What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-02-10 compared with 2024-02-13 · 63 added, 59 removed, 234 unchanged (34% of the section changed)

5 unchanged sentences

Incyte is a global biopharmaceutical company engaged in the discovery, development and commercialization of proprietary therapeutics.

We are focused 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 comprises Myeloproliferative Neoplasms (MPNs), Graft-Versus-Host Disease (GVHD), solid tumors and hematologic malignancies.

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

We are also eligible to receive milestones and royalties on molecules discovered by us and licensed to third parties.

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

We also conduct clinical development and commercial operations from our European headquarters in Morges, Switzerland and our other offices across Europe, as well as our Japanese office in Tokyo and our Canadian headquarters in Montreal.

Our portfolio focuses on areas of high unmet medical need and includes compounds in various stages, ranging from preclinical to late stage development, and commercialized products JAKAFI (ruxolitinib), ICLUSIG (ponatinib), PEMAZYRE (pemigatinib) and OPZELURA (ruxolitinib) cream, as well as MINJUVI (tafasitamab) and MONJUVI (tafasitamab-cxix), which prior to our February 2024 acquisition of global rights to tafasitamab, were co-commercialized, and ZYNYZ (retifanlimab-dlwr).

Through the discovery, development and commercialization of proprietary therapeutics, Incyte has established a portfolio of first-in-class and best-in-class medicines for patients and a strong pipeline of products focused in three core therapeutic areas:

Oncology, Inflammation & Autoimmunity, and Myeloproliferative Neoplasms (MPNs) & Graft-Versus-Host Disease (GVHD).

We are also eligible to receive milestones and royalties on molecules discovered by us and licensed to third parties.

Our portfolio focuses on areas of high unmet medical need and 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), MONJUVI (tafasitamab-cxix) and ZYNYZ (retifanlimab-dlwr), as well as NIKTIMVO (axatilimab-csfr), which was approved for medical use in the United States in August 2024 and will be co-commercialized.

Our revenues depend on continued sales of our products, and we depend substantially on product revenues from JAKAFI.

3 unchanged sentences

See Part I, Item 1A of this report, “Risk Factors” for a further discussion of certain factors that could impact our future product revenues.

Regulatory Achievements

In March 2023, under our collaboration agreement with MacroGenics, we received FDA approval of ZYNYZ for the treatment of adults with Merkel cell carcinoma.

In April 2023, the European Commission granted a marketing authorization for OPZELURA(ruxolitinib) cream 15mg/g for the treatment of non-segmental vitiligo with facial involvement in adults and adolescents from 12 years of age.

In September 2023, under our collaboration agreement with Novartis, we received the regulatory approval of JAKAVI (ruxolitinib) in GVHD by the Japanese Ministry of Health, Labour and Welfare.

In December 2023, the BLA was submitted for axatilimab in chronic graft-versus-host disease for the treatment of patients with chronic GVHD after failure of two or more lines of systemic therapy.

License Agreements, Business Relationships and Acquisitions

18 unchanged sentences

Product Revenues

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

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 the Medicaid Drug Rebate Program and 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.

9 unchanged sentences

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

In the fourth quarter of 2021 and fiscal year 2022 for non-covered patients of OPZELURA, we offered a full buy-down program as we were in the process of obtaining commercial insurance coverage for OPZELURA.

During 2022, we contracted with the three largest group purchasing organizations to obtain coverage for OPZELURA.

All full buy-down programs for OPZELURA ended effective January 31, 2023.

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

13 unchanged sentences

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.

During the fourth quarter of 2021 and fiscal year 2022, we also offered a full buy-down program to non-covered patients of OPZELURA as we were obtaining commercial insurance coverage for OPZELURA.

All full buy-down programs for OPZELURA ended effective January 31, 2023.

Product Royalty Revenues

13 unchanged sentences

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

For the years ending December 31, 2024 and 2023, our Black-Scholes assumptions included a weighted-average stock price volatility of 30% in 2024 and 32% in 2023, average expected option life of approximately five years and an estimated annualized forfeiture rate of 5%.

20 unchanged sentences

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

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

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

Given we do not record a valuation allowance on the majority of our U.S.

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

Results of Operations

9 unchanged sentences

PEMAZYRE revenues, net 81.7 83.6

MINJUVI revenues, net 37.1 19.7

MINJUVI/MONJUVI revenues, net 119.3 37.1

ZYNYZ revenues, net 3.2 1.3

8 unchanged sentences

The increase in JAKAFI product revenues from 2023 to 2024 was comprised of a volume increase of $142.3 million and a price increase of $56.1 million.

The increase in OPZELURA net product revenues from 2022 to 2023 was driven by growth in patient demand, refills and expansion in payer coverage as the launch in atopic dermatitis and vitiligo continues.

The increase for the year ended December 31, 2024 as compared to the corresponding period in 2023 was primarily driven by an increase in paid demand across all indications.

The increase in OPZELURA net product revenues from 2023 to 2024 was comprised of a volume increase of $165.3 million and a price increase of $5.1 million.

The increase was driven by continued growth in new patient starts and refills, and approximately $60.7 million of OPZELURA net product revenues for 2024 were from Europe.

The increase in MINJUVI/MONJUVI net product revenues for the year ended December 31, 2024 compared to the prior period was driven by the acquisition completed in February 2024, under which we gained exclusive global rights to tafasitamab marketed in the United States as MONJUVI (tafasitamab-cxix).

Refer to Note 5 of Notes to the Consolidated Financial Statements for further information related to the acquisition.

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

Product revenues are recorded net of sales allowances.

Product revenues are recorded net of estimated product returns, pricing discounts including rebates offered pursuant to mandatory federal and state government programs and chargebacks, prompt pay discounts and distribution fees and co-pay assistance.

Our revenue recognition policies require estimates of the aforementioned sales allowances each period.

12 unchanged sentences

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

Increases in certain government reimbursement rates are limited to a measure of inflation, and when the price of a drug increases faster than this measure of inflation it will result in a penalty adjustment factor that causes a larger sales allowance to those government related entities.

Increases in certain U.S.

government reimbursement rates are limited to a measure of inflation, and when the price of a drug increases faster than this measure of inflation it will result in a penalty adjustment factor th at causes a larger sales allowance to those government related entities.

We expect government rebates and chargebacks as a percentage of our gross product sales will continue to increase in connection with any future product price increases greater than the rate of inflation, and any such increase in these government rebates and chargebacks will have a negative impact on our reported product revenues, net.

9 unchanged sentences

We also adjust our allowance for product returns based on new information regarding actual returns as it becomes available.

We expect our sales allowances to fluctuate from quarter to quarter as a result of the Medicare Part D Coverage Gap, the volume of purchases eligible for government mandated discounts and rebates as well as changes in discount percentages which are impacted by potential future price increases, rate of inflation, and other factors.

We expect our sales allowances to fluctuate from quarter to quarter due to changes in the volume of purchases eligible for government mandated discounts and rebates as well as changes in discount percentages, which are impacted by potential future price increases, rate of inflation, and other factors, such as changes to the 340B drug pricing program.

In 2025, we expect to see a reduction in our sales allowances owed under Medicare Part D, due to changes from the Inflation Reduction Act, which effective January 1, 2025, replaced the manufacturer's coverage gap liability with a different discount structure.

Product royalty revenues on commercial sales of JAKAVI and TABRECTA by Novartis are based on net sales of licensed products in licensed territories as provided by Novartis.

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.

The increase in OLUMIANT product royalty revenues for the year ended December 31, 2023 as compared to the corresponding period in 2022 includes unfavorable changes in foreign currency exchange rates.

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

Our milestone and contract revenues were $43.0 million and $7.0 million for the years ended December 31, 2024 and 2023, respectively.

During the year ended December 31, 2024, our milestone and contract revenues were derived from a $25.0 million upfront payment received during the first quarter of 2024 upon our transfer of functional intellectual property to China Medical Systems Holdings Limited, and we recognized $18.0 million of upfront and milestone payments from two of our collaboration partners during the third quarter of 2024.

During the year ended December 31, 2023, our milestone and contract revenues were primarily derived from a regulatory milestone under the Novartis collaboration and license agreement.

During the year ended December 31, 2022, our milestone and contract revenues were derived from total regulatory milestones achieved of $135.0 million, in addition to a $30.0 million upfront payment received upon our transfer of functional intellectual property to one of our collaboration partners.

Cost of Product Revenues

8 unchanged sentences

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

Cost of product revenues increased from 2022 to 2023 due primarily to growth in net product revenues and inventory reserves for obsolescence.

The increase in cost of product revenues from 2023 to 2024 was primarily due to growth in net product revenues, increased royalty expense and increased manufacturing related costs.

Operating Expenses

4 unchanged sentences

Stock compensation 161.3 126.7

Escient acquisition related compensation expense 11.3 —

Escient IPR&D expense 679.4 —

Clinical research and outside services 1,074.7 936.7

2 unchanged sentences

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

Salary and benefits related expense increased from 2022 to 2023 due primarily to increased development headcount to sustain our development pipeline.

Salary and benefits related expense increased from 2023 to 2024 due primarily to increased 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 from 2022 to 2023 was primarily due to a decrease in one-time collaboration related expenses.

The increase in total research and development expense from 2022 to 2023 was primarily due to continued investment in our late stage development assets.

Research and development expenses include upfront and milestone expenses related to our collaborative agreements and the asset acquisition of Villaris in 2022, which were $36.7 million and $126.0 million for the years ended December 31, 2023 and 2022, respectively.

Additionally, as described in Note 5 of the Notes to the Consolidated Financial Statements, as part of the Escient acquisition, we recognized compensation expense in research and development of $11.3 million associated with the accelerated vesting for certain Escient stock awards in connection with the acquisition on our consolidated statements of operations.

Research and development expenses for the year ended December 31, 2024 also include the $679.4 million of expense related to the acquired in-process research and development assets as part of the Escient acquisition.

The increase in clinical research and outside services expense from 2023 to 2024 was primarily due to continued investment in our late-stage development assets, additional expenses resulting from the Escient acquisition and timing of certain expenses.

Research and development expenses include upfront and milestone expenses related to our collaborative agreements, which were $104.4 million and $36.7 million for the years ended December 31, 2024 and 2023, respectively.

Research and development expenses for the years ended December 31, 2024 and 2023 were net of $29.9 million and $49.1 million, respectively, of costs reimbursed by our collaborative partners.

8 unchanged sentences

Stock compensation 102.5 86.1

Escient acquisition related compensation expense 20.2 —

Other contract services and outside costs 769.9 775.1

3 unchanged sentences

The increase in other contract services and outside costs was primarily due to expenses related to promotional activities to support the launch of OPZELURA for the treatment of vitiligo.

Additionally, as described in Note 5 of the Notes to the Consolidated Financial Statements, as part of the Escient acquisition, we recognized compensation expense in selling, general and administrative expenses of $20.2 million associated with the accelerated vesting for certain Escient stock awards in connection with the acquisition on our consolidated statements of operations.

Loss on change in fair value of acquisition-related contingent consideration

3 unchanged sentences

The loss on change in fair value of the contingent consideration during the years ended December 31, 2024 and 2023 was due primarily to fluctuations in foreign currency exchange rates impacting future revenue projections of ICLUSIG and the passage of time.

(Profit) and loss sharing under collaboration agreements

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

For the year ended December 31, 2023 and 2022, our 50% share of the costs for tafasitamab was $2.0 million and $8.0 million, respectively, as recorded in (profit) and loss sharing under collaboration agreements on the consolidated statement of operations.

In February 2024, we entered into a purchase agreement with MorphoSys, as a result of which we now hold exclusive global rights for tafasitamab.

See Note 18 of Notes to the Consolidated Financial Statements for further information relating to this agreement.

Interest income and other, net

Interest income and other, net.

Interest income and other, net, for the years ended December 31, 2023 and 2022 was $172.3 million and $39.9 million, respectively.

The increase in interest income and other, net primarily relates to an increase in interest earned on our cash equivalents and marketable securities generally due to higher interest rates.

Unrealized gain (loss) on long term investments.

Unrealized gains and losses on long term investments will fluctuate from period to period, based on the change in fair value of the securities we hold in our publicly held collaboration partners.

The following table provides a summary of those unrealized gains and (losses):

Profit sharing from co-commercialization activities

Under the former collaboration and license agreement with MorphoSys, which was executed in March 2020 and continued through February 5, 2024 as described further in Note 5 of the Notes to the Consolidated Financial Statements, we and MorphoSys were both responsible for the commercialization efforts of tafasitamab in the United States and shared equally the profits and losses from the co-commercialization efforts.

For the period from January 1, 2024 through February 5, 2024, our 50% share of the profits for tafasitamab was $1.0 million, as recorded in (profit) and loss sharing under collaboration agreements on the consolidated statement of operations.

For the year ended December 31, 2023, our 50% share of the costs for tafasitamab was $2.0 million, as recorded in (profit) and loss sharing under collaboration agreements on the consolidated statement of operations.

Under the collaboration agreement with Syndax, as described further in Note 7 of the Notes to the Consolidated Financial Statements, we and Syndax are both responsible for the co-commercialization of axatilimab in the United States and share equally in the profits and losses from those efforts.

We are the principal in the U.S.

axatilimab co-commercialization efforts and will record 100% of all product revenues and associated costs in accordance with our profit sharing from co-commercialization activities accounting policy outlined in Note 1 of the Notes to the Consolidated Financial Statements.

For the year ended December 31, 2024, there were no revenues from sales of axatilimab, however, there was $22.4 million of expense incurred in connection with the co-commercialization efforts, 50% of which is recorded as selling, marketing and administrative expense in our consolidated statement of operations.

Non-operating Income and Expenses

Interest income

Interest income for the years ended December 31, 2024 and 2023 was $128.7 million and $158.4 million, respectively.

The decrease in Interest income for the year ended December 31, 2024 primarily relates to a decrease in interest earned on our cash equivalents and marketable securities generally due to lower cash equivalent and marketable securities balance in the second half of 2024 as compared to the corresponding period in 2023.

Realized and unrealized gain (loss) on equity investments

Realized and unrealized gains and losses on equity investments will fluctuate from period to period, based on sales of securities and the change in fair value of the securities we hold in our publicly held collaboration partners.

The following table provides a summary of those realized and unrealized gains and (losses):

For the Years Ended,

1 unchanged sentence

Agenus $ (8.2) $ (18.9)

Calithera (0.2) (0.9)

Merus 106.1 45.2

1 unchanged sentence

Syndax (11.9) (5.5)

Syros 0.4 (2.7)

Total unrealized gain (loss) on long term investments $ 43.9 $ (87.6)

Other (0.7) 0.2

Total realized and unrealized gain on equity investments $ 116.0 $ 43.9

During the year ended December 31, 2024, we sold all remaining investments in Agenus Inc., Merus and MorphoSys AG as described further in in Note 7 of the Notes to the Consolidated Financial Statements.

Provision for income taxes

The provision for income taxes for the years ended December 31, 2024 and 2023 was $284.0 million and $236.6 million, respectively.

Our effective tax rate of 28.4% for the year ended December 31, 2023 decreased as compared to 35.6% for the prior year period primarily due to the dilution of the rate impact of foreign losses with no associated tax benefit, an increase in the tax rate benefits associated with research and development and orphan drug tax credits and a decrease in certain non-deductible expenses.

Our effective tax rates for 2023 and 2022 were higher than the U.S.

statutory rate primarily due to foreign losses with no associated tax benefit (i.e., full valuation allowance) and an increase in our valuation allowance against certain U.S.

Our effective tax rate of 89.7% for the year ended December 31, 2024 increased as compared to 28.4% for the prior year primarily due to non-deductible charges of $710.9 million associated with the Escient acquisition.

Our effective tax rate for 2024 was higher than the U.S.

statutory rate primarily due to non-deductible charges of $710.9 million associated with the Escient acquisition.

Our effective tax rate for 2023 was higher than the U.S.

statutory rate primarily due to foreign losses with no associated tax benefit and an increase in our valuation allowance against certain U.S.

federal and state deferred tax assets.

16 unchanged sentences

Cash provided by operating activities.

The decrease in cash provided by operating activities from 2022 to 2023 was due primarily to changes in working capital.

The decrease in cash provided by operating activities from 2023 to 2024 was due primarily to the Escient acquisition and changes in working capital.

Cash used in investing activities.

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

During 2023, net cash used in investing activities was $207.7 million, which represents purchases of marketable securities of $456.0 million, payments for intangible assets of $15.0 million, capital expenditures of $32.5 million, and purchases of long term investments of $10.0 million, offset in part by the sale and maturity of marketable securities of $305.8 million.

During 2022, net cash used in investing activities was $78.5 million, which represents purchases of marketable securities of $79.9 million, capital expenditures of $77.8 million, offset in part by the sale and maturity of marketable securities of $79.2 million.

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

During 2024, net cash provided by investing activities was $157.5 million, which primarily represented sales of equity investments of $284.8 million and sale and maturity of marketable securities of $231.3 million, offset in part by purchases of marketable securities of $258.4 million, payments for intangible assets of $13.9 million, and capital expenditures of $86.3 million.

During 2023, net cash used in investing activities was $207.7 million, which represents purchases of marketable securities of $456.0 million, capital expenditures of $32.5 million, payments for intangible assets of $15.0 million, and purchases of long term investments of $10.0 million, offset in part by the sale and maturity of marketable securities of $305.8 million.

Cash used in financing activities.

During 2023, net cash used in financing activities was $20.0 million, and in 2022, net cash used in financing activities was $0.8 million, respectively, consisting primarily of cash paid to ARIAD/Takeda for contingent consideration, offset in part by proceeds from the issuance of common stock under our stock plans net of tax withholdings.

During 2024, net cash used in financing activities was $2.0 billion and was primarily driven by expenditures associated with the share repurchase of $2.0 billion.

During 2023, net cash used in financing activities was $20.0 million, consisting primarily of cash paid to ARIAD/Takeda for contingent consideration, offset in part by proceeds from the issuance of common stock under our stock plans net of tax withholdings.

Our capital expenditures for construction activities and our non-operating contractual operating and finance lease obligations are discussed in Note 8 of Notes to the Consolidated Financial Statements.

In August 2021, we entered into a $500.0 million, three-year senior unsecured revolving credit facility, which was subsequently amended in May 2023.

In August 2021, we entered into a $500.0 million, senior unsecured revolving credit facility, which was subsequently amended in May 2023 and June 2024 (as amended, the “Credit Agreement”).

The June 2024 amendment to the Credit Agreement extended the maturity date of the revolving credit facility from August 2024 to June 2027.

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

As of December 31, 2024, we had no outstanding borrowings and were in compliance with all covenants under this facility.

The amendment to the credit facility is discussed further in Note 16 of Notes to the Consolidated Financial Statements.

The Credit Agreement is described further in Note 16 of Notes to the Consolidated Financial Statements.

Due to the full utilization of our research and development and orphan drug tax credit carryforwards generated in prior years, our U.S.

12 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis