INCYTE CORP 10-Q

Item 1. Financial Statements ​ INCYTE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except number of shares and par value) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ ​ 2022 2021* ​ ​ ​ ​ (unaudited) ​ ​ ​ ​ ASSETS ​ ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 2,435,381 ​ $ 2,057,440 ​ Marketable securities—available-for-sale (amortized cost $ 292,350 and $ 291,871 as of June 30, 2022 and December 31, 2021, respectively; allowance for credit losses $ 0 as of June 30, 2022 and December 31, 2021) ​ 287,044 ​ 290,752 ​ Accounts receivable ​ 682,968 ​ 616,300 ​ Inventory ​ 54,502 ​ 27,904 ​ Prepaid expenses and other current assets ​ ​ 165,950 ​ 126,278 ​ Total current assets ​ 3,625,845 ​ 3,118,674 ​ ​ ​ ​ ​ ​ ​ ​ ​ Restricted cash and investments ​ 1,644 ​ ​ 1,720 ​ Long term investments ​ 149,784 ​ ​ 221,266 ​ Inventory ​ 39,626 ​ ​ 29,034 ​ Property and equipment, net ​ 721,328 ​ ​ 723,920 ​ Finance lease right-of-use assets, net ​ ​ 27,349 ​ ​ 27,548 ​ Other intangible assets, net ​ ​ 139,987 ​ ​ 150,755 ​ Goodwill ​ ​ 155,593 ​ ​ 155,593 ​ Deferred income tax asset ​ ​ 434,867 ​ ​ 467,538 ​ Other assets, net ​ 23,012 ​ ​ 37,304 ​ Total assets ​ $ 5,319,035 ​ $ 4,933,352 ​ ​ ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 194,770 ​ $ 172,110 ​ Accrued compensation ​ 93,145 ​ 108,962 ​ Accrued and other current liabilities ​ 598,808 ​ 533,595 ​ Finance lease liabilities ​ ​ 3,036 ​ ​ 2,635 ​ Acquisition-related contingent consideration ​ ​ 36,915 ​ ​ 37,006 ​ Total current liabilities ​ 926,674 ​ 854,308 ​ ​ ​ ​ ​ ​ ​ ​ ​ Acquisition-related contingent consideration ​ ​ 200,085 ​ ​ 206,994 ​ Finance lease liabilities ​ ​ 31,157 ​ ​ 31,632 ​ Other liabilities ​ 76,058 ​ ​ 70,414 ​ Total liabilities ​ 1,233,974 ​ 1,163,348 ​ ​ ​ ​ ​ ​ ​ ​ ​ Commitments and contingencies (Note 14) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders’ equity: ​ ​ ​ ​ ​ ​ ​ Preferred stock, $ 0.001 par value; 5,000,000 shares authorized; none issued or outstanding ​ — ​ — ​ Common stock, $ 0.001 par value; 400,000,000 shares authorized; 221,875,396 and 221,084,433 shares issued and outstanding as of June 30, 2022 and December 31, 2021 , respectively ​ 222 ​ ​ 221 ​ Additional paid-in capital ​ 4,688,985 ​ ​ 4,567,111 ​ Accumulated other comprehensive loss ​ ( 25,696 ) ​ ​ ( 19,454 ) ​ Accumulated deficit ​ ( 578,450 ) ​ ​ ( 777,874 ) ​ Total stockholders’ equity ​ 4,085,061 ​ 3,770,004 ​ Total liabilities and stockholders’ equity ​ $ 5,319,035 ​ $ 4,933,352 ​ * The condensed consolidated balance sheet at December 31, 2021 has been derived from the audited consolidated financial statements at that date. See accompanying notes. ​ 3 Table of Contents INCYTE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ ​ 2022 2021 2022 2021 Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product revenues, net ​ $ 663,851 ​ $ 575,150 ​ $ 1,269,672 ​ $ 1,079,961 ​ Product royalty revenues ​ 117,546 ​ 120,559 ​ 239,960 ​ 220,466 ​ Milestone and contract revenues ​ 130,000 ​ 10,000 ​ 135,000 ​ 10,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total revenues ​ 911,397 ​ 705,709 ​ 1,644,632 ​ 1,310,427 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Costs and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of product revenues (including definite-lived intangible amortization) ​ 50,636 ​ ​ 38,028 ​ ​ 93,250 ​ ​ 67,248 ​ Research and development ​ 347,196 ​ ​ 343,511 ​ ​ 700,569 ​ ​ 650,407 ​ Selling, general and administrative ​ 253,277 ​ ​ 168,859 ​ ​ 462,861 ​ ​ 322,654 ​ Change in fair value of acquisition-related contingent consideration ​ ​ 3,313 ​ ​ 4,632 ​ ​ 9,695 ​ ​ 10,158 ​ Collaboration loss sharing ​ ​ 2,544 ​ ​ 9,843 ​ ​ 7,286 ​ ​ 20,327 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total costs and expenses ​ 656,966 ​ 564,873 ​ 1,273,661 ​ 1,070,794 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income from operations ​ 254,431 ​ 140,836 ​ 370,971 ​ 239,633 ​ Other income (expense), net ​ 522 ​ ​ 4,390 ​ ​ 1,782 ​ ​ 2,983 ​ Interest expense ​ ( 678 ) ​ ​ ( 358 ) ​ ​ ( 1,358 ) ​ ​ ( 717 ) ​ Unrealized (loss) gain on long term investments ​ ( 24,897 ) ​ ​ 26,765 ​ ​ ( 71,482 ) ​ ​ ( 944 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income before provision for income taxes ​ 229,378 ​ 171,633 ​ 299,913 ​ 240,955 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Provision for income taxes ​ 67,946 ​ ​ 22,177 ​ ​ 100,489 ​ ​ 37,964 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 161,432 ​ $ 149,456 ​ $ 199,424 ​ $ 202,991 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 0.73 ​ $ 0.68 ​ $ 0.90 ​ $ 0.92 ​ Diluted ​ $ 0.72 ​ $ 0.67 ​ $ 0.89 ​ $ 0.91 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares used in computing net income per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ ​ 221,660 ​ ​ 220,083 ​ ​ 221,493 ​ ​ 219,942 ​ Diluted ​ ​ 223,661 ​ ​ 222,250 ​ ​ 223,277 ​ ​ 222,061 ​ ​ See accompanying notes. ​ 4 Table of Contents INCYTE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited, in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ ​ 2022 2021 2022 2021 Net income ​ $ 161,432 ​ $ 149,456 ​ $ 199,424 ​ $ 202,991 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive income (loss): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Foreign currency translation (loss) gain ​ ​ ( 1,837 ) ​ ​ 1,876 ​ ​ ( 2,619 ) ​ ​ ( 3,432 ) ​ Unrealized loss on marketable securities, net of tax ​ ( 1,094 ) ​ ​ ( 133 ) ​ ​ ( 4,187 ) ​ ​ ( 165 ) ​ Defined benefit pension gain, net of tax ​ ​ 282 ​ ​ 342 ​ ​ 564 ​ ​ 684 ​ Other comprehensive income (loss) ​ ( 2,649 ) ​ 2,085 ​ ( 6,242 ) ​ ( 2,913 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Comprehensive income ​ $ 158,783 ​ $ 151,541 ​ $ 193,182 ​ $ 200,078 ​ ​ See accompanying notes. ​ 5 Table of Contents INCYTE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited, in thousands, except number of shares) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ Common ​ Additional ​ Accumulated Other ​ Accumulated ​ Stockholders’ ​ Stock ​ Paid-in Capital ​ Comprehensive Loss ​ Deficit ​ Equity Balances at January 1, 2022 $ 221 ​ $ 4,567,111 ​ $ ( 19,454 ) ​ $ ( 777,874 ) ​ $ 3,770,004 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 — ​ 14,237 ​ — ​ — ​ 14,237 Issuance of 1,535 shares of Common Stock for services rendered ​ — ​ ​ 112 ​ ​ — ​ ​ — ​ ​ 112 Stock compensation — ​ ​ 44,320 ​ ​ — ​ ​ — ​ 44,320 Other comprehensive loss ​ — ​ — ​ ( 3,593 ) ​ — ​ ​ ( 3,593 ) Net income ​ — ​ — ​ — ​ 37,992 ​ ​ 37,992 Balances at March 31, 2022 $ 221 ​ $ 4,625,780 ​ $ ( 23,047 ) ​ $ ( 739,882 ) ​ $ 3,863,072 Issuance of 274,693 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units and performance shares, net of shares withheld for taxes and 189,684 shares of Common Stock under the ESPP 1 ​ ​ 16,600 ​ ​ — ​ ​ — ​ ​ 16,601 Issuance of 1,469 shares of Common Stock for services rendered ​ — ​ ​ 109 ​ ​ — ​ ​ — ​ ​ 109 Stock compensation — ​ ​ 46,496 ​ ​ — ​ ​ — ​ ​ 46,496 Other comprehensive income — ​ — ​ ( 2,649 ) ​ — ​ ( 2,649 ) Net income — ​ — ​ — ​ 161,432 ​ 161,432 Balances at June 30, 2022 $ 222 ​ $ 4,688,985 ​ $ ( 25,696 ) ​ $ ( 578,450 ) ​ $ 4,085,061 ​ ​ 6 Table of Contents INCYTE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED) (unaudited, in thousands, except number of shares) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ Common ​ Additional ​ Accumulated Other ​ Accumulated ​ Stockholders’ ​ Stock ​ Paid-in Capital ​ Comprehensive Loss ​ Deficit ​ Equity Balances at January 1, 2021 $ 219 ​ $ 4,352,864 ​ $ ( 15,360 ) ​ $ ( 1,726,455 ) ​ $ 2,611,268 Issuance of 389,512 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units, net of shares withheld for taxes 1 ​ 20,027 ​ — ​ — ​ 20,028 Issuance of 1,357 shares of Common Stock for services rendered ​ — ​ ​ 108 ​ ​ — ​ ​ — ​ ​ 108 Stock compensation — ​ ​ 47,903 ​ ​ — ​ ​ — ​ 47,903 Other comprehensive loss ​ — ​ — ​ ( 4,998 ) ​ — ​ ​ ( 4,998 ) Net income ​ — ​ — ​ — ​ 53,535 ​ ​ 53,535 Balances at March 31, 2021 $ 220 ​ $ 4,420,902 ​ $ ( 20,358 ) ​ $ ( 1,672,920 ) ​ $ 2,727,844 Issuance of 390,001 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units and performance shares, net of shares withheld for taxes and 153,082 shares of Common Stock under the ESPP — ​ ​ 11,016 ​ ​ — ​ ​ — ​ ​ 11,016 Issuance of 1,288 shares of Common Stock for services rendered ​ — ​ ​ 109 ​ ​ — ​ ​ — ​ ​ 109 Stock compensation — ​ ​ 45,351 ​ ​ — ​ ​ — ​ ​ 45,351 Other comprehensive income — ​ — ​ 2,085 ​ — ​ 2,085 Net income — ​ — ​ — ​ 149,456 ​ 149,456 Balances at June 30, 2021 $ 220 ​ $ 4,477,378 ​ $ ( 18,273 ) ​ $ ( 1,523,464 ) ​ $ 2,935,861 ​ See accompanying notes. ​ 7 Table of Contents INCYTE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ ​ June 30, ​ ​ 2022 2021 Cash flows from operating activities : ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 199,424 ​ $ 202,991 ​ Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 32,945 ​ ​ 28,295 ​ Stock-based compensation ​ 90,337 ​ ​ 92,090 ​ Deferred income taxes ​ ​ 32,475 ​ ​ ( 160 ) ​ Other, net ​ ​ 8,467 ​ ​ 3,214 ​ Unrealized loss on long term investments ​ 71,482 ​ ​ 944 ​ Change in fair value of acquisition-related contingent consideration ​ ​ 9,695 ​ ​ 10,158 ​ Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ ​ Accounts receivable ​ ( 66,668 ) ​ ​ 43,824 ​ Prepaid expenses and other assets ​ ( 25,380 ) ​ ​ ( 2,981 ) ​ Inventory ​ ( 37,190 ) ​ ​ ( 16,287 ) ​ Accounts payable ​ 22,660 ​ ​ 23,333 ​ Accrued and other liabilities ​ 51,651 ​ ​ ( 6,382 ) ​ Net cash provided by operating activities ​ 389,898 ​ 379,039 ​ Cash flows from investing activities : ​ ​ ​ ​ ​ ​ ​ Purchase of long term investments ​ — ​ ( 8,662 ) ​ Sale of long term investments ​ ​ — ​ ​ 9,328 ​ Capital expenditures ​ ( 28,749 ) ​ ( 114,390 ) ​ Purchases of marketable securities ​ ( 43,988 ) ​ ( 102,288 ) ​ Sale and maturities of marketable securities ​ 43,509 ​ 107,114 ​ Net cash used in investing activities ​ ( 29,228 ) ​ ( 108,898 ) ​ Cash flows from financing activities : ​ ​ ​ ​ ​ ​ ​ Proceeds from issuance of common stock under stock plans ​ 37,692 ​ ​ 43,669 ​ Tax withholdings related to restricted and performance share vesting ​ ​ ( 6,854 ) ​ ​ ( 12,625 ) ​ Payment of finance lease liabilities ​ ( 1,368 ) ​ ​ ( 1,173 ) ​ Payment of contingent consideration ​ ​ ( 13,473 ) ​ ​ ( 13,357 ) ​ Net cash provided by financing activities ​ 15,997 ​ 16,514 ​ Effect of exchange rates on cash, cash equivalents, restricted cash and investments ​ ​ 1,198 ​ ​ ( 2,159 ) ​ Net increase in cash, cash equivalents, restricted cash and investments ​ 377,865 ​ 284,496 ​ Cash, cash equivalents, restricted cash and investments at beginning of period ​ ​ 2,059,160 ​ ​ 1,514,765 ​ Cash, cash equivalents, restricted cash and investments at end of period ​ $ 2,437,025 ​ $ 1,799,261 ​ Supplemental Schedule of Cash Flow Information ​ ​ ​ ​ ​ ​ ​ Income taxes paid ​ $ 76,464 ​ $ 35,996 ​ Unpaid purchases of property and equipment ​ $ 8,952 ​ $ 30,823 ​ Leased assets obtained in exchange for new operating lease liabilities ​ $ 2,025 ​ $ 7,217 ​ Leased assets obtained in exchange for new finance lease liabilities ​ $ 1,308 ​ $ 408 ​ ​ See accompanying notes. ​ 8 Table of Contents INCYTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2022 (Unaudited) ​ Note 1. Organization and business Incyte Corporation (including its subsidiaries, “Incyte,” “we,” “us,” or “our”) is a biopharmaceutical company focused on developing and commercializing proprietary therapeutics. Our portfolio includes compounds in various stages, ranging from preclinical to late stage development, and commercialized products JAKAFI® (ruxolitinib), ICLUSIG® (ponatinib), PEMAZYRE® (pemigatinib), OPZELURA™ (ruxolitinib cream), MINJUVI® (tafasitamab) and MONJUVI® (tafasitamab-cxix), which is co-commercialized. Our operations are treated as one operating segment. Note 2. Summary of significant accounting policies Basis of presentation 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 June 30, 2022, the condensed consolidated statements of operations, comprehensive income (loss), and stockholders’ equity for the three and six months ended June 30, 2022 and 2021, and the condensed consolidated statements of cash flows for the six months ended June 30, 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. Although we believe that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and footnote information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Results for any interim period are not necessarily indicative of results for any future interim period or for the entire year. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021. Principles of Consolidation. The condensed consolidated financial statements include the accounts of Incyte Corporation and our wholly owned subsidiaries. All inter-company accounts, transactions, and profits have been eliminated in consolidation. Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 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. ​ 9 Table of Contents Note 3. Revenues 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 ​ Six Months Ended ​ ​ June 30, June 30, ​ ​ 2022 ​ 2021 ​ 2022 ​ 2021 ​ JAKAFI revenues, net ​ $ 597,673 ​ $ 529,055 ​ $ 1,142,137 ​ $ 994,765 ​ ICLUSIG revenues, net ​ ​ 26,224 ​ ​ 28,189 ​ ​ 52,293 ​ ​ 53,834 ​ PEMAZYRE revenues, net ​ ​ 18,983 ​ ​ 17,906 ​ ​ 37,015 ​ ​ 31,362 ​ MINJUVI revenues, net ​ ​ 4,411 ​ ​ — ​ ​ 8,913 ​ ​ — ​ OPZELURA revenues, net ​ ​ 16,560 ​ ​ — ​ ​ 29,314 ​ ​ — ​ Total product revenues, net ​ ​ 663,851 ​ ​ 575,150 ​ ​ 1,269,672 ​ ​ 1,079,961 ​ JAKAVI product royalty revenues ​ ​ 83,711 ​ ​ 82,038 ​ ​ 154,578 ​ ​ 147,640 ​ OLUMIANT product royalty revenues ​ ​ 30,254 ​ ​ 36,045 ​ ​ 78,318 ​ ​ 68,303 ​ TABRECTA product royalty revenues ​ ​ 3,581 ​ ​ 2,476 ​ ​ 7,064 ​ ​ 4,523 ​ Total product royalty revenues ​ ​ 117,546 ​ ​ 120,559 ​ ​ 239,960 ​ ​ 220,466 ​ Milestone and contract revenues ​ ​ 130,000 ​ ​ 10,000 ​ ​ 135,000 ​ ​ 10,000 ​ Total revenues ​ $ 911,397 ​ $ 705,709 ​ $ 1,644,632 ​ $ 1,310,427 ​ ​ For further information on our revenue-generating contracts, refer to Note 7. ​ Note 4. Fair value of financial instruments The following is a summary of our marketable security portfolio for the periods presented (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net ​ ​ ​ ​ ​ ​ Amortized ​ Unrealized ​ Estimated ​ ​ Cost Losses Fair Value June 30, 2022 ​ ​ ​ ​ ​ ​ ​ Debt securities (government) ​ $ 292,350 ​ $ ( 5,306 ) ​ $ 287,044 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Debt securities (government) ​ $ 291,871 ​ $ ( 1,119 ) ​ $ 290,752 ​ ​ 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 June 30, 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. The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. In determining fair value we use quoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of us. The fair value hierarchy is broken down into three levels based on the source of inputs as follows: Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities. 10 Table of Contents Level 2—Valuations based on observable inputs and quoted prices in active markets for similar assets and liabilities. Level 3—Valuations based on inputs that are unobservable and models that are significant to the overall fair value measurement. Recurring Fair Value Measurements Our marketable securities consist of investments in U.S. government debt securities that are classified as available-for-sale. At June 30, 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 six months ended June 30, 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurement at Reporting Date Using: ​ ​ ​ ​ ​ ​ Quoted Prices in ​ Significant Other ​ Significant ​ ​ ​ ​ ​ ​ Active Markets for ​ Observable ​ Unobservable ​ ​ ​ ​ ​ ​ Identical Assets ​ Inputs ​ Inputs ​ Balance as of ​ ​ (Level 1) (Level 2) (Level 3) June 30, 2022 Cash and cash equivalents ​ $ 2,435,381 ​ $ — ​ $ — ​ $ 2,435,381 ​ Debt securities (government) ​ — ​ 287,044 ​ — ​ 287,044 ​ Long term investments (Note 7) ​ 149,784 ​ — ​ — ​ 149,784 ​ Total assets ​ $ 2,585,165 ​ $ 287,044 ​ $ — ​ $ 2,872,209 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurement at Reporting Date Using: ​ ​ ​ ​ ​ ​ Quoted Prices in ​ Significant Other ​ Significant ​ ​ ​ ​ ​ ​ Active Markets for ​ Observable ​ Unobservable ​ ​ ​ ​ ​ ​ Identical Assets ​ Inputs ​ Inputs ​ Balance as of ​ ​ (Level 1) (Level 2) (Level 3) December 31, 2021 Cash and cash equivalents ​ $ 2,057,440 ​ $ — ​ $ — ​ $ 2,057,440 ​ Debt securities (government) ​ ​ — ​ 290,752 ​ — ​ ​ 290,752 ​ Long term investments (Note 7) ​ 221,266 ​ — ​ — ​ 221,266 ​ Total assets ​ $ 2,278,706 ​ $ 290,752 ​ $ — ​ $ 2,569,458 ​ 11 Table of Contents ​ The following fair value hierarchy table presents information about each major category of our financial liabilities measured at fair value on a recurring basis as (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurement at Reporting Date Using: ​ ​ ​ ​ ​ Quoted Prices in ​ Significant Other ​ Significant ​ ​ ​ ​ ​ Active Markets for ​ Observable ​ Unobservable ​ ​ ​ Identical Liabilities ​ Inputs ​ Inputs ​ Balance as of ​ (Level 1) (Level 2) (Level 3) June 30, 2022 Acquisition-related contingent consideration ​ $ — ​ $ — ​ $ 237,000 ​ $ 237,000 Total liabilities ​ $ — ​ $ — ​ $ 237,000 ​ $ 237,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurement at Reporting Date Using: ​ ​ ​ ​ ​ ​ Quoted Prices in ​ Significant Other ​ Significant ​ ​ ​ ​ ​ ​ Active Markets for ​ Observable ​ Unobservable ​ ​ ​ ​ ​ ​ Identical Liabilities ​ Inputs ​ Inputs ​ Balance as of ​ ​ (Level 1) (Level 2) (Level 3) December 31, 2021 ​ Acquisition-related contingent consideration ​ $ — ​ $ — ​ $ 244,000 ​ $ 244,000 ​ Total liabilities ​ $ — ​ $ — ​ $ 244,000 ​ $ 244,000 ​ ​ The following is a rollforward of our Level 3 liabilities (in thousands): ​ ​ ​ ​ ​ ​ ​ 2022 Balance at January 1, ​ $ 244,000 Contingent consideration earned during the period but not yet paid ​ ​ ( 16,695 ) Change in fair value of contingent consideration ​ ​ 9,695 Balance at June 30, ​ $ 237,000 ​ 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 June 30, 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 and six months ended June 30, 2022 was due primarily to the passage of time and updated projections of future net revenues of ICLUSIG. We make payments to Takeda Pharmaceutical Company Limited quarterly based on the royalties or any additional milestone payments earned in the previous quarter. At June 30, 2022 and December 31, 2021, contingent consideration earned but not yet paid was $ 16.7 million and $ 19.6 million, respectively, and was included in accrued and other current liabilities. Note 5. Concentration of credit risk and current expected credit losses 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. (“Innovent”). 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 36 % of the accounts receivable balance as of June 30, 2022 and December 31, 2021, respectively. For further information relating to these collaboration and license agreements, refer to Note 7. 12 Table of Contents 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 ​ Percentage of Total Net ​ ​ ​ Product Revenues for the ​ Product Revenues for the ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ ​ 2022 2021 ​ 2022 2021 Customer A 19 % 19 % 19 % 18 % ​ Customer B 12 % 13 % 12 % 13 % ​ Customer C 16 % 18 % 18 % 18 % ​ Customer D 6 % 10 % 5 % 10 % ​ Customer E 10 % 12 % 10 % 12 % ​ ​ 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, 31 % of the accounts receivable balance as of both June 30, 2022 and December 31, 2021. 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 June 30, 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 June 30, 2022 and December 31, 2021, we had no allowance for doubtful accounts. Note 6. Inventory Our inventory balance consists of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ ​ 2022 2021 Raw materials ​ $ 22,371 ​ $ 1,275 ​ Work-in-process ​ ​ 36,317 ​ ​ 39,895 ​ Finished goods ​ 35,440 ​ 15,768 ​ Total inventory ​ $ 94,128 ​ $ 56,938 ​ ​ Inventories, stated at the lower of cost and net realizable value, consist of raw materials, work in process and finished goods. At June 30, 2022, $ 54.5 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 June 30, 2022, $ 39.6 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. The loss of a supplier, the deterioration of our relationship with a supplier, or any unilateral violation of the contractual terms under which we are supplied components by a supplier could adversely affect our total revenues and gross margins. We capitalize inventory after U.S. Food and Drug Administration (FDA) approval as the related costs are expected to be recoverable through the commercialization of the product. Costs incurred prior to FDA approval are recorded as research and development expense in our statements of operations. At June 30, 2022, inventory with approximately $ 66.0 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 30 months and, as a result, cost of product revenues will reflect a lower average per unit cost of materials. 13 Table of Contents Note 7. License agreements Novartis In November 2009, we entered into a Collaboration and License Agreement with Novartis. Under the terms of the agreement, Novartis received exclusive development and commercialization rights outside of the United States to our JAK inhibitor ruxolitinib and certain back-up compounds for hematologic and oncology indications, including all hematological malignancies, solid tumors and myeloproliferative diseases. We retained exclusive development and commercialization rights to JAKAFI (ruxolitinib) in the United States and in certain other indications. 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 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, $ 340.0 million for the achievement of regulatory milestones, and $ 200.0 million for the achievement of sales milestones through June 30, 2022. In April 2022, we recognized a $ 15.0 million regulatory milestone for the positive opinion issued by the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) that recommends granting marketing authorization for capmatinib (TABRECTA) as a monotherapy for the treatment of adults with a dvanced non-small cell lung cancer. Additionally, in May 2022, we recognized a $ 45.0 million regulatory milestone as a result of the European Commission’s approval of JAKAVI (ruxolitinib) as the first post-steroid treatment for acute and chronic GVHD. 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 %. 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 and six months ended June 30, 2022, such royalties on net sales within the United States totaled $ 29.3 million and $ 51.0 million, respectively, and were reflected in cost of product revenues on the condensed consolidated statements of operations. During the three and six months ended June 30, 2021, such royalties on net sales within the United States totaled $ 25.9 million and $ 43.7 million, respectively, and were reflected in cost of product revenues on the condensed consolidated statements of operations. At June 30, 2022 and December 31, 2021, $ 191.4 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. Milestone and contract revenue under the Novartis agreement was $ 60.0 million for both the three and six months ended June 30, 2022. Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States for the three and six months ended June 30, 2022 was $ 83.6 million and $ 154.6 million, respectively. Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States for the three and six months ended June 30, 2021 was $ 82.0 million and $ 147.6 million, respectively. Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three and six months ended June 30, 2022 was $ 3.6 million and $ 7.1 million, respectively. Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three and six months ended June 30, 2021 was $ 2.5 million and $ 4.5 million, respectively. Lilly – Baricitinib 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 our JAK inhibitor baricitinib, and certain back-up compounds for inflammatory and autoimmune diseases. 14 Table of Contents 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, $ 335.0 million for the achievement of regulatory milestones and $ 50.0 million for the achievement of sales milestones through June 30, 2022. We are also eligible to receive tiered, double-digit royalty payments on future global sales with rates ranging up to mid-twenties if a product is successfully commercialized. 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. In June 2022, we recognized a $ 40.0 million regulatory milestone for the FDA approval of OLUMIANT as a first-in-disease systemic treatment for adults with severe alopecia areata. Additionally, in June 2022 we recognized a $ 20.0 million regulatory milestone for the European Commission’s approval for OLUMIANT for the treatment of adults with severe alopecia areata, and a $ 10.0 million regulatory milestone for the Ministry of Health, Labour and Welfare of Japan’s approval for OLUMIANT for the treatment of adults with severe alopecia areata in Japan. Milestone and contract revenue under the Lilly agreement was $ 70.0 million for both the three and six months ended June 30, 2022. Product royalty revenue related to Lilly net sales of OLUMIANT outside of the United States for the three and six months ended June 30, 2022 was $ 30.3 million and $ 78.3 million, respectively. Product royalty revenue related to Lilly net sales of OLUMIANT outside of the United States for the three and six months ended June 30, 2021 was $ 36.0 million and $ 68.3 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. 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. Agenus 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, 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. There are currently no profit-share programs. 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. As of June 30, 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. 15 Table of Contents In addition, in 2017 we purchased 10.0 million shares of Agenus Inc.’s common stock for an aggregate purchase price of $ 60.0 million in cash, or $ 6.00 per share. In 2020, we sold an aggregate of approximately 3.7 million shares of Agenus Inc.’s 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 Inc.’s common stock resulting in gross proceeds of approximately $ 10.5 million. The fair market value of our long term investment in Agenus Inc. at June 30, 2022 and December 31, 2021 was $ 23.4 million and $ 38.9 million, respectively. As of June 30, 2022, we owned less than 5 % of the outstanding shares of Agenus Inc.’s common stock. We intend to hold the investment in Agenus Inc. for the foreseeable future and therefore, are accounting for our shares held in Agenus Inc. 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 six months ended June 30, 2022, we recorded an unrealized loss of $ 6.3 million and $ 15.4 million, respectively, based on the change in fair value of Agenus Inc.’s common stock during the respective periods. For the three and six months ended June 30, 2021, we recorded an unrealized gain of $ 37.8 million and $ 31.9 million, respectively, based on the change in fair value of Agenus Inc.’s common stock during the respective periods. Merus In December 2016, we entered into a Collaboration and License Agreement with Merus N.V. (“Merus”). 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. If Merus exercises its co-funding option for a program, Merus would be responsible for funding 35 % of the associated future global development costs and, for certain of such programs, would be responsible for reimbursing us for certain development costs incurred prior to the option exercise. Merus will also have the right to participate in a specified proportion of detailing activities in the United States for one of those co-developed programs. All costs related to the co-funded collaboration programs are subject to joint research and development plans and overseen by a joint development committee, but we will have final determination as to such plans in cases of dispute. We will be responsible for all research, development and commercialization costs relating to all other programs. 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 June 30, 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 purchased 3.2 million common shares of Merus for an aggregate purchase price of $ 80.0 million in cash, or $ 25.00 per share. 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 June 30, 2022 and December 31, 2021 was $ 80.4 million and $ 112.9 million, respectively. As of June 30, 2022, we owned approximately 8 % of the outstanding common shares of Merus. 16 Table of Contents 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 six months ended June 30, 2022, we recorded an unrealized loss of $ 13.5 million and $ 32.5 million, respectively, based on the change in fair value of Merus’ common shares during the respective periods. For the three and six months ended June 30, 2021, we recorded an unrealized gain of $ 0.6 million and $ 10.0 million, respectively, based on the change in fair value of Merus’ common shares during the respective periods. Calithera In January 2017, we entered into a Collaboration and License Agreement with Calithera Biosciences, Inc. (“Calithera”). Under this agreement, we received an exclusive, worldwide license to develop and commercialize small molecule arginase inhibitors, including INCB01158. 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. 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 June 30, 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. profit sharing will no longer be in effect, we will be responsible for funding all of the development costs of INCB01158 and any other licensed products, and the agreement provides that we will pay Calithera tiered royalties ranging from the low to mid-double digits on net sales of licensed products both in the United States and outside the United States and additional royalties to reimburse Calithera for previously incurred development costs. Calithera is eligible to receive $ 720.0 million in potential future development, regulatory and sales milestone payments and will have no further rights to research, develop or co-detail INCB001158. We will have the right to take over the conduct of all activities related to the research, development and commercialization of INCB001158 for all indications in the hematology/oncology field. In addition, in 2017, we entered into a Stock Purchase Agreement with Calithera, pursuant to which we purchased 1.7 million shares of Calithera common stock for an aggregate purchase price of $ 8.0 million in cash, or $ 4.65 per share. In June 2022, Calithera effected a one-for-twenty stock split of its outstanding common stock, adjusting our ownership to 86,021 shares of Calithera’s common stock. The fair market value of our long term investment in Calithera at June 30, 2022 and December 31, 2021 was $ 0.2 million and $ 1.1 million, respectively. As of June 30, 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 six months ended June 30, 2022 we recorded an unrealized loss of $ 0.5 million and $ 0.9 million, respectively, based on the change in fair value of Calithera’s common stock during the respective periods. For the three and six months ended June 30, 2021 we recorded an unrealized loss of $ 0.5 million and $ 4.8 million, respectively, based on the change in fair value of Calithera’s common stock during the respective periods. 17 Table of Contents MacroGenics In October 2017, we entered into a Global Collaboration and License Agreement with MacroGenics, Inc. (“MacroGenics”). 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 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 June 30, 2022, we have paid MacroGenics developmental milestones totaling $ 70.0 million and MacroGenics was 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. In July 2022, we amended our agreement with MacroGenics to reflect changes related to the payment of certain milestones and paid MacroGenics $ 30.0 million. As a result, after the amendment, MacroGenics will be eligible to receive up to an additional $ 335.0 million in future contingent development and regulatory milestones, and the aforementioned sales milestones and royalties. Research and development expenses for the three and six months ended June 30, 2022 also included $ 14.8 million and $ 28.3 million, respectively, of development costs incurred pursuant to the MacroGenics agreement. Research and development expenses for the three and six months ended June 30, 2021 also included $ 17.6 million and $ 31.2 million, respectively, of development costs incurred pursuant to the MacroGenics agreement. At June 30, 2022 and December 31, 2021, a total of $ 0.6 million and $ 0.7 million of such costs were included in accrued and other liabilities on the condensed consolidated balance sheets. Syros In January 2018, we entered into a Target Discovery, Research Collaboration and Option Agreement with Syros Pharmaceuticals, Inc. (“Syros”). Under this agreement, Syros will use its proprietary gene control platform to identify novel therapeutic targets with a focus in myeloproliferative neoplasms and we have received options to obtain exclusive worldwide rights to intellectual property resulting from the collaboration for up to seven validated targets. We will have exclusive worldwide rights to develop and commercialize any therapies under the collaboration that modulate those validated targets. 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. Syros is also eligible to receive low single-digit royalties on net sales of products resulting from the collaboration. In addition, in 2018, we entered into a Stock Purchase Agreement with Syros, pursuant to which we purchased 0.8 million shares of Syros common stock 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, pursuant to which we purchased an additional 0.1 million shares of Syros common stock 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 June 30, 2022 and December 31, 2021 was $ 0.9 million and $ 3.1 million, respectively. As of June 30, 2022, we owned less than 2 % of the outstanding shares of Syros common stock. 18 Table of Contents 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 six months ended June 30, 2022, we recorded an unrealized loss of $ 0.2 million and $ 2.2 million, respectively, based on the change in fair value of Syros’ common stock during the respective periods. For the three and six months ended June 30, 2021, we recorded an unrealized loss of $ 1.9 million and $ 5.1 million, respectively, based on the change in fair value of Syros’ common stock during the respective periods. Innovent 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. 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 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. We will recognize sales milestones in the corresponding period of the product sale upon confirmation of net sales milestone threshold achievement by Innovent. We are also eligible to receive tiered royalties from the high-teens to the low-twenties on future sales of products resulting from the collaboration. We retain an option to assist in the promotion of the three product candidates in the Innovent territories. Zai Lab 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. 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. 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 Zai Lab and decisions made by regulatory agencies. In the event of commercialization of the licensed molecule, we are eligible to receive up to $ 37.5 million in potential sales milestones from Zai Lab. We will recognize sales milestones in the corresponding period of the product sale upon confirmation of net sales milestone threshold achievement by Zai Lab. We are also eligible to receive tiered royalties from the low to mid-twenties on future product sales resulting from the collaboration. We also retain an option to assist in the promotion of INCMGA0012 in Zai Lab’s licensed territories. MorphoSys 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. 19 Table of Contents 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. MorphoSys is responsible for leading the commercialization strategy and booking all revenue from sales of tafasitamab in the United States, and we and MorphoSys are both responsible for commercialization efforts in the United States and will share equally the profits and losses from the co-commercialization efforts. We will lead the commercialization strategy outside of the United States, and will be responsible for commercialization efforts and book all revenue from sales of tafasitamab outside of the United States, subject to our royalty payment obligations set forth below. We and MorphoSys have agreed to co-develop tafasitamab and to share development costs associated with global and U.S.-specific clinical trials, with Incyte responsible for 55 % of such costs and MorphoSys responsible for 45 % of such costs. Each company is responsible for funding any independent development activities, and we are responsible for funding development activities specific to territories outside of the United States. All development costs related to the collaboration are subject to a joint development plan. 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 addition, under the terms of the agreement and pursuant to a related purchase agreement, we purchased 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 June 30, 2022 and December 31, 2021 was $ 17.5 million and $ 34.2 million, respectively. As of June 30, 2022, we owned approximately 3 % of the outstanding ordinary shares of MorphoSys. 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 six months ended June 30, 2022, we recorded an unrealized loss of $ 7.1 million and $ 16.7 million, respectively, based on the change in fair value of MorphoSys’ ordinary shares during the respective periods. For the three and six months ended June 30, 2021, we recorded an unrealized loss of $ 9.2 million and $ 32.9 million, respectively, based on the change in fair value of MorphoSys’ ordinary shares during the respective periods. Our 50 % share of the United States loss for the commercialization of tafasitamab for the three and six months ended June 30, 2022 was $ 2.5 million and $ 7.3 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 six months ended June 30, 2021 was $ 9.8 million and $ 20.3 million, respectively, and is recorded as collaboration loss sharing on the condensed consolidated statement of operations. Research and development expenses for the three and six months ended June 30, 2022, includes $ 27.5 million and $ 48.5 million, respectively, related to our 55 % share of the co-development costs for tafasitamab. Research and development expenses for the three and six months ended June 30, 2021, includes $ 19.4 million and $ 34.3 million, respectively, related to our 55 % share of the co-development costs for tafasitamab. At June 30, 2022 and December 31, 2021, $ 42.5 million and $ 21.5 million, respectively, was included in accrued and other liabilities on the condensed consolidated balance sheets for amounts due to MorphoSys under the agreement. 20 Table of Contents Nimble In September 2020, we entered into a Collaboration and License Agreement with Nimble Therapeutics, Inc. (“Nimble”). Under the terms of this agreement, Nimble will utilize their peptide synthesis, screening and optimization platform for discovery and validation of peptides against specified targets. Under the agreement, Nimble is eligible to receive up to $ 8.0 million in future contingent discovery milestones and up to $ 127.0 million in future contingent development and regulatory milestones. Additionally, in the event of successful commercialization, Nimble is eligible to receive up to $ 130.0 million in future contingent sales milestones and tiered royalties on net sales in the low single digits. InnoCare In August 2021, we entered into a Collaboration and License Agreement with Sunny Investments Limited, a wholly-owned subsidiary of InnoCare Pharma Limited (“InnoCare”). InnoCare received development and exclusive commercialization rights to tafasitamab in hematology and oncology in mainland China, Hong Kong, Macau and Taiwan. In September 2021, we recognized an upfront payment under this agreement of $ 35.0 million upon our transfer of technology related to the licensed product candidate to InnoCare, which was recorded in milestone and contract revenues on the consolidated statement of operations for the year ended December 31, 2021. Under the terms of this agreement, we are eligible to receive up to an additional $ 82.5 million in potential development, regulatory and commercial milestones. We recognize development and regulatory milestones upon confirmation of achievement of the event, as development and regulatory approvals are events not controllable by us but rather development activities of InnoCare and decisions made by regulatory agencies. In the event of commercialization, we will recognize sales milestones in the corresponding period of the product sale upon confirmation of net sales milestone threshold achievement by InnoCare. Syndax In September 2021, we entered into a Collaboration and License Agreement with Syndax Pharmaceuticals, Inc. (“Syndax”), covering the worldwide development and commercialization of SNDX-6352 (“axatilimab”). Axatilimab, currently in clinical development by Syndax, is a monoclonal antibody that blocks the colony stimulating factor-1 (CSF-1) receptor. Syndax has exclusive worldwide development and commercialization rights to axatilimab under a June 2016 license agreement with UCB Biopharma Sprl. The agreement became effective in December 2021. 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 axatilimab 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 axatilimab in that country, and (c) the expiration of any regulatory exclusivity for that licensed product in that country. 21 Table of Contents In addition, under the terms of the agreement and pursuant to a related stock purchase agreement, we purchased approximately 1.4 million shares of Syndax common stock for an aggregate purchase price of $ 35.0 million, or $ 24.62 per share. 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 June 30, 2022 and December 31, 2021 was $ 27.4 million and $ 31.1 million. As of June 30, 2022, we owned less than 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 and six months ended June 30, 2022, we recorded an unrealized gain of $ 2.7 million and an unrealized loss of $ 3.8 million, respectively, based on the change in fair value of Syndax’s common stock during the respective periods. Maruho In April 2022, we entered into a strategic alliance agreement with Maruho, Co., Ltd (“Maruho”) for the development, manufacturing and exclusive commercialization of ruxolitinib cream, for treatment of autoimmune and inflammatory dermatology indications in Japan. Maruho will receive the rights to develop, manufacture and exclusively commercialize ruxolitinib cream, and other potential future topical formulations of ruxolitinib, in autoimmune and inflammatory dermatologic diseases, including vitiligo and atopic dermatitis, in Japan. Under the terms of the agreement, we received an upfront payment from Maruho which was deferred and recorded in other liabilities on the condensed consolidated balance sheet and we are eligible to receive additional potential development, regulatory and commercial milestones and royalties on net sales of the licensed product in Japan. Note 8. Property and equipment, net Property and equipment, net consists of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ ​ 2022 2021 Office equipment $ 22,461 ​ $ 22,554 ​ Laboratory equipment ​ ​ 110,400 105,040 ​ Computer equipment ​ 86,182 ​ 79,871 ​ Land ​ ​ 10,265 ​ ​ 10,494 ​ Building and leasehold improvements ​ ​ 433,151 ​ ​ 434,321 ​ Operating lease right-of-use assets ​ ​ 24,058 ​ ​ 27,308 ​ Construction in progress ​ 226,669 ​ 220,052 ​ ​ ​ 913,186 ​ 899,640 ​ Less accumulated depreciation and amortization ​ ( 191,858 ) ​ ( 175,720 ) ​ Property and equipment, net ​ $ 721,328 ​ $ 723,920 ​ ​ 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. The certificate of occupancy was received in December 2021 and we capitalized approximately $ 158.2 million in building and office equipment that was previously included in construction in progress as of December 31, 2021. In February 2018, we signed an agreement to rent a building in Morges, Switzerland for an initial term of 15 years plus one year of free rent, with multiple options to extend for an additional 20 years . The building serves as our new 22 Table of Contents 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 $ 19.5 million in leasehold improvements as of June 30, 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 June 30, 2022, we have capitalized approximately $ 198.1 million in costs for construction, ground preparation and architectural and engineering studies. Inspection from competent authorities was finalized in March 2022, and in June 2022 Swissmedic authorities granted the GMP drug manufacturing license for this facility. Note 9. Accrued and other current liabilities Accrued and other current liabilities consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ 2022 2021 Royalties $ 209,501 ​ $ 168,412 Clinical related costs ​ ​ 137,445 109,486 Sales allowances ​ ​ 141,538 ​ ​ 136,541 Sales and marketing ​ ​ 34,607 ​ ​ 35,750 Construction in progress ​ ​ 8,952 ​ ​ 27,098 Operating lease liabilities ​ ​ 9,369 ​ ​ 10,554 Other current liabilities ​ 57,396 ​ 45,754 Total accrued and other current liabilities ​ $ 598,808 ​ $ 533,595 ​ ​ ​ Note 10. Stock compensation We recorded $ 46.5 million and $ 90.3 million of stock compensation expense on our condensed consolidated statements of operations for the three and six months ended June 30, 2022, respectively. We recorded $ 44.8 million and $ 92.1 million of stock compensation expense on our condensed consolidated statements of operations for the three and six months ended June 30, 2021, respectively. Stock compensation expense included within our condensed consolidated statements of operations included research and development expense of $ 28.1 million, $ 54.4 million, $ 28.0 million and $ 57.9 million for the three and six months ended June 30, 2022 and 2021, respectively. Stock compensation expense included within our condensed consolidated statements of operations also included selling, general and administrative expense of $ 17.7 million, $ 34.6 million, $ 16.4 million and $ 33.6 million for the three and six months ended June 30, 2022 and 2021, respectively. Stock compensation expense included within our condensed consolidated statements of operations also included cost of product revenues of $ 0.7 million, $ 1.3 million, $ 0.4 million and $ 0.6 million, respectively, for the three and six months ended June 30, 2022 and 2021. 23 Table of Contents We utilized the Black-Scholes valuation model for estimating the fair value of the stock compensation granted, with the following weighted-average assumptions: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Employee Stock Options ​ Employee Stock Purchase Plan ​ ​ ​ For the Three Months Ended For the Six Months Ended ​ For the Three Months Ended For the Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ ​ 2022     2021    2022    2021    ​ 2022    2021    2022    2021    Average risk-free interest rates ​ 3.04 %   0.75 %   1.67 %   0.44 %   2.92 %   0.25 %   2.77 %   0.18 %   ​ Average expected life (in years) ​ 5.51 ​ 5.32 ​ 4.77 ​ 4.84 ​ 0.50 ​ 0.50 ​ 0.50 ​ 0.50 ​ ​ Volatility ​ 33 % 38 % 37 % 39 % 39 % 26 % 28 % 33 % ​ Weighted-average fair value (in dollars) ​ 26.35 ​ 29.55 ​ 25.30 ​ 29.80 ​ 14.91 ​ 16.14 ​ 14.53 ​ 18.48 ​ ​ ​ The risk-free interest rate is derived from the U.S. Federal Reserve rate in effect at the time of grant. The expected life calculation is based on the observed and expected time to the exercise of options by our employees based on historical exercise patterns for similar type options. Expected volatility is based on the historical volatility of our common stock over the period commensurate with the expected life of the options. A dividend yield of zero is assumed based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends. 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 Stock Incentive Plan (the “2010 Stock Plan”) was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares Subject to ​ ​ ​ Outstanding Options ​ ​ ​ ​ ​ Weighted Average ​ ​ Shares Exercise Price Balance at December 31, 2021 12,763,460 ​ $ 88.39 ​ Options granted 1,245,450 ​ $ 74.54 ​ Options exercised ( 384,281 ) ​ $ 69.03 ​ Options cancelled ​ ( 723,224 ) ​ $ 87.40 ​ Balance at June 30, 2022 12,901,405 ​ $ 87.69 ​ ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares Subject to ​ ​ ​ Outstanding Awards ​ ​ Shares Grant Date Value Balance at December 31, 2021 3,966,888 ​ $ 84.91 ​ RSUs granted ​ 359,524 ​ ​ 74.37 ​ RSUs released ​ ( 153,897 ) ​ ​ 83.43 ​ PSUs released ​ ( 152,009 ) ​ ​ 67.18 ​ RSUs cancelled ​ ( 171,234 ) ​ ​ 86.06 ​ PSUs cancelled ​ ( 1,720 ) ​ ​ 65.76 ​ Balance at June 30, 2022 ​ 3,847,552 ​ $ 84.64 ​ ​ 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 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 . 24 Table of Contents We grant PSUs with performance and/or service-based milestones with graded and/or cliff vesting over three to four years . The shares of our common stock into which each PSU may convert is subject to a multiplier based on the level at which the financial, developmental and market performance conditions are achieved over the service period. Compensation expense for PSUs with financial and developmental performance conditions is recorded over the estimated service period for each milestone when the performance conditions are deemed probable of achievement. For PSUs containing performance conditions which were not deemed probable of achievement, no stock compensation expense is recorded. Compensation expense for PSUs with market performance conditions is calculated using a Monte Carlo simulation model as of the date of grant and recorded over the requisite service period. For the three and six months ended June 30, 2022 we recorded $ 0.1 million and $ 1.9 million, respectively, of stock compensation expense for PSUs on our condensed consolidated statements of operations. For the three and six months ended June 30, 2021 we recorded $ 0.6 million and $ 3.2 million 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 ​ ​ for Grant Balance at December 31, 2021 10,113,298 ​ Options, RSUs and PSUs granted ( 1,964,498 ) ​ Options, RSUs and PSUs cancelled ​ 1,083,976 ​ Balance at June 30, 2022 9,232,776 ​ ​ 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 June 30, 2022, was $ 53.0 million, which is expected to be recognized over the weighted average period of approximately 1.0 years. Total compensation cost of RSUs granted but not yet vested, as of June 30, 2022, was $ 128.8 million, which is expected to be recognized over the weighted average period of approximately 1.6 years. Total compensation cost of PSUs granted but not yet vested, as of June 30, 2022, was $ 22.7 million, which is expected to be recognized over the weighted average period of 1.9 years, should the underlying performance conditions be deemed probable of achievement. Note 11. Income taxes For the three and six months ended June 30, 2022, we recorded income tax expense of approximately $ 67.9 million and $ 100.5 million, respectively. For the three and six months ended June 30, 2021, we recorded income tax expense of approximately $ 22.2 million and $ 38.0 million, respectively. The tax expense for the three and six months ended June 30, 2022 increased as compared to that for the prior year periods 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 $ 9.4 million during the six months ended June 30, 2022, resulting in movements to other liabilities and deferred income tax 25 Table of Contents 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. Note 12. Net income per share Net income per share was calculated as follows for the periods indicated below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ June 30, June 30, ​ 2022 2021 2022 2021 Basic net income ​ $ 161,432 ​ $ 149,456 ​ $ 199,424 ​ $ 202,991 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average common shares outstanding ​ ​ 221,660 ​ ​ 220,083 ​ ​ 221,493 ​ ​ 219,942 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic net income per share ​ $ 0.73 ​ $ 0.68 ​ $ 0.90 ​ $ 0.92 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted net income ​ $ 161,432 ​ $ 149,456 ​ $ 199,424 ​ $ 202,991 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average common shares outstanding ​ ​ 221,660 ​ ​ 220,083 ​ ​ 221,493 ​ ​ 219,942 ​ Dilutive stock options and awards ​ ​ 2,001 ​ ​ 2,167 ​ ​ 1,784 ​ ​ 2,119 ​ Weighted average shares used to compute diluted net income per share ​ ​ 223,661 ​ ​ 222,250 ​ ​ 223,277 ​ ​ 222,061 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted net income per share ​ $ 0.72 ​ $ 0.67 ​ $ 0.89 ​ $ 0.91 ​ ​ The potential common shares that were excluded from the diluted net income per share computation are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ ​ 2022 2021 2022 2021 Outstanding stock options and awards 10,767,335 ​ 9,283,385 ​ 10,901,507 ​ 8,982,288 ​ ​ ​ ​ ​ Note 13. Employee benefit plans Defined Contribution Plans We have a defined contribution plan qualified under Section 401(k) of the Internal Revenue Code covering all U.S. employees and defined contribution plans for other Incyte employees in Europe and Japan. 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 six months ended June 30, 2022 was $ 4.7 million and $ 9.6 million, respectively. Defined contribution expense for the three and six months ended June 30, 2021 was $ 4.3 million and $ 8.4 million, respectively. Defined Benefit Pension Plans We have defined benefit pension plans for our employees in Europe which provide benefits to employees upon retirement, death or disability. The assets of the pension plans are held in collective investment accounts represented by the cash surrender value of an insurance policy and are classified as Level 2 within the fair value hierarchy. 26 Table of Contents The net periodic benefit cost was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ ​ 2022 ​ 2021 2022 ​ 2021 Service cost $ 2,438 ​ $ 1,997 $ 4,960 ​ $ 3,952 Interest cost ​ 62 ​ ​ 23 ​ 126 ​ ​ 45 Expected return on plan assets ​ ( 1,035 ) ​ ​ ( 15 ) ​ ( 2,106 ) ​ ​ ( 30 ) Amortization of prior service cost ​ 193 ​ ​ 54 ​ 387 ​ ​ 108 Amortization of actuarial losses ​ ​ 89 ​ ​ 288 ​ ​ 177 ​ ​ 576 ​ Net periodic benefit cost $ 1,747 ​ $ 2,347 $ 3,544 ​ $ 4,651 ​ The components of net periodic benefit cost other than the service cost component are included in other income (expense), net on the condensed consolidated statements of operations. 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. ​ Note 14. Commitments and contingencies 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. We may in the future seek to license additional rights relating to technologies or drug development candidates in connection with our drug discovery and development programs. Under these agreements, we may be required to pay upfront fees, milestone payments, and royalties on sales of future products. In 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. ​ 27 Table of Contents ​