million in potential development and regulatory milestones.

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

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

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

In 2021, we recognized a $ 10.0 million milestone for approval of PEMAZYRE (pemigatinib) in Taiwan.

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

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

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

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

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

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

In July 2019, we entered into a Collaboration and License Agreement with Zai Lab.

Under the terms of this agreement, Zai Lab received development and exclusive commercialization rights to INCMGA0012 in hematology and oncology in mainland China, Hong Kong, Macau and Taiwan.

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

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

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

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

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

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

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

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

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

In December 2019, MorphoSys submitted a Biologics License Application to the FDA for tafasitamab for the treatment of relapsed or refractory diffuse large B cell lymphoma.

The agreement became effective in March 2020 after clearance by the German and Austrian antitrust authorities and expiration of the waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976.

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

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

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

In 2020, we paid MorphoSys an upfront non-refundable payment of $ 750.0 million.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The fair market value of our long term investment in MorphoSys as of December 31, 2021 and 2020 was $ 34.2 million and $ 102.9 million, respectively.

As of December 31, 2021, we owned approximately 3 % of the outstanding shares of MorphoSys common stock.

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

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

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

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

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

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

For the year ended December 31, 2021 and 2020, we

recorded an unrealized loss of $ 68.7 million and an unrealized gain of $ 7.4 million, respectively, based on the change in fair value of MorphoSys’ common stock during the respective periods.

Our 50 % share of the United States loss for the commercialization of tafasitamab for the years ended December 31, 2021 and 2020 was $ 37.0 million and $ 42.8 million, respectively, and is recorded as collaboration loss sharing on the consolidated statement of operations.

Research and development expenses for the year ended December 31, 2021 and 2020, included $ 77.0 million and $ 88.2 million, respectively, related to our 55 % share of the co-development costs for tafasitamab.

At December 31, 2021 and 2020, $ 21.5 million and $ 54.2 million, respectively, was included in accrued and other liabilities on the consolidated balance sheet for amounts due to MorphoSys under the agreement.

In September 2020, we entered into a Collaboration and License Agreement with Nimble Therapeutics, Inc.

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

In August 2021, we entered into a Collaboration and License Agreement with Sunny Investments Limited, a wholly-owned subsidiary of InnoCare Pharma Limited (“InnoCare”).

InnoCare 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 on the consolidated statement of operations for the year ended December 31, 2021.

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

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

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

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

(“Syndax”), covering the worldwide development and commercialization of SNDX-6352 (“axatilimab”).

Axatilimab, currently in clinical development by Syndax, is a monoclonal antibody that blocks the colony stimulating factor-1 (CSF-1) receptor.

Syndax has exclusive worldwide development and commercialization rights to axatilimab under a June 2016 license agreement with UCB Biopharma Sprl.

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

We will be responsible for leading the commercialization strategy and booking all revenue from sales of tafasitamab globally, and Syndax will have the option to co-commercialization axatilimab with Incyte in the United States.

Incyte and Syndax will share equally the profits and losses from the co-commercialization efforts in the United States.

Sales of axatilimab outside the United States will be subject to our royalty payment obligations to Syndax, as set forth below.

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

Each company is responsible for funding any independent development activities.

All development costs related to the collaboration are subject to a

joint development plan.

In December 2021, we paid Syndax an upfront, non-refundable (except in the event of termination of the agreement as described below) payment of $ 117.0 million, which was recorded in research and development expense on the consolidated statement of operations for the year ended December 31, 2021.

Syndax is eligible to receive up to $ 220.0 million in future contingent development and regulatory milestones and up to $ 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.

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

We have the sole right to terminate the agreement beginning March 23, 2022 in the event of any formal action by a relevant governmental authority to challenge the transactions under this agreement that occurs prior to that date.

If triggered, our right to terminate will expire on September 23, 2022.

Exercise of this termination right would require Syndax to refund all payments under the agreement, including the $ 117.0 million upfront payment and any payments for development costs.

In addition, under the terms of the agreement and pursuant to a related stock purchase agreement, we agreed to purchase approximately 1.4 million shares of common stock of Syndax for an aggregate purchase price of $ 35.0 million, or $ 24.62 per share.

We agreed, subject to limited exceptions, not to sell or otherwise transfer any of the shares for a six month period after the closing date of the sale.

We completed the purchase of the shares on December 9, 2021 when the closing price on The Nasdaq Stock Market was $ 17.48 per share.

Of the $ 35.0 million aggregate purchase price paid, $ 24.8 million was allocated to our stock purchase and was recorded within long term investments and $ 10.2 million, representing premium paid on the purchase, was allocated to research and development expense on the consolidated statement of operations for the year ended December 31, 2021.

The fair market value of our long term investment in Syndax as of December 31, 2021 was $ 31.1 million.

As of December 31, 2021, we owned approximately 3 % of the outstanding shares of Syndax common stock.

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

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

For the year ended December 31, 2021, we recorded an unrealized gain of $ 6.3 million based on the change in fair value of Syndax’s common stock during the period.

Property and Equipment, net

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

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

The certificate of occupancy was received in December 2021 and we capitalized approximately $ 158.2 million in building and office equipment that was previously included in construction in progress as of December 31, 2021.

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

The building serves as our new

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

The building serves as our new European headquarters and consists of approximately 100,000 square feet of office space.

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

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

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

We have capitalized approximately $ 19.5 million in leasehold improvements as of December 31, 2021 relating to Morges.

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

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The cash paid for amounts included in the measurement of our operating lease liabilities for the years ended December 31, 2021 and 2020 was $ 14.3 million and $ 12.1 million, respectively, in operating cash flows.

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

The cash paid for amounts included in the measurement of our finance lease liabilities for the years ended December 31, 2021 and 2020 was $ 2.4 million and $ 0.8 million, respectively, in financing cash flows.

As of December 31, 2021, our finance and operating leases had a weighted average lease term of approximately 13.4 and 4.9 years, respectively.

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The weighted average discount rate of our finance and operating leases is approximately 4.1 % and 4.8 %, respectively.

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

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

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

For the year ended December 31, 2021, we incurred approximately $ 14.2 million of expense related to our operating leases, approximately $ 2.7 million of amortization on our finance lease right-of-use assets and approximately $ 1.3 million of interest expense on our finance lease liabilities.

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Sales allowances

Sales and marketing

Construction in progress

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Total accrued and other current liabilities

Convertible Notes

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

1.25 % Convertible Senior Notes due 2020

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

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

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

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

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

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

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

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

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

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

Stockholders’ Equity

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2010 Stock Incentive Plan.

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

In May 2010 the Board of Directors adopted the 2010 Stock Incentive Plan (the “2010 Stock Plan”), which was most recently amended and restated in May 2021, for issuance of common stock to employees, non-employee directors, consultants, and scientific advisors.

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

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Non-employee director options expire after ten years .

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

In May 2021, our stockholders approved an increase in the number of shares of common stock reserved for issuance under the 2010 Stock Plan from 44,453,475 to 53,953,475 .

Option activity under the 2010 Stock Plan was as follows:

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Options exercised

( 2,230,588 )

Options cancelled

( 1,269,197 )

Balance at December 31, 2021

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Options to purchase a total of 8,024,951 , 6,732,942 and 6,896,492 shares as of December 31, 2021, 2020 and 2019, respectively, were exercisable.

The aggregate intrinsic value of options exercised for the years ended December 31, 2020, 2019 and 2018 were $ 87.5 million, $ 113.8 million and $ 73.9 million, respectively.

The aggregate intrinsic value of options exercised for the years ended December 31,

2021, 2020 and 2019 were $ 12.7 million, $ 87.5 million and $ 113.8 million, respectively.

At December 31, 2021, the aggregate intrinsic value of options outstanding and vested options are $ 13.5 million and $ 13.4 million, respectively.

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Restricted Stock Units and Performance Shares

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

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

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

Each RSU granted prior to July 2016 was subject to cliff vesting after three years .

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

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

In April 2019, we granted an additional 100,000 PSUs under one of the existing long term incentive plans with performance based milestones and cliff vesting.

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

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

will continue to vest through June 2022.

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

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

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

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

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

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

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

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

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

These PSUs will continue to vest through July 2022.

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

The shares of our common stock into which each PSU may convert is subject to a multiplier up to 125 % based on the level at which the performance condition is achieved.

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

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

These PSUs will continue to vest through July 2023.

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

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

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

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

Each RSU granted in connection with our annual equity awards will vest 25 % annually over four years , while each RSU granted as outstanding merit awards or as part of retention award programs will vest in a single installment at the end of four years .

We grant PSUs with performance and/or service-based milestones with graded and/or cliff vesting over three to four years .

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

Compensation expense for PSUs with financial and developmental performance conditions is recorded over the estimated service period for each milestone when the performance conditions are deemed probable of achievement.

For PSUs containing performance conditions which were not deemed probable of achievement, no stock compensation expense is recorded.

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.

For the years ended December 31, 2021, 2020 and 2019, we recorded $ 8.3 million, $ 13.9 million and $ 9.9 million, respectively, of stock compensation expense for PSUs on our consolidated statements of operations.

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

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Balance at December 31, 2020

Additional authorization

Options, RSUs and PSUs granted

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We recorded $ 183.0 million, $ 177.9 million and $ 166.6 million, respectively, of stock compensation expense for the years ended December 31, 2021, 2020 and 2019.

Stock compensation expense within our consolidated statements of operations included research and development expense for the years ended December 31, 2020, 2019 and 2018 of $ 120.4 million, $ 114.0 million and $ 101.1 million, respectively.

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

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

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

Stock compensation expense within the consolidated statements of operations included research and development expense for the years ended December 31, 2021, 2020 and 2019 of $ 114.3 million, $ 120.4 million and $ 114.0 million, respectively.

Stock compensation expense within the consolidated statements of operations also included selling, general and administrative expense for the years ended December 31, 2021, 2020 and 2019 of $ 67.0 million, $ 56.6 million and $ 51.9 million, respectively.

Stock compensation expense within the consolidated statements of operations also included cost of product revenues for the years ended December 31, 2021, 2020 and 2019 of $ 1.7 million, $ 1.0 million and $ 0.7 million, respectively.

For the years ended December 31, 2021, 2020 and 2019, we capitalized $ 2.1 million, $ 0.6 million and $ 0.4 million, respectively, of stock compensation expense as part of the cost of assets.

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

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

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

prior expense if the actual forfeiture is higher than we estimated.

Total compensation cost of options granted but not yet vested as of December 31, 2021, was $ 62.2 million, which is expected to be recognized over the weighted average period of 1.1 years.

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federal, state and foreign corporate income taxes.

The provision for income taxes is based on income (loss) before provision for income taxes as follows (in thousands):

The (benefit) provision for income taxes is based on income (loss) before (benefit) provision for income taxes as follows (in thousands):

Year Ended December 31,

Income (loss) before provision for income taxes

Our provision for income taxes consists of the following (in thousands):

Income (loss) before (benefit) provision for income taxes

On a periodic basis, we reassess the valuation allowance on our deferred income tax assets.

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

Such assessment is required on a jurisdiction-by-jurisdiction basis.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

In the fourth quarter of 2021, we assessed the valuation allowance and considered positive evidence, including significant cumulative consolidated and U.S.

income over the three years ended December 31, 2021, consistent growth in product revenues, and expectations regarding future profitability.

We also assessed negative evidence, including the potential impact of competition, clinical failures and patent expirations on our projections.

After assessing both the positive evidence and negative evidence, we determined it was more likely than not that the majority of our U.S.

deferred tax assets would be realized in the future and released the associated valuation allowance as of December 31, 2021.

This resulted in a benefit of $ 569.0 million.

As of December 31, 2021, we maintained a valuation allowance of $ 408.2 million against a portion of our remaining U.S.

deferred tax assets as well as select state and foreign deferred tax assets.

Our (benefit) provision for income taxes consists of the following (in thousands):

Year Ended December 31,

Total provision for income taxes

Total (benefit) provision for income taxes

A reconciliation of income taxes at the U.S.

federal statutory rate to the provision for income taxes is as follows (in thousands):

federal statutory rate to the (benefit) provision for income taxes is as follows (in thousands):

Year Ended December 31,

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federal statutory rate

Unbenefited future tax deductions and tax credits

Excess tax benefits related to share-based compensation

State and local income taxes

Foreign tax rate differential

Non-deductible officer compensation

Income tax credits

Change in valuation allowance

Foreign-derived intangible income

Provision for income taxes

Stock based compensation

(Benefit) provision for income taxes

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

federal statutory rate.

federal statutory rate of 21 %.

Significant components of our deferred tax assets and liabilities are as follows (in thousands):

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Net deferred tax assets

The net deferred tax asset balance is reported in other assets, net on the consolidated balance sheets as of December 31, 2020 and 2019.

As of December 31, 2020, the Company has net operating loss (“NOL”) carryforwards, research and development credit carryforwards and orphan drug tax credit carryforwards as follows (in thousands):

The valuation allowance for deferred tax assets decreased by approximately $ 522.0 million during the year ended December 31, 2021, increased by approximately $ 159.7 million during the year ended December 31, 2020 and decreased by approximately $ 66.5 million during the year ended December 31, 2019.

The net valuation allowance decrease during 2021 was primarily due to the valuation allowance release on the majority of our U.S.

deferred tax assets mentioned above.

As of December 31, 2021, we had net operating loss (“NOL”) carryforwards, research and development credit carryforwards and orphan drug tax credit carryforwards as follows (in thousands):

Expiring if not utilized

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2036 through 2041

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

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

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

Such assessment is required on a jurisdiction-by-jurisdiction basis.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

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

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

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

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

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

If this threshold is met, the tax benefit is then measured and recognized at the largest amount that is greater than 50% likely of being realized upon ultimate settlement.

If such unrecognized tax benefits were realized and not subject to valuation allowances, we would recognize a tax benefit of $ 31.6 million.

If such unrecognized tax benefits were realized, we would recognize a tax benefit of $ 50.1 million.

The following table summarizes the gross amounts of unrecognized tax benefits (in thousands):

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

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

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

During the year ending December 31, 2021, we recorded interest and penalties as a component of income tax expense of $ 0.6 million and during the year ended December 31, 2020, we recorded a negligible reduction to interest and penalties as a component of income tax expense.

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

The Company files U.S.

federal, state and local income tax returns and income tax returns in various foreign jurisdictions, with statutes of limitation generally ranging from three to five years during which such tax returns may be audited by the relevant tax authorities.

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

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

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

Common shares issuable upon conversion of the 2020 Notes were excluded from the diluted net income (loss) per share computation for 2019 as their share effect was anti-dilutive.

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

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Diluted net income (loss) per share

The following potential common shares were excluded from the calculation as their effect would be anti-dilutive:

The potential common shares that were excluded from the diluted net income (loss) per share computation are as follows:

Outstanding stock options and awards

Common shares issuable upon conversion of the 2020 Notes

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

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

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Expenses paid from assets

Translation loss

Translation (gain) loss

Benefit obligation, end of year

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Pension liability, beginning of year

Plan amendment

Net prior service costs

Net (gain) loss

Pension liability, end of year

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Commitments and Contingencies

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

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

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

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

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

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

In August 2021, we entered into a revolving credit and guaranty agreement (the “Credit Agreement”) among the Incyte Corporation, as borrower, subsidiary Incyte Holdings Corporation, as a guarantor, a group of lenders (the “Lenders”), and J.P.

Morgan Chase Bank, N.A.

as administrative agent.

Under the Credit Agreement, the Lenders have committed to provide an unsecured three-year revolving credit facility in an aggregate principal amount of up to $ 500.0 million.

We may increase the maximum revolving commitments or add one or more incremental term loan facilities to the Credit Agreement, subject to obtaining commitments from any participating lenders and certain other conditions, in an amount not to exceed (1) $ 250.0 million plus (2) an additional amount, so long as after giving effect to the incurrence of such additional amount, the Company’s pro forma consolidated leverage ratio would not exceed 0.25 above its consolidated leverage ratio in effect immediately prior to giving effect to such increase.

Loans under the Credit Agreement will bear interest, at our option, at a per annum rate equal to either (a) a base rate plus an applicable rate per annum varying from 0.125 % to 0.875 % depending on the consolidated leverage ratio or (b) a Eurodollar rate plus an applicable rate per annum varying from 1.125 % to 1.875 % depending on the consolidated leverage ratio.

Commitment fees payable on the undrawn amount range from 0.150 % per annum to 0.225 % per annum, based on our consolidated leverage ratio.

As of December 31, 2021, we are in compliance with all financial and operational covenants under the terms of the Credit Agreement and there were no outstanding borrowings or letters of credit outstanding.

We capitalized approximately $ 1.3 million in debt issuance costs related to the execution of the Credit Agreement.

The debt issuance costs are being amortized over the term of the facility.

Contingencies

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

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

We have cooperated with this inquiry.

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

The DOJ has not intervened to date.

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

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

A trial date has not been set.

We intend to continue defending ourselves vigorously against these allegations.

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

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

We filed an Answer to the Complaint

on January 22, 2020 and on November 12, 2020 we filed a Motion for Summary Judgment (“Motion”).

All briefing on the Motion was completed on December 22, 2020.

While we deny that any improper claims were submitted to government payers, we agreed on May 4, 2021 to settle the matter with the DOJ Civil Division for $ 12.6 million, plus certain statutory fees, which was recorded in selling, general and administrative expense during the year ended December 31, 2021.

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

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

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

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

Segment Information

We currently operate in one operating business segment focused on the discovery, development and commercialization of proprietary therapeutics.

Our chief operating decision-maker manages the operations of our company as a single operating segment.

We currently operate in one operating business segment focused on the global discovery, development and commercialization of proprietary therapeutics.

Our determination that we operate as a single segment is consistent with the financial information regularly reviewed by the chief operating decision maker for purposes of evaluating performance, allocating resources, setting incentive compensation targets, and planning and forecasting for future periods.

We do not operate in any material separate lines of business or separate business entities with respect to our products or product development.

During the year ended December 31, 2020, total revenues generated by subsidiaries in the United States was $ 2.6 billion and total revenues generated from subsidiaries in Europe was $ 105.0 million.

During the year ended December 31, 2019, total revenues generated by subsidiaries in the United States was $ 2.1 billion and total revenues generated from subsidiaries in Europe was $ 90.0 million.

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

During the year ended December 31, 2021, total revenues generated by subsidiaries in the United States was approximately $ 2.9 billion and total revenues generated from subsidiaries in Europe was approximately $ 124.1 million.

During the year ended December 31, 2020, total revenues generated by subsidiaries in the United States was approximately $ 2.6 billion and total revenues generated from subsidiaries in Europe was approximately $ 105.0 million.

During the year ended December 31, 2019, total revenues generated by subsidiaries in the United States was approximately $ 2.1 billion and total revenues generated from subsidiaries in Europe was approximately $ 90.0 million.

As of December 31, 2021, property and equipment, net was approximately $ 434.2 million in the United States, approximately $ 286.8 million in Europe and approximately $ 2.9 million in Japan.

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

Interim Consolidated Financial Information (Unaudited)

Fiscal 2020 Quarter Ended

(in thousands, except per share data)

September 30,

Net income (loss)

Basic net income (loss) per share

Diluted net income (loss) per share

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

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

Fiscal 2019 Quarter Ended

(in thousands, except per share data)

September 30,

Basic net income per share

Diluted net income per share

Shares used in computation of basic net income per share

Shares used in computation of diluted net income per share

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

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

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

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

The quarters ended March 31, 2019, June 30, 2019, September 30, 2019 and December 31, 2019 include $ 61.6 million, $ 76.0 million, $ 80.1 million and $ 88.6 million, respectively, of product royalty revenues related to the sale of JAKAVI and OLUMIANT outside the United States.

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

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

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

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

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data