INCYTE CORP 10-K

Item 8. Financial Statements and Supplementary Data INDEX Page Consolidated Financial Statements of Incyte Corporation Report of Ernst & Young LLP, Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 80 Consolidated Balance Sheets as of December 31, 202 4 and 20 23 83 Consolidated Statements of Operations for the years ended December 31, 202 4 , 202 3 and 20 2 2 84 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 202 4 , 202 3 and 20 2 2 85 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 202 4 , 202 3 and 20 2 2 86 Consolidated Statements of Cash Flows for the years ended December 31, 202 4 , 202 3 and 20 2 2 87 Notes to the Consolidated Financial Statements 88 79 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Incyte Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Incyte Corporation (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 10, 2025 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Allowances for rebates owed pursuant to the Medicaid Drug Rebate Program in the U.S. Description of the Matter As discussed in Note 1 to the consolidated financial statements, the Company recognizes revenues for product received by its customers net of allowances for customer credits, including estimated rebates, chargebacks, discounts, returns, distribution service fees, patient assistance programs, and government rebates. Liabilities related to sales allowances are presented within accrued and other current liabilities on the consolidated balance sheet and totaled $431.8 million as of December 31, 2024. Auditing the allowances for rebates owed pursuant to the Medicaid Drug Rebate Program in the U.S. was complex and highly judgmental due to the significant estimation uncertainty involved in management’s assumptions, including the levels of expected utilization of these rebates based on the amount of drugs sold to eligible patients, as well as the complexity of the government mandated calculations. The allowances for rebates owed pursuant to the Medicaid Drug Rebate Program in the U.S. are sensitive to these significant assumptions and calculations. 80 Table of Contents How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s review of the allowances for rebates owed pursuant to the Medicaid Drug Rebate Program in the U.S. For example, we tested controls over management’s review of the significant assumptions, such as the utilization of these rebates as well as controls over management’s review of the application of the government mandated calculations. To test the allowances for rebates owed pursuant to the Medicaid Drug Rebate Program in the U.S., we performed audit procedures that included, among others, evaluating the methodologies used and testing the significant assumptions discussed above. We compared the significant assumptions used by management to historical trends, evaluated the change in the accruals from prior periods, and assessed the historical accuracy of management’s estimates against actual results. We also tested the completeness and accuracy of the underlying data used in the Company’s calculations through reconciliation to third-party invoices, claims data and actual cash payments. In addition, we involved our governmental pricing specialists to assist in evaluating management’s methodology and calculations used to measure the estimated rebates. Evaluating the fair value of the in-process research and development assets acquired in the Escient Pharmaceutics, Inc. acquisition Description of the Matter As described in Note 5 to the consolidated financial statements, on May 30, 2024, the Company acquired all of the outstanding shares of common stock of Escient Pharmaceuticals, Inc. (“Escient”), a clinical-stage drug development company, for $782.5 million in cash consideration. The Company determined substantially all of the fair value of the gross assets acquired was concentrated in Escient’s lead clinical-stage molecule, EP262. Therefore, the Company accounted for the Escient transaction as an asset acquisition under U.S. GAAP. The acquired in-process research and development asset for EP262 was valued at $644.8 million, with an additional $34.6 million of fair value allocated to the secondary molecule, EP547. As both acquired in-process research and development assets do not have an alternative future use at the acquisition date, the Company recognized the full amount of $679.4 million as research and development expenses. Auditing the Company’s fair value of the in-process research and development assets acquired in the Escient transaction was judgmental due to the significant estimation uncertainty and subjectivity of the significant assumptions used by management in determining the present value of future discounted cash flows. The significant assumptions used in the calculation of the fair value of the in-process research and development assets of Escient included the amount of future product revenues, the probability of success, and the discount rate. The fair value calculation of the in-process research and development assets are sensitive to these significant assumptions. 81 Table of Contents How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s review of the estimation of the fair value of the in-process research and development assets of Escient. For example, we tested controls over management’s review of the significant assumptions, such as the amount of future product revenues, the probability of success, and the discount rate, and over the completeness and accuracy of the data used in the valuation. To test the fair value of the in-process research and development assets, we performed audit procedures that included, among others, evaluating the Company's methodologies used and testing the significant assumptions discussed above. For example, we compared the significant assumptions used by management to current published scientific studies, industry, market and economic trends, and to other relevant factors. In addition, to evaluate the probability of success, we considered the phase of development of the in-process research and development assets against third-party data regarding clinical trial success rates. We also performed various sensitivity analyses of the significant assumptions to evaluate the change in the fair value of the in-process research and development assets resulting from changes in the assumptions. In addition, we involved our valuation specialists to assist in our evaluation of the methodologies and the discount rates used in the fair value estimate. /s/ Ernst & Young LLP We have served as the Company's auditor since 1991. Philadelphia, Pennsylvania February 10, 2025 82 Table of Contents INCYTE CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except number of shares and par value) December 31, 2024 2023 ASSETS Current assets: Cash and cash equivalents $ 1,687,829 $ 3,213,376 Marketable securities—available-for-sale (amortized cost $ 469,917 and $ 442,816 as of December 31, 2024 and 2023 respectively; allowance for credit losses $ 0 as of December 31, 2024 and 2023) 470,263 442,667 Accounts receivable 853,154 743,557 Inventory 58,872 62,972 Prepaid expenses and other current assets 168,912 182,830 Total current assets 3,239,030 4,645,402 Restricted cash 1,622 1,845 Long term equity investments 18,814 187,716 Inventory 348,327 206,965 Property and equipment, net 763,411 751,513 Finance lease right-of-use assets, net 30,803 25,535 Other intangible assets, net 113,803 123,545 Goodwill 155,593 155,593 Deferred income tax asset 762,071 631,886 Other assets, net 10,848 52,107 Total assets $ 5,444,322 $ 6,782,107 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 197,465 $ 109,601 Accrued compensation 188,677 153,348 Accrued and other current liabilities 1,212,048 935,569 Finance lease liabilities 4,419 3,439 Acquisition-related contingent consideration 39,238 38,422 Total current liabilities 1,641,847 1,240,379 Acquisition-related contingent consideration 153,762 173,578 Finance lease liabilities 33,542 29,162 Other liabilities 167,543 149,151 Total liabilities 1,996,694 1,592,270 Commitments and contingencies (Note 16) Stockholders’ equity: Preferred stock, $ 0.001 par value; 5,000,000 shares authorized; none issued or outstanding as of December 31, 2024 and 2023 — — Common stock, $ 0.001 par value; 400,000,000 shares authorized; 193,434,305 and 224,286,862 shares issued and outstanding as of December 31, 2024 and 2023, respectively 193 224 Additional paid-in capital 4,533,437 5,016,122 Accumulated other comprehensive (loss) income ( 13,121 ) 13,106 (Accumulated deficit) retained earnings ( 1,072,881 ) 160,385 Total stockholders’ equity 3,447,628 5,189,837 Total liabilities and stockholders’ equity $ 5,444,322 $ 6,782,107 See accompanying notes. 83 Table of Contents INCYTE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) Year Ended December 31, 2024 2023 2022 Revenues: Product revenues, net $ 3,618,888 $ 3,165,168 $ 2,746,897 Product royalty revenues 579,329 523,481 482,738 Milestone and contract revenues 43,000 7,000 165,000 Total revenues 4,241,217 3,695,649 3,394,635 Costs, expenses and other: Cost of product revenues (including definite-lived intangible amortization) 312,068 254,990 206,997 Research and development 2,606,848 1,627,594 1,585,936 Selling, general and administrative 1,242,157 1,161,293 1,002,140 Loss on change in fair value of acquisition-related contingent consideration 19,803 29,202 12,149 (Profit) and loss sharing under collaboration agreements ( 1,025 ) 2,045 7,973 Total costs, expenses and other 4,179,851 3,075,124 2,815,195 Income from operations 61,366 620,525 579,440 Interest income 128,710 158,414 40,451 Interest expense ( 2,280 ) ( 2,551 ) ( 2,666 ) Realized and unrealized gain (loss) on equity investments 116,025 43,893 ( 87,590 ) Other, net 12,809 13,934 ( 519 ) Income before provision for income taxes 316,630 834,215 529,116 Provision for income taxes 284,015 236,616 188,456 Net income $ 32,615 $ 597,599 $ 340,660 Net income per share: Basic $ 0.16 $ 2.67 $ 1.53 Diluted $ 0.15 $ 2.65 $ 1.52 Shares used in computing net income per share: Basic 207,110 223,628 222,004 Diluted 210,530 225,928 223,958 See accompanying notes. 84 Table of Contents INCYTE CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Year Ended December 31, 2024 2023 2022 Net income $ 32,615 $ 597,599 $ 340,660 Other comprehensive income (loss): Foreign currency translation (loss) gain ( 17,723 ) 25,772 13,065 Unrealized gain (loss) on marketable securities, net of tax 495 4,888 ( 3,918 ) Defined benefit pension (loss) gain, net of tax ( 8,999 ) ( 32,623 ) 25,376 Other comprehensive (loss) income ( 26,227 ) ( 1,963 ) 34,523 Comprehensive income $ 6,388 $ 595,636 $ 375,183 See accompanying notes. 85 Table of Contents INCYTE CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except number of shares) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity Balances at December 31, 2021 $ 221 $ 4,567,111 $ ( 19,454 ) $ ( 777,874 ) $ 3,770,004 Issuance of 1,348,122 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 308,413 shares of Common Stock under the ESPP 2 34,812 — — 34,814 Issuance of 5,751 shares of Common Stock for services rendered — 427 — — 427 Stock compensation — 189,691 — — 189,691 Other comprehensive income — — 34,523 — 34,523 Net income — — — 340,660 340,660 Balances at December 31, 2022 $ 223 $ 4,792,041 $ 15,069 $ ( 437,214 ) $ 4,370,119 Issuance of 1,154,974 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 380,145 shares of Common Stock under the ESPP 1 7,285 — — 7,286 Issuance of 5,024 shares of Common Stock for services rendered — 321 — — 321 Stock compensation — 216,475 — — 216,475 Other comprehensive loss — — ( 1,963 ) — ( 1,963 ) Net income — — — 597,599 597,599 Balances at December 31, 2023 $ 224 $ 5,016,122 $ 13,106 $ 160,385 $ 5,189,837 Issuance of 1,776,728 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 453,312 shares of Common Stock under the ESPP 2 8,997 — — 8,999 Issuance of 5,062 shares of Common Stock for services rendered — 321 — — 321 Stock compensation — 266,058 — — 266,058 Repurchase of common stock ( 33 ) ( 758,061 ) — ( 1,265,881 ) ( 2,023,975 ) Other comprehensive loss — — ( 26,227 ) — ( 26,227 ) Net income — — — 32,615 32,615 Balances at December 31, 2024 $ 193 $ 4,533,437 $ ( 13,121 ) $ ( 1,072,881 ) $ 3,447,628 See accompanying notes. 86 Table of Contents INCYTE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2024 2023 2022 Cash flows from operating activities: Net income $ 32,615 $ 597,599 $ 340,660 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 89,248 82,660 67,855 Stock-based compensation 266,058 215,889 188,420 Deferred income taxes ( 85,553 ) ( 158,898 ) 57,091 Other, net ( 9,053 ) 22,579 17,366 Realized and unrealized (gain) loss on equity investments ( 116,025 ) ( 43,893 ) 87,590 Loss on change in fair value of acquisition-related contingent consideration 19,803 29,202 12,149 Changes in operating assets and liabilities: Accounts receivable ( 111,586 ) ( 98,678 ) ( 28,579 ) Prepaid expenses and other assets 10,365 ( 42,491 ) ( 30,739 ) Inventory ( 127,633 ) ( 170,151 ) ( 67,504 ) Accounts payable 88,159 ( 167,945 ) 105,436 Accrued and other liabilities 278,939 230,614 220,196 Net cash provided by operating activities 335,337 496,487 969,941 Cash flows from investing activities: Purchase of long term investments — ( 10,000 ) — Sale of equity investments 284,781 45 — Capital expenditures ( 86,263 ) ( 32,486 ) ( 77,833 ) Payments for intangible assets ( 13,900 ) ( 15,000 ) — Purchases of marketable securities ( 258,370 ) ( 456,020 ) ( 79,860 ) Sale and maturities of marketable securities 231,269 305,784 79,151 Net cash provided by (used in) investing activities 157,517 ( 207,677 ) ( 78,542 ) Cash flows from financing activities: Repurchase of common stock ( 2,004,790 ) — — Proceeds from issuance of common stock under stock plans 49,301 35,836 61,115 Tax withholdings related to restricted and performance share vesting ( 40,302 ) ( 28,550 ) ( 26,301 ) Payment of finance lease liabilities ( 3,798 ) ( 3,360 ) ( 2,862 ) Payment of contingent consideration ( 21,958 ) ( 23,959 ) ( 32,746 ) Net cash used in financing activities ( 2,021,547 ) ( 20,033 ) ( 794 ) Effect of exchange rates on cash, cash equivalents, and restricted cash 2,923 ( 6,676 ) 3,355 Net (decrease) increase in cash, cash equivalents, and restricted cash ( 1,525,770 ) 262,101 893,960 Cash, cash equivalents, and restricted cash at beginning of period 3,215,221 2,953,120 2,059,160 Cash, cash equivalents, and restricted cash at end of period $ 1,689,451 $ 3,215,221 $ 2,953,120 Supplemental Schedule of Cash Flow Information Income taxes paid $ 373,056 $ 378,206 $ 136,242 Unpaid purchases of property and equipment $ 2,597 $ 5,052 $ 3,493 Unpaid excise tax on repurchase of common stock $ 19,185 $ — $ — Leased assets obtained in exchange for new operating lease liabilities $ 9,674 $ 5,275 $ 6,745 Leased assets obtained in exchange for new finance lease liabilities $ 8,906 $ 2,257 $ 1,862 See accompanying notes. 87 Table of Contents INCYTE CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 1. Organization and Summary of Significant Accounting Policies 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), 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 operations are treated as one operating segment. Principles of Consolidation. The 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. Foreign Currency Translation. Operations in non-U.S. entities are recorded in the functional currency of each entity. For financial reporting purposes, the functional currency of an entity is determined by a review of the source of an entity's most predominant cash flows. The results of operations for any non-U.S. dollar functional currency entities are translated from functional currencies into U.S. dollars using the average currency rate during each month. Assets and liabilities are translated using currency rates at the end of the period. Adjustments resulting from translating the financial statements of our foreign entities that use their local currency as the functional currency into U.S. dollars are reflected as a component of other comprehensive income (loss). Transaction gains and losses are recorded in other income (expense), net, in the consolidated statements of operations. 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. Reclassifications. Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. Concentrations of Credit Risk. Cash, cash equivalents, marketable securities, and trade receivables are financial instruments which potentially subject us to concentrations of credit risk. The estimated fair value of financial instruments approximates the carrying value based on available market information. By policy, we invest our excess available funds primarily in U.S. government debt securities which are securities issued or guaranteed by the U.S. government and money market funds that meet certain guidelines, which limits exposure to potential credit losses. Our receivables mainly relate to our product sales and collaborative agreements with pharmaceutical companies. We have not experienced any significant credit losses on cash, cash equivalents, marketable securities, or trade receivables to date and do not require collateral on receivables. Current Expected Credit Losses. Financial assets measured at amortized cost are assessed for future expected credit losses under guidance within ASC 326, Financial Instruments – Credit Losses , to determine if application of an expected credit losses reserve is necessary. On a quarterly basis, receivables that resulted from revenue transactions within the scope of ASC 606, Revenue from Contracts with Customers , and recognized on an amortized cost basis are reviewed on a customer-level basis to analyze expectations of future collections based upon past history of collections, payment, aging of receivables and viability of the customer to continue payment, as well as estimates of future economic conditions. Receivables generally consist of two types: receivables from collaborative agreements, including milestones, reimbursements for agreed-upon activities and sales royalties; and receivables from customer product sales. Collaborative agreement receivables are closely monitored relationships with select, reputable industry peers. Collection of receivables is assessed within each collaborative partnership on a quarterly basis, including evaluation of each entity’s credit quality, financial health and past history of payment. Customer product sales receivables are independently evaluated on a monthly basis, on which unusual items or aged receivables are closely monitored for signs of credit deterioration, or indications of payment refusal. Customer product sales are with specialty pharmaceutical distributors, wholesalers, and certain public and private institutions, some of which whose financial obligations are funded by various government agencies. 88 Table of Contents Cash and Cash Equivalents. Cash and cash equivalents are held in banks or in custodial accounts with banks. Cash equivalents are defined as all liquid investments and money market funds with maturity from date of purchase of 90 days or less that are readily convertible into cash. Marketable Securities—Available-for-Sale. Our marketable securities consist of investments in U.S. government debt securities that are classified as available-for-sale. Available-for-sale securities are carried at fair value, based on quoted market prices and observable inputs, with unrealized gains and losses, net of tax, reported as a separate component of stockholders’ equity. We classify marketable securities that are available for use in current operations as current assets on the consolidated balance sheets. Realized gains and losses and declines in value judged to be other than temporary for available-for-sale securities are included in other income (expense), net on the consolidated statements of operations. The cost of securities sold is based on the specific identification method. Accounts Receivable. As of December 31, 2024 and December 31, 2023, we had a de minimis amount of allowance for doubtful accounts. We provide an allowance for doubtful accounts based on management’s assessment of the collectability of specific customer accounts, which includes consideration of the credit worthiness and financial condition of those customers, aging of such receivables, history of collectability with the customer and the general economic environment. We record an allowance to reduce the receivables to the amount that is expected to be collected. Inventory. Inventories are valued at the lower of cost and net realizable value. We use the specific identification method to account for commercial product manufactured by third-party contractors, which is our predominant source of inventory. We apply the first-in, first-out (FIFO) method to inventories produced at our internal manufacturing facility located in Yverdon, Switzerland. Inventories consist of costs of materials, including shipping and handling fees, third-party contract manufacturing, and allocable overhead associated with the production of our commercialized products. We capitalize inventory after regulatory approval from U.S. Food and Drug Administration (FDA), European Medicines Agency (EMA) or Japanese Ministry of Health, Labour and Welfare (MHLW) as the related costs are expected to be recoverable through the commercialization of the product. Costs incurred prior to approval are recorded as research and development expense in our consolidated statements of operations. Raw materials, active pharmaceutical ingredients ("API") and work-in-process inventory are monitored for obsolescence, as applicable, and generally the shelf life of the finished goods inventory is approximately 36 months from the start of manufacturing of the finished goods, with the exception of OPZELURA, ZYNYZ and NIKTIMVO, which currently has an approximate shelf life of 24 months. We evaluate for potential excess inventory by analyzing current and future product demand relative to the remaining product shelf life. We build demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance and patient usage. We classify inventory as current on the consolidated balance sheets when we expect inventory to be consumed for commercial use within the next twelve months. Variable Interest Entities. We perform an initial and ongoing evaluation of the entities with which we have variable interests, such as equity ownership, in order to identify entities (i) that do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support or (ii) in which the equity investors lack an essential characteristic of a controlling financial interest as variable interest entities (“VIE” or “VIEs”). If an entity is identified as a VIE, we perform an assessment to determine whether we have both (i) the power to direct activities that most significantly impact the VIE’s economic performance and (ii) have the obligation to absorb losses from or the right to receive benefits of the VIE that could potentially be significant to the VIE. If both of these criteria are satisfied, we are identified as the primary beneficiary of the VIE. As of December 31, 2024, there were no entities in which we held a variable interest which we determined to be VIEs. Equity Investments. Our equity investments consist of investments in common stock of publicly-held companies with whom we have entered into collaboration and license agreements. We classify our equity investments in common stock of publicly-held companies as either short term investments, for those investments which we intend to sell within one year, or long term investments, for those investments which we intend to hold for longer than one year, on the consolidated balance sheets. Our equity investments are accounted for at fair value using readily determinable pricing available on a securities exchange on the consolidated balance sheets. All changes in fair value are reported in the consolidated statements of operations as a realized and unrealized gain (loss) on equity investments. 89 Table of Contents In assessing whether we exercise significant influence over any of the companies in which we hold equity investments, we consider the nature and magnitude of our investment, any voting and protective rights we hold, any participation in the governance of the other company, and other relevant factors such as the presence of a collaboration or other business relationship. Currently, none of our equity investments in publicly-held companies are considered relationships in which we have the ability to exercise significant influence. Property and Equipment, net. Property and equipment, net is stated at cost, less accumulated depreciation and amortization. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are amortized over the shorter of the estimated useful life of the assets or lease term. Lease Accounting. All leases with a lease term greater than 12 months, regardless of lease type classification, are recorded as an obligation on the balance sheet with a corresponding right-of-use asset. Both finance and operating leases are reflected as liabilities on the commencement date of the lease based on the present value of the lease payments to be made over the lease term. Current operating lease liabilities are reflected in accrued and other current liabilities and noncurrent operating lease liabilities are reflected in other liabilities on the consolidated balance sheet. Right-of-use assets are valued at the initial measurement of the lease liability, plus any initial direct costs or rent prepayments, minus lease incentives and any deferred lease payments. Operating lease right-of-use assets are recorded in property and equipment, net on the consolidated balance sheet and lease cost is recognized on a straight-line basis. For finance leases, expense is recognized as separate amortization and interest expense, with higher interest expense in the earlier periods of a lease. Leases with an initial term of 12 months or less are not recorded on the balance sheet and we recognize lease expense for these leases on a straight-line basis over the term of the lease. In determining whether a contract contains a lease, asset and service agreements are assessed at onset and upon modification for criteria of specifically identified assets, control and economic benefit. Other Intangible Assets, net. Other intangible assets, net consist of licensed intellectual property rights acquired in business combinations, which are reported at acquisition date fair value, less accumulated amortization, as well as milestone payments made to collaboration partners incurred at or after the product has obtained regulatory approval. Intangible assets with finite lives are amortized over their estimated useful lives using the straight-line method. Intangible assets with finite lives are tested for recoverability whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Impairment of Long-Lived Assets. Long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If indicators of impairment are present, the asset is tested for recoverability by comparing the carrying value of the asset to the related estimated undiscounted future cash flows expected to be derived from the asset. If the expected cash flows are less than the carrying value of the asset, then the asset is considered to be impaired and its carrying value is written down to fair value, based on the related estimated discounted future cash flows. Goodwill. Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. Goodwill is not amortized but is tested for impairment at the reporting unit level at least annually as of October 1 or when a triggering event occurs that could indicate a potential impairment by assessing qualitative factors or performing a quantitative analysis in determining whether it is more-likely-than-not that the fair value of net assets are below their carrying amounts. A reporting unit is the same as, or one level below, an operating segment. Our operations are currently comprised of a single, entity wide reporting unit. We completed our most recent annual impairment assessment as of October 1, 2024 and determined that the carrying value of our goodwill was not impaired. Income Taxes. We account for income taxes using the asset and liability approach which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts reportable for income tax purposes. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The primary factors used to assess the likelihood of realization are our recent history of cumulative earnings or losses, expected reversals of taxable temporary timing differences, forecasts of future taxable income and available tax planning strategies that could be implemented to realize the deferred tax assets. The tax effects of global intangible low-taxed income from certain foreign subsidiaries is recognized in the income tax provision in the period the tax arises. 90 Table of Contents We recognize the tax benefit from an uncertain tax position only if it is more-likely-than-not that the position will be sustained upon examination by the taxing authorities, including resolutions of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit that is recorded for these positions is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. We adjust the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions. Any interest and penalties on uncertain tax positions are included within the tax provision. Net Income Per Share. Our basic and diluted net income per share is calculated by dividing the net income by the weighted average number of shares of common stock outstanding during all periods presented. Options to purchase stock, restricted stock units and performance stock units are included in diluted earnings per share calculations, unless the effects are anti-dilutive. Accumulated Other Comprehensive Income (Loss). Accumulated other comprehensive income (loss) consists of unrealized gains or losses on our marketable debt securities that are classified as available-for-sale, foreign currency translation gains or losses and unrecognized actuarial gains or loss related to our defined benefit pension plan. Revenue Recognition. Revenue-generating contracts are assessed under ASC 606, Revenue from Contracts with Customers , to identify distinct performance obligations, determine the transaction price of the contract and allocate the transaction price to each of the distinct performance obligations. Revenue is recognized when we have satisfied a performance obligation through transferring control of the promised good or service to a customer. Control, in this instance, may mean the ability to prevent other entities from directing the use of, and receiving benefit from, a good or service. We apply the following five-step model in order to determine this amount: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation, which for the Company is generally at a point in time. We also assess collectability based primarily on the customer’s payment history and on the creditworthiness of the customer. Product Revenues Our product revenues consist of sales of JAKAFI, MONJUVI, OPZELURA, PEMAZYRE and ZYNYZ in the U.S., sales of MINJUVI, PEMAZYRE, ICLUSIG and OPZELURA in Europe, sales of OPZELURA in Canada, and sales of PEMAZYRE in Japan. Product revenues are recognized at a point in time once we satisfy the performance obligation and control is transferred under the revenue recognition criteria as described above. We sell JAKAFI, MONJUVI, OPZELURA, PEMAZYRE and ZYNYZ to our customers in the U.S., which include specialty and retail pharmacies, specialty distributors and wholesalers. We sell MINJUVI, PEMAZYRE, ICLUSIG and OPZELURA to our customers in the European Union and certain other jurisdictions, which include retail pharmacies, hospital pharmacies and distributors. We sell PEMAZYRE in Japan to an exclusive wholesaler. We recognize revenues for product received by our customers net of allowances for customer credits, including estimated rebates, chargebacks, discounts, returns, distribution service fees, patient assistance programs, and government rebates, such as the Medicaid Drug Rebate Program and Medicare Part D coverage gap reimbursements in the U.S. and mandated discounts in Europe. Product shipping and handling costs are included in cost of product revenues. Customer Credits: Our customers are offered various forms of consideration, including allowances, service fees and prompt payment discounts. We expect our customers will earn prompt payment discounts and, therefore, we deduct the full amount of these discounts from total product sales when revenues are recognized. Service fees are also deducted from total product sales as they are earned. Rebates and Discounts: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program in the U.S. and mandated discounts in Europe in markets where government-sponsored healthcare systems are the primary payers for healthcare. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or legal requirements with public sector benefit providers. The accrual for rebates is based on statutory discount rates and expected utilization as well as historical data we have accumulated since product launches. 91 Table of Contents Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarters’ unpaid rebates. If actual future rebates vary from estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment. Chargebacks: Chargebacks are discounts that occur when certain indirect contracted customers, which currently consist primarily of group purchasing organizations, Public Health Service institutions, non-profit clinics, and Federal government entities purchasing via the Federal Supply Schedule, purchase directly from our wholesalers. Contracted customers generally purchase the product at a discounted price. The wholesalers, in turn, charges back to us the difference between the price initially paid by the wholesalers and the discounted price paid by the contracted customers. In addition to actual chargebacks received, we maintain an accrual for chargebacks based on the estimated contractual discounts on the inventory levels on hand in our distribution channel. If actual future chargebacks vary from these estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment. Medicare Part D Coverage Gap: Medicare Part D prescription drug benefit mandates manufacturers to fund a portion of the Medicare Part D insurance coverage gap for prescription drugs sold to eligible patients. Our estimates for the expected Medicare Part D coverage gap are based on historical invoices received and in part from data received from our customers. Funding of the coverage gap is generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarters. If actual future funding varies from estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment. Co-payment Assistance: Patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance. We accrue a liability for co-payment assistance based on actual program participation and estimates of program redemption using data provided by third-party administrators. Product Royalty Revenues Royalty revenues on commercial sales for ruxolitinib (marketed as JAKAVI® outside the United States) by Novartis Pharmaceutical International Ltd. (“Novartis”) are based on net sales of licensed products in licensed territories as provided by Novartis. Royalty revenues on commercial sales for baricitinib (marketed as OLUMIANT) by Eli Lilly and Company (“Lilly”) are based on net sales of licensed products in licensed territories as provided by Lilly. Royalty revenues on commercial sales for capmatinib (marketed as TABRECTA®) by Novartis are based on net sales of licensed products in the licensed territories as provided by Novartis. Royalty revenues on commercial sales for pemigatinib (marketed as PEMAZYRE®) by Innovent Biologics, Inc. (“Innovent”) are based on net sales of licensed products in licensed territories as provided by Innovent. We recognize royalty revenues in the period the sales occur. Milestone and Contract Revenues For each collaborative research, development and/or commercialization agreement that results in revenue under the guidance of ASC 606, we identify all material performance obligations, which may include the license to intellectual property and know-how, research and development activities and/or other activities. In order to determine the transaction price, in addition to any upfront payment, we estimate the amount of variable consideration, including milestone payments, at the outset of the contract utilizing the most likely amount method. The most likely amount method is used since the milestone payments have a binary outcome (i.e., we receive all or none of the milestone payment). We constrain the estimate of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not occur. When determining if variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue. In making these assessments, management considers the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required. Once the estimated transaction price is established, amounts are allocated to the performance obligations that have been identified. The transaction price is generally allocated to each separate performance obligation on a relative standalone selling price basis. Out-licensing arrangements contain the right to use functional intellectual property, which is the underlying performance obligation of these collaborative arrangements. If the license of our intellectual property is determined to be distinct from other performance obligations in the arrangement, the functional intellectual property that is transferred to the collaborative partner at the onset of the arrangement is concluded to have significant standalone functionality and value at the point in time at which the intellectual property is made available to the collaborative partner. For licenses that are not 92 Table of Contents distinct from other obligations identified in the arrangement, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time. If the combined performance obligation is satisfied over time, we apply an appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront license fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. For each of the three years ended December 31, 2024, we had no revenues from intellectual property licenses recognized over time. For milestone revenues related to sales-based achievements, we recognize the milestone revenues in the corresponding period of the product sale, in accordance with the guidance of ASC 606-10-55-65 for contracts that include a license to intellectual property and the license is the predominant item to which the product sale relates. Subsequent to the transfer of the intellectual property, we may earn milestones through achievement of pre-specified developmental or regulatory events and, as such, milestones are accounted for as variable consideration. We include developmental or regulatory milestones in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the milestone is subsequently resolved. Under the agreements currently in place, we do not consider these events to be within our control, but rather dependent upon the development activities of our collaborative partners and the decisions made by regulatory agencies. Accordingly, these milestones are not included in the transaction price until the counterparty, or third-party in the event of a regulatory submission, confirms the satisfaction or completion of the milestone triggering event. Given the high level of uncertainty of achievement, variable consideration associated with milestones are fully constrained until confirmation of the satisfaction or completion of the milestone by the third-party. Generally, the milestone events contained in our collaboration agreements coincide with the progression of our drugs from development, to regulatory approval and then to commercialization. The value of these milestones is dictated within the contract and is fixed upon achievement and reflects the amount of consideration which we expect to be entitled to in exchange for the satisfaction of that milestone. The process of successfully discovering a new development candidate, having it approved and successfully commercialized is highly uncertain. As such, the milestone payments we may earn from our partners involve a significant degree of risk to achieve and therefore, subsequent milestone payments due to Incyte are recognized as revenue at the point in time when such milestones are achieved. Our collaboration agreements may also include an option for the collaborative partner to elect to participate in research and development activities, such as shared participation in additional clinical trials using the compound. The presence of additional options for future participatory activities are assessed to determine if they represent material rights offered by us to the collaborative partner. We also determine whether the reimbursement of research and development expenses should be accounted for as collaborative revenues or an offset to research and development expenses in accordance with the provisions of gross or net revenue presentation and recognize the corresponding revenues or records the corresponding offset to research and development expenses as incurred. Our collaborative agreements may also include provisions for additional future collaborative efforts, such as options for shared commercialization staffing or licensing of additional molecules, involvement in joint committees, or options for inclusion in negotiations of future supply rights, which at the time of each collaborative agreement’s inception, are assessed to determine if these meet the definition of a performance obligation under ASC 606. Cost of Product Revenues Cost of product revenues includes all product related costs and royalties owed under our collaboration and license agreements, contingent on certain conditions. In addition, cost of product revenues includes the amortization of our licensed intellectual property for ICLUSIG and the amortization of capitalized milestone payments, using the straight-line method over the respective estimated useful lives, which range between approximately 10 to 14 years. Cost of product revenues also includes employee personnel costs, including stock compensation, for those employees dedicated to the production of our commercial products. 93 Table of Contents Research and Development Costs. Our policy is to expense research and development costs as incurred, including amounts funded by research and development collaborations. Research and development expenses are comprised of costs we incur in performing research and development activities, including salary and benefits; stock-based compensation expense; outsourced services and other direct expenses, including clinical trial and pharmaceutical development costs; collaboration payments; expenses associated with drug supplies that are not being capitalized; and infrastructure costs, including facilities costs and depreciation expense. If a collaboration is a cost-sharing arrangement in which both we and our collaborator perform development work and share costs, we also recognize, as research and development expense in the period when our collaborator incurs development expenses, our portion of the co-development expenses that we are obligated to reimburse. Costs incurred under the collaboration arrangement that are reimbursable to us are recorded net against the related research and development expenses in the period in which the related expense is incurred. We often contract with contract research organizations (“CROs”) to facilitate, coordinate and perform agreed upon research and development of a new drug. To ensure that research and development costs are expensed as incurred, we record monthly accruals for clinical trials and preclinical testing costs based on the work performed under the contract. These CRO contracts typically call for the payment of fees for services at the initiation of the contract and/or upon the achievement of certain clinical trial milestones. In the event that we prepay CRO fees, we record the prepayment as a prepaid asset and amortize the asset into research and development expense over the period of time the contracted research and development services are performed. Most professional fees, including project and clinical management, data management, monitoring, and medical writing fees are incurred throughout the contract period. These professional fees are expensed based on their percentage of completion at a particular date. Our CRO contracts generally include pass through fees. Pass through fees include, but are not limited to, regulatory expenses, investigator fees, travel costs, and other miscellaneous costs, including shipping and printing fees. We expense the costs of pass through fees under our CRO contracts as they are incurred, based on the best information available to us at the time. The estimates of the pass through fees incurred are based on the amount of work completed for the clinical trial and are monitored through correspondence with the CROs, internal reviews and a review of contractual terms. The factors utilized to derive the estimates include the number of patients enrolled, duration of the clinical trial, estimated patient attrition, screening rate and length of the dosing regimen. CRO fees incurred to set up the clinical trial are expensed during the setup period. Stock Compensation. Share-based payment transactions with employees, which include stock options, restricted stock units (“RSUs”) and performance shares (“PSUs”), are recognized as compensation expense over the requisite service period based on their estimated fair values as well as expected forfeiture rates, subject to customary retirement provisions that may accelerate the requisite service period for expense recognition purposes. 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. The fair value of stock options, which are subject to graded vesting, are recognized as compensation expense over the requisite service period using the accelerated attribution method. The fair value of RSUs that are subject to cliff vesting are recognized as compensation expense over the requisite service period using the straight-line attribution method, and the fair value of RSUs that are subject to graded vesting are recognized as compensation expense over the requisite service period using the accelerated attribution method. The fair value of PSUs are recognized as compensation expense beginning at the time in which the performance conditions are deemed probable of achievement, which we assess as of the end of each reporting period. Once a performance condition is considered probable, we record compensation expense based on the portion of the service period elapsed to date with respect to that award, with a cumulative catch-up, net of estimated forfeitures, and recognize any remaining compensation expense, if any, over the remaining requisite service period using the straight-line attribution method for PSUs that are subject to cliff vesting and using the accelerated attribution method for PSUs that are subject to graded vesting. Compensation expense for PSUs with market performance conditions is calculated using a Monte Carlo simulation model as of the date of grant and recorded over the requisite service period. Advertising Expenses. Advertising expenses, comprised primarily of television, radio, print media and Internet advertising, are expensed as incurred and are included in selling, general, and administrative expenses. For the years ended December 31, 2024, 2023, and 2022, advertising expenses were approximately $ 200.7 million, $ 221.9 million, and $ 196.4 million, respectively. Long Term Incentive Plans. We have long term incentive plans which provide eligible employees with the opportunity to receive performance and service-based incentive compensation, which may be comprised of cash, stock options, restricted stock units and/or performance shares. The payment of cash and the grant or vesting of equity may be contingent upon the achievement of pre-determined regulatory, sales and internal performance milestones. 94 Table of Contents Acquisitions . To determine whether acquisitions should be accounted for as a business combination or as an asset acquisition, we make certain judgments, which include assessing whether the acquired set of activities and assets would meet the definition of a business under the relevant accounting rules. If the acquired set of activities and assets meets the definition of a business, assets acquired and liabilities assumed are required to be recorded at their respective fair values as of the acquisition date. The excess of the purchase price over the fair value of the acquired net assets, where applicable, is recorded as goodwill. If the acquired set of activities and assets does not meet the definition of a business, the transaction is recorded as an asset acquisition, with the purchase price being allocated to the acquired asset, with no goodwill recorded. For a transaction recorded as an asset acquisition, any acquired in-process research and development that does not have an alternative future use is charged to expense at the acquisition date. See Note 5 for additional information. Acquisition-Related Contingent Consideration. Acquisition-related contingent consideration consists of our future royalty obligations on future net revenues of ICLUSIG owed to Takeda Pharmaceutical Company Limited, which acquired ARIAD Pharmaceuticals, Inc. (“Takeda”). Acquisition-related contingent consideration was recorded on the acquisition date of June 1, 2016 at the estimated fair value of the obligation, in accordance with the acquisition method of accounting. The fair value measurement is based on significant inputs that are unobservable in the market and thus represents a Level 3 measurement. The fair value of the acquisition-related contingent consideration is remeasured each reporting period, with changes in fair value recorded in the consolidated statements of operations. Profit sharing from co-commercialization activities. In profit sharing arrangements where we are deemed to be the principal, we record 100% of all revenues and expenses associated with the co-commercialization activities. We record our collaboration partner's share of profit or loss to cost of product revenues within our consolidated statement of operations. Other components of make-whole payments between us and our collaboration partners are classified in our consolidated statement of operations based on the nature of the underlying payable or receivable. In profit sharing arrangements where we are deemed to be the agent, we record our share of profit or loss from co-commercialization activities to (profit) and loss sharing under collaboration agreements within our consolidated statement of operations. Other components of make-whole payments between us and our collaboration partners are classified in our consolidated statement of operations based on the nature of the underlying payable or receivable. Recent Accounting Pronouncements In November 2023, the Financial Accounting Standards Board (the "FASB") issued ASU No. 2023-07, “ Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures .” This amended guidance applies to all public entities and aims to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, to enable investors to develop more decision-useful financial analyses. This guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. See Note 17 for additional disclosures. In December 2023, the FASB issued ASU No. 2023-09, “ Income Taxes (Topic 740): Improvements to Income Tax Disclosures .” This amended guidance applies to all entities and broadly aims to enhance the transparency and decision usefulness of income tax disclosures. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted for any annual periods for which financial statements have not been issued or made available for issuance. We are currently evaluating the impact that ASU No. 2023-09 will have on our consolidated financial statements and related disclosures. In March 2024, the SEC issued Release Nos. 33-11275; 34-99678 “ The Enhancement and Standardization of Climate-Related Disclosures for Investors ” to require public companies to provide certain climate-related information in their registration statements and annual reports. The compliance dates for the rules amended by this release begin in fiscal year 2025 for large accelerated filers. On April 4, 2024, the SEC issued an order staying the newly adopted rules. We are currently evaluating the impact of this release on our financial disclosures. In November 2024, the FASB issued ASU No. 2024-03, “ Disaggregation of Income Statement Expenses (DISE).” This new guidance applies to all public entities and requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. Public entities must adopt the new standard prospectively for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption and retrospective application are permitted. We are currently evaluating the impact ASU No. 2024-03 will have on our consolidated financial statements and related disclosures. 95 Table of Contents Note 2. Revenues As discussed in Note 1, revenues are recognized under guidance within ASC 606. The following table presents our disaggregated revenue for the periods presented (in thousands): For the Years Ended, December 31, 2024 2023 2022 JAKAFI revenues, net $ 2,792,107 $ 2,593,732 $ 2,409,225 OPZELURA revenues, net 508,293 337,864 128,735 ICLUSIG revenues, net 114,319 111,623 105,838 MINJUVI/MONJUVI revenues, net 119,236 37,057 19,654 PEMAZYRE revenues, net 81,748 83,642 83,445 ZYNYZ revenues, net 3,185 1,250 — Total product revenues, net 3,618,888 3,165,168 2,746,897 JAKAVI product royalty revenues 418,840 367,583 331,575 OLUMIANT product royalty revenues 135,572 136,138 134,547 TABRECTA product royalty revenues 22,746 17,793 15,411 PEMAZYRE product royalty revenues 2,171 1,967 1,205 Total product royalty revenues 579,329 523,481 482,738 Milestone and contract revenues 43,000 7,000 165,000 Total revenues $ 4,241,217 $ 3,695,649 $ 3,394,635 For further information on our revenue-generating contracts, refer to Note 7. Note 3. Fair Value of Financial Instruments The following is a summary of our marketable security portfolio for the periods presented (in thousands): Amortized Cost Unrealized Gains Unrealized (Losses) Estimated Fair Value December 31, 2024 Debt securities (government) $ 469,917 $ 971 $ ( 625 ) $ 470,263 December 31, 2023 Debt securities (government) $ 442,816 $ 450 $ ( 599 ) $ 442,667 The table below summarizes the contractual maturities of our available-for-sale debt securities as of December 31, 2024 (in thousands): Total Less than 1 Year 1-5 Years Fair value of debt securities (government) $ 470,263 $ 265,135 $ 205,128 Debt security assets were assessed for risk of expected credit losses per our accounting policy as described in Note 1. As of December 31, 2024 and 2023, 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. 96 Table of Contents 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. 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 December 31, 2024 and 2023, 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 equity 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 years ended December 31, 2024 and 2023. 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 Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Balance as of December 31, 2024 Cash and cash equivalents $ 1,687,829 $ — $ — $ 1,687,829 Debt securities (government) — 470,263 — 470,263 Long term equity investments (Note 7) 18,814 — — 18,814 Total assets $ 1,706,643 $ 470,263 $ — $ 2,176,906 Fair Value Measurement at Reporting Date Using: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Balance as of December 31, 2023 Cash and cash equivalents $ 3,213,376 $ — $ — $ 3,213,376 Debt securities (government) — 442,667 — 442,667 Long term equity investments (Note 7) 187,716 — — 187,716 Total assets $ 3,401,092 $ 442,667 $ — $ 3,843,759 97 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 (in thousands): Fair Value Measurement at Reporting Date Using: Quoted Prices in Active Markets for Identical Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Balance as of December 31, 2024 Acquisition-related contingent consideration $ — $ — $ 193,000 $ 193,000 Total liabilities $ — $ — $ 193,000 $ 193,000 Fair Value Measurement at Reporting Date Using: Quoted Prices in Active Markets for Identical Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Balance as of December 31, 2023 Acquisition-related contingent consideration $ — $ — $ 212,000 $ 212,000 Total liabilities $ — $ — $ 212,000 $ 212,000 The following is a roll forward of our Level 3 liabilities (in thousands): 2024 2023 Balance at January 1, $ 212,000 $ 221,000 Contingent consideration earned during the period but not yet paid ( 9,956 ) ( 10,260 ) Payments made during the period ( 28,847 ) ( 27,942 ) Change in fair value of contingent consideration 19,803 29,202 Balance at December 31, $ 193,000 $ 212,000 The initial fair value of the contingent consideration was determined on the date of acquisition, June 1, 2016, using an income approach based on projected future net revenues of ICLUSIG in the European Union and other countries for the approved third line treatment over 18 years, and discounted to present value at a rate of 10 %. The fair value of the contingent consideration is remeasured each reporting period, with changes in fair value recorded in the consolidated statements of operations. The valuation inputs utilized to estimate the fair value of the contingent consideration as of December 31, 2024 and 2023 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 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. We generally make payments to Takeda quarterly based on the royalties earned in the previous quarter. As of December 31, 2024 and 2023, contingent consideration earned but not yet paid was $ 10.0 million and $ 10.3 million, respectively, and was included in accrued and other current liabilities. Non-Recurring Fair Value Measurements During the years ended December 31, 2024 and 2023, there were no measurements required for any assets or liabilities at fair value on a non-recurring basis. Note 4. Concentration of Credit Risk and Current Expected Credit Losses In November 2009, we entered into a collaboration and license agreement with Novartis. In December 2009, we entered into a license, development and commercialization agreement with Lilly. The above collaboration partners comprised, in aggregate, 19 % and 20 % of the accounts receivable balance as of December 31, 2024 and 2023, respectively. For further information relating to these collaboration and license agreements, refer to Note 7. 98 Table of Contents In November 2011, we began commercialization and distribution of JAKAFI and in October 2021, we began commercialization and distribution of OPZELURA. Our product revenues are concentrated in a number of customers these products. The concentration of credit risk related to our JAKAFI and OPZELURA product revenues is as follows: Percentage of Total Net Product Revenues for the Years Ended, December 31, 2024 2023 2022 Customer A 15 % 17 % 19 % Customer B 10 % 10 % 11 % Customer C 19 % 18 % 18 % Customer D 8 % 10 % 10 % Customer E 13 % 8 % 14 % Customer F 10 % 10 % 1 % We are exposed to risks associated with extending credit to customers related to the sale of products. Customers A, B, C, D, E and F comprised, in the aggregate, 52 % and 40 % of the accounts receivable balance as of December 31, 2024 and 2023, respectively. The concentration of credit risk relating to our other product revenues or accounts receivable is not significant. We assessed our collaborative and customer receivable assets as of December 31, 2024 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. Note 5. Acquisitions Tafasitamab On February 5, 2024, pursuant to a purchase agreement with MorphoSys, we acquired exclusive global rights to tafasitamab, a humanized Fc-modified CD19-targeting immunotherapy marketed in the United States as MONJUVI (tafasitamab-cxix) and outside of the United States as MINJUVI (tafasitamab). We previously had the rights to tafasitamab outside of the United States under a January 2020 collaboration and license agreement with MorphoSys, which has now been terminated; therefore, this new agreement gave us all of the remaining global rights to tafasitamab. Under the terms of the purchase agreement, we made a payment of $ 25.0 million to MorphoSys and gained global development and commercialization rights for tafasitamab along with MONJUVI inventory. We will recognize revenue and costs for all U.S. commercialization and clinical development and MorphoSys will no longer be eligible to receive future milestone, profit split and royalty payments under the now-terminated collaboration and license agreement. We evaluated the set of activities and assets acquired under the purchase agreement and concluded that it did not meet the definition of a business because the acquired set did not include a substantive process. Therefore, the transaction was accounted for as an asset acquisition under U.S. GAAP and the total purchase price, inclusive of direct transaction costs, was allocated to the acquired MONJUVI inventory, in accordance with applicable accounting guidance. 99 Table of Contents Under the purchase agreement, we have also become the successor to MorphoSys under its collaboration and license agreement with Xencor, Inc. (“Xencor”), pursuant to which Xencor granted MorphoSys an exclusive, worldwide license, including the right to sublicense under certain conditions, for tafasitamab. Xencor is entitled to receive up to $ 186.5 million in future contingent development and regulatory milestones and up to $ 50.0 million in sales milestones. Furthermore, Xencor is eligible to receive tiered royalties on global net sales of tafasitamab in the single-digit to sub-teen double-digit percentage range. Our royalty obligations continue on a country-by-country basis until the later to occur of the expiration of the last valid claim in the licensed patent covering tafasitamab in such country, or 11 years after the first sale thereof following marketing authorization in such country. The term of the Xencor collaboration agreement will continue until all of our royalty payment obligations have expired, unless terminated earlier. The Xencor collaboration agreement may be terminated by either party upon written notice to the other party immediately in the event of the other party’s insolvency or upon 120 days’ written notice for the other party’s uncured material breach (or upon 30 days’ written notice in the case of a breach of a payment obligation). Moreover, we may terminate the Xencor collaboration agreement without cause upon 90 days’ advance written notice to Xencor. In the event that (i) we terminate this agreement for convenience or (ii) Xencor terminates due to our material breach, our challenge of Xencor’s licensed patents or our insolvency, worldwide rights to develop, manufacture and commercialize licensed products, including tafasitamab, revert back to Xencor. Escient Pharmaceuticals, Inc. ("Escient") On May 30, 2024 we acquired all of the outstanding shares of common stock of Escient, a clinical-stage drug development company advancing novel small molecule therapeutics for systemic immune and neuro-immune disorders, for $ 782.5 million cash consideration, which included Escient's net cash remaining at the close of the transaction, subject to adjustments set forth in the merger agreement with Escient. Escient’s lead molecule, INCB000262 (formerly EP262), is a first-in-class oral Mas-related G protein-coupled receptor X2 (MRGPRX2) antagonist that has the potential to treat a broad range of inflammatory disorders. We accounted for the Escient transaction as an asset acquisition under U.S. GAAP because INCB000262 represents substantially all of the fair value of the gross assets acquired. In addition to the $ 782.5 million closing cash consideration per the terms of the merger agreement, we incurred $ 2.5 million of direct transaction costs that were included in the total consideration to be allocated to the acquired net assets. Of the $ 785.0 million total consideration, we recognized on our consolidated statements of operations during the year ended December 31, 2024 related compensation expense of $ 31.5 million associated with the accelerated vesting for certain Escient stock awards in connection with the acquisition. The following table summarizes allocation of the remaining U.S. GAAP consideration, net of compensation expense, across the net assets acquired (in thousands): Cash and cash equivalents $ 48,302 Marketable securities 3,988 Prepaid expenses and other current assets 1,663 In-process research and development assets 679,388 Deferred tax asset 44,811 Other non-current assets 4,110 Accounts payable and accrued expenses ( 26,611 ) Other current liabilities ( 1,022 ) Non-current liabilities ( 1,118 ) Total U.S. GAAP Consideration (net of compensation expense) $ 753,511 100 Table of Contents In-process research and development (“IPR&D”) assets are related to acquired clinical-stage product candidates: lead candidate, INCB000262, and secondary candidate, INCB000547 (formerly EP547). The fair value of IPR&D assets was based on the present value of future discounted cash flows, which was based on significant estimates. These estimates included the amount of future product revenues, costs required to conduct clinical trials, future milestones and royalties payable under acquired license agreements, costs to receive regulatory approval and potentially commercialize product candidates, as well as estimates for probability of success and the discount rate. The concluded allocated fair values for INCB000262 and INCB000547 was $ 644.8 million and $ 34.6 million, respectively. As both acquired IPR&D assets do not have an alternative future use at the acquisition date, we recognized the full amount of $ 679.4 million as research and development expenses on our consolidated statements of operations during the year ended December 31, 2024. Note 6. Inventory Our inventory balance consists of the following (in thousands): December 31, 2024 2023 Raw materials $ 27,590 $ 23,282 API and Work-in-process 331,178 209,793 Finished goods 48,431 36,862 Total inventory $ 407,199 $ 269,937 Inventories, stated at the lower of cost and net realizable value, consist of raw materials, API, work in process, and finished goods, inclusive of freight and inventoriable overhead. At December 31, 2024, $ 58.9 million of inventory was classified as current on the consolidated balance sheet as we expect this inventory to be consumed for commercial use within the next twelve months. At December 31, 2024, $ 348.3 million of inventory was classified as non-current on the 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 regulatory approval as the related costs are expected to be recoverable through the commercialization of the product. Costs incurred prior to regulatory approval are recorded as research and development expense in our consolidated statements of operations. At December 31, 2024, inventory with approximately $ 28.3 million of product costs inc urred prior to regulatory approval had not yet been sold. We expe ct to sell the pre-commercialization inventory over the next 6 months to 41 months and, as a result, cost of product revenues will reflect a lower average per unit cost of materials. 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 were initially eligible to receive up to $ 75.0 million of additional potential development and regulatory milestones relating to graft-versus-host-disease (“GVHD”). Since the inception of the agreement through December 31, 2024, we have recognized and received, in the aggregate, $ 157.0 million for the achievement of development milestones, $ 345.0 million for the achievement of regulatory milestones and $ 200.0 million for the achievement of sales milestones. 101 Table of Contents We recognize development and regulatory milestones upon confirmation of achievement of the event, as development and regulatory approvals are events not controllable by us but rather development activities of Novartis and decisions made by regulatory agencies. We recognize sales milestones in the corresponding period of the product sale upon confirmation of net sales milestone threshold achievement by Novartis. 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 years ended December 31, 2024, 2023 and 2022, such royalties on net sales within the United States totaled $ 131.8 million, $ 122.1 million and $ 113.1 million, respectively, and were reflected in cost of product revenues on the consolidated statements of operations. At December 31, 2024 and 2023, $ 507.4 million and $ 375.6 million, respectively, of accrued royalties were included in accrued and other current liabilities on the consolidated balance sheets, payment of which is dependent on the outcome of a contract dispute with Novartis. Each company is responsible for costs relating to the development and commercialization of ruxolitinib in its respective territories, with costs of collaborative studies shared equally. Novartis is also responsible for all costs relating to the development and commercialization of capmatinib. The Novartis agreement will continue on a program-by-program basis until Novartis has no royalty payment obligations with respect to such program or, if earlier, the termination of the agreement or any program in accordance with the terms of the agreement. Royalties are payable by Novartis on a product-by-product and country-by-country basis until the latest to occur of (i) the expiration of the last valid claim of the licensed patent rights covering the licensed product in the relevant country, (ii) the expiration of regulatory exclusivity for the licensed product in such country and (iii) a specified period from first commercial sale in such country of the licensed product by Novartis or its affiliates or sublicensees. The agreement may be terminated in its entirety or on a program-by-program basis by Novartis for convenience. The agreement may also be terminated by either party under certain other circumstances, including material breach. We had no milestone and contract revenue under the Novartis agreement for the year ended December 31, 2024. Milestone and contract revenue under the Novartis agreement was $ 5.0 million and $ 60.0 million for the years ended December 31, 2023 and 2022, respectively. In addition, for the years ended December 31, 2024, 2023 and 2022, we recorded $ 418.8 million, $ 367.6 million and $ 331.6 million, respectively, of product royalty revenues related to Novartis net sales of JAKAVI outside the United States. For the years ended December 31, 2024, 2023 and 2022 we recorded $ 22.7 million, $ 17.8 million and $ 15.4 million, respectively, of product royalty revenues related to Novartis net sales of TABRECTA worldwide. 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. 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. Since the inception of the agreement through December 31, 2024, 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. We are also eligible to receive tiered, double-digit royalties on future global sales with rates ranging up to the mid-twenties if a product is successfully commercialized. 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 Lilly and decisions made by regulatory agencies. We recognize sales milestones in the corresponding period of the product sale upon confirmation of net sales milestone threshold achievement by Lilly. 102 Table of Contents The Lilly agreement will continue until Lilly no longer has any royalty payment obligations or, if earlier, the termination of the agreement in accordance with its terms. Royalties are payable by Lilly on a product-by-product and country-by-country basis until the latest to occur of (i) the expiration of the last valid claim of the licensed patent rights covering the licensed product in the relevant country, (ii) the expiration of regulatory exclusivity for the licensed product in such country and (iii) a specified period from first commercial sale in such country of the licensed product by Lilly or its affiliates or sublicensees. The agreement may be terminated by Lilly for convenience, and may also be terminated under certain other circumstances, including material breach. We had no milestone and contract revenue under the Lilly agreement for the years ended December 31, 2024 and 2023. Milestone and contract revenue under the Lilly agreement was $ 70.0 million for the year ended December 31, 2022. In addition, for the years ended December 31, 2024, 2023 and 2022, we recorded $ 135.6 million, $ 136.1 million and $ 134.5 million, respectively, of product royalty revenues related to Lilly net sales of OLUMIANT outside the United States. 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 this agreement, we are responsible for all costs associated with discovery, preclinical, clinical development and commercialization activities for the currently active programs. Agenus will be eligible to receive tiered royalties on global net sales ranging from 6 % to 12 %, for all programs but one, in which 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 also may be terminated under certain other circumstances, including material breach. Since the inception of the agreement through December 31, 2024, 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. During 2024, we sold approximately 0.6 million of Agenus Inc. common stock for proceeds of $ 1.9 million. As of December 31, 2024, we had no remaining investment in Agenus Inc. common stock. The fair market value of our equity investment in Agenus Inc. at December 31, 2023 was $ 10.0 million. For the years ended December 31, 2024, 2023 and 2022, we recorded realized and unrealized losses of $ 8.2 million, $ 18.9 million, and $ 9.9 million, respectively, based on the sale of shares and 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. We hold worldwide exclusive development and commercialization rights to those programs and are responsible for all research, development and commercialization costs, subject to Merus’ option, subject to certain conditions, to co-fund development of up to two of such programs and participate in certain commercialization activities for one of those co-developed 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. 103 Table of Contents 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. The Merus agreement will continue on a program-by-program basis until we have no royalty payment obligations with respect to such program or, if earlier, the termination of the agreement or any program in accordance with the terms of the agreement. The agreement may be terminated in its entirety or on a program-by-program basis by us for convenience. The agreement may also be terminated by either party under certain other circumstances, including material breach, as set forth in the agreement. If the agreement is terminated with respect to one or more programs, all rights in the terminated programs revert to Merus, subject to payment to us of a reverse royalty of up to 4 % on sales of future products, if Merus elects to pursue development and commercialization of products arising from the terminated programs. Since the inception of the agreement through December 31, 2024, we have paid and expensed Merus milestones totaling $ 10.0 million. During 2024, we sold approximately 4.0 million of Merus’ common shares for proceeds of $ 216.1 million. As of December 31, 2024, we had no remaining investment in Merus’ common shares. The fair market value of our equity investment in Merus as of December 31, 2023 was $ 110.1 million. For the years ended December 31, 2024, 2023 and 2022, we recorded realized and unrealized gains of $ 106.1 million, an unrealized gain of $ 45.2 million, and an unrealized loss of $ 58.0 million, respectively, based on the sale of shares and change in fair value of Merus’ common shares during the respective periods. 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, 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. The MacroGenics agreement will continue until we are no longer commercializing, developing or manufacturing INCMGA0012 or, if earlier, the termination of the agreement in accordance with its terms. The agreement may be terminated in its entirety or on a licensed product by licensed product basis by us for convenience. The agreement may also be terminated by either party under certain other circumstances, including material breach, as set forth in the agreement. In July 2024, the parties amended the agreement, and we agreed to pay MacroGenics $ 100.0 million in exchange for MacroGenics’ agreement that all milestones for squamous cell anal cancer and non-small cell lung cancer have been deemed either achieved or inapplicable and certain future milestones for non-small cell lung cancer were waived. This $ 100.0 million milestone payment was recorded as research and development expense in our consolidated statements of operations during the year ended December 31, 2024. Since the inception of the agreement, inclusive of the July 2022 and July 2024 amendments to the agreement, through December 31, 2024, we have paid MacroGenics developmental and regulatory milestones totaling $ 215.0 million. After these amendments and subsequent payments, MacroGenics will be eligible to receive up to an additional $ 210.0 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. 104 Table of Contents Research and development expenses for the years ended December 31, 2024, 2023 and 2022, also included $ 45.7 million, $ 51.5 million and $ 89.2 million, respectively, of development costs incurred pursuant to the MacroGenics agreement. At December 31, 2024 and 2023, a total of $ 0.5 million and $ 0.3 million, respectively, of such costs were included in accrued and other liabilities on the consolidated balance sheets. MorphoSys As described in Note 5, on February 5, 2024, we entered into a purchase agreement with MorphoSys that became effective as of that date, as a result of which we now hold exclusive global rights for tafasitamab, a humanized Fc-modified CD19-targeting immunotherapy marketed in the United States as MONJUVI (tafasitamab-cxix) and outside of the United States as MINJUVI (tafasitamab). Prior to the acquisition, pursuant to a now-terminated collaboration and license agreement, we and MorphoSys 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 was responsible for funding any independent development activities, and we were responsible for funding development activities specific to territories outside of the United States. During May 2024, as part of the Novartis tender offer for MorphoSys AG’s outstanding shares, we sold all of our 3.6 million American Depository Shares, each representing 0.25 of an ordinary share of MorphoSys AG, for proceeds of $ 66.6 million. The fair market value of our equity investment in MorphoSys AG as of December 31, 2023 was $ 35.9 million. For the year ended December 31, 2024, we recorded a realized gain of $ 30.7 million, based on the sale of shares and change in fair value of MorphoSys AG’s ordinary shares during the period. For the years ended December 31, 2023 and 2022 we recorded an unrealized gain of $ 22.9 million, and an unrealized loss of $ 21.2 million, respectively, based on the change in fair value of MorphoSys AG's ordinary shares during the respective periods. Our 50 % share of the United States loss or profit for the commercialization of tafasitamab for the period from January 1, 2024 to the asset acquisition on February 5, 2024, was a profit of $ 1.0 million, and is recorded as (profit) and loss sharing under collaboration agreements on the consolidated statement of operations. As described in Note 5, subsequent to the asset acquisition, we recognize revenue and costs for all commercialization and clinical development of tafasitamab in the United States. Our 50 % share of the United States loss for the commercialization of tafasitamab for the years ended December 31, 2023 and 2022 was $ 2.0 million and $ 8.0 million, respectively, and is recorded as (profit) and loss sharing under collaboration agreements on the consolidated statement of operations. Research and development expenses for the period from January 1, 2024 to the asset acquisition on February 5, 2024, includes $ 10.7 million, related to our 55 % share of the co-development costs for tafasitamab. Research and development expenses for the years ended December 31, 2023 and 2022, included $ 76.1 million and $ 99.7 million, respectively, of costs for tafasitamab including our 55 % share of the co-development costs. At December 31, 2023, $ 18.8 million was included in accrued and other liabilities on the consolidated balance sheet for amounts due to MorphoSys under the agreement. 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”). Under the terms of our agreement, we received exclusive commercialization rights to axatilimab outside of the United States and share commercialization rights in the United States with Syndax. We are responsible for leading the commercialization strategy and booking all revenue from sales of axatilimab globally. 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. In August 2024, we made a $ 12.5 million regulatory milestone payment to Syndax for the FDA approval of NIKTIMVO for the treatment of GVHD. This milestone payment was capitalized as an intangible asset and included in other intangible assets, net on the consolidated balance sheet as of December 31, 2024, and is being amortized through cost of product revenues over the estimated useful life of 10 years. 105 Table of Contents Inclusive of an upfront, non-refundable payment, since the inception of the agreement through December 31, 2024, we have made payments of $ 129.5 million to Syndax, which were previously recorded in research and development expense or in other intangible assets, as discussed above. Syndax is eligible to receive up to $ 207.5 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’s 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. As of December 31, 2024, we held an investment of approximately 1.4 million shares of Syndax common stock. The fair market value of our long term investment in Syndax as of December 31, 2024 and 2023 was $ 18.8 million and $ 30.7 million, respectively. For the years ended December 31, 2024, 2023 and 2022, we recorded an unrealized loss of $ 11.9 million, an unrealized loss of $ 5.5 million, and an unrealized gain of $ 5.1 million, respectively, based on the change in fair value of Syndax’s common stock during the respective periods. Research and development expenses for the years ended December 31, 2024 and 2023, includes $ 18.8 million and $ 25.8 million, respectively, related to our 55 % share of the co-development costs for axatilimab. At December 31, 2024 and 2023, $ 2.2 million and $ 1.8 million, respectively, was included in accrued and other liabilities on the consolidated balance sheet for amounts due to Syndax under the agreement. China Medical Systems Holdings Limited In March 2024, we entered into a Collaboration and License Agreement with China Medical System Skinhealth, a wholly-owned dermatology medical aesthetic company and subsidiary of China Medical System Holdings Limited (“CMSHL”), for the development and commercialization of povorcitinib, a selective oral JAK1 inhibitor, in certain indications in certain Asian territories. In March 2024, we recognized an upfront payment under this agreement of $ 25.0 million upon our transfer of the functional intellectual property related to povorcitinib to CMSHL which was recorded in milestone and contract revenues on the consolidated statement of operations during the year ended December 31, 2024. We are eligible to receive additional potential development and commercial milestones, as well as royalties on net sales of the licensed product in CMSHL’s territory. CMSHL received an exclusive license to develop and commercialize and a non-exclusive license to manufacture povorcitinib in autoimmune and inflammatory dermatologic diseases, including non-segmental vitiligo, hidradenitis suppurativa, prurigo nodularis, asthma and chronic spontaneous urticaria, for patients in mainland China, Hong Kong, Macau, Taiwan and certain countries in Southeast Asia. Other Agreements In addition to the license and collaboration agreements discussed above, we have various other license and collaboration agreements that are not individually material to our operating results or financial condition at this time. Pursuant to the terms of those agreements, we may be required to pay, or we may receive, additional amounts contingent upon the occurrence of various future events such as future discovery, development, regulatory or commercial milestones, which in the aggregate could be material. In addition, if any products related to these collaborations are approved for sale, we may be required to pay, or we may receive, royalties on future sales. The payment or receipt of these amounts, however, is contingent upon the occurrence of various future events, the likelihood of which cannot presently be determined. 106 Table of Contents Note 8. Property and Equipment, net Property and equipment, net consists of the following (in thousands): December 31, 2024 2023 Office equipment $ 23,710 $ 23,417 Laboratory equipment 229,797 220,677 Computer equipment 156,859 147,570 Land 15,395 10,931 Building and leasehold improvements 597,342 584,755 Operating lease right-of-use assets 22,230 20,553 Construction in progress 46,062 13,544 1,091,395 1,021,447 Less accumulated depreciation and amortization ( 327,984 ) ( 269,934 ) Property and equipment, net $ 763,411 $ 751,513 In May 2024, we purchased additional property in Wilmington, Delaware, including land, office buildings and parking garages for a purchase price of $ 48.7 million. During the year ended December 31, 2024, we capitalized $ 4.9 million of land, $ 19.5 million of building and parking garage and $ 30.8 million of construction in progress relating to the downtown Wilmington properties. Depreciation expense, including amortization expense of leasehold improvements, was $ 65.6 million, $ 60.1 million and $ 46.3 million for the years ended December 31, 2024, 2023 and 2022, respectively. We are the lessee of several contracts, including those to secure fleet vehicles, buildings and equipment. Our lease agreements do not contain any material residual value guarantees or restrictive covenants. Some of our building leases include options to renew and the exercise of these options is at our discretion. Our current operating lease liabilities are reflected in accrued and other current liabilities and our noncurrent operating lease liabilities are reflected in other liabilities on the consolidated balance sheets and are as follows (in thousands): December 31, 2024 2023 Current Operating lease liabilities $ 5,583 $ 5,686 Finance lease liabilities 4,419 3,439 Noncurrent Operating lease liabilities 16,793 14,284 Finance lease liabilities 33,542 29,162 Total lease liabilities $ 60,337 $ 52,571 107 Table of Contents The maturity of our lease liabilities are as follows (in thousands): Operating Finance 2025 $ 6,873 $ 5,647 2026 6,000 5,276 2027 5,514 4,445 2028 2,465 3,655 2029 1,376 3,342 After 2029 3,061 22,568 Total lease cash payments $ 25,289 $ 44,933 Less: discount 2,913 6,972 Present value of lease liabilities $ 22,376 $ 37,961 The cash paid for amounts included in the measurement of our operating lease liabilities for the years ended December 31, 2024, 2023 and 2022 was $ 7.1 million, $ 9.4 million and $ 11.8 million, respectively, in operating cash flows. The cash paid for amounts included in the measurement of our finance lease liabilities for the years ended December 31, 2024, 2023 and 2022 was $ 3.8 million, $ 3.4 million and $ 2.9 million respectively, in financing cash flows. As of December 31, 2024, our finance and operating leases had a weighted average lease term of approximately 10.4 years and 4.8 years, respectively. The discount rate of our leases is an approximation of an estimated incremental borrowing rate and is dependent upon the term and economics of each agreement. The weighted average discount rate of our finance and operating leases was approximately 3.6 % and 4.5 %, respectively. As of December 31, 2023, our finance and operating leases had a weighted average lease term of approximately 10.8 years and 5.8 years, respectively. The weighted average discount rate of our finance and operating leases was approximately 4.0 % and 3.9 %, respectively. As of December 31, 2022, our finance and operating leases had a weighted average lease term of approximately 12.0 years and 5.5 years, respectively. The weighted average discount rate of our finance and operating leases was approximately 4.2 % and 4.4 %, respectively. For the year ended December 31, 2024, we incurred approximately $ 8.1 million of expense related to our operating leases, approximately $ 3.9 million of amortization on our finance lease right-of-use assets and approximately $ 1.3 million of interest expense on our finance lease liabilities. For the year ended December 31, 2023, we incurred approximately $ 9.8 million of expense related to our operating leases, approximately $ 3.5 million of amortization on our finance lease right-of-use assets and approximately $ 1.3 million of interest expense on our finance lease liabilities. For the year ended December 31, 2022, we incurred approximately $ 11.7 million of expense related to our operating leases, approximately $ 3.1 million of amortization on our finance lease right-of-use assets and approximately $ 1.4 million of interest expense on our finance lease liabilities. 108 Table of Contents Note 9. Intangible Assets and Goodwill Intangible Assets, Net The components of intangible assets were as follows (in thousands, except for useful life): Balance at December 31, 2024 Balance at December 31, 2023 Weighted- Average Useful Lives (Years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Finite-lived intangible assets: Licensed IP 12.5 $ 271,000 $ 184,854 $ 86,146 $ 271,000 $ 163,318 $ 107,682 Capitalized milestone payments 11.9 $ 29,500 $ 2,820 $ 26,680 $ 17,000 $ 1,137 $ 15,863 Other 2.0 $ 1,400 $ 423 $ 977 $ — $ — $ — Amortization expense for the years ended December 31, 2024, 2023 and 2022, was $ 23.6 million, $ 22.5 million, and $ 21.5 million, respectively, and is recorded in cost of product revenues on the consolidated statement of operations. Estimated aggregate amortization expense based on the current carrying value of amortizable intangible assets will be as follows for the years ending December 31 (in thousands): 2025 2026 2027 2028 2029 Thereafter Amortization expense $ 24,767 $ 24,359 $ 24,067 $ 24,067 $ 2,531 $ 14,012 Goodwill There were no changes to the carrying amount of goodwill for the years ended December 31, 2024 and 2023. Note 10. Accrued and Other Current Liabilities Accrued and other current liabilities consisted of the following (in thousands): December 31, 2024 2023 Royalties $ 519,881 $ 387,362 Clinical related costs 132,446 109,618 Sales allowances 438,053 279,914 Sales and marketing 33,439 37,369 Accrued taxes 23,781 42,295 Operating lease liabilities 5,583 5,686 Other current liabilities 58,865 73,325 Total accrued and other current liabilities $ 1,212,048 $ 935,569 Note 11. Stockholders' Equity Preferred Stock . We are authorized to issue 5,000,000 shares of preferred stock, none of which was outstanding as of December 31, 2024 and 2023. The Board of Directors may determine the rights, preferences and privileges of any preferred stock issued in the future. Common Stock . We are authorized to issue 400,000,000 shares of common stock. 109 Table of Contents Share Repurchase and Modified "Dutch Auction" Tender Offer . On May 13, 2024 we announced that our Board of Directors approved a share repurchase authorization of $ 2.0 billion. Subsequently, we commenced a modified “Dutch Auction” tender offer to repurchase shares of our common stock for an aggregate purchase price of up to $ 1.672 billion (the “tender offer”). We offered to purchase up to $ 1.672 billion in value of our common stock at a price not greater than $ 60.00 per share nor less than $ 52.00 per share, net to the seller in cash, less any applicable withholding taxes and without interest, upon the terms and subject to the conditions set forth in the tender offer documents that were distributed to stockholders. A modified “Dutch Auction” tender offer allows stockholders to indicate how much stock they wish to tender and at what price within the range described above. Based on the number of shares tendered and the prices specified by the tendering stockholders, we determined the lowest price per share that enabled us to purchase $ 1.672 billion of common stock at such price. On June 13, 2024 we completed the tender offer and repurchased 27,866,666 shares at a price of $ 60.00 per share for an aggregate price of approximately $ 1.672 billion, excluding fees and related expenses, pursuant to the tender offer. In addition, on May 12, 2024, we entered into a separate stock purchase agreement with Julian C. Baker (a member of our Board of Directors), Felix J. Baker, and entities affiliated with Julian C. and Felix J. Baker, including funds advised by Baker Bros. Advisors LP (collectively, the “Baker Entities”), to repurchase up to $ 328.0 million of our common stock. This would enable the Baker Entities to maintain their ownership level as of May 9, 2024 of approximately 16.4 % of Incyte’s outstanding common stock. The Baker Entities purchase was to be at the same price per share as is determined and paid in the tender offer. On June 26, 2024, we repurchased 5,459,183 shares at a price of $ 60.00 per share for an aggregate price of approximately $ 328.0 million pursuant to the terms of the stock purchase agreement with the Baker Entities. We account for share repurchases as retirements, whereby it reduces common stock and additional paid-in capital by the amount of the original issuance, with any excess purchase price recorded as a reduction to retained earnings (accumulated deficit). Any transaction costs, including the excise tax, directly associated with the share repurchases are included as part of the purchase price. Under this method, the issued and outstanding shares of common stock are reduced by the number of shares of common stock repurchased, and no treasury stock is recognized on the consolidated financial statements. A total of 33,325,849 common shares were repurchased during June 2024 at a price of $ 60.00 per share for an aggregate purchase price of approximately $ 2.0 billion. We incurred $ 24.4 million in fees and expenses associated with the share repurchase, which included $ 19.2 million for excise taxes on share repurchases in accordance with the Inflation Reduction Act of 2022. We currently expect to pay the excise tax in the first half of 2025. These costs are recognized within (accumulated deficit) retained earnings on the consolidated balance sheet as of December 31, 2024 as costs to repurchase our common stock. The purchased shares were cancelled and ceased to be outstanding. Stock Compensation Plans . As of December 31, 2024, we had a total of 4,302,716 shares of our common stock available for future issuance related to our stock plans as described below. 2010 Stock Incentive Plan. In May 2010 the Board of Directors adopted the 2010 Stock Incentive Plan (the “2010 Stock Plan”), which was most recently amended in April 2023, for issuance of common stock to employees, non-employee directors, consultants, and scientific advisors. Awards under the 2010 Stock Plan include stock options, RSUs and PSUs. In June 2023, our stockholders approved an increase in the number of shares of common stock reserved for issuance under the 2010 Stock Plan from 53,953,475 to 66,453,475 . 2024 Inducement Stock Incentive Plan. In January 2024, our Board of Directors adopted the Incyte Corporation 2024 Inducement Stock Incentive Plan (the “2024 Inducement Plan”). In reliance on Nasdaq Marketplace Rule 5635(c)(4), stockholder approval was not obtained. A total of 1,000,000 shares of common stock are reserved for issuance pursuant to the 2024 Inducement Plan. Stock Options Options are granted to employees, consultants, and scientific advisors under the 2010 Stock Plan and 2024 Inducement Plan. Options are also granted under the 2010 Stock Plan to non-employee members of our Board of Directors, pursuant to a formula set forth in the 2010 Stock Plan. All options are exercisable at the fair market value of the stock on the date of grant. 110 Table of Contents 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, subject to customary retirement provisions that may accelerate the requisite service period for expense recognition purposes. Non-employee director options expire after 10 years and vest in full on the first anniversary of the date of grant or, if earlier, the date of the next annual meeting of stockholders. Option activity under the 2010 Stock Plan and 2024 Inducement Plan was as follows: Shares Subject to Outstanding Options Shares Weighted Average Exercise Price Balance at December 31, 2023 12,457,158 $ 85.40 Options granted 1,336,397 $ 62.58 Options exercised ( 430,563 ) $ 68.69 Options cancelled ( 585,018 ) $ 88.22 Balance at December 31, 2024 12,777,974 $ 83.45 Options to purchase a total of 10,381,128 , 9,743,775 and 8,952,289 shares as of December 31, 2024, 2023 and 2022, respectively, were exercisable. The aggregate intrinsic value of options exercised for the years ended December 31, 2024, 2023 and 2022 were $ 3.2 million, $ 3.2 million and $ 6.0 million, respectively. At December 31, 2024, the aggregate intrinsic value of options outstanding and vested options are $ 15.9 million and $ 15.3 million, respectively. The following table summarizes information about stock options outstanding as of December 31, 2024 under the 2010 Stock Plan and 2024 Inducement Plan: Options Outstanding Options Exercisable Range of Exercise Prices Number Outstanding Weighted Average Remaining Contractual Life (in years) Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price $ 52.94 - $ 61.76 1,443,974 8.50 $ 60.81 533,680 $ 61.16 $ 62.08 - $ 68.62 1,373,343 6.85 66.21 674,083 68.19 $ 68.70 - $ 74.78 1,971,358 5.41 73.13 1,791,120 73.10 $ 74.98 - $ 80.50 1,517,319 5.84 78.55 1,235,573 78.82 $ 80.56 - $ 83.58 1,449,127 6.69 83.26 1,163,248 83.27 $ 83.83 - $ 90.00 1,301,907 3.70 84.80 1,264,003 84.79 $ 90.56 - $ 95.34 1,354,618 4.55 92.79 1,353,093 92.79 $ 95.54 - $ 113.64 1,780,144 3.30 107.78 1,780,144 107.78 $ 115.19 - $ 134.38 568,742 2.39 128.65 568,742 128.65 $ 138.52 - $ 138.52 17,442 2.25 138.52 17,442 138.52 12,777,974 10,381,128 Restricted Stock Units and Performance Shares 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 , subject to customary retirement provisions that may accelerate the requisite service period for expense recognition purposes. 111 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 years ended December 31, 2024, 2023 and 2022, we recorded $ 30.1 million, $ 17.2 million and $ 7.8 million, respectively, of stock compensation expense for PSUs on our consolidated statements of operations. RSU and PSU award activity under the 2010 Stock Plan and 2024 Inducement Plan was as follows: Shares Subject to Outstanding Awards Shares Grant Date Value Balance at December 31, 2023 7,165,342 $ 72.17 RSUs granted 3,481,911 $ 63.97 PSUs granted 341,943 $ 65.40 RSUs released ( 1,899,523 ) $ 75.55 PSUs released ( 105,453 ) $ 83.58 RSUs cancelled ( 317,347 ) $ 69.60 PSUs cancelled ( 10,070 ) $ 76.59 Balance at December 31, 2024 8,656,803 $ 67.81 The following table summarizes our shares available for grant under the 2010 Plan and 2024 Inducement Plan. E ach RSU and PSU grant reduces the available share pool by 2 shares. Shares Available for Grant Balance at December 31, 2023 10,815,026 Additional authorization - 2024 Inducement Plan 1,000,000 Options, RSUs and PSUs granted and issuance of shares for services rendered ( 9,033,557 ) Options, RSUs and PSUs cancelled 1,232,142 Balance at December 31, 2024 4,013,611 Employee Stock Purchase Plan. On May 21, 1997, our stockholders adopted the 1997 Employee Stock Purchase Plan, which was most recently amended in April 2023 (the “ESPP”). Each regular full-time and part-time employee working 20 hours or more per week is eligible to participate after one month of employment. In June 2023, our stockholders approved an increase in the number of shares of common stock reserved for issuance under the ESPP from 9,600,000 to 10,350,000 . We issued 453,312 , 380,145 and 308,413 shares under the ESPP in 2024, 2023 and 2022, respectively. For the years ended December 31, 2024, 2023 and 2022, we recorded stock compensation expense of $ 5.3 million, $ 5.1 million and $ 4.7 million, respectively, as the ESPP is considered compensatory under the FASB stock compensation rules. As of December 31, 2024, 289,105 shares remain available for issuance under the ESPP. 112 Table of Contents Note 12. Stock Compensation We recorded $ 266.1 million, $ 215.9 million and $ 188.4 million, respectively, of stock compensation expense for the years ended December 31, 2024, 2023 and 2022. Stock compensation expense within the consolidated statements of operations included research and development expense for the years ended December 31, 2024, 2023 and 2022 of $ 161.3 million, $ 126.7 million and $ 112.5 million, respectively. Stock compensation expense within the consolidated statements of operations also included selling, general and administrative expense for the years ended December 31, 2024, 2023 and 2022 of $ 102.5 million, $ 86.1 million and $ 73.2 million, respectively. Stock compensation expense within the consolidated statements of operations also included cost of product revenues for the years ended December 31, 2024, 2023 and 2022 of $ 2.3 million, $ 3.1 million and $ 2.7 million, respectively. Additionally, as described in Note 5, as part of the Escient acquisition, during the year ended December 31, 2024, we recognized on our consolidated statements of operations related compensation expense of approximately $ 31.5 million associated with the accelerated vesting for certain Escient stock awards in connection with the acquisition. We utilized the Black-Scholes valuation model for estimating the fair value of the stock options granted, with the following weighted-average assumptions: Employee Stock Options For the year ended December 31, Employee Stock Purchase Plan For the year ended December 31, 2024 2023 2022 2024 2023 2022 Average risk-free interest rates 4.15 % 4.01 % 2.14 % 4.88 % 4.72 % 3.74 % Average expected life (in years) 5.03 5.05 4.90 0.50 0.50 0.50 Volatility 30 % 32 % 36 % 27 % 25 % 25 % Weighted-average fair value (in dollars) 21.07 24.35 26.06 12.34 12.68 14.99 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. Based on our historical experience of employee turnover, we have assumed an annualized forfeiture rate of 5 % for our options, PSUs and RSUs. Under the true-up provisions of the stock compensation guidance, we will record additional expense as the awards vest if the actual forfeiture rate is lower than we estimated, and will record a recovery of prior expense if the actual forfeiture is higher than we estimated. Total compensation cost of options granted but not yet vested as of December 31, 2024, was $ 19.2 million, which is expected to be recognized over the weighted average period of 1.1 years. Total compensation cost of RSUs granted but not yet vested, as of December 31, 2024, was $ 235.9 million, which is expected to be recognized over the weighted average period of 1.6 years. Total compensation cost of PSUs granted but not yet vested, as of December 31, 2024, was $ 27.3 million, which is expected to be recognized over the weighted average period of 1.6 years, should the underlying performance conditions be deemed probable of achievement. 113 Table of Contents Note 13. Income Taxes We are subject to U.S. federal, state and foreign corporate income taxes. The provision for income taxes is based on income before provision for income taxes as follows (in thousands): Year Ended December 31, 2024 2023 2022 U.S. $ 401,760 $ 1,084,254 $ 766,781 Non-U.S. ( 85,130 ) ( 250,039 ) ( 237,665 ) Income before provision for income taxes $ 316,630 $ 834,215 $ 529,116 Our provision for income taxes consists of the following (in thousands): Year Ended December 31, 2024 2023 2022 Current: Federal $ 322,682 $ 344,407 $ 90,088 State 43,955 48,106 38,136 Foreign 2,931 3,001 3,141 369,568 395,514 131,365 Deferred: Federal ( 106,549 ) ( 139,468 ) 62,107 State 21,824 ( 19,625 ) ( 3,709 ) Foreign ( 828 ) 195 ( 1,307 ) ( 85,553 ) ( 158,898 ) 57,091 Total provision for income taxes $ 284,015 $ 236,616 $ 188,456 A reconciliation of income taxes at the U.S. federal statutory rate to the provision for income taxes is as follows (in thousands): Year Ended December 31, 2024 2023 2022 Provision at U.S. federal statutory rate $ 66,492 $ 175,185 $ 111,114 State and local income taxes 51,753 21,145 26,767 Foreign tax rate differential 61,026 ( 96,434 ) 13,670 Income tax credits ( 70,989 ) ( 1,433,507 ) ( 30,505 ) Change in valuation allowance 21,425 1,572,951 67,056 Change in uncertain tax positions 6,418 5,943 3,262 Foreign-derived intangible income ( 31,786 ) ( 32,891 ) ( 36,748 ) Stock based compensation 25,647 20,971 19,704 Acquisitions accounted for as research and development expenses 149,287 4,200 14,700 Other 4,742 ( 947 ) ( 564 ) Provision for income taxes $ 284,015 $ 236,616 $ 188,456 The 2024 acquisitions accounted for as research and development expenses in the table above reflects the impact of non-deductible charges associated with the Escient acquisition. The 2023 foreign tax rate differential in the table above reflects the impact of operations in jurisdictions with tax rates that differ from the U.S. federal statutory rate of 21%. It also includes a tax benefit associated with the remeasurement of foreign deferred tax assets resulting from the cancellation of a tax holiday. The 2023 income tax credits in the table above includes a tax benefit associated with the issuance of non- 114 Table of Contents refundable Swiss income tax credits. The 2023 remeasurement of foreign deferred tax assets and the Swiss income tax credits are fully offset with a valuation allowance in the table above. Significant components of our deferred tax assets and liabilities are as follows (in thousands): December 31, 2024 2023 Deferred tax assets: Net operating loss carry forwards $ 315,969 $ 326,446 Income tax credits 1,398,495 1,441,981 Capitalized research and development 648,989 457,603 Deferred revenue and accruals 190,446 130,291 Non-cash compensation 100,788 96,469 Acquisition-related contingent consideration 27,796 30,298 Intangibles, net 229,741 233,311 Long term investments 6,697 42,975 Other 20,814 9,044 Total gross deferred tax assets 2,939,735 2,768,418 Less valuation allowance for deferred tax assets ( 2,139,673 ) ( 2,096,318 ) Net deferred tax assets $ 800,062 $ 672,100 Deferred tax liabilities: Property and equipment $ ( 30,676 ) $ ( 34,757 ) Other ( 7,315 ) ( 5,457 ) Total gross deferred tax liabilities ( 37,991 ) ( 40,214 ) Net deferred tax assets $ 762,071 $ 631,886 During the year ended December 31, 2024, the Company’s net deferred tax assets increased by $ 130.2 million. This was primary due to future deductible temporary differences associated with U.S. research and development expenses required to be capitalized and amortized under the Tax Cuts and Jobs Act of 2017, partially offset by an increase to a related valuation allowance. As part of the Escient acquisition, the Company also recorded a net deferred tax asset of $ 44.8 million predominately related to U.S. net operating losses ("NOLs") and capitalized researched and development costs. As of December 31, 2024, the Company continues to maintain a valuation allowance on certain U.S. temporary differences, foreign NOLs and the non-refundable Swiss income tax credits granted in the year ended December 31, 2023. The valuation allowance for deferred tax assets increased by approximately $ 43.4 million during the year ended December 31, 2024 and increased by approximately $ 1.6 billion during the year ended December 31, 2023. The valuation allowance increase during 2024 was primarily due to future deductible temporary differences mainly associated with U.S. research and development expenses required to be capitalized and amortized under the Tax Cuts and Jobs Act of 2017 and the acquisition of Escient’s U.S. NOLs, a portion of which is not more-likely-than-not to be realized as of December 31, 2024. This was partially offset by the expiration of foreign NOLs with a full valuation allowance. 115 Table of Contents As of December 31, 2024, we had NOL carryforwards, research and development credit carryforwards and foreign income tax credit carryforwards as follows (in thousands): Amount Expiring if not utilized Net operating loss carryforwards Federal $ 102,034 Indefinite State 782,156 2025 through 2044; indefinite Foreign 1,749,821 2025 through 2041; indefinite Research and development credit carryforwards Federal $ 9,431 2039 through 2044 State 18,064 2025 through 2043 Swiss income tax credit carryforwards 1,382,413 2028 The Federal NOL and tax credit carryforward are subject to an annual limitation under Internal Revenue Code Section 382. The financial statement recognition of the benefit for a tax position is dependent upon the benefit being more likely than not to be sustainable upon audit by the applicable taxing authority. If this threshold is met, the tax benefit is then measured and recognized at the largest amount that is greater than 50% likely of being realized upon ultimate settlement. If such unrecognized tax benefits were realized, we would recognize a tax benefit of $ 79.3 million. The following table summarizes the gross amounts of unrecognized tax benefits (in thousands): Year Ended December 31, 2024 2023 Balance at beginning of year $ 69,145 $ 73,040 Additions related to prior periods tax positions 9,173 3,687 Reductions related to prior periods tax positions ( 2,014 ) ( 10,382 ) Additions related to current period tax positions 5,939 3,019 Additions related to acquisitions 9,114 — Settlements ( 71 ) ( 209 ) Reductions due to lapse of applicable statute of limitations ( 3,538 ) ( 33 ) Currency translation adjustment ( 25 ) 23 Balance at end of year $ 87,723 $ 69,145 Our policy is to recognize interest and penalties related to uncertain tax positions, if any, as a component of income tax expense. During the years ending December 31, 2024 and 2023, we recorded interest and penalties as a component of income tax expense of $ 8.5 million and $ 4.9 million, respectively. As of December 31, 2024 and 2023, the Company has accrued liabilities of $ 18.7 million and $ 10.1 million, respectively, for interest and penalties related to its uncertain tax positions. We do not expect any significant decreases in recognized tax benefits within the next 12 months. One or more of our legal entities file income tax returns in the U.S. and in certain foreign jurisdictions. Our income tax returns may be examined by tax authorities in those jurisdictions. Significant disputes may arise with tax authorities involving issues such as the timing and amount of deductions, the use of tax credits and allocations of income and expenses among various tax jurisdictions because of differing interpretations of tax laws and regulations and relevant facts. In the U.S., the statute of limitations remains open beginning with tax year 2021. We are currently under U.S. federal audit for tax year 2021. Note 14. Net Income Per Share Our basic net income per share is computed by dividing the net income by the number of weighted average common shares outstanding during the period. Our diluted net income per share is computed by dividing net income by the weighted average common shares outstanding during the period assuming potentially dilutive common shares of stock options, RSUs and PSUs. 116 Table of Contents Net income per share was calculated as follows for the periods indicated below: Year Ended December 31, (in thousands, except per share data) 2024 2023 2022 Basic Net Income Per Share Basic net income $ 32,615 $ 597,599 $ 340,660 Weighted average common shares outstanding 207,110 223,628 222,004 Basic net income per share $ 0.16 $ 2.67 $ 1.53 Diluted Net Income Per Share Diluted net income $ 32,615 $ 597,599 $ 340,660 Weighted average common shares outstanding 207,110 223,628 222,004 Dilutive stock options and awards 3,420 2,300 1,954 Weighted average shares used to compute diluted net income per share 210,530 225,928 223,958 Diluted net income per share $ 0.15 $ 2.65 $ 1.52 The potential common shares that were excluded from the diluted net income per share computation are as follows: 2024 2023 2022 Outstanding stock options and awards 12,905,281 12,710,250 10,946,703 Note 15. 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 was $ 20.6 million, $ 18.9 million and $ 18.7 million for the years ended December 31, 2024, 2023 and 2022, 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. The pension plans assumptions reflect the expected investment return and discount rate on plan assets and disability rate probabilities. The benefit obligation at December 31, 2024 for the plans was determined using a discount rate of 0.90 % and rate of compensation increase of 2.25 %. The 2024 net periodic benefit cost for the plans was determined using discount rates of 1.30 %, rates of compensation increase of 2.25 % and long term expected return on plan assets of 5.50 %. The benefit obligation at December 31, 2023 for the plans was determined using a discount rate of 1.30 % and rate of compensation increase of 2.25 %. The 2023 net periodic benefit cost for the plans was determined using discount rates of 2.20 %, rates of compensation increase of 2.25 % and long term expected return on plan assets of 5.80 %. 117 Table of Contents Summarized information regarding changes in the obligations and plan assets, the funded status and the amounts recorded were as follows (in thousands): Year Ended December 31, 2024 2023 Benefit obligation, beginning of year $ 169,667 $ 113,705 Employer service cost 12,121 7,711 Interest cost 2,010 2,280 Plan participants' contributions 5,067 4,534 Actuarial loss 17,443 26,682 Transfer of benefits net of payments from fund 1,382 1,866 Expenses paid from assets ( 101 ) ( 118 ) Translation (gain) loss ( 12,102 ) 13,007 Benefit obligation, end of year 195,487 169,667 Fair value of plan assets, beginning of year 128,482 102,023 Actual return on plan assets 13,562 140 Employer contributions 10,278 9,955 Plan participants' contributions 5,067 4,534 Transfer of benefits net of payments from fund 1,382 1,866 Expenses paid from assets ( 101 ) ( 118 ) Translation (loss) gain ( 9,034 ) 10,082 Fair value of plan assets, end of year 149,636 128,482 Unfunded liability, end of year $ 45,851 $ 41,185 The unfunded liability is reported in other liabilities on the consolidated balance sheets as of December 31, 2024 and 2023. The accumulated benefit obligation is $ 182.4 million and $ 157.9 million as of December 31, 2024 and 2023, respectively. The net periodic benefit cost was as follows (in thousands): Year Ended December 31, 2024 2023 2022 Service cost $ 12,121 $ 7,711 $ 9,855 Interest cost 2,010 2,280 251 Expected return on plan assets ( 6,764 ) ( 5,688 ) ( 4,184 ) Amortization of prior service cost 801 771 773 Amortization of actuarial losses 673 — 356 Net periodic benefit cost $ 8,841 $ 5,074 $ 7,051 The components of net periodic benefit cost other than the service cost component are included in interest income and other, net on the consolidated statements of operations. 118 Table of Contents Other changes in the plans assets and the benefit obligation that is recognized in accumulated other comprehensive (loss) income were as follows, net of tax (in thousands): Year Ended December 31, 2024 2023 2022 Pension liability (asset), beginning of year $ 30,924 $ ( 1,699 ) $ 23,677 Net prior service costs ( 1,474 ) ( 771 ) ( 773 ) Net loss (gain) $ 10,473 $ 33,394 $ ( 24,603 ) Pension liability (asset), end of year $ 39,923 $ 30,924 $ ( 1,699 ) We expect to contribute a total of $ 10.1 million to the pension plans in 2025. The following payments are expected to be paid from the fund (in thousands): 2025 $ 6,956 2026 7,249 2027 8,139 2028 8,617 2029 11,123 2030-2034 56,544 Total $ 98,628 Note 16. Commitments and Contingencies Commitments In August 2021, we entered into a revolving credit and guaranty agreement, which was subsequently amended in May 2023 and June 2024 (as amended, the “Credit Agreement”), among the Incyte Corporation, as borrower, subsidiary Incyte Holdings Corporation, as a guarantor, a group of lenders (the “Lenders”), and J.P. Morgan Chase Bank, N.A. as administrative agent. Under the Credit Agreement, the Lenders have committed to provide an unsecured revolving credit facility in an aggregate principal amount of up to $ 500.0 million. 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 to the Credit Agreement, subject to obtaining commitments from any participating lenders and certain other conditions, in an amount not to exceed (1) $ 250.0 million plus (2) an additional amount, so long as after giving effect to the incurrence of such additional amount, our pro forma consolidated leverage ratio would not exceed 0.25 :1.00 above its consolidated leverage ratio in effect immediately prior to giving effect to such increase. Loans under the Credit Agreement will bear interest, at our option, at a per annum rate equal to either (a) a base rate (but not less than 1.00 %) plus an applicable rate per annum varying from 0.125 % to 0.875 % depending on the consolidated leverage ratio or (b) a rate based on the secured overnight financing rate (“SOFR”) plus a credit spread adjustment of 0.10 % (but not less than 0.00 %), plus an applicable rate per annum varying from 1.125 % to 1.875 % depending on the consolidated leverage ratio. Commitment fees payable on the undrawn amount range from 0.150 % per annum to 0.225 % per annum, based on our consolidated leverage ratio. We may, at our option, prepay any borrowings under the Credit Agreement, in whole or in part, at any time and from time to time without premium or penalty, subject to customary exceptions. As of December 31, 2024, we were in compliance with all financial and operational covenants under the terms of the Credit Agreement and there were no outstanding borrowings or letters of credit outstanding. Contingencies 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. 119 Table of Contents 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. We brought a lawsuit against the U.S. Centers for Medicare and Medicaid Services (“CMS”) alleging that a recent regulation issued by CMS on the definition of “line extension” for purposes of the Medicaid rebate program is too broad and has the unintended consequence of treating OPZELURA as a “line extension” of JAKAFI under this program. We believe that such a reading would violate CMS's statutory authority and be arbitrary and capricious, given that OPZELURA, among other differentiators, is indicated to treat entirely different medical conditions and entirely different patient populations than JAKAFI. As of December 31, 2024, we have accrued approximately $ 127.6 million within accrued and other current liabilities on the consolidated balance sheet, relating to the incremental rebates that would be owed were OPZELURA considered a line extension of JAKAFI. The impact on OPZELURA gross to net deductions for the quarter ending December 31, 2024, is approximately 6.3 %. If OPZELURA is not treated as a line extension of JAKAFI, this would result in a reversal of our accrual and a lower future gross to net deduction for OPZELURA. In addition, as described in Note 7 of the Notes to the Consolidated Financial Statements, we have an outstanding contractual dispute with Novartis relating to royalties on JAKAFI net sales within the United States. Note 17. Segment Information We operate in one operating segment, and therefore one reportable segment, focused on the global discovery, development and commercialization of proprietary therapeutics. We manage business activities on a consolidated basis through the development and commercialization of oncology and dermatology products, which are sold to U.S. and international customers. Our determination that we operate as a single operating segment is consistent with the financial information regularly reviewed by the chief operating decision maker for purposes of evaluating performance, allocating resources, setting incentive compensation targets, and planning and forecasting for future periods. Our chief operating decision maker is the Chief Executive Officer. The accounting policies for our single operating segment are the same as those described in the summary of significant accounting policies. Our single operating segment generates revenues from the development and commercialization of oncology and dermatology pharmaceutical products, which are developed by our research and development department, as well as from product royalties, milestone and contract revenues from the out-licensing of our intellectual property to third parties. For our segment, the chief operating decision maker uses net income or loss, that also is reported on the consolidated statements of operations as consolidated net income (loss), to allocate resources (including employees, property, and financial resources), predominantly during the annual budget and forecasting process. The chief operating decision maker also uses consolidated net income or loss, along with non-financial inputs and qualitative information, to evaluate our performance, establish compensation, monitor budget versus actual results, and decide the level of investment in our various operating activities and other capital allocation activities. The measure of segment assets is reported on the consolidated balance sheet as total consolidated assets. 120 Table of Contents Net income for our segment was as follows (in thousands): Year Ended December 31, 2024 2023 2022 Product revenues, net $ 3,618,888 $ 3,165,168 $ 2,746,897 Product royalty revenues 579,329 523,481 482,738 Milestone and contract revenues 43,000 7,000 165,000 Total revenues 4,241,217 3,695,649 3,394,635 Costs, expenses and other: Cost of product revenues (including definite-lived intangible amortization) 312,068 254,990 206,997 Research and development - internal 1 957,043 815,025 739,785 Research and development - external 2 866,005 775,919 720,201 Other research and development 3 783,800 36,650 125,950 Sales and marketing 945,428 876,703 770,141 General and administrative 296,729 284,590 231,999 Loss on change in fair value of acquisition-related contingent consideration 19,803 29,202 12,149 (Profit) and loss sharing under collaboration agreements ( 1,025 ) 2,045 7,973 Other segment items 4 28,751 22,926 238,780 Net income $ 32,615 $ 597,599 $ 340,660 1. Research and development - internal is comprised of internally generated costs such as salaries, travel, regulatory costs, lab costs, contracting, etc. 2. Research and development - external is comprised of specific program spend with external vendors (i.e. contract manufacturing organization, contract research organization and lab vendors for clinical, technical operations and toxicology services). 3. Other research and development is comprised of all other costs including certain one-time costs resulting from the acquisition of IPR&D assets and one-time development milestone expenses. 4. Other segment items is comprised of interest income, interest expense, realized and unrealized (gain) loss on equity investments, other, net, and provision for income taxes. During the year ended December 31, 2024, total revenues generated by subsidiaries in the United States was approximately $ 4.0 billion, total revenues generated from subsidiaries in Europe was approximately $ 260.4 million, and total revenues generated from subsidiaries in other countries was approximately $ 6.2 million. During the year ended December 31, 2023, total revenues generated by subsidiaries in the United States was approximately $ 3.5 billion, total revenues generated from subsidiaries in Europe was approximately $ 175.9 million, and total revenues generated from subsidiaries in other countries was approximately $ 4.9 million. During the year ended December 31, 2022, total revenues generated by subsidiaries in the United States was approximately $ 3.2 billion and total revenues generated from subsidiaries in Europe was approximately $ 147.0 million. As of December 31, 2024, property and equipment, net was approximately $ 474.1 million in the United States, approximately $ 277.6 million in Switzerland and approximately $ 11.7 million in other countries. As of December 31, 2023, property and equipment, net was approximately $ 432.3 million in the United States, approximately $ 303.9 million in Switzerland and approximately $ 15.3 million in other countries. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. 121 Table of Contents