What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-03 compared with 2021-11-02 · 169 added, 260 removed, 615 unchanged (41% of the section changed)

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

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

The following discussion of our financial condition and results of operations as of and for the three months ended March 31, 2022 should be read in conjunction with the unaudited condensed consolidated financial statements and notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements as of and for the year ended December 31, 2021 included in our Annual Report on Form 10-K for the year ended December 31, 2021 previously filed with the SEC.

Forward-Looking Statements

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● the regulatory approval process, including obtaining U.S.

Food and Drug Administration and other international health authorities’ approval for our products in the United States and abroad;

Food and Drug Administration and other international regulatory authorities’ approval for our products in the United States and abroad;

● the safety, effectiveness and potential benefits and indications of our drug candidates and other compounds under development;

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● our expectations regarding competition;

● expectations relating to the anticipated completion dates for our Delaware headquarters expansion project and our large molecule production facility;

● expectations relating to the anticipated completion and GMP approval dates for our large molecule production facility;

● our investments, including anticipated expenditures, losses and expenses;

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● our ability to successfully commercialize our drug products and drug candidates;

● our ability to maintain at anticipated levels reimbursement for our products from government health administration authorities, private health insurers and other organizations;

● our ability to obtain, or maintain at anticipated levels, coverage and reimbursement for our products from government health administration authorities, private health insurers and other organizations;

● our ability to establish and maintain effective sales, marketing and distribution capabilities;

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● our ability to in-license drug candidates or other technology;

● unanticipated construction, other delays or changes in plans relating to our Delaware headquarters expansion project and our large molecule production facility;

● unanticipated construction, other delays or changes in plans or regulatory agency interactions relating to our large molecule production facility;

● our ability to integrate successfully acquired businesses, development programs or technology;

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● risks relating to our ability to sustain profitability;

● risks related to public health pandemics such as the COVID-19 pandemic;

● risks related to public health pandemics such as the COVID-19 pandemic, natural disasters, or geopolitical events such as the Russian invasion of Ukraine;

● the risks set forth under “Risk Factors.”

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Our business is subject to numerous risks and uncertainties that could affect our ability to successfully implement our business strategy and affect our financial results.

You should carefully consider all of the information in this report and, in particular, the following principal risks and all of the other specific factors described in Item 1A.

You should carefully consider all of the information in this report

and, in particular, the following principal risks and all of the other specific factors described in Item 1A.

of this report, “Risk Factors,” before deciding whether to invest in our company.

● We depend heavily on JAKAFI/JAKAVI (ruxolitinib), and if we are not able to maintain revenues from JAKAFI/JAKAVI or those revenues decrease, our business may be materially harmed.

● If we or our collaborators are unable to obtain, or maintain at anticipated levels, reimbursement for JAKAFI/JAKAVI or our other products from government and other third-party payors, our results of operations and financial condition could be harmed.

● A limited number of specialty pharmacies and wholesalers represent a significant portion of revenues from JAKAFI, and the loss of, or significant reduction in sales to, any one of these specialty pharmacies or wholesalers could harm our operations and financial condition.

● If we or our collaborators are unable to obtain, or maintain at anticipated levels, coverage and reimbursement for our products from government and other third-party payors, our results of operations and financial condition could be harmed.

● A limited number of specialty pharmacies and wholesalers represent a significant portion of revenues from JAKAFI and most of our other products, and the loss of, or significant reduction in sales to, any one of these specialty pharmacies or wholesalers could harm our operations and financial condition.

● If we are unable to establish and maintain effective sales, marketing and distribution capabilities, or to enter into agreements with third parties to do so, we will not be able to successfully commercialize our products.

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● If we market our products in a manner that violates various laws and regulations, we may be subject to civil or criminal penalties.

● Competition for our products, in particular JAKAFI/JAKAVI, could harm our business and result in a decrease in our revenue.

● The COVID-19 pandemic and measures to address the pandemic have adversely affected and can in the future adversely affect our business and results of operations.

● Competition for our products could harm our business and result in a decrease in our revenue.

● The COVID-19 pandemic and measures to address the pandemic, as well as other geopolitical events, have adversely affected and could in the future adversely affect our business and results of operations.

● We or our collaborators may be unsuccessful in discovering and developing drug candidates, and we may spend significant time and money attempting to do so, in particular with our later stage drug candidates.

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

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

We also conduct clinical development and commercial operations from our

country offices across Europe, including our European headquarters in Morges, Switzerland, our Japanese office in Tokyo and our Canadian headquarters in Montreal.

As described in more detail below, we operate in two therapeutic areas that are defined by the indications of our approved medicines and the diseases for which our clinical candidates are being developed.

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

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

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

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JAKAFI is marketed in the United States through our own specialty sales force and commercial team.

JAKAFI was the first FDA-approved JAK inhibitor for any indication and was the first FDA-approved product in all three of its current indications.

JAKAFI remains the first-line standard of care in MF and remains the only FDA-approved product for PV and steroid-refractory acute GVHD.

JAKAFI was the first FDA-approved JAK inhibitor for any indication, was the first FDA-approved product in MF, PV and steroid-refractory acute GVHD, and was recently approved in steroid-refractory chronic GVHD.

JAKAFI remains the first-line standard of care in MF and remains the only FDA-approved product for steroid-refractory acute GVHD.

The FDA has granted JAKAFI orphan drug status for MF, PV and GVHD.

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In this trial, patients treated with JAKAFI demonstrated superior hematocrit control and reductions in spleen volume compared to best available therapy.

In addition, a greater proportion of patients treated with JAKAFI

achieved complete hematologic remission—which was defined as achieving hematocrit control, and lowering platelet and white blood cell counts.

In addition, a greater proportion of patients treated with JAKAFI achieved complete hematologic remission—which was defined as achieving hematocrit control, and lowering platelet and white blood cell counts.

In the RESPONSE trial, the most common hematologic adverse reactions (incidence > 20%) were thrombocytopenia and anemia.

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We have retained all development and commercialization rights to JAKAFI in the United States and are eligible to receive development and sales milestones as well as royalties from product sales outside the United States.

We hold patents that cover the composition of matter and use of ruxolitinib, which patents, including applicable extensions, expire in late 2027.

We hold patents that cover the composition of matter and use of ruxolitinib, which patents, including applicable extensions, expire in mid-2028.

MONJUVI (tafasitamab-cxix) / MINJUVI (tafasitamab)

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In July 2020, we and MorphoSys announced that the FDA approved MONJUVI (tafasitamab-cxix), which is indicated 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 (ASCT).

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

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

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

Results from the study showed an objective response rate (ORR) of 55% (39 out of 71 patients;

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

The conditional approval is based on the three-year results from the L-MIND study evaluating the safety and efficacy of MINJUVI in combination with lenalidomide as a treatment for patients with r/r DLBCL who are not eligible for ASCT.

The conditional approval was based on the three-year results from the L-MIND study evaluating the safety and efficacy of MINJUVI in combination with lenalidomide as a treatment for patients with r/r DLBCL who are not eligible for ASCT.

The results showed best objective response rate (ORR) of 56.8% (primary endpoint), including a complete response (CR) rate of 39.5% and a partial response rate (PR) of 17.3%, as assessed by an independent review committee.

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FIGHT-302, a Phase III trial of pemigatinib for the first-line treatment of patients with cholangiocarcinoma and FGFR2 fusions or rearrangements, is ongoing.

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

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

In March 2022, PEMAZYRE was approved by the National Medical Products Administration (NMPA) for the treatment of adults with locally advanced or metastatic cholangiocarcinoma with a fibroblast growth receptor 2 (FGFR2) fusion or rearrangement as confirmed by a validated diagnostic test that have progressed after at least one prior line of systemic therapy.

ICLUSIG (ponatinib)

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Additional Phase II trials combining ruxolitinib with investigational agents from our portfolio such as INCB57643 (BET) and INCB00928 (ALK2) in patients with MF are in preparation, and additional discovery and development initiatives are also ongoing within the LIMBER program, which are evaluating both internally-discovered compounds, including itacitinib (JAK1), and candidates from collaboration partners.

Itacitinib is a selective JAK1 inhibitor being evaluated in GRAVITAS-309, a pivotal Phase III trial of itacitinib in patients with steroid-naïve chronic GVHD.

Itacitinib is a selective JAK1 inhibitor being evaluated in GRAVITAS-309, a Phase II/III trial of itacitinib in patients with steroid-naïve chronic GVHD.

The FDA has granted itacitinib orphan drug status for GVHD.

In September 2021, we and Syndax Pharmaceuticals, Inc.

announced an exclusive worldwide collaboration and license agreement to develop and commercialize axatilimab, Syndax’s anti-CSF-1R monoclonal antibody, pending regulatory clearance.

announced an exclusive worldwide collaboration and license agreement to develop and commercialize axatilimab, Syndax’s anti-CSF-1R monoclonal antibody.

Together, we plan to develop axatilimab as a therapy for patients with chronic GVHD as well as in additional immune-mediated diseases where CSF-1R-dependent monocytes and macrophages are believed to contribute to organ fibrosis.

The global pivotal Phase II AGAVE-201 trial of axatilimab monotherapy in patients with chronic GVHD in the third line setting is ongoing.

In December, updated positive data were presented at ASH from the Phase I/II trial evaluating axatilimab as a monotherapy in patients with

recurrent or refractory chronic GVHD after two or more prior lines of therapy.

A 68% overall response rate and broad clinical benefit across multiple organs were observed at doses being assessed in AGAVE-201, a global pivotal trial evaluating axatilimab monotherapy in patients with chronic GVHD in the third line setting.

Additional trials of axatilimab are planned in patients with chronic GVHD, including a Phase II trial in combination with a JAK inhibitor in patients with steroid-refractory cGVHD.

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

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

We are also preparing to initiate a proof-of-concept study of tafasitamab, lenalidomide and plamotamab in patients with r/r DLBCL.

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

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

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

Based on findings from this study, we have identified populations that may potentially benefit from treatment with pemigatinib and are initiating two Phase II trials – FIGHT-209 in patients with glioblastoma and FIGHT-210 in patients with non-small cell lung cancer.

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

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Parsaclisib is a PI3Kδ inhibitor that has demonstrated potency and selectivity in preclinical studies and has potential therapeutic utility in the treatment of patients with lymphoma.

We initiated the CITADEL clinical program to evaluate parsaclisib in non-Hodgkin lymphomas, and we are currently running Phase II trials in follicular lymphoma, marginal zone lymphoma and mantle cell lymphoma and Phase III trials in those indications are in preparation.

The FDA has granted orphan drug designation and Fast Track designation to parsaclisib as a treatment for patients with follicular lymphoma, marginal zone lymphoma and mantle cell lymphoma.

We initiated the CITADEL clinical program to evaluate parsaclisib in non-Hodgkin lymphomas, including Phase II trials in follicular lymphoma, marginal zone lymphoma and mantle cell lymphoma.

The FDA granted orphan drug designation and Fast Track designation to parsaclisib as a treatment for patients with follicular lymphoma, marginal zone lymphoma and mantle cell lymphoma.

In December 2020, we announced preliminary results from the ongoing CITADEL monotherapy development program, which was designed to enable registration of parsaclisib.

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In October 2021, we announced the FDA acceptance of a NDA seeking approval of parsaclisib for the treatment of patients with relapsed or refractory follicular lymphoma, marginal zone lymphoma and mantle cell lymphoma.

The submission is based on data from several Phase 2 studies (CITADEL-203, -204 and -205) evaluating parsaclisib as a treatment for relapsed or refractory NHLs (follicular, marginal zone and mantle cell).

The submission was based on data from several Phase II studies (CITADEL-203, -204 and -205) evaluating parsaclisib as a treatment for relapsed or refractory NHLs (follicular, marginal zone and mantle cell).

In January 2022, we announced that we withdrew the NDA seeking approval of parsaclisib for the three indications in NHL.

The decision to withdraw the NDA followed discussions with FDA regarding confirmatory studies that we determined cannot be completed within a reasonable time period to support an accelerated approval.

We have an ongoing EMA submission under review for MZL.

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

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

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

Treatment with parsaclisib was generally well tolerated.

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

In June 2021, data from the Phase II trial were presented at EHA.

The majority of patients achieved a response with parsaclisib over the initial 12-week treatment period and treatment with parsaclisib was generally well tolerated.

Based on these results, we initiated a Phase III trial (PATHWAY) in warm AIHA.

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

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Myelofibrosis:

Phase II in preparation

ruxolitinib + INCB00928

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Myelofibrosis:

Phase II in preparation

ruxolitinib + CK0804 1

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Treatment-naïve chronic GVHD:

Phase III (GRAVITAS-309)

Phase II/III (GRAVITAS-309)

axatilimab (anti-CSF-1R) 2

Chronic GVHD:

Phase II (third-line therapy) (AGAVE-201)

Pivotal Phase II (third-line plus therapy) (AGAVE-201)

tafasitamab (CD19) 3

Phase II (L-MIND);

Phase III (B-MIND)

Phase Ib (firstMIND);

Phase III (frontMIND)

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Phase III (inMIND)

r/r chronic lymphocytic leukemia:

Phase II (coreMIND) in preparation

r/r B-cell malignancies:

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r/r B-cell malignancies:

PoC with lenalidomide and plamotamab in preparation 4

PoC with lenalidomide and plamotamab being initiated 4

pemigatinib (FGFR1/2/3)

Phase III (FIGHT-302)

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Phase II (FIGHT-203)

Tumor agnostic:

Phase II (FIGHT-207)

Glioblastoma:

Phase II in preparation

r/r follicular lymphoma:

Phase II (CITADEL-203)

r/r marginal zone lymphoma:

Phase II (CITADEL-204)

r/r mantle cell lymphoma:

Phase II (CITADEL-205)

r/r follicular and marginal zone lymphoma:

Phase III (CITADEL-302) in preparation

1L mantle cell lymphoma:

Phase III (CITADEL-310) in preparation

Phase II (FIGHT-209) being initiated

Phase II (FIGHT-210) being initiated

parsaclisib (PI3Kδ)

Autoimmune hemolytic anemia:

Phase III in preparation

Phase II (POD1UM-202);

Phase III (PATHWAY)

retifanlimab (PD-1) 5

Phase III (PODIUM-303)

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Development collaboration with Cellenkos, Inc.

axatilimab development in collaboration with Syndax, pending regulatory clearance.

axatilimab development in collaboration with Syndax.

tafasitamab development in collaboration with MorphoSys.

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Earlier-Stage Development Programs in Hematology and Oncology

In November 2021, we highlighted Phase I clinical safety and efficacy data for our oral PD-L1 program which included three compounds, INCB86550, INCB99280 and INCB99318.

Tumor shrinkage was observed for all three oral PD-L1 inhibitors.

With regards to safety, both INCB99280 and INCB99318 did not show peripheral neuropathy seen with INCB86550.

In May 2022, the decision was made to prioritize the development of INCB99280 and INCB99318 based on positive therapeutic ratios.

INCB123667 (CDK2)

In the cell cycle, the serine threonine kinase, CDK2, regulates the transition from the G1 phase (cell growth) to the S-phase (DNA replication).

INCB123667 is a novel, potent and selective oral small molecule inhibitor of CDK2 which has been shown to suppress tumor growth as monotherapy and in combination with standard of care, in Cyclin E amplified tumor models, in vivo.

A Phase I dose-escalation and dose-expansion study of INCB123667 in adults with selected advanced or metastatic solid tumors is being initiated.

We also have a number of other earlier-stage clinical programs in hematology and oncology, as detailed in the table below.

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Small molecules

INCB81776 (AXL/MER), epacadostat (IDO1), INCB86550 (PD-L1), INCB99280 (PD-L1), INCB99318 (PD-L1), INCB106385 (A2A/A 2B )

INCB81776 (AXL/MER), epacadostat (IDO1), INCB99280 (PD-L1), INCB99318 (PD-L1), INCB106385 (A2A/A 2B ), INCB123667 (CDK2)

Monoclonal antibodies 1

INCAGN1876 (GITR), INCAGN2385 (LAG-3), INCAGN1949 (OX40), INCAGN2390 (TIM-3), INCA00186 (CD73)

Bispecific antibodies

MCLA-145 (PD-L1xCD137) 2

Discovery collaboration with Agenus Inc.

MCLA-145 development in collaboration with Merus N.V.

Inflammation and AutoImmunity (IAI)

We recently established Incyte Dermatology as a new commercial franchise, which launched its first approved product, OPZELURA (ruxolitinib) cream, in October 2021, following FDA approval in September 2021.

Incyte Dermatology launched its first approved product, OPZELURA (ruxolitinib) cream, in October 2021, following FDA approval in September 2021.

Incyte’s IAI efforts also include numerous clinical development programs.

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The approval of OPZELURA was based on data from two randomized, double-blind, vehicle-controlled Phase III studies (TRuE-AD1 and TRuE-AD 2) evaluating the safety and efficacy of OPZELURA in adolescents and adults with mild to moderate AD.

Significantly more patients treated with OPZELURA achieved Investigator’s Global Assessment (IGA) Treatment Success at Week 8 (defined as an IGA score of 0 or 1 with at least a 2-point improvement from baseline, the primary endpoint:

the primary endpoint:

53.8% in TRuE-AD1 and 51.3% in TRuE-AD2, compared to vehicle (15.1% in TRuE-AD1, 7.6% in TRuE-AD2;

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Clinical Programs in Dermatology

Ruxolitinib cream is a potent, selective inhibitor of JAK1 and JAK2 that provides the opportunity to directly target diverse pathogenic pathways that underlie certain dermatologic conditions, including atopic dermatitis and vitiligo.

We are currently evaluating ruxolitinib cream in a Phase III trial, TRuE-AD3, in pediatric atopic dermatitis patients ages ≥2 years to < 12 years.

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

Both TRuE-V1 and TRuE-V2 studies met the primary

and key secondary endpoints, including patient reported outcomes.

Two Phase III trials (TRuE-CHE1 and TRuE-CHE2) evaluating ruxolitinib cream in chronic hand eczema are in preparation.

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

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

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

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In October 2021, we announced the validation of the European Marketing Authorization Application (MAA) for ruxolitinib cream as a potential treatment for adolescents and adults (age ≥12 years) with non-segmental vitiligo with facial involvement.

In December 2021, we announced that the U.S.

FDA accepted for Priority Review the sNDA for ruxolitinib cream as a potential treatment for adolescents and adults (age ≥ 12 years) with vitiligo.

In March 2022, we announced the FDA extended the review period for the sNDA by an additional three months to allow time to review additional data from the ongoing Phase III studies submitted by Incyte in response to the FDA’s information request.

The Prescription Drug User Fee Act (PDUFA) target action date is July 18, 2022.

In March 2022, data from the Week 52 analysis of the Phase III TRuE-V program were presented at the American Academy of Dermatology (AAD) annual meeting.

Treatment with 1.5% ruxolitinib cream twice daily (BID) resulted in further improvement in facial and total body repigmentation at Week 52.

Results showed that at Week 52, approximately 50% of patients achieved > 75% improvement from baseline in the Facial Vitiligo Area Scoring Index (F-VASI75).

The overall safety profile of ruxolitinib cream in vitiligo was consistent with previous study data and there were no clinically significant application site reactions or serious treatment-related adverse events related to ruxolitinib cream.

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

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A Phase II trial evaluating INCB54707 in patients with prurigo nodularis is ongoing.

Clinical Programs in Other IAI

A Phase II trial of INCB00928 is in preparation for patients with fibrodysplasia ossificans progressiva (FOP), a disorder in which muscle tissue and connective tissue are gradually replaced by bone.

The FDA has granted Fast Track designation and orphan drug designation to INCB00928 as a treatment for patients with FOP.

Indication and status

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Atopic dermatitis:

Phase III pediatric study ongoing (TRuE-AD3)

Phase III pediatric study (TRuE-AD3)

Chronic hand eczema:

Phase III (TRuE-CHE1 and TRuE-CHE2) being initiated

Phase III (TRuE-V1, TRuE-V2;

primary endpoint met in both studies);

sNDA and MAA in progress

sNDA and MAA under review

ruxolitinib cream + NB-UVB (JAK1/JAK2 + phototherapy)

Phase II being initiated

INCB54707 (JAK1)

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Prurigo nodularis:

Novartis’ rights for ruxolitinib outside of the United States under our Collaboration and License Agreement with Novartis do not include topical administration.

Clinical Programs in Other IAI

A Phase II trial of INCB00928 is in preparation for patients with fibrodysplasia ossificans progressiva (FOP), a disorder in which muscle tissue and connective tissue are gradually replaced by bone.

The FDA has granted Fast Track designation and orphan drug designation to INCB00928 as a treatment for patients with FOP.

Indication and status

INCB00928 (ALK2)

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Phase II in preparation

Novartis’ rights for ruxolitinib outside of the United States under our Collaboration and License Agreement with Novartis do not include topical administration.

Collaborative Partnered Programs

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Current rheumatoid arthritis treatments include the use of non-steroidal anti-inflammatory drugs, disease-modifying anti-rheumatic drugs, such as methotrexate, and the newer biological response modifiers that target pro-inflammatory cytokines, such as tumor necrosis factor, implicated in the pathogenesis of rheumatoid arthritis.

None of these approaches to treatment is curative;

these approaches to treatment is curative;

therefore, there remains an unmet need for new safe and effective treatment options for these patients.

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

In July 2021, we and Lilly announced that the FDA will not meet the PDUFA action date for

the sNDA for baricitinib for the treatment of adults with moderate to severe AD due to the FDA's ongoing assessment of JAK inhibitors.

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

In January 2022, Lilly provided a regulatory update on the sNDA based on ongoing discussions with the FDA.

Lilly announced that alignment with the FDA on the indicated population had not yet been reached and given the FDA’s position, there would be the possibility of a Complete Response Letter (CRL).

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

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Baricitinib’s activity profile suggests that it inhibits cytokines implicated in SLE such as type I interferon (IFN), type II IFN-γ, IL-6, and IL-23 as well as other cytokines that may have a role in SLE, including granulocyte macrophage colony stimulating factor (GM-CSF) and IL-12.

The potential impact of baricitinib on the IFN pathway is highly relevant to SLE, as clinical and preclinical studies have established that this pathway is involved in the pathogenesis of SLE.

Lilly is currently running two Phase III trials of baricitinib in patients with SLE, BRAVE I and BRAVE II.

In January 2022, Lilly announced the discontinuation of the Phase III development program for baricitinib in SLE based on top-line efficacy results from two pivotal Phase III trials (SLE-BRAVE-I and –II).

The primary endpoint of SRI-

4 response was reached in SLE-BRAVE-I but was not reached in SLE-BRAVE-II and key secondary endpoints were not met in either study.

Alopecia Areata .

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The two studies showed statistically significant improvement in scalp hair regrowth across both baricitinib dosing groups when compared to placebo.

In March 2022, we and Lilly announced positive 52 week results from BRAVE-AA1 and BRAVE-AA2 at the American Academy of Dermatology (AAD) annual meeting showing 40% of adults saw at least 80% scalp coverage.

Regulatory applications for baricitinib as a treatment for alopecia areata have been submitted in the U.S., Europe and Japan.

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

In November 2020, we and Lilly announced that the FDA issued an Emergency Use Authorization (EUA) for the distribution and emergency use of baricitinib to be used in combination with remdesivir in hospitalized adult and pediatric patients two years of age or older with suspected or laboratory confirmed COVID-19 who require supplemental oxygen, invasive mechanical ventilation, or extracorporeal membrane oxygenation.

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

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

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

Capmatinib is a potent and highly selective MET inhibitor.

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In patients taking TABRECTA, the study also demonstrated a median duration of response of 12.6 months in treatment-naive patients (19 responders) and 9.7 months in previously treated patients (28 responders).

The most common treatment-related adverse events (AEs) (incidence ≥20%) are peripheral edema, nausea, fatigue, vomiting,

dyspnea, and decreased appetite.

The most common treatment-related adverse events (AEs) (incidence ≥20%) are peripheral edema, nausea, fatigue, vomiting, dyspnea, and decreased appetite.

In September 2020, we and Novartis announced that GEOMETRY mono-1 results were published in The New England Journal of Medicine.

In June 2020, we and Novartis announced that the MHLW approved TABRECTA for METex14 mutation-positive advanced and/or recurrent unresectable NSCLC.

In April 2022, we and Novartis announced a positive opinion from the CHMP based on data from the Phase II GEOMETRY mono-1 study showing an overall response rate (ORR) of 51.6% in a cohort evaluating second-line patients only and 44% in all previously-treated patients with advanced non-small cell lung cancer (NSCLC) harboring alterations leading to MET exon 14 skipping.

NSCLC is the most common type of lung cancer, impacting more than 2 million people per year globally.

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Though rare, this mutation is an indicator of especially poor prognosis and poor responses to standard therapies, including immunotherapy.

Graft-versus-host disease.

In March 2022, we and Novartis announced a positive opinion from the CHMP for ruxolitinib in acute and chronic GVHD, based on data from the Phase III REACH2 and REACH3 trials.

GVHD is a life-threatening complication of stem cell transplants, with no established standard of care in Europe for patients who do not adequately respond to first-line steroid treatment.

Indication and status

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approved in European Union and Japan

sNDA under review

Severe alopecia areata:

Phase III (BRAVE-AA1, BRAVE-AA2);

Systemic lupus erythematosus:

Phase III (BRAVE I, BRAVE II)

submissions in U.S., EU, and Japan

capmatinib (MET) 2

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approved in United States and Japan;

MAA under review;

positive CHMP opinion received

ruxolitinib (JAK1/JAK2) 3

Acute and chronic GVHD:

MAA and J-NDA under review;

positive CHMP opinion received

baricitinib licensed to Lilly.

capmatinib licensed to Novartis.

ruxolitinib licensed to Novartis ex-US for use in hematology and oncology excluding topical administration.

License Agreements and Business Relationships

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Below is a brief description of our significant business relationships and collaborations and related license agreements that expand our pipeline and provide us with certain rights to existing and potential new products and technologies.

Additional information regarding our collaboration agreements, including their financial and accounting impact on our business and results of operations, can be found in Note 9 of notes to our condensed consolidated financial statements.

Additional information regarding our collaboration agreements, including their financial and accounting impact on our business and results of operations, can be found in Note 7 of notes to the condensed consolidated financial statements.

Out-License Agreements

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

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

We retained exclusive development and commercialization

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

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

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In December 2009, we entered into a License, Development and Commercialization Agreement with Lilly.

Under the terms of the agreement, Lilly received exclusive worldwide development and commercialization rights to baricitinib

and certain back up compounds for inflammatory and autoimmune diseases.

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

In March 2016, we entered into an amendment to the agreement with Lilly that allows us to engage in the development and commercialization of ruxolitinib in the GVHD field.

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

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

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

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

We retained an option to assist in the promotion of retifanlimab in Zai Lab’s licensed territories.

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

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all of the outstanding shares of ARIAD Pharmaceuticals (Luxembourg) S.à.r.l., the parent company of ARIAD’s European subsidiaries responsible for the development and commercialization of ICLUSIG in the European Union and other countries.

We obtained an exclusive license to develop and commercialize ICLUSIG in Europe and other select countries.

We obtained an exclusive

license to develop and commercialize ICLUSIG in Europe and other select countries.

ARIAD was subsequently acquired by Takeda Pharmaceutical Company Limited in 2017.

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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.

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.

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

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

Effectiveness of this agreement is subject to termination of the Hart-Scott-Rodino Antitrust Improvements Act waiting period.

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

In March 2021, axatilimab was granted Orphan Drug Designation by the FDA for the treatment of chronic GVHD and a second designation in April 2021 for treatment of idiopathic pulmonary fibrosis.

The Agreement became effective in December 2021.

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

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

In March 2020, the World Health Organization declared COVID-19 a pandemic (“the COVID-19 Pandemic”).

In March 2020, the World Health Organization declared COVID-19 a pandemic.

We and our collaboration partners Lilly and Novartis initiated a number of clinical trials to address COVID-19.

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In December 2020, we announced initial results from RUXCOVID, where treatment with ruxolitinib plus SoC did not prevent complications compared to SoC treatment alone in patients with COVID-19 associated cytokine storm.

The RUXCOVID study has been completed and the data will be further analyzed to determine any potential impact on

other studies of ruxolitinib in patients with COVID-19, including our Expanded Access Program in the United States, which allows eligible patients with severe COVID-19 associated cytokine storm to receive ruxolitinib.

In March 2021, results from a second Phase III clinical trial to evaluate the efficacy and safety of ruxolitinib plus SoC, compared to SoC therapy alone, in COVID-19 patients on mechanical ventilation and who have acute respiratory distress syndrome (ARDS), a type of respiratory failure characterized by rapid onset of widespread inflammation in the lungs were announced.

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

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

See Note 2 of Notes to the Condensed Consolidated Financial Statements for a complete list of our significant accounting policies.

Revenue Recognition.

We recognize revenue only when we have satisfied a performance obligation through transferring control of the promised good or service to a customer in an amount that reflects the consideration we expect to receive in exchange for those goods or services.

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

(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 in time.

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

Product Revenues

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

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

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 United States.

These sales allowances and accruals are recorded based on estimates which are described in detail below.

Estimates are assessed as of the end of each reporting period and are updated to reflect current information.

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

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:

We accrue rebates for mandated discounts under the Medicaid Drug Rebate Program in the United States and mandated discounts in Europe in markets where government-sponsored healthcare systems are the primary payers for healthcare.

These accruals are based on statutory discount rates and expected utilization as well as historical data we have accumulated since product launch.

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 purchase directly from our wholesalers 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 JAKAVI and TABRECTA by Novartis are estimated based on information provided by Novartis.

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

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

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

Milestone and Contract Revenues

At the inception of a contract, we determine the transaction price, in addition to any upfront payment, by estimating the amount of variable consideration, including milestone payments, at the outset of the contract utilizing the most likely amount method.

Our contractual milestones typically relate to the achievement of pre-specified development, regulatory and commercialization events outside of our control, such as regulatory approval of a compound, first patient dosing or achievement of sales-based thresholds.

We include 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.

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.

We review our estimate of the transaction price each period, and make revisions to such estimates as necessary.

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 at the date of grant as well as expected forfeiture rates based on actual experience.

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.

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

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

Income Taxes.

We account for income taxes using an asset and liability approach to financial accounting for income taxes.

Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for years in which the basis differences are expected to reverse.

We periodically assess the likelihood of the realization of deferred tax assets, and reduce the carrying amount of these deferred tax assets to an amount that is considered to be more-likely-than-not to be realizable.

Our assessment considers recent cumulative earnings experience, projections of future taxable income (losses) and ongoing prudent and feasible tax planning strategies.

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.

Significant judgment is required in making this assessment and, to the extent that a reversal of any portion of our valuation allowance against our deferred tax assets is deemed appropriate, a tax benefit will be recognized against our income tax provision in the period of such reversal.

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.

We record estimates and prepare and file tax returns in various jurisdictions across the United States, Canada, Europe, and Asia based upon our interpretation of local tax laws and regulations.

While we exercise significant judgment when applying complex tax laws and regulations in these various taxing jurisdictions, many of our tax returns are open to audit, and may be subject to future tax, interest, and penalty assessments.

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

Acquisition-related contingent consideration.

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

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

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

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

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

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

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

For a discussion of our critical accounting policies, refer to “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Form 10-K.

There have been no significant changes to our critical accounting policies during the three months ended March 31, 2022.

Recent Accounting Pronouncements

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.

Results of Operations

We recorded net income of $181.7 million and basic and diluted net income per share of $0.82 for the three months ended September 30, 2021, as compared to net loss of $15.2 million and basic and diluted net loss per share of $0.07 in the corresponding period in 2020.

We recorded net income of $384.7 million and basic net income per share of $1.75 and diluted net income per share of $1.73 for the nine months ended September 30, 2021, as compared to net loss of $445.5 million and basic and diluted net loss per share of $2.05 in the corresponding period in 2020.

We recorded net income of $38.0 million and basic and diluted net income per share of $0.17 for the three months ended March 31, 2022, as compared to net income of $53.5 million and basic and diluted net income per share of $0.24 in the corresponding period in 2021.

For the Three Months Ended,

For the Nine Months Ended,

September 30,

(in millions)

JAKAFI revenues, net

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MINJUVI revenues, net

OPZELURA revenues, net

Total product revenues, net

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Total revenues

The increase in JAKAFI product revenues for the three months ended September 30, 2021 as compared to the corresponding period in 2020 was comprised of a volume increase of $41.4 million and a price increase of $18.2 million.

The increase in JAKAFI product revenues for the nine months ended September 30, 2021 as compared to the corresponding period in 2020 was comprised of a volume increase of $66.4 million and a price increase of $54.7 million.

The increase in JAKAFI product revenues for the three months ended March 31, 2022 as compared to the corresponding period in 2021 was comprised of a volume increase of $43.3 million and a price increase of $35.5 million.

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

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Discounts and

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Balance at January 1, 2022

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Credits/payments for prior period sales

Balance at September 30, 2021

Balance at March 31, 2022

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

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

Our milestone and contract revenues for the nine months ended September 30, 2021, were derived from a $10.0 million milestone under the Innovent research and collaboration and licensing agreement and a $35.0 million upfront payment under the InnoCare collaboration and license agreement.

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

The increase in OLUMIANT product royalty revenues for the three months ended March 31, 2022 as compared to the corresponding period in 2021 reflects an increase in net product sales as a result of the use of OLUMIANT for the treatment of COVID-19.

Cost of Product Revenues

For the Three Months Ended,

For the Nine Months Ended,

September 30,

(in millions)

Product costs

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Total cost of product revenues

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

Cost of product revenues includes all product related costs, employee personnel costs, including stock compensation, for those employees dedicated to the production of our commercial products, royalties under our collaborative agreements and amortization of our licensed intellectual property rights for ICLUSIG.

The increase in cost of product revenues for the three months ended March 31, 2022 as compared to the same period in 2021 was primarily due to product related costs for our commercial products including OPZELURA.

Operating Expenses

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For the Three Months Ended,

For the Nine Months Ended,

September 30,

(in millions)

Salary and benefits related

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

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

The increase in salary and benefits related expense for the three months ended March 31, 2022 as compared to the corresponding period in 2021 was due primarily to increased development headcount to sustain our development pipeline.

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

The decrease in clinical research and outside services expense for the three months ended September 30, 2021 as compared to the corresponding period in 2020 was primarily due to expense related to the purchase of an FDA priority

review voucher in the prior year that enabled OPZELURA to be the first JAK inhibitor approved in a topical formulation, and the decrease in such expense for the nine months ended September 30, 2021 as compared to the corresponding period in 2020 was also due to upfront consideration related to our collaborative agreements recorded in the 2020 period.

Research and development expenses include upfront and milestone expenses related to our collaborative agreements of $4.3 million and $20.8 million, respectively, for the three and nine months ended September 30, 2021.

Research and development expenses include upfront and milestone expenses related to our collaborative agreements and the cost of purchasing a priority review voucher of $141.5 million and $950.5 million, respectively, for the three and nine months ended September 30, 2020.

Research and development expenses for the three and nine months ended September 30, 2021 and 2020 were net of $3.2 million, $15.7 million, $2.1 million and $7.0 million, respectively, of costs reimbursed by our collaborative partners.

The increase in clinical research and outside services expense for the three months ended March 31, 2022 as compared to the corresponding period in 2021 was primarily due continued investment in our late stage development assets.

Research and development expenses include upfront and milestone expenses related to our collaborative agreements of $20.0 million and $11.5 million, respectively, for the three months ended March 31, 2022 and 2021.

Research and development expenses for the three months ended March 31, 2022 and 2021 were net of $10.3 million and $3.6 million, respectively, of costs reimbursed by our collaborative partners.

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

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For the Three Months Ended,

For the Nine Months Ended,

September 30,

(in millions)

Salary and benefits related

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Total selling, general and administrative expenses

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

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

The increase in salary and benefits related expense for the three months ended March 31, 2022 as compared to the corresponding period in 2021 was due primarily to increased headcount.

This increased headcount was due primarily to the establishment of our dermatology commercial organization and activities to support the launch of OPZELURA for the treatment of atopic dermatitis.

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

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

The increase in other contract services and outside costs was primarily due to

expenses related to our dermatology commercial organization and activities to support the launch of OPZELURA for the treatment of atopic dermatitis.

Change in fair value of acquisition-related contingent consideration

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

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

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

The change in fair value of the acquisition-related contingent consideration for the three and nine months ended September 30, 2021 was $2.9 million and $13.1 million, respectively, which is recorded in change in fair value of acquisition-related contingent consideration on the condensed consolidated statements of operations.

The change in fair value of the acquisition-related contingent consideration for the three and nine months ended September 30, 2020 was $7.1 million and $19.8 million, respectively, which is recorded in change in fair value of acquisition-related contingent

consideration on the condensed consolidated statements of operations.

The change in fair value for the three and nine months ended September 30, 2021 and 2020 was due primarily to the impact of updated projections of future ICLUSIG revenues in the European Union.

The change in fair value of the acquisition-related contingent consideration for the three months ended March 31, 2022 and 2021 was $6.4 million and $5.5 million, respectively, which is recorded in change in fair value of acquisition-related contingent consideration on the condensed consolidated statements of operations.

The change in fair value for the three months ended March 31, 2022 and 2021 was due primarily to the passage of time as there were no other significant changes in the key assumptions during the periods.

Collaboration loss sharing

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

For the three and nine months ended September 30, 2021, our 50% share of the losses for tafasitamab was $9.1 million and $29.5 million, respectively, as recorded in collaboration loss sharing on the condensed consolidated statement of operations.

For the three and nine months ended September 30, 2020, our 50% share of the losses for tafasitamab was $15.0 million and $30.4 million, respectively, as recorded in collaboration loss sharing on the condensed consolidated statement of operations.

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

For the three months ended March 31, 2022 and 2021, our 50% share of the costs for tafasitamab was $4.7 million and $10.5 million, respectively, as recorded in collaboration loss sharing on the condensed consolidated statement of operations.

Other income (expense)

Other income (expense), net.

Other income (expense), net for the three and nine months ended September 30, 2021 was $1.9 million and $4.9 million, respectively.

Other income (expense), net for the three and nine months ended September 30, 2020 was $4.9 million and $18.4 million, respectively.

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

Interest expense.

Interest expense for the three and nine months ended September 30, 2021 was $0.4 million and $1.2 million, respectively.

Interest expense for the three and nine months ended September 30, 2020 was $0.5 million and $1.7 million, respectively.

Included in interest expense for the three and nine months ended September 30, 2021 was approximately $0.4 million and $1.0 million, respectively, of interest expense on our finance lease liabilities.

Included in interest expense for the three and nine months ended September 30, 2020 was $0.2 million and $0.6 million, respectively, of non-cash charges to amortize the discount on our convertible senior notes due November 2020 and approximately $0.3 million and $0.9 million, respectively, of interest expense on our finance lease liabilities.

Unrealized gain (loss) on long term investments.

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For the Three Months Ended,

For the Nine Months Ended,

September 30,

(in millions)

Total unrealized gain (loss) on long term investments

Total unrealized loss on long term investments

Provision for income taxes.

The provision for income taxes for the three and nine months ended September 30, 2021 was $27.7 million and $65.7 million, respectively.

The provision for income taxes for the three and nine months ended September 30, 2020 and was $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.

The provision for income taxes for the three months ended March 31, 2022 and 2021 was $32.5 million and $15.8 million, respectively.

The provision for income taxes 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.

Liquidity and Capital Resources

Due to historical net losses, we had an accumulated deficit of $1.3 billion as of September 30, 2021.

We have funded our research and development operations through cash received from customers, sales of equity securities, the

issuance of convertible notes, and collaborative arrangements.

At September 30, 2021, we had available cash, cash equivalents and marketable securities of $2.3 billion.

Due to historical net losses, we had an accumulated deficit of $0.7 billion as of March 31, 2022.

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

At March 31, 2022, we had available cash, cash equivalents and marketable securities of $2.5 billion.

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

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

Net cash provided by operating activities for the nine months ended September 30, 2021 was $634.1 million and net cash used in operating activities for the nine months ended September 30, 2020 was $231.9 million.

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

Net cash provided by operating activities for the three months ended March 31, 2022 and 2021 was $215.7 million and $206.1 million, respectively.

The increase in cash provided by operating activities was due primarily to changes in working capital.

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

Net cash used by investing activities was $141.7 million for the nine months ended September 30, 2021, which represented purchases of marketable securities of $228.2 million, capital expenditures of $146.5 million and purchases of long term equity investments of $8.7 million, offset in part by the sale of long term investment of $10.5 million and the sale and maturities of marketable securities of $231.3 million.

Net cash used in investing activities was $166.3 million for the nine months ended September 30, 2020, which represented purchases of marketable securities of $418.7 million, capital expenditures of $135.9 million, and purchases of long term equity investments of $95.5 million, offset in part by the sale of long term investment of $17.3 million and the sales and maturities of marketable securities of $466.6 million.

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

Net cash used in financing activities was $2.8 million for the nine months ended September 30, 2021 and net cash provided by financing activities was $59.8 million for the nine months ended September 30, 2020, primarily representing proceeds from the issuance of common stock under our stock plans net of tax withholding, offset by cash paid to ARIAD/Takeda for contingent consideration.

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

Net cash used in investing activities was $16.7 million for the three months ended March 31, 2022, which represented capital expenditures of $17.0 million, offset by the sale and maturity of marketable securities of $0.3 million.

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

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

Net cash provided by financing activities was $0.1 million and $12.8 million, respectively, for the three months ended March 31, 2022 and 2021, primarily representing proceeds from the issuance of common stock under our stock plans, offset in part by cash paid to ARIAD/Takeda for contingent consideration.

Our capital expenditures for construction activities are discussed in Note 8 of notes to our condensed consolidated financial statements.

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

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

As of September 30, 2021, we had no outstanding borrowings and were in compliance with all covenants under this facility.

As of March 31, 2022, we had no outstanding borrowings and were in compliance with all covenants under this facility.

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

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

These contingent future payments are discussed in detail in Note 9 of notes to our condensed consolidated financial statements.

These contingent future payments are discussed in detail in Note 7 of notes to the condensed consolidated financial statements.

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

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

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

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

Off Balance Sheet Arrangements

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

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What changed 10-Q

Item 2. Management’s Discussion and Analysis