What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-05-03 compared with 2021-11-02 · 244 added, 773 removed, 381 unchanged (73% of the section changed)

3 unchanged sentences

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

September 30,

Current assets:

Cash and cash equivalents

Marketable securities—available-for-sale (amortized cost $ 285,135 and $ 288,199 as of September 30, 2021 and December 31, 2020;

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

Marketable securities—available-for-sale (amortized cost $ 291,613 and $ 291,871 as of March 31, 2022 and December 31, 2021, respectively;

allowance for credit losses $ 0 as of March 31, 2022 and December 31, 2021)

Accounts receivable

6 unchanged sentences

Other intangible assets, net

Deferred income tax asset

Other assets, net

15 unchanged sentences

5,000,000 shares authorized;

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

none issued or outstanding

Common stock, $ 0.001 par value;

400,000,000 shares authorized;

220,885,119 and 219,489,329 shares issued and outstanding as of September 30, 2021 and December 31, 2020 , respectively

221,409,550 and 221,084,433 shares issued and outstanding as of March 31, 2022 and December 31, 2021 , respectively

Additional paid-in capital

1 unchanged sentence

Accumulated deficit

( 1,341,725 )

( 1,726,455 )

Total stockholders’ equity

6 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Product revenues, net

9 unchanged sentences

Total costs and expenses

Income (loss) from operations

Income from operations

Other income (expense), net

Interest expense

Unrealized gain (loss) on long term investments

Income (loss) before provision for income taxes

Unrealized loss on long term investments

Income before provision for income taxes

Provision for income taxes

Net income (loss)

Net income (loss) per share:

Shares used in computing net income (loss) per share:

Net income per share:

Shares used in computing net income per share:

See accompanying notes.

INCYTE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited, in thousands)

Three Months Ended

Nine Months Ended

September 30,

Net income (loss)

Other comprehensive income (loss):

Foreign currency translation (loss) gain

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

Defined benefit pension obligations, net of tax

Other comprehensive income (loss)

Comprehensive income (loss)

Other comprehensive loss:

Foreign currency translation loss

Unrealized loss on marketable securities, net of tax

Defined benefit pension gain, net of tax

Other comprehensive loss

Comprehensive income

See accompanying notes.

2 unchanged sentences

(unaudited, in thousands, except number of shares)

For the Nine Months Ended September 30, 2021

For the Three Months Ended March 31, 2021

Accumulated Other

10 unchanged sentences

( 1,672,920 )

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

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

Stock compensation

Other comprehensive income

Balances at June 30, 2021

( 1,523,464 )

Issuance of 459,084 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

Issuance of 1,466 shares of Common Stock for services rendered

Stock compensation

Other comprehensive loss

Balances at September 30, 2021

( 1,341,725 )

INCYTE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

(unaudited, in thousands, except number of shares)

For the Nine Months Ended September 30, 2020

For the Three Months Ended March 31, 2022

Accumulated Other

3 unchanged sentences

Balances at January 1, 2022

( 1,430,758 )

Issuance of 323,582 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units, net of shares withheld for taxes

1 unchanged sentence

Stock compensation

Other comprehensive income

Other comprehensive loss

Balances at March 31, 2022

( 2,151,400 )

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

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

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

Stock compensation

Other comprehensive income

Balances at June 30, 2020

( 1,861,102 )

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

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

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

Stock compensation

Other comprehensive income

Balances at September 30, 2020

( 1,876,305 )

See accompanying notes.

2 unchanged sentences

(unaudited, in thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities :

Net income (loss)

Adjustments to reconcile net income to net cash provided by operating activities:

2 unchanged sentences

Deferred income taxes

Unrealized loss (gain) on long term investments

Unrealized loss on long term investments

Change in fair value of acquisition-related contingent consideration

4 unchanged sentences

Accrued and other liabilities

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Cash flows from investing activities :

6 unchanged sentences

Cash flows from financing activities :

Proceeds from issuance of common stock under stock plans net of tax withholding

Proceeds from issuance of common stock under stock plans

Tax withholdings related to restricted and performance share vesting

Payment of finance lease liabilities

Payment of contingent consideration

Net cash (used in) provided by financing activities

Net cash provided by financing activities

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

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

Net increase in cash, cash equivalents, restricted cash and investments

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

1 unchanged sentence

Supplemental Schedule of Cash Flow Information

Interest paid

Income taxes paid

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

Unpaid purchases of property and equipment

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

March 31, 2022

Organization and business

5 unchanged sentences

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

The condensed consolidated balance sheet as of September 30, 2021, the condensed consolidated statements of operations, comprehensive income (loss), and stockholders’ equity for the three and nine months ended September 30, 2021 and 2020, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

The condensed consolidated balance sheet as of March 31, 2022, the condensed consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the three months ended March 31, 2022 and 2021, are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

The condensed consolidated balance sheet at December 31, 2021 has been derived from our audited consolidated financial statements.

6 unchanged sentences

All inter-company accounts, transactions, and profits have been eliminated in consolidation.

Foreign Currency Translation .

Operations in non-U.S.

entities are recorded in the functional currency of each entity.

For financial reporting purposes, the functional currency of an entity is determined by a review of the source of an entity's most predominant cash flows.

The results of operations for any non-U.S.

dollar functional currency entities are translated from functional currencies into U.S.

dollars using the average currency rate during each month.

Assets and liabilities are translated using currency rates at the end of the period.

Adjustments resulting from translating the financial statements of our foreign entities that use their local currency as the functional currency into U.S.

dollars are reflected as a component of other comprehensive income (loss).

Transaction gains and losses are recorded in other income (expense), net, in the condensed consolidated statements of operations.

Use of Estimates.

1 unchanged sentence

Actual results could differ from those estimates.

Concentrations of Credit Risk.

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

The estimated fair value of financial instruments

approximates the carrying value based on available market information.

By policy, we invest our excess available funds primarily in U.S.

government debt securities which are securities issued or guaranteed by the U.S.

government and money market funds that meet certain guidelines, which limits exposure to potential credit losses.

Our receivables mainly relate to our product sales and collaborative agreements with pharmaceutical companies.

We have not experienced any significant credit losses on cash, cash equivalents, marketable securities, or trade receivables to date and do not require collateral on receivables.

Current Expected Credit Losses.

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:

receivables from collaborative agreements, including milestones, reimbursements for agreed-upon activities and sales royalties;

and receivables from customer product sales.

Collaborative agreement receivables are closely monitored relationships with select, reputable industry peers.

Collection of receivables is assessed within each collaborative partnership on a quarterly basis, including evaluation of each entity’s credit quality, financial health and past history of payment.

Customer product sales receivables are independently evaluated on a monthly basis, on which unusual items or aged receivables are closely monitored for signs of credit deterioration, or indications of payment refusal.

Customer product sales are with specialty pharmaceutical distributors, wholesalers, and certain public and private institutions, some of which whose financial obligations are funded by various government agencies.

Cash and Cash Equivalents.

Cash and cash equivalents are held in banks or in custodial accounts with banks.

Cash equivalents are defined as all liquid investments and money market funds with maturity from date of purchase of 90 days or less that are readily convertible into cash.

Marketable Securities—Available-for-Sale.

Our marketable securities consist of investments in U.S.

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

Available-for-sale securities are carried at fair value, based on quoted market prices and observable inputs, with unrealized gains and losses, net of tax, reported as a separate component of stockholders’ equity.

We classify marketable securities that are available for use in current operations as current assets on the condensed consolidated balance sheets.

Realized gains and losses and declines in value judged to be other than temporary for available-for-sale securities are included in other income (expense), net on the condensed consolidated statements of operations.

The cost of securities sold is based on the specific identification method.

Accounts Receivable.

As of September 30, 2021 and December 31, 2020, we had no allowance for doubtful accounts.

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

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 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.

We build demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance and patient usage.

We classify inventory as current on the condensed consolidated balance sheets when we expect inventory to be consumed for commercial use within the next twelve months.

Variable Interest Entities .

We perform an initial and ongoing evaluation of the entities with which we have variable interests, such as equity ownership, in order to identify entities (i) that do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support or (ii) in which the equity investors lack an essential characteristic of a controlling financial interest as variable interest entities (“VIE” or “VIEs”).

If an entity is identified as a VIE, we perform an assessment to determine whether we have both (i) the power to direct activities that most significantly impact the VIE’s economic performance and (ii) have the obligation to absorb losses from or the right to receive benefits of the VIE that could potentially be significant to the VIE.

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

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

Long Term Investments.

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 condensed consolidated balance sheets.

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

All changes in fair value are reported in the condensed 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.

Property and Equipment, net.

Property and equipment, net is stated at cost, less accumulated depreciation and amortization.

Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets.

Leasehold improvements are amortized over the shorter of the estimated useful life of the assets or lease term.

Lease Accounting.

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.

Both finance and operating leases are reflected as liabilities on the commencement date of the lease based on the present value of the lease payments to be made over the lease term.

Current operating lease liabilities are reflected in accrued and other current liabilities and noncurrent operating lease liabilities are reflected in other liabilities on the condensed consolidated balance sheet.

Right-of-use assets are valued at the initial measurement of the lease liability, plus any initial direct costs or rent prepayments, minus lease incentives and any deferred lease payments.

Operating lease right-of-use assets are recorded in property and equipment, net on the condensed consolidated balance sheet and lease cost is recognized on a straight-line basis.

For finance leases, expense is recognized as separate amortization and interest expense, with higher interest expense in the earlier periods of a lease.

Leases with an initial term of 12 months or less are not recorded on the balance sheet and we recognize lease expense for these leases on a straight-line basis over the term of the lease.

In determining whether a contract contains a lease, asset and service agreements are assessed at onset and upon modification for criteria of specifically identified assets, control and economic benefit.

Other Intangible Assets, net.

Other intangible assets, net consist of licensed intellectual property rights acquired in business combinations, which are reported at acquisition date fair value, less accumulated amortization.

Intangible assets with finite lives are amortized over their estimated useful lives using the straight-line method.

Impairment of Long-Lived Assets.

Long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

If indicators of impairment are present, the asset is tested for recoverability by comparing the carrying value of the asset to the related estimated undiscounted future cash flows expected to be derived from the asset.

If the expected cash flows are less than the carrying value of the asset, then the asset is considered to be impaired and its carrying value is written down to fair value, based on the related estimated discounted future cash flows.

Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed.

Goodwill is not amortized but is tested

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

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

Our operations are currently comprised of a single, entity wide reporting unit.

We completed our most recent annual impairment assessment as of October 1, 2020 and determined that the carrying value of our goodwill was not impaired.

Income Taxes.

We account for income taxes using the asset and liability approach which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts reportable for income tax purposes.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized.

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

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

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

Any interest and penalties on uncertain tax positions are included within the tax provision.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law in March 2020 to provide an estimated $2.2 trillion designed to stimulate the U.S.

economy during the COVID-19 pandemic.

The Act includes tax relief, government loans, grants and investments for entities in affected industries, which has related accounting and financial reporting impacts.

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 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.

Net Income (Loss) Per Share.

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 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 our marketable debt securities that are classified as available-for-sale, foreign currency translation gains or losses and defined benefit pension obligations.

Revenue Recognition.

Revenue-generating contracts are assessed under ASC 606, Revenue from contracts with customers , to identify distinct performance obligations, determine the transaction price of the contract and allocate the transaction price to each of the distinct performance obligations.

Revenue is recognized when we have satisfied a performance obligation through transferring control of the promised good or service to a customer.

Control, in this instance, may mean the ability to prevent other entities from directing the use of, and receiving benefit from, a good or service.

We apply the following five-step model in order to determine this amount:

(i) identification of the promised goods or services in the contract;

(ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract;

(iii) measurement of the transaction price, including the constraint on variable consideration;

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

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

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

Product Revenues

Our product revenues consist of sales of JAKAFI 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 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.

Product shipping and handling costs are included in cost of product revenues.

Customer Credits:

Our customers are offered various forms of consideration, including allowances, service fees and prompt payment discounts.

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

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

Rebates and Discounts:

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.

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.

The accrual for rebates is based on statutory discount rates and expected utilization as well as historical data we have accumulated since product launches.

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

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

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

Chargebacks are discounts that occur when certain contracted customers, which currently consist primarily of group purchasing organizations, Public Health Service institutions, non-profit clinics, and Federal government entities purchasing via the Federal Supply Schedule, purchase directly from our wholesalers.

Contracted customers generally purchase the product at a discounted price.

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

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

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

Medicare Part D Coverage Gap:

Medicare Part D prescription drug benefit mandates manufacturers to fund 70 % of the Medicare Part D insurance coverage gap for prescription drugs sold to eligible patients.

Our estimates for the expected Medicare Part D coverage gap are based on historical invoices received and in part from data received from our customers.

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

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

Additionally, beginning in January 2020, the amount of spending required by eligible patients in the Medicare Part D insurance coverage gap increased 30 % due to the expiration of a provision in the Patient Protection and Affordable Care Act, which now results in a change in the True Out of Pocket (TrOOP) calculation methodology.

The methodological change has resulted in an increase in required spending by patients and, in turn, an increase in manufacturers’ contributions on behalf of patients in the Medicare Part D insurance coverage gap.

Co-payment Assistance:

Patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance.

We accrue a liability for co-payment assistance based on actual program participation and estimates of program redemption using data provided by third-party administrators.

Product Royalty Revenues

Royalty revenues on commercial sales for ruxolitinib (marketed as JAKAVI ® outside the United States) by Novartis Pharmaceutical International Ltd.

(“Novartis”) are based on net sales of licensed products in licensed territories as provided by Novartis.

Royalty revenues on commercial sales for baricitinib (marketed as OLUMIANT) by Eli Lilly and Company (“Lilly”) are based on net sales of licensed products in licensed territories as provided by Lilly.

Royalty revenues on commercial sales for capmatinib (marketed as TABRECTA®) by Novartis are based on net sales of licensed products in the licensed territories as provided by Novartis.

We recognize royalty revenues in the period the sales occur.

Milestone and Contract Revenues

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.

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

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

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

Once the estimated transaction price is established, amounts are allocated to the performance obligations that have been identified.

The transaction price is generally allocated to each separate performance obligation on a relative standalone selling price basis.

Out-licensing arrangements contain the right to use functional intellectual property, which is the underlying performance obligation of these collaborative arrangements.

If the license of our intellectual property is determined to be distinct from other performance obligations in the arrangement, the functional intellectual property that is transferred to the collaborative partner at the onset of the arrangement is concluded to have significant standalone functionality and value at the point in time at which the intellectual property is made available to the collaborative partner.

For licenses that are not distinct from other obligations identified in the arrangement, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time.

If the combined performance obligation is satisfied over time, we apply an appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront license fees.

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

For the three and nine months ended September 30, 2021 and 2020, we had no revenues from intellectual property licenses recognized over time.

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

Subsequent to the transfer of the intellectual property, we may earn milestones through achievement of pre-specified developmental or regulatory events and, as such, milestones are accounted for as variable consideration.

We include developmental or regulatory milestones in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the milestone is subsequently resolved.

Under the agreements currently in place, we do not consider these events to be within our control, but rather dependent upon the development activities of our collaborative partners and the decisions made by regulatory agencies.

Accordingly, these milestones are not included in the transaction price until the counterparty, or third-party in the event of a regulatory submission, confirms the satisfaction or completion of the milestone triggering

Given the high level of uncertainty of achievement, variable consideration associated with milestones are fully constrained until confirmation of the satisfaction or completion of the milestone by the third-party.

Generally, the milestone events contained in our collaboration agreements coincide with the progression of our drugs from development, to regulatory approval and then to commercialization.

The value of these milestones is dictated within the contract and is fixed upon achievement and reflects the amount of consideration which we expect to be entitled to in exchange for the satisfaction of that milestone.

The process of successfully discovering a new development candidate, having it approved and successfully commercialized is highly uncertain.

As such, the milestone payments we may earn from our partners involve a significant degree of risk to achieve and therefore, subsequent milestone payments due to Incyte are recognized as revenue at the point in time when such milestones are achieved.

Our collaboration agreements may also include an option for the collaborative partner to elect to participate in research and development activities, such as shared participation in additional clinical trials using the compound.

The presence of additional options for future participatory activities are assessed to determine if they represent material rights offered by us to the collaborative partner.

We also determine whether the reimbursement of research and development expenses should be accounted for as collaborative revenues or an offset to research and development expenses in accordance with the provisions of gross or net revenue presentation and recognize the corresponding revenues or records the corresponding offset to research and development expenses as incurred.

Our collaborative agreements may also include provisions for additional future collaborative efforts, such as options for shared commercialization staffing or licensing of additional molecules, involvement in joint committees, or options for inclusion in negotiations of future supply rights, which at the time of each collaborative agreement’s inception, are assessed to determine if these meet the definition of a performance obligation under ASC 606.

Cost of Product Revenues

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.

(since renamed Incyte Biosciences Luxembourg S.à.r.l.) from ARIAD Pharmaceuticals, Inc.

Cost of product revenues also includes employee personnel costs, including stock compensation, for those employees dedicated to the production of our commercial products.

Research and Development Costs.

Our policy is to expense research and development costs as incurred, including amounts funded by research and development collaborations.

Research and development expenses are comprised of costs we incur in performing research and development activities, including salary and benefits;

stock-based compensation expense;

outsourced services and other direct expenses, including clinical trial and pharmaceutical development costs;

collaboration payments;

expenses associated with drug supplies that are not being capitalized;

and infrastructure costs, including facilities costs and depreciation expense.

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 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.

These CRO contracts typically call for the payment of fees for services at the initiation of the contract and/or upon the achievement of certain clinical trial milestones.

In the event that we prepay CRO fees, we record the prepayment as a prepaid asset and amortize the asset into research and development expense over the period of time the contracted research and development services are performed.

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

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

Our CRO contracts generally include pass through fees.

Pass through fees include, but are not limited to, regulatory expenses, investigator fees, travel costs, and other

miscellaneous costs, including shipping and printing fees.

We expense the costs of pass through fees under our CRO contracts as they are incurred, based on the best information available to us at the time.

The estimates of the pass through fees incurred are based on the amount of work completed for the clinical trial and are monitored through correspondence with the CROs, internal reviews and a review of contractual terms.

The factors utilized to derive the estimates include the number of patients enrolled, duration of the clinical trial, estimated patient attrition, screening rate and length of the dosing regimen.

CRO fees incurred to set up the clinical trial are expensed during the setup period.

Under our clinical trial collaboration agreements we may be reimbursed for certain development costs incurred.

Such costs are recorded as a reduction of research and development expense in the period in which the related expense is incurred.

Stock Compensation.

Share-based payment transactions with employees, which include stock options, restricted stock units (“RSUs”) and performance shares (“PSUs”), are recognized as compensation expense over the requisite service period based on their estimated fair values as well as expected forfeiture rates.

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

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

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

The fair value of PSUs are recognized as compensation expense beginning at the time in which the performance conditions are deemed probable of achievement, which we assess as of the end of each reporting period.

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

Advertising Expenses.

Advertising expenses, comprised primarily of television, radio, print media and Internet advertising, are expensed as incurred and are included in selling, general, and administrative expenses.

For the three and nine months ended September 30, 2021, advertising expenses were approximately $ 13.7 million and $ 32.0 million, respectively.

For the three and nine months ended September 30, 2020, advertising expenses were approximately $ 6.4 million and $ 16.5 million, respectively.

Long Term Incentive Plans.

We have long term incentive plans which provide eligible employees with the opportunity to receive performance and service-based incentive compensation, which may be comprised of cash, stock options, restricted stock units and/or performance shares.

The payment of cash and the grant or vesting of equity may be contingent upon the achievement of pre-determined regulatory, sales and internal performance milestones.

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 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.

The fair value measurement is based on significant inputs that are unobservable in the market and thus represents a Level 3 measurement.

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

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 condensed consolidated statement of operations.

For the three and nine months ended September 30, 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.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU No.

2019-12, “Income Taxes (Topic 740):

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

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

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

Upon adoption, ASU No.

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

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

There were no new accounting pronouncements issued nor adopted since our filing of the Annual Report on Form 10-K for the year ended December 31, 2021, which could have a significant effect on our condensed consolidated financial statements.

Revenues are recognized under guidance within ASC 606, Revenue from Contracts with Customers .

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

Three Months Ended

Nine Months Ended

September 30,

JAKAFI revenues, net

2 unchanged sentences

MINJUVI revenues, net

OPZELURA revenues, net

Total product revenues, net

7 unchanged sentences

Fair value of financial instruments

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

March 31, 2022

Debt securities (government)

December 31, 2021

Debt securities (government)

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.

As of March 31, 2022 and December 31, 2021, 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

FASB accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (“the exit price”) in an orderly transaction between market participants at the measurement date.

9 unchanged sentences

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

At September 30, 2021 and December 31, 2020, our Level 2 U.S.

At March 31, 2022 and December 31, 2021, our Level 2 U.S.

government debt securities were valued using readily available pricing sources which utilize market observable inputs, including the current interest rate and other characteristics for similar types of investments.

Our long term investments classified as Level 1 were valued using their respective closing stock prices on The Nasdaq Stock Market.

We did not experience any transfers of financial instruments between the fair value hierarchy levels during the nine months ended September 30, 2021.

We did not experience any transfers of financial instruments between the fair value hierarchy levels during the three months ended March 31, 2022.

The following fair value hierarchy table presents information about each major category of our financial assets measured at fair value on a recurring basis (in thousands):

5 unchanged sentences

Balance as of

September 30, 2021

March 31, 2022

Cash and cash equivalents

18 unchanged sentences

Balance as of

September 30, 2021

March 31, 2022

Acquisition-related contingent consideration

9 unchanged sentences

Total liabilities

The following is a rollforward of our Level 3 liabilities (in thousands):

The following is a roll forward of our Level 3 liabilities (in thousands):

Balance at January 1,

Contingent consideration earned during the period but not yet paid

Payments made during the period

Change in fair value of contingent consideration

Balance at September 30,

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 %.

Balance at March 31,

The fair value of the contingent consideration was determined on the date of acquisition, June 1, 2016, using an income approach based on 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 condensed consolidated statements of operations.

The valuation inputs utilized to estimate the fair value of the contingent consideration as of September 30, 2021 included a weighted average cost of capital of 10 % and updated projections of future ICLUSIG revenues in the European Union and other countries for the approved third line treatment.

The change in fair value of the contingent consideration during the three and nine months ended September 30, 2021 was due primarily to the passage of time and the impact of updated projections of future ICLUSIG revenues in the European Union.

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

At September 30, 2021 and December 31, 2020, contingent consideration earned but not yet paid was $ 9.9 million and $ 9.6 million, respectively, and was included in accrued and other current liabilities.

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

September 30, 2021

Debt securities (government)

December 31, 2020

Debt securities (government)

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 2.

As of September 30, 2021 and December 31, 2020, the available-for-sale debt securities were held in US-government backed funds and Treasury assets and were assessed on an individual security basis to have a de minimis risk of credit loss.

The valuation inputs utilized to estimate the fair value of the contingent consideration as of March 31, 2022 and December 31, 2021 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 three months ended March 31, 2022 was due primarily to the passage of time.

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

At March 31, 2022 and December 31, 2021, contingent consideration earned but not yet paid was $ 8.4 million and $ 19.6 million, respectively, and was included in accrued and other current liabilities.

Concentration of credit risk and current expected credit losses

In November 2009, we entered into a collaboration and license agreement with Novartis.

In December 2009, we entered into a license, development and commercialization agreement with Lilly.

In November 2009, we entered into a collaboration and license agreement with Novartis Pharmaceutical International Ltd.

(“Novartis”).

In December 2009, we entered into a license, development and commercialization agreement with Eli Lilly and Company (“Lilly”).

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

1 unchanged sentence

In July 2019, we entered into a collaboration and license agreement with Zai Lab (Shanghai) Co., Ltd., a subsidiary of Zai Lab Limited (collectively, “Zai Lab”).

The above collaboration partners comprised, in aggregate, 37 % and 42 % of the accounts receivable balance as of September 30, 2021 and December 31, 2020, respectively.

The above collaboration partners comprised, in aggregate, 24 % and 36 % of the accounts receivable balance as of March 31, 2022 and December 31, 2021, respectively.

For further information relating to these collaboration and license agreements, refer to Note 7.

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

Our product revenues are concentrated in a

number of these customers.

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

Percentage of Total Net

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, PEMAZYRE and OPZELURA product revenues is as follows:

Percentage of Total Net

Product Revenues for the

Three Months Ended

Nine Months Ended

September 30,

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

Customers A, B, C, D and E comprised, in aggregate, 32 % and 33 % of the accounts receivable balance as of September 30, 2021 and December 31, 2020, respectively.

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

We assessed our collaborative and customer receivable assets as of September 30, 2021 according to our accounting policy for applying reserves for expected credit losses, noting minimal history of uncollectible receivables and the continued perceived creditworthiness of our third party sales relationships, upon which the expected credit losses were considered de minimis.

Customers A, B, C, D and E comprised, in aggregate, 36 % and 31 % of the accounts receivable balance as of March 31, 2022 and December 31, 2021, 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 March 31, 2022 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.

As of March 31, 2022 and December 31, 2021, we had no allowance for doubtful accounts.

Our inventory balance consists of the following (in thousands):

September 30,

Raw materials

1 unchanged sentence

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.

At September 30, 2021, $ 21.3 million of inventory was classified as current on the condensed consolidated balance sheet as we expect this inventory to be consumed for commercial use within the next twelve months.

At September 30, 2021, $ 30.9 million of inventory was classified as noncurrent on the condensed consolidated balance sheets as we did not expect this inventory to be consumed for commercial use within the next twelve months.

At March 31, 2022, $ 35.5 million of inventory was classified as current on the condensed consolidated balance sheet as we expect this inventory to be consumed for commercial use within the next twelve months.

At March 31, 2022, $ 35.4 million of inventory was classified as non-current on the condensed consolidated balance sheet as we did not expect this inventory to be consumed for commercial use within the next twelve months.

We obtain some inventory components from a limited number of suppliers due to technology, availability, price, quality or other considerations.

2 unchanged sentences

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

At September 30, 2021, inventory with approximately $ 72.1 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 3 to 36 months and as a result, cost of product revenues for will reflect a lower average per unit cost of materials.

Property and equipment, net

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

September 30,

Office equipment

Manufacturing and laboratory equipment

Computer equipment

Building and leasehold improvements

Operating lease right-of-use assets

Construction in progress

Less accumulated depreciation and amortization

Property and equipment, net

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

As of September 30, 2021, we have capitalized approximately $ 140.7 million in on site preparation, design and construction costs and currently expect the building to be completed in the first half of 2022.

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

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

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

In June 2019, we obtained control of the Morges building to begin our construction activity, which was completed in 2020.

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

We have capitalized approximately $ 19.1 million in leasehold improvements as of September 30, 2021 relating to Morges.

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

The land was purchased, in cash, for approximately $ 4.8 million.

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

Construction activity commenced in July 2018 and as of September 30, 2021, we have capitalized approximately $ 186.7 million in construction in progress for costs for construction, ground preparation and architectural and engineering studies.

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

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

Our lease agreements do not contain any material residual value guarantees or restrictive covenants.

Some of our building leases include options to renew and the exercise of these options is at our discretion.

Our current operating lease liabilities are reflected in accrued and other current liabilities and our noncurrent operating lease liabilities are reflected in other liabilities on the condensed consolidated balance sheets and are as follows (in thousands):

September 30,

Operating lease liabilities

Finance lease liabilities

Operating lease liabilities

Finance lease liabilities

Total lease liabilities

The cash paid for amounts included in the measurement of our operating lease liabilities for the nine months ended September 30, 2021 and 2020 was $ 11.4 million and $ 8.7 million, respectively, in operating cash flows.

The cash paid for amounts included in the measurement of our finance lease liabilities for the nine months ended September 30, 2021 and 2020 was $ 1.8 million and $ 0.6 million, respectively, in financing cash flows.

As of September 30, 2021, our finance and operating leases had a weighted average lease term of approximately 13.6 and 4.7 years, respectively.

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

The weighted average discount rate of our finance and operating leases is approximately 4.1 % and 8.8 %, respectively.

For the three and nine months ended September 30, 2021, we incurred approximately $ 3.5 million and $ 10.7 million, respectively, of expense related to our operating leases, approximately $ 0.7 million and $ 2.0 million, respectively, of amortization on our finance lease right-of-use assets and approximately $ 0.4 million and $ 1.0 million, respectively, of interest expense on our finance lease liabilities.

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

For the three and nine months ended September 30, 2021 and 2020, the cost of our short term leases with a term less than 12 months was de minimis.

Intangible assets and goodwill

Intangible Assets, Net

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

Balance at September 30, 2021

Balance at December 31, 2020

Average Useful

Lives (Years)

Finite-lived intangible assets:

Estimated aggregate amortization expense based on the current carrying value of amortizable intangible assets is as follows (in thousands):

Amortization expense

There were no changes to the carrying amount of goodwill for the nine months ended September 30, 2021.

At March 31, 2022, inventory with approximately $ 69.9 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 31 months and, as a result, cost of product revenues will reflect a lower average per unit cost of materials.

License agreements

3 unchanged sentences

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 September 30, 2021.

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

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

In May 2020, we recognized a $ 25.0 million development milestone and a $ 45.0 million regulatory milestone for the FDA approval of capmatinib as TABRECTA for the treatment of adult patients with metastatic non-small cell lung cancer (NSCLC) whose tumors have a mutation that leads to MET exon 14 skipping (METex14) as detected by an FDA-approved test.

In June 2020, we recognized a $ 20.0 million regulatory milestone for the Japanese Ministry of Health, Labour and Welfare approval of TABRECTA for METex14 mutation-positive advanced and/or recurrent unresectable non-small cell lung cancer.

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 graft-versus-host-disease (“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 March 31, 2022.

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 TABRECTA net sales that range from 12 % to 14 %.

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

During the three and nine months ended September 30, 2021, such royalties payable to Novartis on net sales within the United States totaled $ 26.9 million and $ 70.6 million, respectively, and were reflected in cost of product revenues on the condensed consolidated statements of operations.

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

At September 30, 2021 and December 31, 2020, $ 132.4 million and $ 96.4 million, respectively, of accrued royalties payable to Novartis were included in accrued and other current liabilities on the condensed consolidated balance

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

During the three months ended March 31, 2022 and 2021, such royalties on net sales within the United States totaled $ 21.7 million and $ 17.8 million, respectively, and were reflected in cost of product revenues on the condensed consolidated statements of operations.

At March 31, 2022 and December 31, 2021, $ 162.1 million and $ 148.1 million, respectively, of accrued royalties were included in accrued and other current liabilities on the condensed consolidated balance sheets.

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

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

The Novartis agreement will continue on a program-by-program basis until Novartis has 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.

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

The agreement may be terminated in its entirety or on a program-by-program basis by Novartis for convenience.

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 three and nine months ended September 30, 2021 were net of $ 0.0 million and $ 0.1 million, respectively, of costs reimbursed by Novartis.

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

At September 30, 2021 and December 31, 2020, $ 0.2 million and $ 0.2 million, respectively, of reimbursable costs were included in accounts receivable on the condensed consolidated balance sheets.

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

Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States for the three and nine months ended September 30, 2021 was $ 94.7 million and $ 242.3 million, respectively.

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

Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three and nine months ended September 30, 2021 was $ 2.7 million and $ 7.3 million, respectively.

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

For the three months ended March 31, 2022 and 2021, we recorded $ 70.8 million and $ 65.6 million, respectively, of product royalty revenues related to Novartis net sales of JAKAVI outside the United States.

For the three months ended March 31, 2022 and 2021, we recorded $ 3.5 million and $ 2.0 million, respectively, of product royalty revenues related to Novartis net sales of TABRECTA worldwide.

Lilly - Baricitinib

1 unchanged sentence

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

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

Exclusive of the upfront payment of $ 90.0 million received in 2009, we have recognized and received, in aggregate, $ 149.0 million for the achievement of development milestones and $ 265.0 million for the achievement of regulatory milestones through September 30, 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.

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.

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 March 31, 2022.

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

As part of the amended agreement, in addition to the royalties described above, we will be entitled to receive additional royalty payments with rates in the low teens on global net sales of baricitinib for the treatment of COVID-19 that exceed a specified aggregate global net sales threshold.

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

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

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

Product royalty revenue related to Lilly global net sales of OLUMIANT for the three and nine months ended September 30, 2021 was $ 86.6 million and $ 154.9 million, respectively.

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

Product royalty revenue related to Lilly net sales of OLUMIANT outside of the United States for the three months ended March 31, 2022 and 2021 was $ 48.0 million and $ 32.3 million, respectively.

Lilly - Ruxolitinib

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

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

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.

In March 2022, the positive recommendation from the European Medicines Agency for regulatory approval of ruxolitinib in the GVHD field triggered an additional $ 20.0 million milestone payment to Lilly, which was recorded as research and development expense in our condensed consolidated statements of operations.

In January 2015, we entered into a License, Development and Commercialization Agreement with Agenus Inc.

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.

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

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 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.

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.

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

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

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

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

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

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

common stock priced at market, with per share pricing ranging from $ 5.74 to $ 6.75 , resulting in gross proceeds of approximately $ 1.1 million.

As of September 30, 2021, we owned approximately 5 % of the outstanding shares of Agenus Inc.

common stock.

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

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

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

We account for our investment in Agenus Inc.

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

For the three and nine months ended September 30, 2021, we recorded an unrealized loss of $ 2.8 million and an unrealized gain of $ 29.1 million, respectively, based on the change in fair value of Agenus Inc.’s common stock during these periods.

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

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

at September 30, 2021 and December 31, 2020 was $ 63.4 million and $ 44.7 million, respectively.

Research and development expenses for the three and nine months ended September 30, 2021 also included $ 0.2 million and $ 0.9 million, respectively, of development costs incurred pursuant to the Agenus arrangement.

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

At September 30, 2021 and December 31, 2020, a total of $ 0.8 million and $ 0.5 million, respectively, of such costs were included in accrued and other liabilities on the condensed consolidated balance sheets.

As of March 31, 2022, 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 March 31, 2022 and December 31, 2021 was $ 29.7 million and $ 38.9 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 March 31, 2022, 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 condensed consolidated balance sheets.

For the three months ended March 31, 2022 and 2021, we recorded an unrealized loss of $ 9.2 million and $ 5.9 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.

3 unchanged sentences

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

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

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

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

If Merus opts to cease co-funding a program as to which it exercised its co-development

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

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

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.

The agreement may be terminated in its entirety or on a program-by-program basis by us for convenience.

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

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.

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 March 31, 2022, we have paid Merus milestones totaling $ 2.0 million.

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 March 31, 2022 and December 31, 2021 was $ 93.9 million and $ 112.9 million, respectively.

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

The fair market value of our total long term investment in Merus at September 30, 2021 and December 31, 2020 was $ 78.1 million and $ 56.1 million, respectively.

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

As of September 30, 2021, we owned approximately 9 % of the outstanding common shares of Merus and conclude that we have the ability to exercise significant influence, but not control, over Merus based primarily on our ownership interest, the level of intra-entity transactions between us and Merus related to development expenses, as well as other qualitative factors.

As of March 31, 2022, 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 three and nine months ended September 30, 2021, we recorded an unrealized gain of $ 3.3 million and $ 13.3 million, respectively, based on the change in fair value of Merus’ common shares during these periods.

For the three and nine months ended September 30, 2020, we recorded an unrealized loss of $ 13.1 million and $ 6.7 million, respectively, based on the change in fair value of Merus’ common shares during these periods.

Research and development expenses for the three and nine months ended September 30, 2021 included $ 3.1 million and $ 10.9 million, respectively, of additional development costs incurred pursuant to the Merus agreement.

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

At September 30, 2021 and December 31, 2020, a total of $ 1.6 million and $ 1.6 million, respectively, of such costs were included in accrued and other liabilities on the condensed consolidated balance sheets.

For the three months ended March 31, 2022 and 2021 we recorded an unrealized loss of $ 19.0 million and an unrealized gain of $ 9.4 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.

2 unchanged sentences

We have agreed to co-fund 70 % of the global development costs for the development of the licensed products for hematology and oncology indications.

Calithera will have the right to conduct

certain clinical development under the collaboration, including combination studies of a licensed product with a proprietary compound of Calithera.

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

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

As of September 30, 2021, we have paid Calithera an upfront license fee of $ 45.0 million and an additional $ 12.0 million milestone payment.

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

As of March 31, 2022, 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.

2 unchanged sentences

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.

The agreement may be terminated in its entirety or on a product-by-product and/or a country-by-country basis by us for convenience.

The agreement may also be terminated by us for Calithera’s uncured material breach, by Calithera for our uncured material breach and by either party for bankruptcy or patent challenge.

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 shares of common stock 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.

The fair market value of our long term investment in Calithera at September 30, 2021 and December 31, 2020 was $ 3.8 million and $ 8.4 million, respectively.

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

As of September 30, 2021, we owned approximately 2 % of the outstanding shares of Calithera common stock and there are several other stockholders who hold larger positions of Calithera.

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

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.

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 at March 31, 2022 and December 31, 2021 was $ 0.7 million and $ 1.1 million, respectively.

As of March 31, 2022, 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 condensed consolidated balance sheets.

For the three and nine months ended September 30, 2021 we recorded an unrealized gain of $ 0.2 million and an unrealized loss of $ 4.6 million, respectively, based on the change in fair value of Calithera’s common stock during these periods.

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

Research and development expenses for the three and nine months ended September 30, 2021 also included $ 0.3 million and $ 4.8 million, respectively, of additional development costs incurred pursuant to the Calithera agreement.

Research and development expenses for the three and nine months ended September 30, 2020 also included $ 2.0 million

and $ 6.4 million, respectively, of additional development costs incurred pursuant to the Calithera agreement.

At September 30, 2021 and December 31, 2020, a total of $ 0.0 million and $ 0.6 million, respectively, of such costs were included in accrued and other liabilities on the condensed consolidated balance sheets.

For the three months ended March 31, 2022 and 2021 we recorded an unrealized loss of $ 0.5 million and $ 4.3 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.

1 unchanged sentence

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.

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

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

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.

The agreement may be terminated in its entirety or on a licensed product by licensed product basis by us for convenience.

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

Research and development expenses for the three and nine months ended September 30, 2021 also included $ 17.8 million and $ 49.0 million, respectively, of additional development costs incurred pursuant to the MacroGenics agreement.

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

At September 30, 2021 and December 31, 2020, a total of $ 0.0 million and $ 0.1 million of such costs were included in accrued and other liabilities on the condensed consolidated balance sheets.

As of March 31, 2022, we have paid MacroGenics developmental milestones totaling $ 70.0 million.

MacroGenics is eligible to receive up to an additional $ 365.0 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.

Research and development expenses for the three months ended March 31, 2022 and 2021 also included $ 13.5 million and $ 13.6 million, respectively, of development costs incurred pursuant to the MacroGenics agreement.

At March 31, 2022 and December 31, 2021, a total of $ 0.4 million and $ 0.7 million of such costs were included in accrued and other liabilities on the condensed consolidated balance sheets.

In January 2018, we entered into a Target Discovery, Research Collaboration and Option Agreement with Syros Pharmaceuticals, Inc.

2 unchanged sentences

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 addition, in January 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.

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.

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

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

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

The fair market value of our long term investment in Syros as of September 30, 2021 and December 31, 2020 was $ 4.2 million and $ 10.2 million, respectively.

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

As of September 30, 2021, we owned approximately 2 % of the outstanding shares of Syros common stock and there are several other stockholders who hold larger positions of Syros.

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

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

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 March 31, 2022 and December 31, 2021 was $ 1.1 million and $ 3.1 million, respectively.

As of March 31, 2022, we owned less than 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 condensed consolidated balance sheets.

For the three and nine months ended September 30, 2021, we recorded an unrealized loss of $ 0.9 million and $ 6.0 million, respectively, based on the change in fair value of Syros’ common stock during these periods.

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

For the three months ended March 31, 2022 and 2021, we recorded an unrealized loss of $ 1.9 million and $ 3.2 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.

Under the terms of this agreement, Innovent received exclusive development and commercialization rights to our clinical-stage product candidates pemigatinib, itacitinib and parsaclisib in hematology and oncology in mainland China, Hong Kong, Macau and Taiwan.

In January 2019, we recognized an upfront payment under this agreement of $ 40.0 million upon our transfer of the functional intellectual property related to the clinical-stage product candidates to Innovent, which was recorded in milestone and contract revenues on the condensed consolidated statement of operations.

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

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

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

In April 2020, we recognized a $ 5.0 million milestone for the FDA approval of pemigatinib as PEMAZYRE, which was recorded in milestone and contract revenues.

In March 2022, we recognized a $ 5.0 million milestone for approval of PEMAZYRE (pemigatinib) 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.

2 unchanged sentences

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

Research and development expenses for the three and nine months ended September 30, 2021 were net of $ 0.0 million and $ 2.3 million of costs reimbursed by Innovent.

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

At September 30, 2021 and December 31, 2020, $ 2.4 million and $ 1.2 million, respectively, of reimbursable costs were included in accounts receivable on the condensed consolidated balance sheets.

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

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

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

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

4 unchanged sentences

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

Research and development expenses for the three and nine months ended September 30, 2021 were net of $ 3.2 million of costs reimbursed by Zai Lab.

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

At September 30, 2021 and December 31, 2020, $ 0.8 million and $ 0.6 million, respectively, of reimbursable costs were included in accounts receivable on the condensed consolidated balance sheets.

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

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.

4 unchanged sentences

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 condensed consolidated statement of operations for the three months ended March 31, 2020.

MorphoSys is eligible to receive up to $ 740.0 million in future contingent development and regulatory milestones and up to $ 315.0 million in commercialization milestones as well as tiered royalties ranging from the mid-teens

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

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 August 2021, we and MorphoSys announced that the European Commission granted conditional marketing authorization for MINJUVI (tafasitamab) in combination with lenalidomide, followed by MINJUVI monotherapy, for the treatment of adult patients with relapsed or refractory DLBCL who are not eligible for ASCT.

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 September 30, 2021 and December 31, 2020 was $ 42.7 million and $ 102.9 million, respectively.

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

As of September 30, 2021, we owned approximately 3 % of the outstanding shares of MorphoSys common stock and there are several other stockholders who hold larger positions of MorphoSys.

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

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

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 March 31, 2022 and December 31, 2021, was $ 24.6 million and $ 34.2 million, respectively.

As of March 31, 2022, 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 condensed consolidated balance sheets.

For the three and nine months ended September 30, 2021, we recorded an unrealized loss of $ 27.3 million and $ 60.2 million, respectively, based on the change in fair value of MorphoSys’ common stock during these periods.

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

Our 50 % share of the United States loss for the commercialization of tafasitamab for the three and nine months ended September 30, 2021 was $ 9.1 million and $ 29.5 million, respectively, and is recorded as collaboration loss sharing on the condensed consolidated statement of operations.

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

Research and development expenses for the three and nine months ended September 30, 2021, includes $ 21.5 million and $ 55.8 million, respectively, related to our 55 % share of the co-development costs for tafasitamab.

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

At September 30, 2021 and December 31, 2020, $ 52.3 million and $ 54.2 million, respectively, was included in accrued and other liabilities on the condensed consolidated balance sheets for amounts due to MorphoSys under the agreement.

For the three months ended March 31, 2022 and 2021, we recorded an unrealized loss of $ 9.6 million and $ 23.7 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 three months ended March 31, 2022 and 2021 was $ 4.7 million and $ 10.5 million, respectively, and is recorded as collaboration loss sharing on the condensed consolidated statement of operations.

Research and development expenses for the three months ended March 31, 2022 and 2021, includes $ 21.0 million and $ 14.9 million, respectively, related to our 55 % share of the co-development costs for tafasitamab.

At March 31, 2022 and December 31, 2021, $ 41.5 million and $ 21.5 million, respectively, was included in accrued and other liabilities on the condensed consolidated balance sheet for amounts due to MorphoSys under the agreement.

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

4 unchanged sentences

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 condensed consolidated statement of operations.

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

7 unchanged sentences

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

Under the terms of the agreement, we will receive exclusive commercialization rights outside of the United States, and Syndax and we will have co-commercialization rights in the United States, with respect to axatilimab in GVHD and potentially other indications.

We will be responsible for leading the global commercialization strategy and Syndax has the option to participate in commercialization efforts in the United States.

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

We and Syndax have agreed to co-develop axatilimab and to share development costs associated with global clinical trials, with Incyte responsible for 55 % of such costs and Syndax responsible for 45 % of such costs and we will be responsible for funding development activities specific to territories outside of the United States.

Each company will be responsible for funding any independent development activities.

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

The effectiveness of the agreement is conditioned upon expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, which we expect to take place in the fourth quarter of 2021.

We have agreed to pay Syndax, upon the effectiveness of the agreement, an upfront non-refundable payment of $ 117.0 million.

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

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

In addition, under the collaboration agreement and pursuant to a related stock purchase agreement, we agreed to purchase 1,421,523 shares of common stock of Syndax for an aggregate purchase price of $ 35.0 million, or $ 24.62 per share.

The agreement became effective in December 2021.

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 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.

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.

Closing of the purchase of the shares is expected to occur concurrently with the effectiveness of the collaboration agreement, and is subject to customary conditions.

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 March 31, 2022 and December 31, 2021 was $ 24.7 million and $ 31.1 million.

As of March 31, 2022, 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 condensed consolidated balance sheets.

For the three months ended March 31, 2022, we recorded an unrealized loss of $ 6.4 million based on the change in fair value of Syndax’s common stock during the period.

Property and equipment, net

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

Office equipment

Laboratory equipment

Computer equipment

Building and leasehold improvements

Operating lease right-of-use assets

Construction in progress

Less accumulated depreciation and amortization

Property and equipment, net

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.

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.

In June 2019, we obtained control of the Morges building to begin our construction activity, which was completed in 2020.

We have capitalized approximately $ 19.5 million in leasehold improvements as of March 31, 2022 relating to Morges.

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

The land was purchased, in cash, for approximately $ 4.8 million.

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

Construction activity commenced in July 2018, and as of March 31, 2022, we have capitalized approximately $ 198.9 million in costs for construction, ground preparation and architectural and engineering studies.

Inspection from competent authorities was finalized in March 2022, and we currently expect the facility to be GMP approved in the second half of 2022.

Accrued and other current liabilities

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

Clinical related costs

Sales allowances

Sales and marketing

Construction in progress

Operating lease liabilities

Other current liabilities

Total accrued and other current liabilities

Stock compensation

We recorded $ 42.7 million and $ 134.8 million of stock compensation expense on our condensed consolidated statements of operations for the three and nine months ended September 30, 2021, respectively.

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

Stock compensation expense included within our condensed consolidated statements of operations included research and development expense of $ 26.3 million, $ 84.2 million, $ 29.0 million and $ 90.2 million for the three and nine months ended September 30, 2021 and 2020, respectively.

Stock compensation expense included within our condensed consolidated statements of operations also included selling, general and administrative expense of $ 15.9 million, $ 49.5 million, $ 14.6 million and $ 41.7 million for the three and nine months ended September 30, 2021 and 2020, respectively.

Stock compensation expense included within our condensed consolidated statements of operations also included cost of product revenues of $ 0.5 million, $ 1.1 million, $ 0.2 million and $ 0.7 million, respectively, for the three and nine months ended September 30, 2021 and 2020.

For the three and nine months ended September 30, 2021 and 2020, we capitalized $ 0.6 million, $ 1.8 million, $ 0.2 million and $ 0.5 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 compensation granted, with the following weighted-average assumptions:

We recorded $ 43.8 million and $ 47.3 million, respectively, of stock compensation expense on the condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021.

Stock compensation expense included within our condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021 included research and development expense of $ 26.3 million and $ 29.9 million, respectively.

Stock compensation expense included within our condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021 also included selling, general and administrative expense of $ 16.9 million and $ 17.2 million, respectively.

Stock compensation expense included within our condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021 also included cost of product revenues of $ 0.6 million and $ 0.2 million, respectively.

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

Employee Stock Options

Employee Stock Purchase Plan

For the Three Months Ended

For the Nine Months Ended

For the Three Months Ended

For the Nine Months Ended

September 30,

For the Three Months Ended March 31,

Average risk-free interest rates

7 unchanged sentences

Nonemployee awards are measured on the grant date by estimating the fair value of the equity instruments to be issued using the expected term, similar to our employee awards.

Option activity under our 2010 Amended and Restated Stock Incentive Plan (the “2010 Stock Plan”) was as follows:

Option activity under our 2010 Stock Incentive Plan (the “2010 Stock Plan”) was as follows:

Shares Subject to

6 unchanged sentences

Options cancelled

Balance at September 30, 2021

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

Previously, our option grants generally had 7 -year terms and vested over three years , with 33 % vesting after one year and the remainder vesting in 24 equal monthly installments.

Balance at March 31, 2022

Our annual stock option grants generally have a 10-year term and vest over four years , with 25 % vesting after one year and the remainder vesting in 36 equal monthly installments.

Restricted stock unit (“RSU”) and performance share (“PSU”) award activity under the 2010 Stock Plan was as follows:

4 unchanged sentences

RSUs released

PSUs released

RSUs cancelled

PSUs cancelled

Balance at September 30, 2021

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

Balance at March 31, 2022

RSUs and PSUs are granted 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.

For the remaining long term incentive plan, under which 290,000 PSUs were granted, the actual number of shares of our common stock into which each PSU may convert was subject to a multiplier of up to 100 % based on the level at which the performance conditions were achieved.

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

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.

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.

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.

In July 2021, we granted 107,088 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 150 % based on the level at which the financial and developmental performance conditions are achieved over the service period which ends December 31, 2023.

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

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.

For the three and nine months ended September 30, 2021 we recorded $ 1.7 million and $ 5.0 million of stock compensation expense for PSUs on our condensed consolidated statements of operations.

For the three and nine months ended September 30, 2020 we recorded $ 2.7 million and $ 11.4 million of stock compensation expense for PSUs on our condensed consolidated statements of operations.

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 three months ended March 31, 2022 and 2021, we recorded $ 1.8 million and $ 2.6 million, respectively, of stock compensation expense for PSUs on our condensed consolidated statements of operations.

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

Each RSU and PSU grant reduces the available share pool by 2 shares.

Shares Available

Balance at December 31, 2021

Additional authorization

Options, RSUs and PSUs granted

1 unchanged sentence

Options, RSUs and PSUs cancelled

Balance at September 30, 2021

Balance at March 31, 2022

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

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

Total compensation cost of options granted but not yet vested, as of September 30, 2021, was $ 77.3 million, which is expected to be recognized over the weighted average period of approximately 1.3 years.

Total compensation cost of RSUs granted but not yet vested, as of September 30, 2021, was $ 172.3 million, which is expected to be recognized over the weighted average period of approximately 2.0 years.

Total compensation cost of PSUs granted but not yet vested, as of September 30, 2021, was $ 19.2 million, which is expected to be recognized over the weighted average period of 1.6 years, should the underlying performance conditions be deemed probable of achievement.

Accrued and other current liabilities

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

September 30,

Clinical related costs

Sales allowances

Construction in progress

Operating lease liabilities

Other current liabilities

Total accrued and other current liabilities

Total compensation cost of options granted but not yet vested, as of March 31, 2022, was $ 68.0 million, which is expected to be recognized over the weighted average period of approximately 1.2 years.

Total compensation cost of RSUs granted but not yet vested, as of March 31, 2022, was $ 153.8 million, which is expected to be recognized over the weighted average period of approximately 1.9 years.

Total compensation cost of PSUs granted but not yet vested, as of March 31, 2022, was $ 25.1 million, which is expected to be recognized over the weighted average period of 1.6 years, should the underlying performance conditions be deemed probable of achievement.

For the three months ended March 31, 2022 and 2021, we recorded income tax expense of approximately $ 32.5 million and $ 15.8 million, respectively.

The tax expense for the three months ended March 31, 2022 increased as compared to that for the prior year period due to the release of our valuation allowance against a majority of our U.S.

research and development tax credit carryforwards and other deferred tax assets at December 31, 2021.

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.

The balance of our unrecognized tax benefits (including penalties and interest) increased by approximately $ 6.3 million during the three months ended March 31, 2022, resulting in movements to other liabilities and deferred income tax asset on the condensed consolidated balance sheet.

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

We accrue interest and penalties related to unrecognized tax benefits as a component of its provision for income taxes.

Net income per share

Net income per share was calculated as follows for the periods indicated below (in thousands, except per share data):

Three Months Ended

Basic net income

Weighted average common shares outstanding

Basic net income per share

Diluted net income

Weighted average common shares outstanding

Dilutive stock options and awards

Weighted average shares used to compute diluted net income per share

Diluted net income per share

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

Three Months Ended

Outstanding stock options and awards

Employee benefit plans

3 unchanged sentences

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

Defined contribution expense for the three and nine months ended September 30, 2021 was $ 4.4 million and $ 12.8 million, respectively.

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

Defined contribution expense for the three months ended March 31, 2022 and 2021 was $ 4.9 million and $ 4.1 million, respectively.

Defined Benefit Pension Plans

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Interest cost

5 unchanged sentences

We expect to contribute a total of $ 6.4 million to the pension plans in 2022 inclusive of the amounts contributed to the plan during the current period.

For the three and nine months ended September 30, 2021, we recorded income tax expense of approximately $ 27.7 million and $ 65.7 million, respectively.

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

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

As of September 30, 2021, a full valuation allowance continues to be recorded against our U.S.

and Swiss net deferred tax assets.

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

and Swiss net deferred tax assets requires a full valuation allowance against such net assets as of September 30, 2021.

When performing our assessment on projections of future taxable income (losses), we consider factors such as the likelihood of regulatory approval and commercial success of products currently under development, among other factors.

The balance of our unrecognized tax benefits (including penalties and interest) increased by approximately $ 7.3 million during the nine months ended September 30, 2021.

The overall net increase is primarily driven by positions taken on prior year returns in addition to tax benefits related to current year operations and research and development tax credits.

After considering valuation allowance impacts, the change in unrecognized tax benefits resulted in a $ 5.4 million increase to noncurrent other liabilities on the condensed consolidated balance sheet.

Net income (loss) per share

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

Three Months Ended

Nine Months Ended

September 30,

(in thousands, except per share data)

Basic Net Income (Loss) Per Share

Basic net income (loss)

Weighted average common shares outstanding

Basic net income (loss) per share

Diluted Net Income (Loss) Per Share

Diluted net income (loss)

Weighted average common shares outstanding

Dilutive stock options and awards

Weighted average shares used to compute diluted net income (loss) per share

Diluted net income (loss) per share

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

Three Months Ended

Nine Months Ended

September 30,

Outstanding stock options and awards

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

Commitments and contingencies

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, the lenders from time to time party thereto (the “Lenders”), J.P.

Morgan Chase Bank, N.A.

as administrative agent, and the other financial institutions party thereto.

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 our consolidated leverage ratio or (b) a Eurodollar rate plus an applicable rate per annum varying from 1.125 % to 1.875 % depending on our 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 September 30, 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.

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

We 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 nine months ended September 30, 2021.

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

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 have entered into the collaboration agreements described in Note 7, 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.

1 unchanged sentence

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

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.

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

What changed 10-Q

Item 1. Financial Statements