INCYTE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	Six Months Ended
	June 30,
	2022		2021
Cash flows from operating activities:
Net income	$	199,424	$	202,991
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		32,945		28,295
Stock-based compensation		90,337		92,090
Deferred income taxes		32,475		(160)
Other, net		8,467		3,214
Unrealized loss on long term investments		71,482		944
Change in fair value of acquisition-related contingent consideration		9,695		10,158
Changes in operating assets and liabilities:
Accounts receivable		(66,668)		43,824
Prepaid expenses and other assets		(25,380)		(2,981)
Inventory		(37,190)		(16,287)
Accounts payable		22,660		23,333
Accrued and other liabilities		51,651		(6,382)
Net cash provided by operating activities		389,898		379,039
Cash flows from investing activities:
Purchase of long term investments		—		(8,662)
Sale of long term investments		—		9,328
Capital expenditures		(28,749)		(114,390)
Purchases of marketable securities		(43,988)		(102,288)
Sale and maturities of marketable securities		43,509		107,114
Net cash used in investing activities		(29,228)		(108,898)
Cash flows from financing activities:
Proceeds from issuance of common stock under stock plans		37,692		43,669
Tax withholdings related to restricted and performance share vesting		(6,854)		(12,625)
Payment of finance lease liabilities		(1,368)		(1,173)
Payment of contingent consideration		(13,473)		(13,357)
Net cash provided by financing activities		15,997		16,514
Effect of exchange rates on cash, cash equivalents, restricted cash and investments		1,198		(2,159)
Net increase in cash, cash equivalents, restricted cash and investments		377,865		284,496
Cash, cash equivalents, restricted cash and investments at beginning of period		2,059,160		1,514,765
Cash, cash equivalents, restricted cash and investments at end of period	$	2,437,025	$	1,799,261
Supplemental Schedule of Cash Flow Information
Income taxes paid	$	76,464	$	35,996
Unpaid purchases of property and equipment	$	8,952	$	30,823
Leased assets obtained in exchange for new operating lease liabilities	$	2,025	$	7,217
Leased assets obtained in exchange for new finance lease liabilities	$	1,308	$	408

~~(unaudited)~~

Nine Months Ended

September 30,

2017

2016

Cash flows from operating activities:

Net income (loss)

$
(163,513)

$
95,349

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:

Depreciation and amortization

39,319

40,859

In-process research and development impairment

12,000

—

Stock-based compensation

99,287

68,598

Expense related to senior note conversions

54,881

—

Other, net

216

325

Unrealized loss (gain) on long term investments

2,343

(20,497)

Change in fair value of acquisition-related contingent consideration

(1,914)

10,283

Changes in operating assets and liabilities:

Accounts receivable

(49,587)

(6,712)

Prepaid expenses and other assets

(32,051)

(13,323)

Inventory

4,741

4,439

Accounts payable

(5,666)

25,683

Accrued and other liabilities

36,223

15,018

Deferred revenue—collaborative agreements

—

(9,644)

Net cash (used in) provided by operating activities

(3,721)

210,378

Cash flows from investing activities:

Acquisition of business, net of cash acquired

—

(142,965)

Purchase of long term investments

(123,891)

—

Capital expenditures

(85,770)

(104,405)

Purchases of marketable securities

(131,919)

(26,921)

Sale and maturities of marketable securities

134,604

77,815

Net cash used in investing activities

(206,976)

(196,476)

Cash flows from financing activities:

Restricted investments, net

(40)

13,976

Proceeds from issuance of common stock under stock plans

58,554

32,468

Proceeds from issuance of common stock, net

649,387

—

Cash paid in connection with senior note conversions

(8,934)

—

Direct financing arrangements repayments

—

(445)

Payment of contingent consideration

(12,521)

(1,226)

Net cash provided by financing activities

686,446

44,773

Effect of exchange rates on cash and cash equivalents

(46)

(15)

Net increase in cash and cash equivalents

475,703

58,660

Cash and cash equivalents at beginning of period

652,343

521,439

Cash and cash equivalents at end of period

$
1,128,046

$
580,099

Supplemental Schedule of Cash Flow Information

Interest paid

$
180

$
3,892

Income taxes paid

$
6,187

$
717

Reclassification to common stock and additional paid in capital in connection with conversions of 0.375% convertible senior notes due 2018

$
351,041

$
5

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

$
330,011

$
4

Unpaid purchases of property and equipment

$
10,774

$
6,989

See accompanying notes.

Table of Contents

INCYTE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2017~~2022

(Unaudited)

Note 1. Organization and business

Incyte Corporation (including its subsidiaries, “Incyte,” “we,” “us,” or “our”) is a biopharmaceutical company focused on developing and commercializing proprietary therapeutics. Our portfolio includes compounds in various stages, ranging from preclinical to late stage development, and commercialized products JAKAFI® (ruxolitinib), ICLUSIG® (ponatinib), PEMAZYRE® (pemigatinib), OPZELURA™ (ruxolitinib cream),MINJUVI® (tafasitamab) and ~~ICLUSIG® (ponatinib).~~MONJUVI® (tafasitamab-cxix), which is co-commercialized. Our operations are treated as ~~one~~1 operating segment.

Note 2. Summary of significant accounting policies

Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The condensed consolidated balance sheet as of ~~September~~June 30, ~~2017~~2022, the condensed consolidated statements of operations, comprehensive income (loss), and stockholders’ equity for the three and six months ended June 30, 2022 and 2021, and the condensed consolidated statements of ~~operations, and comprehensive income (loss) for the three and nine months ended September 30, 2017 and 2016, and the condensed consolidated statement of~~ cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021, are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The condensed consolidated balance sheet at December 31, ~~2016~~2021 has been derived from our audited consolidated financial statements.

On June 1, 2016, we acquired (the “Acquisition”), pursuant to a Share Purchase Agreement dated as of May 9, 2016 (the “Share Purchase Agreement”), all of the outstanding shares of ARIAD Pharmaceuticals (Luxembourg) S.à.r.l., since renamed Incyte Biosciences Luxembourg S.à.r.l., the parent company of certain European subsidiaries of ARIAD Pharmaceuticals, Inc. (“ARIAD”). Refer to Note 3 for further information regarding the Acquisition.

Although we believe that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and footnote information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.

Results for any interim period are not necessarily indicative of results for any future interim period or for the entire year. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021.

Principles of Consolidation. The condensed consolidated financial statements include the accounts of Incyte Corporation and our wholly owned subsidiaries. All inter-company accounts, transactions, and profits have been eliminated in consolidation.

~~Acquisitions.~~ Acquired businesses are accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recorded at fair value, with limited exceptions. Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill. Transaction costs are expensed as incurred. The operating results of the acquired business are reflected in our consolidated financial statements after the date of acquisition. Acquired in-process research and development (“IPR&D”) is recognized at fair value and initially characterized as an indefinite-lived intangible asset, irrespective of whether the acquired IPR&D has an alternative future use.

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~~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 interest and other income, net in the condensed consolidated statements of operations. To date, both the translation gains or losses in other comprehensive income (loss) and the transaction gains or losses in foreign exchange gain (loss) have been immaterial.

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.

~~Concentrations~~Recent Accounting Pronouncements

There were no new accounting pronouncements issued nor adopted since our filing of ~~Credit Risk.~~ Cash, cash equivalents, marketable securities, trade receivables and restricted investments are financial instruments which potentially subject us to concentrations of credit risk. The estimated fair value of financial instruments approximates the ~~carrying value based~~Annual Report on ~~available market information. We primarily invest our excess available funds in debt securities and, by policy, limit~~Form 10-K for the amount of credit exposure to any one issuer and to any one type of investment, other than securities issued or guaranteed by the U.S. government and money market funds that meet certain guidelines. Our receivables mainly relate to our product sales of JAKAFI, ICLUSIG and collaborative agreements with pharmaceutical companies. We have not experienced any significant credit losses on cash, cash equivalents, marketable securities, trade receivables or restricted investments to date and do not require collateral on receivables.

~~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.~~ Available-for-sale securities are carried at fair value, based on quoted market prices and observable inputs, with unrealized gains and losses, net of tax, reported as a separate component of stockholders’ equity. We classify marketable securities that are available for use in current operations as current assets on the condensed consolidated balance sheets. Realized gains and losses and declines in value judged to be other than temporary for available-for-sale securities are included in “Interest and other income, net.” The cost of securities sold is based on the specific identification method.

~~Accounts Receivable.~~ ~~As of September 30, 2017 and~~year ended December 31, 2016, we had no allowance for doubtful accounts. We provide an allowance for doubtful accounts based on experience and specifically identified risks. Accounts receivable are carried at fair value and charged off against the allowance for doubtful accounts when we determine that recovery is unlikely and we cease collection efforts.

~~Inventory.~~ Inventories are determined at the lower of cost and net realizable value with cost determined under the specific identification method and may consist of raw materials, work in process and finished goods.

JAKAFI raw materials and work-in-process inventory is not subject to expiration and the shelf life of finished goods inventory is 36 months from the start of manufacturing of the finished goods. ICLUSIG raw materials and work-in-process inventory is not subject to expiration and finished goods inventory has a shelf life of 24 months from the start of manufacturing of the finished goods. We evaluate for potential excess inventory by analyzing current and future product demand relative to the remaining product shelf life. We build demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance and patient usage. We classify inventory as current on the condensed consolidated balance sheets when we expect inventory to be consumed for commercial use within the next twelve months.

~~The ICLUSIG inventories were recorded at fair value less costs to sell in connection with the Acquisition,~~2021, which ~~resulted in a higher cost of ICLUSIG product revenues over a one year period from the acquisition date.~~

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~~Variable Interest Entities. We perform an initial and on-going evaluation of the entities with which we have variable interests, such as equity ownership, in order to~~identify entities (i) that do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support or (ii) in which the equity investors lack an essential characteristic of a controlling financial interest as variable interest entities (“VIE” or “VIEs”). If an entity is identified as a VIE, we perform an assessment to determine whether we have both (i) the power to direct activities that most significantly impact the VIE’s economic performance and (ii) have the obligation to absorb losses from or the right to receive benefits of the VIE that could potentially be significant to the VIE. If both of these criteria are satisfied, we are identified as the primary beneficiary of the VIE. As of September 30, 2017, there were no entities in which we held a variable interest which we determined to be VIEs.

~~Long Term Investments.~~ Our long term investments consist of investments in common stock of publicly held companies with whom we have entered into collaboration and license agreements. The investments in companies over which we have significant influence, but not controlling interest, are accounted for using the equity method (fair value option). The investments in companies over which we do not have significant influence are accounted for as available-for-sale securities. We classify all of our investments in common stock of publicly held companies with whom we have entered into collaboration and license agreements as long term investments, given we intend to hold these investments for the foreseeable future.

~~Equity Method Investments.~~ In circumstances where we have the ability to exercise significant influence over the operating and financial policies of a company in which we have an investment, the investment is accounted for either (i) under the equity method of accounting or (ii) at fair value by electing the fair value option under U.S. GAAP. In assessing whether we exercise significant influence, 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. Under the equity method of accounting, we record within our results of operations our share of income or loss of the investee company. Under the fair value option, our investment is carried at fair value on our condensed consolidated balance sheets as a long term investment and all changes in fair value are reported in our condensed consolidated statements of operations as an unrealized gain (loss) on long term investments.

~~Property and Equipment.~~ Property and equipment 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.

Management continually reviews the estimated useful lives of technologically sensitive equipment and believes that those estimates appropriately reflect the current useful life of our assets. In the event that a currently unknown significantly advanced technology became commercially available, we would re-evaluate the value and estimated useful lives of our existing equipment, possibly having a material impact on the financial statements.

~~Lease Accounting.~~ We account for operating leases by recording rent expense on a straight-line basis over the expected life of the lease, commencing on the date we gain possession of leased property. We include tenant improvement allowances and rent holidays received from landlords and the effect of any rent escalation clauses to determine the straight-line rent expense over the expected life of the lease.

Capital leases are reflected as a liability at the inception of the lease based on the present value of the minimum lease payments or, if lower, the fair value of the property. Assets under capital leases are recorded in property and equipment, net on the condensed consolidated balance sheets and depreciated in a manner similar to other property and equipment.

~~Other Intangible Assets, net.~~ Other intangible assets, net consist of licensed intellectual property rights acquired in business combinations, which are reported at fair value, less accumulated amortization. Intangible assets with finite lives are amortized over their estimated useful lives using the straight-line method.

~~In-Process Research and Development.~~ ~~The fair value of in-process research and development (“IPR&D”) acquired through business combinations is capitalized as an indefinite-lived intangible asset until the completion or~~

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~~abandonment of the related research and development activities. When the related research and development is completed, the asset will be assigned a useful life and amortized.~~

~~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.

Indefinite-lived intangible assets, including IPR&D, are tested for impairment annually as of October 1 or more frequently if events or changes in circumstances between annual tests indicate that the asset may be impaired. Impairment losses on indefinite-lived intangible assets are recognized based solely on a comparison of the fair value of the asset to its carrying value. Due to the discontinuation of the OPTIC-2L study described in Note 3 below, we considered our indefinite-lived IPR&D asset to be impaired and recorded a $12.0 million impairment charge in research and development expense on the condensed consolidated statements of operations during the three and nine months ended September 30, 2017.

~~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 impairment assessment as of October 1, 2016 and determined that the carrying value of our reporting unit 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.~~

In addition, we follow the guidance related to accounting for uncertainty in income taxes. This guidance creates a single model to address uncertainty in tax positions and clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before it is recognized in the financial statements.

~~Financing Costs Related to Long-term Debt.~~ Costs associated with obtaining long-term debt are deferred and amortized over the term of the related debt using the effective interest method. Such costs are presented as a direct deduction from the carrying amount of the long-term debt liability, consistent with debt discounts, on the consolidated balance sheets.

~~Grant Accounting.~~ Grant amounts received from government agencies for operations are deferred and are amortized into income over the service period of the grant. Grant amounts received for purchases of capital assets are deferred and amortized into interest and other income, net over the useful life of the related capital assets. Such amounts are recorded in other liabilities on the condensed consolidated balance sheets.

~~Net Income (Loss) Per Share.~~ Our basic and diluted net income (loss) per share is calculated by dividing the net income (loss) by the weighted average number of shares of common stock outstanding during all periods presented. Options to purchase stock, restricted stock units and shares issuable upon the conversion of convertible debt 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 marketable securities that are classified as available-for-sale, a long-term investment classified as available-for-sale, foreign currency translation gains or losses and defined benefit pension obligations.

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~~Revenue Recognition.~~ Revenues are recognized when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the price is fixed or determinable and (4) collectability is reasonably assured. Revenues are deferred for fees received before earned or until no further obligations exist. We exercise judgment in determining that collectability is reasonably assured or that services have been delivered in accordance with the arrangement. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. We assess collectability based primarily on the customer’s payment history and on the creditworthiness of the customer.

~~Product Revenues~~

Our product revenues consist of U.S. sales of JAKAFI and European sales of ICLUSIG. Product revenues are recognized once we meet all four revenue recognition criteria described above. In November 2011, we began shipping JAKAFI to our customers in the U.S., which include specialty pharmacies and wholesalers. In June 2016, we acquired the right to and began shipping ICLUSIG to our customers in the European Union and certain other jurisdictions (Note 3), which include retail pharmacies, hospital pharmacies and distributors.

We recognize revenues for product received by our customers net of allowances for customer credits, including estimated rebates, chargebacks, discounts, returns, distribution service fees, patient assistance programs, and government rebates, such as Medicare Part D coverage gap reimbursements in the U.S. Product shipping and handling costs are included in cost of product revenues.

~~Customer Credits:~~ Our customers are offered various forms of consideration, including allowances, service fees and prompt payment discounts. We expect our customers will earn prompt payment discounts and, therefore, we deduct the full amount of these discounts from total product sales when revenues are recognized. Service fees are also deducted from total product sales as they are earned.

~~Rebates and Discounts:~~ Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program in the U.S. and mandated discounts in Europe in markets where government-sponsored healthcare systems are the primary payers for healthcare. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or legal requirements with public sector benefit providers. The accrual for rebates is based on statutory discount rates and expected utilization as well as historical data we have accumulated since product launches. Our estimates for expected utilization of rebates are based on data received from our customers. Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarters’ unpaid rebates. If actual future rebates vary from estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

~~Chargebacks:~~ Chargebacks are discounts that occur when certain contracted customers, which currently consist primarily of group purchasing organizations, Public Health Service institutions, non-profit clinics, and Federal government entities purchasing via the Federal Supply Schedule, purchase directly from our wholesalers. Contracted customers generally purchase the product at a discounted price. The wholesalers, in turn, charges back to us the difference between the price initially paid by the wholesalers and the discounted price paid by the contracted customers. In addition to actual chargebacks received we maintain an accrual for chargebacks based on the estimated contractual discounts on the inventory levels on hand in our distribution channel. If actual future chargebacks vary from these estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

~~Medicare Part D Coverage Gap:~~ Medicare Part D prescription drug benefit mandates manufacturers to fund 50% 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.

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~~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. We recognize royalty revenues in the period the sales occur.

~~Cost of Product Revenues~~

Cost of product revenues includes all JAKAFI related product costs as well as ICLUSIG related product costs. The ICLUSIG inventories were recorded at fair value less costs to sell in connection with the Acquisition, which resulted in a higher cost of ICLUSIG product revenues over a one year period from the acquisition date. In addition, cost of product revenues include low single digit royalties under our collaboration and license agreement to Novartis on all future sales of JAKAFI in the United States. Subsequent to the Acquisition on June 1, 2016, cost of product revenues also includes the amortization of our licensed intellectual property for ICLUSIG using the straight-line method over the estimated useful life of 12.5 years.

~~Contract and License Revenues~~

Under agreements involving multiple deliverables, services and/or rights to use assets that we entered into prior to January 1, 2011, the multiple elements are divided into separate units of accounting when certain criteria are met, including whether the delivered items have stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered items. When separate units of accounting exist, consideration is allocated among the separate elements based on their respective fair values. The determination of fair value of each element is based on objective evidence from historical sales of the individual elements by us to other customers. If such evidence of fair value for each undelivered element of the arrangement does not exist, all revenue from the arrangement is deferred until such time that evidence of fair value for each undelivered element does exist or until all elements of the arrangement are delivered. When elements are specifically tied to a separate earnings process, revenue is recognized when the specific performance obligation tied to the element is completed. When revenues for an element are not specifically tied to a separate earnings process, they are recognized ratably over the term of the agreement. We assess whether a substantive milestone exists at the inception of our agreements. For all milestones within our arrangements that are considered substantive, we recognize revenue upon the achievement of the associated milestone. If a milestone is not considered substantive, we would recognize the applicable milestone payment over the remaining period of performance under the arrangement. As of September 30, 2017, all remaining potential milestones under our collaborative arrangements are considered substantive.

On January 1, 2011, updated guidance on the recognition of revenues for agreements with multiple deliverables became effective and applies to any agreements we may enter into on or after January 1, 2011. This updated guidance (i) relates to whether multiple deliverables exist, how the deliverables in a revenue arrangement should be separated and how the consideration should be allocated; (ii) requires companies to allocate revenues in an arrangement using estimated selling prices of deliverables if a vendor does not have vendor-specific objective evidence or third-party evidence of selling price; and (iii) eliminates the use of the residual method and requires companies to allocate revenues using the relative selling price method. During the three and nine months ended September 30, 2017 and 2016, we did not enter into any agreements that are subject to this updated guidance. If we enter into an agreement with multiple deliverables after January 1, 2011 or amend existing agreements, this updated guidance could have a ~~material~~significant effect ~~on our financial statements.~~

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Our collaborations often include contractual milestones, which typically relate to the achievement of pre-specified development, regulatory and commercialization events. These three categories of milestone events reflect the three stages of the life-cycle of our drugs, which we describe in more detail in the following paragraphs.

The regulatory review and approval process, which includes preclinical testing and clinical trials of each drug candidate, is lengthy, expensive and uncertain. Securing approval by the U.S. Food and Drug Administration (the “FDA”) requires the submission of extensive preclinical and clinical data and supporting information to the FDA for each indication to establish a drug candidate’s safety and efficacy. The approval process takes many years, requires the expenditure of substantial resources, involves post-marketing surveillance and may involve ongoing requirements for post-marketing studies. Before commencing clinical investigations of a drug candidate in humans, we must submit an Investigational New Drug application (“IND”), which must be reviewed by the FDA.

The steps generally required before a drug may be marketed in the United States include preclinical laboratory tests, animal studies and formulation studies, submission to the FDA of an IND for human clinical testing, performance of adequate and well-controlled clinical trials in three phases, as described below, to establish the safety and efficacy of the drug for each indication, submission of a new drug application (“NDA”) or biologics license application (“BLA”) to the FDA for review and FDA approval of the NDA or BLA.

Similar requirements exist within foreign regulatory agencies as well. The time required satisfying the FDA requirements or similar requirements of foreign regulatory agencies may vary substantially based on the type, complexity and novelty of the product or the targeted disease.

Preclinical testing includes laboratory evaluation of product pharmacology, drug metabolism, and toxicity, which includes animal studies, to assess potential safety and efficacy as well as product chemistry, stability, formulation, development, and testing. The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND. The FDA may raise safety concerns or questions about the conduct of the clinical trials included in the IND, and any of these concerns or questions must be resolved before clinical trials can proceed. We cannot be sure that submission of an IND will result in the FDA allowing clinical trials to commence. Clinical trials involve the administration of the investigational drug or the marketed drug to human subjects under the supervision of qualified investigators and in accordance with good clinical practices regulations covering the protection of human subjects. Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. Phase I usually involves the initial introduction of the investigational drug into healthy volunteers to evaluate its safety, dosage tolerance, absorption, metabolism, distribution and excretion. Phase II usually involves clinical trials in a limited patient population to evaluate dosage tolerance and optimal dosage, identify possible adverse effects and safety risks, and evaluate and gain preliminary evidence of the efficacy of the drug for specific indications. Phase III clinical trials usually further evaluate clinical efficacy and safety by testing the drug in its final form in an expanded patient population, providing statistical evidence of efficacy and safety, and providing an adequate basis for labeling. We cannot guarantee that Phase I, Phase II or Phase III testing will be completed successfully within any specified period of time, if at all. Furthermore, we, the institutional review board for a trial, or the FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

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 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. Therefore, as a drug candidate progresses through the stages of its life-cycle, the value of the drug candidate generally increases.

~~Research and Development Costs.~~ Our policy is to expense research and development costs as incurred. We often contract with clinical 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.

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as a prepaid asset and amortize the asset into research and development expense over the period of time the contracted research and development services are performed. Most professional fees, including project and clinical management, data management, monitoring, and medical writing fees are incurred throughout the contract period. These professional fees are expensed based on their percentage of completion at a particular date. Our CRO contracts generally include pass through fees. Pass through fees include, but are not limited to, regulatory expenses, investigator fees, travel costs, and other miscellaneous costs, including shipping and printing fees. We expense the costs of pass through fees under our CRO contracts as they are incurred, based on the best information available to us at the time. The estimates of the pass through fees incurred are based on the amount of work completed for the clinical trial and are monitored through correspondence with the CROs, internal reviews and a review of contractual terms. The factors utilized to derive the estimates include the number of patients enrolled, duration of the clinical trial, estimated patient attrition, screening rate and length of the dosing regimen. CRO fees incurred to set up the clinical trial are expensed during the setup period.

Under our clinical trial collaboration agreements we may be reimbursed for certain development costs incurred. Such costs are recorded as a reduction of research and development expense in the period in which the related expense is incurred.

~~Stock Compensation.~~ Share-based payment transactions with employees, which include stock options, restricted stock units (“RSUs”) and performance shares (“PSUs”), are recognized as compensation expense over the requisite service period based on their estimated fair values as well as expected forfeiture rates. The stock compensation process requires significant judgment and the use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility over the option term and expected option lives, as well as expected forfeiture rates and the probability of PSUs vesting. The fair value of stock options, which are subject to graded vesting, are recognized as compensation expense over the requisite service period using the accelerated attribution method. The fair value of RSUs that are subject to cliff vesting are recognized as compensation expense over the requisite service period using the straight line attribution method, and the fair value of RSUs that are subject to graded vesting are recognized as compensation expense over the requisite service period using the accelerated attribution method. The fair value of PSUs are recognized as compensation expense beginning at the time in which the performance conditions are deemed probable of achievement, over the remaining requisite service period. We recorded $34.9 million and $99.3 million of stock compensation expense on our condensed consolidated statements of operations for the three and nine months ended September 30, 2017, respectively. We recorded $26.5 million and $68.6 million of stock compensation expense on our condensed consolidated statements of operations for the three and nine months ended September 30, 2016, respectively.

~~Acquisition-Related Contingent Consideration.~~ Acquisition-related contingent consideration, which consists of our future royalty and certain potential milestone obligations to ARIAD, is recorded on the acquisition date at the estimated fair value of the obligation, in accordance with the acquisition method of accounting. The fair value measurement is based on significant inputs that are unobservable in the market and thus represents a Level 3 measurement. The fair value of the acquisition-related contingent consideration is remeasured each reporting period, with changes in fair value recorded in the condensed consolidated statements of operations.

~~Recent Accounting Pronouncements~~

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”, which will replace numerous requirements in U.S. GAAP, including industry-specific requirements. This guidance provides a five step model to be applied to all contracts with customers, with an underlying principle that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. ASC No. 2014-09 requires extensive quantitative and qualitative disclosures covering the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including disclosures on significant judgments made when applying the guidance. This guidance is effective for annual reporting periods beginning after December 15, 2017 and interim periods therein. An entity can elect to apply the guidance under one of the following two methods: (i) retrospectively to each prior reporting period presented – referred to as the full retrospective method or (ii) retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application in retained earnings – referred to as the modified retrospective method.

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We have substantially completed an initial impact assessment of the potential changes from adopting ASU 2014-09. The impact assessment consisted of a review of a representative sample of contracts, discussions with key stakeholders, and a cataloging of potential impacts on our financial statements, accounting policies, financial controls, and operations. We currently do not anticipate a material impact on our revenue recognition practices for product and royalty revenues. We do anticipate that the adoption of ASU 2014-09 will have primarily two impacts on our contract revenues generated by our collaborative research and license agreements:

(i)Changes in the model for distinct licenses of functional intellectual property which may result in a timing difference of revenue recognition. Whereas revenue from these arrangements was previously recognized over a period of time pursuant to revenue recognition guidance that was in place for our arrangements at the time such arrangements commenced, revenue from these arrangements may now be recognized at point in time under the new guidance.

(ii)Assessments of milestone payments, which are linked to events that are in our control, will result in variable consideration that may be recognized at an earlier point in time under the new guidance, when it is probable that the milestone will be achieved without a significant future reversal of cumulative revenue expected.

We have not yet completed our final review of the impact of this guidance including the new disclosure requirements, as we are continuing to evaluate the impacts of adoption and the implementation approach to be used. We plan to adopt the new standard effective January 1, 2018 and are considering adopting using the modified retrospective method. We continue to monitor additional changes, modifications, clarifications or interpretations being undertaken by the FASB, which may impact our current conclusions.

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” that requires lessees to recognize assets and liabilities on the balance sheet for most leases including operating leases. Lessees now classify leases as either finance or operating leases and lessors classify all leases as sales-type, direct financing or operating leases. The statement of operations presentation and expense recognition for lessees for finance leases is similar to that of capital leases under Accounting Standards Codification (“ASC”) 840 with separate interest and amortization expense with higher periodic expense in the earlier periods of a lease. For operating leases, the statement of operations presentation and expense recognition is similar to that of operating leases under ASC 840 with single lease cost recognized on a straight-line basis. This guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period presented in the financial statements and is effective for annual periods beginning after December 15, 2018 and interim periods therein. Early adoption is permitted. We are currently analyzing the impact of ASU No. 2016-02 and, at this time, are unable to determine the impact of the new standard on our condensed consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory,” which requires companies to account for the income tax effects of intercompany sales and transfers of assets other than inventory in the period in which the transfer occurs. The new standard is effective for public business entities for annual periods beginning after December 15, 2017 (i.e. 2018 for a calendar-year entity). The guidance will be applied for the annual period beginning January 1, 2018 using a modified retrospective approach with a cumulative catch-up adjustment to opening retained earnings.

We have elected to early adopt ASU No. 2016-16 as of the first quarter of 2017, which requires us to reflect any adjustments as of January 1, 2017, the beginning of the annual period that includes the interim period of adoption. The primary impact of adoption was the recognition of a deferred tax asset of $34.9 million related to the excess of the tax basis over the consolidated book value basis in the intellectual property rights that were licensed from the U.S. parent company to our wholly-owned subsidiary in Switzerland during 2015 and a $2.1 million reversal of long-term prepaid taxes. Under previous guidance, companies were prohibited from recognizing an increase in tax basis and any income taxes incurred as a result of a sale or transfer of assets to companies that are part of a consolidated reporting entity. Given the full valuation allowance placed on the additional $34.9 million of deferred tax assets, the recognition upon adoption only required a $2.1 million adjustment to our retained earnings as of January 1, 2017 due to the adjustment of the prepaid tax asset.

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Note 3. Revenues

In November 2016, the FASB issued ASU No. 2016-18, “Restricted Cash,” which requires entities to show the changes in total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalentsRevenues are ~~presented in more than one line item on the balance sheet, the new~~recognized under guidance requires a reconciliation of the totals in the statement of cash flows to the related captions on the balance sheet. The reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. The new standard is effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods therein and is to be applied retrospectively. Early adoption is permitted. We are currently analyzing the impact of ASU No. 2016-18 on our condensed consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles–Goodwill and Other,” which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Under the new standard, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The new standard is effective for public business entities that are SEC filers for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The standard is to be applied on a prospective basis. We are currently analyzing the impact of ASU No. 2017-04 on our condensed consolidated financial statements.

In March 2017, the FASB issued ASU No. 2017-07, “Compensation–Retirement Benefits,” which requires the presentation of the service cost component of the net periodic benefit cost in the same income statement line as other employee compensation costs arisingwithin ASC 606, Revenue from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Disclosure of the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement, is also required. The new standard is effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods therein. The guidance on the presentation of the components of net periodic benefit cost in the income statement is to be applied retrospectively. The guidance limiting the capitalization of net periodic benefit cost in assets to the service cost component is to be applied prospectively. We are currently analyzing the impact of ASU No. 2017-07 on our condensed consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory,” which requires inventory to be measured at the lower of cost and net realizable value rather than at the lower of cost or market value. The new standard is effective for public business entities for fiscal years beginning after December 15, 2016 and interim periods therein. The guidance is to be applied prospectively. We adopted ASU No. 2015-11 as of the first quarter of 2017 and the adoption had no impact on our condensed consolidated financial statements.

~~3. Business combination~~

~~Description of the Transaction~~

On June 1, 2016, pursuant to the Share Purchase Agreement, we completed the Acquisition, and acquired all of the outstanding shares of ARIAD Pharmaceuticals (Luxembourg) S.à.r.l., since renamed Incyte Biosciences Luxembourg S.à.r.l., the parent company of ARIAD’s European subsidiaries responsible for the development and commercialization of ICLUSIG (ponatinib) in the European Union (“EU”) and other countries including Switzerland, Norway, Turkey, Israel and Russia (the “Territory”) in exchange for an upfront payment of $147.5 million, including customary working capital adjustments (the “Upfront Payment”). ICLUSIG is approved in Europe for the treatment of patientsContracts with chronic myeloid leukemia and Philadelphia-positive acute lymphoblastic leukemia who are resistant to or intolerant of certain second generation BCR-ABL inhibitors and all patients who have the T3151 mutation. The acquisition of ARIAD Pharmaceuticals (Luxembourg) S.à.r.l. included a fully integrated and established pan-European team including medical, sales and marketing personnel. The existing platform and infrastructure acquired is expected to further our strategic plan and accelerate the establishment of our operations in Europe.

~~In connection with the closing of the Acquisition, we entered into an Amended and Restated Buy-in License Agreement with ARIAD (the “License Agreement”)~~Customers. ~~Under the terms of the License Agreement, we were granted an exclusive license to develop and commercialize ICLUSIG in the Territory. ARIAD is eligible to receive from us tiered~~

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royalties ranging between 32% and 50% on net sales of ICLUSIG in the Territory. The royalties are subject to reduction for certain events related to exclusivity and, if necessary, any third-party patent rights. In addition, ARIAD is eligible to receive up to $135.0 million in potential future development and regulatory approval milestone payments for ICLUSIG in new oncology indications in the Territory (the “Milestones”), together with additional milestone payments for non-oncology indications, if approved, in the Territory. Under our agreement with ARIAD, we have agreed to fund a portion of the ongoing ICLUSIG clinical studies OPTIC and OPTIC-2L, which are being conducted by ARIAD, by paying up to $7.0 million in both 2016 and 2017 (the “Development Costs”). During the quarter ended September 30, 2017, ARIAD discontinued the OPTIC-2L clinical study.

The terms of the License Agreement also include a limited option for a potential future acquirer of ARIAD to purchase the European development and commercialization rights to ICLUSIG from us (the “Buy-Back Provision”). We concluded the Buy-Back Provision was not a derivative as it did not provide for explicit or implicit net settlement, cannot be readily settled net by a means outside of the contract, and does not provide for delivery of an asset that puts the recipient in a position that is not substantially different from net settlement. We also considered the probability of a potential future buyer exercising the Buy-Back Provision to be near zero and have concluded that any fair value assigned to this provision was de minimis. Takeda Pharmaceutical Company Limited acquired ARIAD in February 2017 but did not exercise the Buy-Back Provision, and the Buy-Back Provision lapsed.

Unless terminated earlier in accordance with its provisions, our obligations to pay full royalties under the License Agreement will continue to be in effect on a country-by-country basis until the latest to occur of (1) the expiration date of the composition patent in the relevant country, (2) the expiration of any regulatory marketing exclusivity period or other statutory designation that provides similar exclusivity for the commercialization of ICLUSIG in such country and (3) the seventh anniversary of the first commercial sale of ICLUSIG in such country. We will be obligated to pay royalties at a reduced rate for a specified period of time following such full royalty term. The License Agreement may be terminated in its entirety by us for convenience on 12 months’ notice after the third anniversary of the effective date of the License Agreement. The License Agreement may also be terminated by either party under certain other circumstances, including material breach, as set forth in the License Agreement.

~~Fair Value of Consideration Transferred~~

The preliminary fair value of consideration transferred totaled $440.5 million, which consisted of $147.5 million in cash pursuant to the Share Purchase Agreement, including net working capital adjustments, and $293.0 million of contingent consideration related to the License Agreement. Contingent consideration includes the future payments that we may pay to ARIAD for our royalty obligations on future net sales of ICLUSIG, as well as for any future potential milestone payments related to new oncology or non-oncology indications for ICLUSIG.

The preliminary fair value of contingent consideration was determined using an income approach based on estimated ICLUSIG revenues in the Territory for both the approved third line treatment, as well as the second line treatment that was under development and was therefore contingent on future clinical results and European Medicines Agency (“EMA”) approval. The probability of technical success (“PTS”) of the second line indication was estimated at 25% based on the early stage of development and competitive market landscape, and the estimated future cash flows for the second line indication were probability weighted accordingly. The total projected cash flows of the third line and second line indications were estimated over 18 years, and discounted to present value using a discount rate of 10%. In addition, based on the believed limited effectiveness of ICLUSIG beyond the existing oncology indications, the fact that no development is currently ongoing for any new oncology or any non-oncology indications, and the lack of intention by us, ARIAD, or another market participant, to develop ICLUSIG in additional oncology or non-oncology indications, the fair value of any cash flows for any new oncology or non-oncology indication was determined to be nil. The present value of the contingent consideration was $293.0 million as of the Acquisition date.

~~Assets Acquired and Liabilities Assumed~~

~~The Acquisition has been accounted for as a business combination under the acquisition method of accounting.~~ The following table ~~summarizes the final fair values of the assets acquired and liabilities assumed as of the acquisition date.~~

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Acquisition

(in thousands)

Fair Values

Current assets

$
21,363

Property and equipment

850

Restricted cash

432

Intangible assets(a)

283,000

Total identifiable assets

305,645

Current liabilities

(15,538)

Other long term liabilities

(5,226)

Total liabilities assumed

(20,764)

Goodwill(b)

155,593

Total fair value of consideration transferred

$
440,474

~~(a)~~As of the effective date of the Acquisition, identifiable intangible assets are required to be measured at fair value. The fair value measurement is based on significant inputs that are unobservable in the market and thus represents a Level 3 measurement. We used an income approach to estimate the preliminary fair value of the intangibles which includes licensed intellectual property and IPR&D. The assumptions used to estimate the cash flows of the licensed intellectual property included a discount rate of 15%, estimated gross margins of 98%, income tax rates ranging from 7.8% in periods in which we have established tax holidays to 13.8% thereafter, and operating expenses consisting of direct costs based on the anticipated level of revenues as well as the $7.0 million of research and development cost sharing payments we owe in 2016 and 2017. The assumptions used to estimate the cash flows of the IPR&D (which related to the potential approval of ICLUSIG as a second line treatment and, as described in Note 8 below, has subsequently been written off) included a PTS of 25%, discount rate of 16%, estimated gross margins of 98%, income tax rates ranging from 7.8% in periods in which we have established tax holidays to 13.8% thereafter, and operating expenses consisting of direct costs based on the anticipated level of revenues as well as probability weighted milestone payments estimated for 2020 related to the clinical results and potential approval of ICLUSIG as a second line treatment. The licensed intellectual property has a weighted-average useful life of approximately 12.5 years and will be amortized using the straight-line method. Amortization expense of the licensed intellectual property is recorded in cost of product revenues on the condensed consolidated statement of operations. The IPR&D was considered an indefinite-lived intangible until the completion or abandonment of the related research and development activities.

~~(b)~~Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair values of the assets acquired and liabilities assumed. The Goodwill is related to the existing platform, infrastructure, and workforce which is expected to generate synergies and furtherpresents our ~~strategic plan in Europe. Goodwill is not amortized and none of the goodwill is expected to be deductible for tax purposes.~~

~~Pro Forma Impact of Business Combination~~

~~The following unaudited pro forma information presents condensed consolidated results of operations~~disaggregated revenue for the ~~three and nine months ended September 30, 2016, as if the Acquisition had occurred as of January 1, 2015~~periods presented (in thousands).:

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,


2016

2016

Pro forma revenues

$
269,469

$
821,743

Pro forma net income

$
36,877

$
91,248


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
JAKAFI revenues, net	$	597,673	$	529,055	$	1,142,137	$	994,765
ICLUSIG revenues, net		26,224		28,189		52,293		53,834
PEMAZYRE revenues, net		18,983		17,906		37,015		31,362
MINJUVI revenues, net		4,411		—		8,913		—
OPZELURA revenues, net		16,560		—		29,314		—
Total product revenues, net		663,851		575,150		1,269,672		1,079,961
JAKAVI product royalty revenues		83,711		82,038		154,578		147,640
OLUMIANT product royalty revenues		30,254		36,045		78,318		68,303
TABRECTA product royalty revenues		3,581		2,476		7,064		4,523
Total product royalty revenues		117,546		120,559		239,960		220,466
Milestone and contract revenues		130,000		10,000		135,000		10,000
Total revenues	$	911,397	$	705,709	$	1,644,632	$	1,310,427

~~The unaudited pro forma condensed consolidated results of operations were prepared using the acquisition method of accounting and are based~~For further information on ~~the historical financial information of~~ our ~~company and the acquired business which has been adjusted for events that are (1) directly attributable~~revenue-generating contracts,refer to ~~the Acquisition, (2) factually supportable, and (3) expected to have continuing impact on the combined results. The unaudited pro forma information reflects primarily the following adjustments:~~Note 7.

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~~To record amortization expense related to fair value adjustments recorded on the acquired definite lived intangibles;~~

~~To eliminate ARIAD Europe’s interest expense on the intercompany loan in accordance with the terms of the Acquisition;~~

~~To remove balances attributable to the ARIAD Australia entity which are not material. This entity was previously consolidated by ARIAD Europe; however it was not included in the Acquisition; and~~

To remove the recognition of revenue relating to distribution agreements in historic periods for those arrangements in which we have no continuing performance obligation and, therefore, the fair value of the assumed deferred revenue balance was zero.

The unaudited pro forma information is not necessarily indicative of the results that would have been obtained if the Acquisition had occurred as of the beginning of the period presented or that may occur in the future, and does not reflect future synergies, integration costs, or other such costs or savings.

Note 4. Fair value of financial instruments

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


			Net
	Amortized		Unrealized		Estimated
	Cost		Losses		Fair Value
June 30, 2022
Debt securities (government)	$	292,350	$	(5,306)	$	287,044

December 31, 2021
Debt securities (government)	$	291,871	$	(1,119)	$	290,752

Our available-for-sale debt securities generally have contractual maturity dates of between 12 to 18 months. Debt security assets were assessed for risk of expected credit losses. As of June 30, 2022 and December 31, 2021, the available-for-sale debt securities were held in U.S.-government backed securities and in Treasury bonds and were assessed on an individual security basis to have a de minimis risk of credit loss.

Fair Value Measurements

FASB accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (“the exit price”) in an orderly transaction between market participants at the measurement date. The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. In determining fair value we use quoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of us. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.

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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 ~~corporate debt securities and~~ U.S. government debt securities that are classified as available-for-sale.

At ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, our Level 2 ~~corporate~~U.S. government debt securities were valued using readily available pricing sources which utilize market observable inputs, including the current interest rate and other characteristics for similar types of investments. Our long term investments classified as Level 1 were valued using ~~the unadjusted~~their respective closing stock ~~price~~prices on The ~~NASDAQ~~Nasdaq Stock Market.

~~Our policy is to recognize~~We did not experience any transfers ~~into and transfers out~~ of financial instruments between the fair value hierarchy levels ~~as of~~during the ~~end of the reporting period. During the three~~six months ended ~~September~~June 30, 2017, we transferred a long term investment with a carrying value of $78.3 million from Level 2 to Level 1 due to the lapse of the marketability restrictions. The investment is now valued using the unadjusted closing stock price on The NASDAQ Stock Market. There were no transfers out of Level 1 to Level 2 during the period.2022.

The following fair value hierarchy table presents information about each major category of our financial assets measured at fair value on a recurring basis ~~as of September 30, 2017~~ (in thousands):


	Fair Value Measurement at Reporting Date Using:
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs		Balance as of
	(Level 1)		(Level 2)		(Level 3)		June 30, 2022
Cash and cash equivalents	$	2,435,381	$	—	$	—	$	2,435,381
Debt securities (government)		—		287,044		—		287,044
Long term investments (Note 7)		149,784		—		—		149,784
Total assets	$	2,585,165	$	287,044	$	—	$	2,872,209


	Fair Value Measurement at Reporting Date Using:
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs		Balance as of
	(Level 1)		(Level 2)		(Level 3)		December 31, 2021
Cash and cash equivalents	$	2,057,440	$	—	$	—	$	2,057,440
Debt securities (government)		—		290,752		—		290,752
Long term investments (Note 7)		221,266		—		—		221,266
Total assets	$	2,278,706	$	290,752	$	—	$	2,569,458

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Fair Value Measurement at Reporting Date Using:

Quoted Prices in

Significant Other

Significant

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

Balance as of


(Level 1)

(Level 2)

(Level 3)

September 30, 2017

Cash and cash equivalents

$
1,128,046

$
—

$
—

$
1,128,046

Debt securities (corporate and government)

—

153,343

—

153,343

Long term investments (Note 9)

169,020

—

—

169,020

Total assets

$
1,297,066

$
153,343

$
—

$
1,450,409

The following fair value hierarchy table presents information about each major category of our financial liabilities measured at fair value on a recurring basis as ~~of September 30, 2017~~ (in thousands):


	Fair Value Measurement at Reporting Date Using:
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs		Balance as of
	(Level 1)		(Level 2)		(Level 3)		September 30, 2017
Contingent consideration (Note 3)	$	—	$	—	$	284,000	$	284,000

									Fair Value Measurement at Reporting Date Using:
									Quoted Prices in		Significant Other		Significant
									Active Markets for		Observable		Unobservable
									Identical Liabilities		Inputs		Inputs		Balance as of
									(Level 1)		(Level 2)		(Level 3)		June 30, 2022
Acquisition-related contingent consideration									$	—	$	—	$	237,000	$	237,000
Total liabilities	$	—	$	—	$	284,000	$	284,000	$	—	$	—	$	237,000	$	237,000


	Fair Value Measurement at Reporting Date Using:
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Liabilities		Inputs		Inputs		Balance as of
	(Level 1)		(Level 2)		(Level 3)		December 31, 2021
Acquisition-related contingent consideration	$	—	$	—	$	244,000	$	244,000
Total liabilities	$	—	$	—	$	244,000	$	244,000

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

Level 3
Balance at January 1, 2017

$
301,000
Contingent consideration earned during the period but not yet paid

(5,657)
Payments made during the period

(9,429)
Change in fair value of contingent consideration

(1,914)
Balance at September 30, 2017

$
284,000


	2022
Balance at January 1,	$	244,000
Contingent consideration earned during the period but not yet paid		(16,695)
Change in fair value of contingent consideration		9,695
Balance at June 30,	$	237,000

The fair value of the contingent consideration was determined on the date of acquisition, June 1, 2016, using an income approach based on ~~estimated~~projected future net revenues of ICLUSIG ~~revenues~~ in the ~~Territory~~European Union and other countries for ~~both~~ the approved third line treatment ~~as well as the second line treatment that was under development until discontinued in the third quarter~~over 18 years, and discounted to present value at a rate of ~~2017.~~10%. The fair value of the contingent consideration is remeasured each reporting period, with changes in fair value recorded in the condensed consolidated statements of operations. The valuation inputs utilized to estimate the fair value of the contingent consideration as of June 30, 2022 and December 31, 2021 included a discount rate of 10% and updated projections of future net revenues of ICLUSIG in the European Union and other countries for the approved third line treatment. The change in fair value of the contingent consideration during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 is~~2022 was due primarily to the passage of time and ~~a benefit~~updated projections of ~~$24.0 million recorded during the third quarter related to the lack~~future net revenues of ~~expected future sales royalties payable due to the discontinued OPTIC-2L clinical trial.~~ICLUSIG.

We make payments to ~~ARIAD~~Takeda Pharmaceutical Company Limited quarterly based on the royalties or any additional milestone payments earned in the previous quarter. ~~During the three months ended September~~At June 30, ~~2017,~~2022 and December 31, 2021, contingent consideration earned but not yet paid was ~~$5.7~~$16.7 million and ~~we paid ARIAD $5.1~~$19.6 million, ~~for royalties earned in the second quarter of 2017 that were~~respectively, and was included in accrued and other current ~~liabilities at June 30, 2017.~~liabilities.

~~Table of Contents~~

~~The following fair value hierarchy table presents information about each major category of our financial assets measured at fair value on a recurring basis as of December 31, 2016 (in thousands):~~

Fair Value Measurement at Reporting Date Using:

Quoted Prices in

Significant Other

Significant

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

Balance as of


(Level 1)

(Level 2)

(Level 3)

December 31, 2016

Cash and cash equivalents

$
652,343

$
—

$
—

$
652,343

Debt securities (corporate and government)

—

156,203

—

156,203

Long term investment (Note 9)

31,987

—

—

31,987

Total assets

$
684,330

$
156,203

$
—

$
840,533

~~The following fair value hierarchy table presents information about each major category of our financial liabilities measured at fair value on a recurring basis as of December 31, 2016 (in thousands):~~

Fair Value Measurement at Reporting Date Using:

Quoted Prices in

Significant Other

Significant

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

Balance as of


(Level 1)

(Level 2)

(Level 3)

December 31, 2016

Contingent consideration (Note 3)

$
—

$
—

$
301,000

$
301,000

Total liabilities

$
—

$
—

$
301,000

$
301,000

~~The following is a summary of our marketable security portfolio as of September 30, 2017 and December 31, 2016, respectively.~~

Net

Net

Amortized

Unrealized

Unrealized

Estimated


Cost

Gains

Losses

Fair Value

(in thousands)

September 30, 2017








Debt securities (corporate and government)

$
153,650

$
—

$
(307)

$
153,343

December 31, 2016

Debt securities (corporate and government)

$
156,330

$
—

$
(127)

$
156,203

~~Our debt securities generally have contractual maturity dates of between 12 to 18 months.~~

Note 5. Concentration of credit risk and current expected credit losses

In November 2009, we entered into a collaboration and license agreement with Novartis Pharmaceutical International Ltd. (“Novartis”). In December 2009, we entered into a license, development and commercialization agreement with ~~Lilly.~~Eli Lilly and Company (“Lilly”). In ~~November 2009,~~December 2018, we entered into a research collaboration and licensing agreement with Innovent Biologics, Inc. (“Innovent”). In July 2019, we entered into a collaboration and license agreement with ~~Novartis.~~Zai Lab (Shanghai) Co., Ltd., a subsidiary of Zai Lab Limited (collectively, “Zai Lab”). The ~~concentration of credit risk related to our collaborative~~above collaboration partners ~~is as follows:~~

Percentage of Total

Percentage of Total

Contract Revenues for the

Contract Revenues for the

Three Months Ended

Nine Months Ended

September 30,

September 30,


2017

2016


2017

2016


Collaboration Partner A

—
%
—
%

24
%
7
%

Collaboration Partner B

100
%
100
%

76
%
93
%

~~Collaboration Partner A and Collaboration Partner B~~ comprised, in ~~the~~ aggregate, ~~23%~~37% and ~~23%~~36% of the accounts receivable balance as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively.

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

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In November 2011, we began commercialization and distribution of JAKAFI, in April 2020, we began commercialization and distribution of PEMAZYRE, and in October 2021, we began commercialization and distribution of OPZELURA to a number of customers. Our product revenues are concentrated in a number of these customers. The concentration of credit risk related to our JAKAFI, PEMAZYRE and OPZELURA product revenues is as follows:


	Percentage of Total Net				Percentage of Total Net
	Product Revenues for the				Product Revenues for the
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016

									Percentage of Total Net				Percentage of Total Net
									Product Revenues for the				Product Revenues for the
									Three Months Ended				Six Months Ended
									June 30,				June 30,
									2022		2021		2022		2021
Customer A	24	%	25	%	25	%	26	%	19	%	19	%	19	%	18	%
Customer B	16	%	19	%	16	%	18	%	12	%	13	%	12	%	13	%
Customer C	14	%	13	%	13	%	13	%	16	%	18	%	18	%	18	%
Customer D	8	%	8	%	8	%	8	%	6	%	10	%	5	%	10	%
Customer E									10	%	12	%	10	%	12	%

We are exposed to risks associated with extending credit to customers related to the sale of products. ~~Customer~~Customers A, ~~Customer~~ B, ~~Customer~~ C, D and ~~Customer D~~E comprised, in ~~the~~ aggregate, ~~44% and 41%~~31% of the accounts receivable balance as of ~~September~~both June 30, ~~2017~~2022 and December 31, ~~2016, respectively.~~

2021. The concentration of credit risk relating to ~~ICLUSIG~~our other product revenues or accounts receivable is not significant.

We assessed our collaborative and customer receivable assets as of June 30, 2022 according to our accounting policy for applying reserves for expected credit losses, noting minimal history of uncollectible receivables and the continued perceived creditworthiness of our third party sales relationships, upon which the expected credit losses were considered de minimis. As of June 30, 2022 and December 31, 2021, we had 0 allowance for doubtful accounts.

Note 6. Inventory

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


	September 30,		December 31,
	2017		2016
	(in thousands)

					June 30,		December 31,
					2022		2021
Raw materials	$	109	$	109	$	22,371	$	1,275
Work-in-process		11,188		15,084		36,317		39,895
Finished goods		3,261		4,106		35,440		15,768
		14,558		19,299
Inventories-current		3,261		4,106
Inventories-non-current	$	11,297	$	15,193
Total inventory					$	94,128	$	56,938

Inventories, stated at the lower of cost and net realizable value, consist of raw materials, work in process and finished goods. ~~The ICLUSIG inventories acquired on~~At June 1, 2016 totaling $4.0 million were recorded at fair value less costs to sell, and therefore, resulted in a higher cost of ICLUSIG revenues over a one year period from the acquisition date. At September 30, ~~2017, $3.3~~2022, $54.5 million of inventory was classified as current on the condensed consolidated balance sheet as we expect this inventory to be consumed for commercial use within the next twelve months. At ~~September~~June 30, ~~2017, $11.3~~2022, $39.6 million of inventory was classified as non-current on the condensed consolidated balance ~~sheets~~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.

~~Table of Contents~~

~~7. Property~~We capitalize inventory after U.S. Food and ~~equipment, net~~

~~Property and equipment, net consists~~Drug Administration (FDA) approval as the related costs are expected to be recoverable through the commercialization of the ~~following:~~

September 30,

December 31,


2017

2016

(in thousands)

Office equipment

$
10,554

$
9,243

Laboratory equipment

44,299


37,203

Computer equipment

47,522

38,184

Land

5,350

4,125

Building and leasehold improvements

208,171

130,734

315,896

219,489

Less accumulated depreciation and amortization

(69,071)

(51,810)

Property and equipment, net

$
246,825

$
167,679

~~In September 2016, we entered into two agreements~~product. Costs incurred prior to purchase two buildings at 1701 Augustine Cut-off in Wilmington, Delaware. The purchase closed in March 2017 for a total purchase price of approximately $8.1 million, consisting of $1.2 million of land and $6.9 million of buildings and leasehold improvements, which we estimated using the assistance of a third party valuation specialist.

~~8. Intangible assets and goodwill~~

~~Intangible Assets, Net~~

~~The components of intangible assets~~FDA approval are recorded as ~~of September 30, 2017 were as follows (in thousands, except for useful life):~~

Weighted-

Gross

Net

Average Useful

Carrying

Accumulated

Carrying


Lives (Years)

Amount

Amortization

Amount


Finite-lived intangible assets:










Licensed IP(1)

12.5

$
271,000

$
28,715

$
242,285

Indefinite-lived intangible assets:

Acquired IPR&D(1)

N/A

—

—

—

$
271,000

$
28,715

$
242,285

~~(1)~~ We acquired certain intangible assets as part of the Acquisition, as described further in Note 3. During the three months ended September 30, 2017, we wrote-off the acquired IPR&D asset of $12.0 million due to the discontinuation of the OPTIC-2L study. The write-off of the IPR&D asset was recorded in research and development expense ~~on the condensed consolidated~~in our statements of operations.

~~Estimated aggregate amortization expense based on~~At June 30, 2022, inventory with approximately $66.0 million of product costs incurred prior to FDA approval had not yet been sold. We expect to sell the ~~current carrying value~~pre commercialization inventory over the next 30 months and, as a result, cost of ~~amortizable intangible assets is as follows (in thousands):~~

Remainder of

2017

2018

2019

2020

2021

Thereafter
Amortization expense
$
5,384

$
21,536

$
21,536

$
21,536

$
21,536

$
150,757

~~Goodwill~~

~~There were no changes to the carrying amount~~product revenues will reflect a lower average per unit cost of ~~goodwill for the nine months ended September 30, 2017.~~

materials.

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9.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 ~~c-MET~~MET inhibitor compound capmatinib and certain back-up compounds in all indications. ~~We retained options to co-develop and to co-promote capmatinib in the United States.~~

Under this agreement, we ~~received an upfront payment and immediate milestone payment totaling $210.0 million and~~ were initially eligible to receive ~~up to $1.2 billion in milestone payments across multiple indications upon the achievement of pre-specified events, including~~ up to $174.0 million for the achievement of development milestones, up to $495.0 million for the achievement of regulatory milestones and up to $500.0 million for the achievement of ~~commercialization~~sales milestones. In ~~April 2016,~~addition, we amended this agreement to provide that Novartis has exclusive research, development and commercialization rights outside of the United States to ruxolitinib (excluding topical formulations) in the graft-versus-host-disease (“GVHD”) field. We becameare eligible to receive up to $75.0 million of additional potential development and regulatory milestones relating to ~~GVHD. Exclusive of the upfront payment of $150.0 million received in 2009 and the immediate milestone of $60.0 million earned in 2010, we~~graft-versus-host-disease (“GVHD”). We have recognized and received, in the aggregate, ~~$132.0~~$157.0 million for the achievement of development milestones, ~~and $215.0~~$340.0 million for the achievement of regulatory milestones, and ~~$20.0~~$200.0 million for the achievement of sales milestones through ~~September~~June 30, ~~2017.~~2022.

~~During the nine months ended September 30, 2017, under this agreement,~~In April 2022, we recognized a $25.0 million development milestone payment based on the formal initiation by Novartis of a Phase III clinical trial evaluating ruxolitinib in GVHD. In 2016, we recognized a $5.0 million payment in exchange for the development and commercialization rights to ruxolitinib in GVHD outside of the United States and a $40.0$15.0 million regulatory milestone for the reimbursement of JAKAVI in Europe for the treatment of patients with polycythemia vera. In 2015, we recognized a $5.0 million development milestone based on the formal initiation by Novartis of a Phase II clinical trial evaluating capmatinib for a third indication, a $25.0 million regulatory milestone triggeredpositive opinion issued by the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency ~~adopting~~(EMA) that recommends granting marketing authorization for capmatinib (TABRECTA) as a ~~positive opinion for JAKAVI (ruxolitinib)~~monotherapy for the treatment of ~~adult patients~~adults with ~~polycythemia vera who are resistant to or intolerant of hydroxyurea,~~advanced non-small cell lung cancer. Additionally, in May 2022, we recognized a ~~$15.0~~$45.0 million regulatory milestone ~~for~~as a result of the European Commission’s approval of JAKAVI ~~in Japan~~(ruxolitinib) as the first post-steroid treatment for ~~the treatment of patients with polycythemia vera,~~acute and a $20.0 million sales milestone for Novartis achieving annual net sales of a JAK licensed product of $300.0 million. In 2014, we recognized a $60.0 million regulatory milestone related to reimbursement of JAKAVI in Europe, a $25.0 million regulatory milestone for the approval of JAKAVI in Japan for the treatment of patients with myelofibrosis and a $7.0 million development milestone based on the formal initiation by Novartis of a Phase II clinical trial evaluating capmatinib in non-small cell lung cancer. In 2013, we recognized a $25.0 million development milestone based on the formal initiation by Novartis of a Phase II clinical trial evaluating capmatinib. In 2012, we recognized a $40.0 million regulatory milestone payment for the achievement of a predefined milestone for the European Union regulatory approval of JAKAVI. In 2011, we recognized a $15.0 million development milestone for the achievement of a predefined milestone in the Phase I dose-escalation trial for capmatinib in patients with solid tumors and a $10.0 million regulatory milestone for the approval of JAKAFI in the United States. In 2010, we recognized $50.0 million in development milestones for the initiation of the global phase III trial, RESPONSE, in patients with polycythemia vera. We determined that each of these milestones were substantive as their achievement required substantive efforts by us and was at risk until the milestones were ultimately achieved.chronic GVHD.

We also are eligible to receive tiered, double-digit royalties ranging from the upper-teens to the mid-twenties on future JAKAVI net sales outside of the United States, and tiered, worldwide royalties on ~~future capmatinib~~TABRECTA net sales that range from 12% to 14%. ~~Since the achievement of the $60.0 million regulatory milestone related to reimbursement of JAKAVI in Europe in September 2014, we~~We are obligated to pay to Novartis tiered royalties in the low ~~single digits~~single-digits on future JAKAFI net sales within the United ~~States.~~States contingent on certain conditions. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, such royalties ~~payable to Novartis~~ on net sales within the United States totaled ~~$14.9~~$29.3 million and ~~$35.7~~$51.0 million, respectively,

~~Table of Contents~~

and ~~are~~were reflected in cost of product revenues on the condensed consolidated statements of operations. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2021, such royalties ~~payable to Novartis~~ on net sales within the United States totaled ~~$11.0~~$25.9 million and ~~$25.1~~$43.7 million, respectively, and ~~are~~were reflected in cost of product revenues on the condensed consolidated statements of operations. At June 30, 2022 and December 31, 2021, $191.4 million and $148.1 million, respectively, of accrued royalties were included in accrued and other current liabilities on the condensed consolidated balance sheets. Each company is responsible for costs relating to the development and commercialization of ruxolitinib in its respective territories, with costs of collaborative studies shared equally. Novartis is also responsible for all costs relating to the development and commercialization of capmatinib.

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-productMilestone and country-by-country basis until the latest to occur of (1) the expiration of the last valid claim of the licensed patent rights covering the licensed product in the relevant country, (2) the expiration of regulatory exclusivity for the licensed product in such country and (3) 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 determined that there were two deliverables under the agreement: (i) the ex-U.S. license for ruxolitinib and (ii) our obligations in connection with our participation on the joint development committee for myelofibrosis and polycythemia vera/essential thrombocythemia. We concluded that these deliverables should be accounted for as a single unit of accounting and the $150.0 million upfront payment received in December 2009 and the immediate $60.0 million milestone payment received in January 2010 should be recognized on a straight line basis through December 2013, when we estimated we would complete our obligations in connection with our participation on the joint development committee for myelofibrosis and polycythemia vera, our estimated performance period under the agreement. We completed this substantive performance obligation related to this arrangement in December 2013.

At December 31, 2009, we recorded $10.9 million of reimbursable costs incurred prior to the effective date of the agreement as deferred revenue on the consolidated balance sheet. These costs were recognized on a straight line basis through December 2013 consistent with the aforementioned upfront and milestone payments. Future reimbursable costs incurred after the effective date of the agreement with Novartis are recorded net against the related research and development expenses. At September 30, 2017 and December 31, 2016, $1.0 million and $0.6 million, respectively, of reimbursable costs were included in accounts receivable on the condensed consolidated balance sheets. Research and development expenses for the three and nine months ended September 30, 2017 were net of $0.4 million and $1.9 million, respectively, of costs reimbursed by Novartis. Research and development expenses for the three and nine months ended September 30, 2016 were net of $0.3 million and $0.7 million, respectively, of costs reimbursed by Novartis.

~~Contract~~contract revenue under the Novartis agreement was ~~$0.0~~$60.0 million ~~and $25.0 million~~ for both the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively. Contract revenue under the Novartis agreement was $0.0 million and $5.0 million for the three and nine months ended September 30, 2016.~~2022. Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States ~~was $41.3 million and $104.0 million~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022 was $83.6 million and $154.6 million, respectively. Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States ~~was $29.6 million and $77.5 million~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, respectively. At September 30, 2017 and December 31, 2016, $41.3~~2021 was $82.0 million and ~~$33.3~~$147.6 million, ~~respectively,~~respectively. Product royalty revenue related to Novartis net sales of ~~product royalties were included in accounts receivable on~~TABRECTA worldwide for the ~~condensed consolidated balance sheets.~~three and six months ended June 30, 2022 was $3.6 million and $7.1 million, respectively. Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three and six months ended June 30, 2021 was $2.5 million and $4.5 million, respectively.

Lilly -– Baricitinib

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The net periodic benefit cost was as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016

									Three Months Ended				Six Months Ended
									June 30,				June 30,
									2022		2021		2022		2021
Service cost	$	760	$	365	$	2,056	$	503	$	2,438	$	1,997	$	4,960	$	3,952
Interest cost		57		29		155		39		62		23		126		45
Expected return on plan assets		(43)		(23)		(116)		(31)		(1,035)		(15)		(2,106)		(30)
Amortization of prior service cost		12		—		37		—		193		54		387		108
Amortization of actuarial losses		34		—		102		—		89		288		177		576
Net periodic benefit cost	$	820	$	371	$	2,234	$	511	$	1,747	$	2,347	$	3,544	$	4,651

The components of net periodic benefit cost other than the service cost component are included in other income (expense), net on the condensed consolidated statements of operations. We expect to contribute a total of ~~$2.1~~$6.4 million to the pension plans in ~~2017~~2022 inclusive of the amounts contributed to the plan during the current period. ~~As of September 30, 2017~~

Note 14. Commitments and ~~December 31, 2016, $7.3 million and $7.1 million, respectively, of accrued pension obligation is recorded~~contingencies

We have entered into the collaboration agreements described in ~~other long term liabilities on the condensed consolidated balance sheets.~~

~~14. Income taxes~~

~~For the three and nine months ended September 30, 2017, we recorded income tax expense of approximately $7.3~~

~~Table of Contents~~

million and an income tax benefit of $0.5 million, respectively, compared to income tax expense of approximately $1.4 million and $2.6 million for the three and nine months ended September 30, 2016. The change in tax expense or benefit for the three and nine months ended September 30, 2017 and 2016 was primarily driven by the difference in projected annual operating income or loss compared to our actual resultsNote 7, as well as ~~the recognition of certain discrete items~~various other collaboration agreements that are not individually, or in the ~~current period. As a result,~~aggregate, significant to our ~~year-to-date recorded effective tax rate~~operating results or financial condition at this time. We may ~~differ significantly from~~in the future seek to license additional rights relating to technologies or drug development candidates in connection with our ~~full year effective tax rate.~~

~~As of September 30, 2017, a full valuation allowance continues~~drug discovery and development programs. Under these agreements, we may be required to ~~be recorded against our U.S.~~pay upfront fees, milestone payments, and ~~Swiss net deferred tax assets. This position is based~~royalties on ~~an analysis of positive and negative evidence, including analyzing three-year cumulative pre-tax income or loss, projections~~sales of future ~~taxable income as well as other quantitative and qualitative information.~~

Our liability for unrecognized tax benefits (including penalties and interest) increased by approximately $3.6 million during the nine months ended September 30, 2017, of which only $0.6 million was recorded as an increase to noncurrent other liabilities on the condensed consolidated balance sheet. The increase is primarily driven by unrecognized tax benefits related to current year operations.products.

In ~~October 2017,~~the ordinary course of our business, we ~~secured an incentive tax holiday~~may become involved in ~~Switzerland~~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 ~~exempts us from certain Swiss income taxes for~~ a ~~period~~liability has been incurred and the amount of ~~10 years.~~the loss can be reasonably estimated.

~~15. Net income (loss) per share~~

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

Three Months Ended

Nine Months Ended


September 30,

September 30,

(in thousands, except per share data)


2017

2016


2017

2016

Basic Net Income (Loss) Per Share

Basic net income (loss)

$
36,054

$
36,877

$
(163,513)

$
95,349

Weighted average common shares outstanding

206,796

188,029

202,399

187,632

Basic net income (loss) per share

$
0.17

$
0.20

$
(0.81)

$
0.51

Diluted Net Income (Loss) Per Share

Diluted net income (loss)

$
36,054

$
36,877

$
(163,513)

$
95,349

Weighted average common shares outstanding

206,796

188,029

202,399

187,632

Dilutive stock options and RSUs

5,814

6,236

—

6,122

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

212,610

194,265

202,399

193,754

Diluted net income (loss) per share

$
0.17

$
0.19

$
(0.81)

$
0.49

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~~The following potential common shares were excluded from the calculations as their effect would be anti-dilutive:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,


2017

2016

2017

2016

Outstanding stock options and awards

2,399,468

3,119,097

12,654,718

2,947,152

Common shares issuable upon conversion of the 2018 Notes

149,527

7,245,206

149,527

7,245,206

Common shares issuable upon conversion of the 2020 Notes

368,939

7,241,284

368,939

7,241,284

Total potential common shares excluded from diluted net loss per share computation

2,917,934

17,605,587

13,173,184

17,433,642

~~16. Contingencies~~

In February 2016, we received a Paragraph IV certification notice (the “Notice Letter”) regarding an Abbreviated New Drug Application submitted to the U.S. Food and Drug Administration requesting approval to market a generic version of Jakafi (ruxolitinib). The Notice Letter purports to challenge patents covering ruxolitinib phosphate and its use that expire in 2028. The Notice Letter does not challenge the ruxolitinib composition of matter patent, which expires on December 24, 2027. We do not believe there is any kind of loss that is probable or estimable related to this matter at this time.

~~17. Subsequent Events~~

~~MacroGenics~~

In October 2017, we entered into a Global Collaboration and License Agreement (the “Agreement”) with MacroGenics, Inc. (“MacroGenics”). Under the terms of the Agreement, we received exclusive development and commercialization rights worldwide to MGA012, an investigational monoclonal antibody that inhibits programmed cell death protein 1 (PD‑1). MGA012 is currently in clinical development by MacroGenics. We have agreed to pay MacroGenics an upfront payment of $150.0 million. MacroGenics will be eligible to receive up to $420.0 million in future contingent development and regulatory milestones and up to $330.0 million in commercialization milestones as well as tiered royalties ranging from 15% to 24% of global net sales. The effectiveness of the Agreement is conditioned on the early termination or expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976; provided, that certain provisions, including those relating to indemnification and termination for material breach, became effective upon execution of the Agreement.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations as of and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 should be read in conjunction with the unaudited condensed consolidated financial statements and notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements as of and for the year ended December 31, ~~2016~~2021 included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2021 previously filed with the SEC.

Forward-Looking Statements

This report contains forward-looking statements that involve risks and uncertainties. These statements relate to future periods, future events or our future operating or financial plans or performance. Often, these statements include the words “believe,” “expect,” “target,” “anticipate,” “intend,” “plan,” “seek,” “estimate,” “potential,” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” or “may,” or the negative of these terms, and other similar expressions. These forward-looking statements include statements as to:

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the discovery, development, formulation, manufacturing and commercialization of our compounds, our drug candidates and JAKAFI^®/JAKAVI^® (ruxolitinib), PEMAZYRE^® (pemigatinib), ICLUSIG^® (ponatinib), MONJUVI^®(tafasitamab-cxix)/MINJUVI^® (tafasitamab), and OPZELURA™ (ruxolitinib) ~~and ICLUSIG~~® ~~(ponatinib)~~cream;

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~~the expected benefits from our acquisition of ARIAD Pharmaceuticals (Luxembourg) S.à.r.l. and~~ our plans to further develop our ~~European operations;~~

operations outside of the United States;

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conducting clinical trials internally, with collaborators, or with clinical research organizations;

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our collaboration and strategic relationship ~~strategy;~~strategy, and anticipated benefits and disadvantages of entering into collaboration agreements;

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our licensing, investment and commercialization strategies, including our plans to commercialize ~~JAKAFI~~our drug products and ~~ICLUSIG;~~

drug candidates;

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the regulatory approval process, including obtaining U.S. Food and Drug Administration and other international ~~health authorities~~regulatory authorities’ approval for our products in the United States and abroad;

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

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the timing and size of our clinical trials; the compounds expected to enter clinical trials; timing of clinical trial results;

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our ability to manage expansion of our drug discovery and development operations;

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future required expertise relating to clinical trials, manufacturing, sales and marketing;

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obtaining and terminating licenses to products, drug candidates or technology, or other intellectual property rights;

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the receipt from or payments pursuant to collaboration or license agreements resulting from milestones or royalties;

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plans to develop and commercialize products on our own;

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plans to use ~~third party~~third-party manufacturers;

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plans for our manufacturing operations;

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expected expenses and expenditure levels; expected uses of cash; expected revenues and sources of revenues, including milestone payments; expectations with respect to inventory;

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expectations with respect to reimbursement for our products;

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the expected impact of recent accounting ~~pronouncements;~~

pronouncements and changes in tax laws;

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expected losses; fluctuation of losses; currency translation impact associated with collaboration royalties;

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our profitability; the adequacy of our capital resources to continue operations;

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the need to raise additional capital;

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the costs associated with resolving matters in ~~litigation;~~

litigation and governmental proceedings;

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our expectations regarding competition;

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our investments, including anticipated expenditures, losses and expenses;

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our patent prosecution and maintenance efforts; and

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the potential effects of the COVID-19 pandemic and efforts undertaken or to be undertaken by us or applicable governmental authorities on local and global economic conditions, and on our ~~indebtedness,~~business, results of operations and ~~debt service obligations.~~

financial condition.

These ~~forward‑looking~~forward-looking statements reflect our current views with respect to future events, are based on assumptions and are subject to risks and uncertainties. These risks and uncertainties could cause actual results to differ materially from those projected and include, but are not limited to:

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our ability to successfully commercialize ~~JAKAFI~~our drug products and ~~ICLUSIG;~~

drug candidates;

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

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

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the risk of reliance on other parties to manufacture our products, which could result in a short supply of our products, increased costs, and withdrawal of regulatory approval;

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our ability to maintain regulatory approvals to market our products;

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our ability to achieve a significant market share in order to achieve or maintain profitability;

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the risk of civil or criminal penalties if we market our products in a manner that violates health care fraud and abuse and other applicable laws, rules and regulations;

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our ability to discover, develop, formulate, manufacture and commercialize our drug candidates;

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the risk of unanticipated delays in, or discontinuations of, research and development efforts;

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the risk that previous preclinical testing or clinical trial results are not necessarily indicative of future clinical trial results;

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risks relating to the conduct of our clinical trials;

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changing regulatory requirements;

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the risk of adverse safety findings;

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the risk that results of our clinical trials do not support submission of a marketing approval application for our drug candidates;

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the risk of significant delays or costs in obtaining regulatory approvals;

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risks relating to our reliance on ~~third party~~third-party manufacturers, collaborators, and clinical research organizations;

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risks relating to the development of new products and their use by us and our current and potential collaborators;

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risks relating to our inability to control the development of ~~out‑licensed~~out-licensed compounds or drug candidates;

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risks relating to our collaborators’ ability to develop and commercialize JAKAVI, OLUMIANT, TABRECTA and the drug ~~candidates;~~

candidates licensed from us;

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costs associated with prosecuting, maintaining, defending and enforcing patent claims and other intellectual property rights;

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our ability to maintain or obtain adequate product liability and other insurance coverage;

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the risk that our drug candidates may not obtain or maintain regulatory approval;

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the impact of technological advances and competition, including potential generic competition;

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our ability to compete against third parties with greater resources than ours;

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risks relating to changes in pricing and reimbursement in the markets in which we may compete;

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risks relating to governmental healthcare reform efforts, including efforts to control, set or cap pricing for our commercial drugs in the U.S and abroad;

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competition to develop and commercialize similar drug products;

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our ability to obtain and maintain patent protection and freedom to operate for our discoveries and to continue to be effective in expanding our patent coverage;

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the impact of changing laws on our patent portfolio;

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developments in and expenses relating to litigation;

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~~the satisfaction of conditions to closing for land purchase agreements;~~

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

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

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

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~~our substantial leverage;~~

our ability to obtain additional capital when needed;

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fluctuations in net cash provided and used by operating, financing and investing activities;

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our ability to analyze the effects of new accounting pronouncements and apply new accounting rules;

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risks relating to our ~~history of operating losses; and~~

ability to sustain profitability;

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

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the risks set forth under “Risk Factors.”

Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by federal securities laws, we undertake no obligation to update any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

In this report all references to “Incyte,” “we,” “us,” “our” or the “Company” mean Incyte Corporation and our subsidiaries, except where it is made clear that the term means only the parent company.

Incyte, JAKAFI and ~~JAKAFI~~PEMAZYRE are our registered ~~trademarks.~~trademarks and OPZELURA is our trademark. We also refer to trademarks of other corporations and organizations in this Quarterly Report on Form 10-Q.

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Summary Risk Factors

Our business is subject to numerous risks and uncertainties that could affect our ability to successfully implement our business strategy and affect our financial results. You should carefully consider all of the information in this report and, in particular, the following principal risks and all of the other specific factors described in Item 1A. of this report, “Risk Factors,” before deciding whether to invest in our company.

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

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

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

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

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If we fail to comply with applicable laws and regulations, we could lose our approval to market our products or be subject to other governmental enforcement activity.

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If the use of our products harms or is perceived to harm patients, our regulatory approvals could be revoked or otherwise negatively impacted or we could be subject to costly product liability claims.

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

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

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

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

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If we or our collaborators are unable to obtain regulatory approval in and outside of the United States for drug candidates, we and our collaborators will be unable to commercialize those drug candidates.

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Health care reform measures could impact the pricing and profitability of pharmaceuticals, and adversely affect the commercial viability of our or our collaborators’ products and drug candidates.

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Conflicts between us and our collaborators or termination of our collaboration agreements could limit future development and commercialization of our drug candidates and harm our business.

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If we are unable to establish collaborations to fully exploit our drug discovery and development capabilities or if future collaborations are unsuccessful, our future revenue prospects could be diminished.

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If we fail to enter into additional in-licensing agreements or if these arrangements are unsuccessful, we may be unable to increase our number of successfully marketed products and our revenues.

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Even if one of our drug candidates receives regulatory approval, we may determine that commercialization would not be worth the investment.

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Any approved drug product that we bring to the market may not gain market acceptance by physicians, patients, healthcare payors and others in the medical community.

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We have limited capacity to conduct preclinical testing and clinical trials, and our resulting dependence on other parties could result in delays in and additional costs for our drug development efforts.

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We face significant competition for our drug discovery and development efforts, and if we do not compete effectively, our commercial opportunities will be reduced or eliminated.

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Our reliance on others to manufacture our drug products and drug candidates could result in drug supply constraints, delays in clinical trials, increased costs, and withdrawal or denial of regulatory approvals.

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If we fail to comply with the extensive legal and regulatory requirements affecting the health care industry, we could face increased costs, penalties and a loss of business.

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The illegal distribution and sale by third parties of counterfeit or unfit versions of our or our collaborators’ products or stolen products could harm our business and reputation.

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As most of our drug discovery and development operations are conducted at our headquarters in Wilmington, Delaware, the loss of access to this facility would negatively impact our business.

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If we lose any of our key employees or are unable to attract and retain additional personnel, our business and ability to achieve our objectives could be harmed.

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If we fail to manage our growth effectively, our ability to develop and commercialize products could suffer.

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We may acquire businesses or assets, form joint ventures or make investments in other companies that may be unsuccessful, divert our management’s attention and harm our operating results and prospects.

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Risks associated with our operations outside of the United States could adversely affect our business.

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If product liability lawsuits are brought against us, we could face substantial liabilities and may be required to limit commercialization of our products, and our results of operations could be harmed.

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Because our activities involve the use of hazardous materials, we may be subject to claims relating to improper handling, storage or disposal of these materials that could be time consuming and costly.

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We expect to continue to incur significant expenses to discover and develop drugs, which could result in future losses and impair our achievement of and ability to sustain profitability in the future.

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If we are unable to raise additional capital in the future when we require it, our efforts to broaden our product portfolio or commercialization efforts could be limited.

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Our marketable securities and long term investments are subject to risks that could adversely affect our overall financial position, and tax law changes could adversely affect our results of operations and financial condition.

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If we are unable to achieve milestones, develop product candidates to license or renew or enter into new collaborations, our royalty and milestone revenues and future prospects for those revenues may decrease.

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Any arbitration or litigation involving us and regarding intellectual property infringement claims could be costly and disrupt our drug discovery and development efforts.

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Our inability to adequately protect or enforce our proprietary information may result in loss of revenues or otherwise reduce our ability to compete.

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If the effective term of our patents is decreased or if we need to refile some of our patent applications, the value of our patent portfolio and the revenues we derive from it may be decreased.

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International patent protection is particularly uncertain and costly, and our involvement in opposition proceedings may result in the expenditure of substantial sums and management resources.

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Significant disruptions of information technology systems, breaches of data security, or unauthorized disclosures of sensitive data could harm our business and subject us to liability or reputational damage.

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Increasing use of social media could give rise to liability, breaches of data security, or reputational damage, which could harm our business and results of operations.

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Overview

Incyte is a biopharmaceutical company focused on the discovery, development and commercialization of proprietary therapeutics. Our global headquarters is located in Wilmington, ~~Delaware.~~Delaware, where we conduct global clinical development and commercial operations. We also conduct ~~our European~~ clinical development and commercial operations from our country offices across Europe, including our European headquarters in ~~Geneva,~~Morges, Switzerland, ~~and Lausanne, Switzerland, and have recently opened~~ our Japanese office in ~~Tokyo.~~Tokyo and our Canadian headquarters in Montreal.

~~Marketed Indications -~~As described in more detail below, we operate in two therapeutic areas that are defined by the indications of our approved medicines and the diseases for which our clinical candidates are being developed. One therapeutic area is Hematology/Oncology, which is comprised of Myeloproliferative Neoplasms (MPNs), Graft-Versus-Host Disease (GVHD), as well as solid tumors and hematologic malignancies. The other therapeutic area is Inflammation and Autoimmunity (IAI), which includes our newly established Dermatology commercial franchise. We are also eligible to receive milestones and royalties on molecules discovered by us and licensed to third parties.

Hematology and Oncology

Our hematology and oncology franchise is comprised of four approved products, which are JAKAFI (ruxolitinib), MONJUVI (tafasitamab-cxix)/MINJUVI (tafasitamab), PEMAZYRE (pemigatinib) and ICLUSIG (ponatinib), as well as numerous clinical development programs.

JAKAFI (ruxolitinib)

JAKAFI (ruxolitinib) is our first product to be approved for sale in the United States. It was approved by the U.S. Food and Drug Administration (FDA) in November 2011 for the treatment of ~~patients~~adults with intermediate or ~~high‑risk~~high-risk myelofibrosis ~~and~~(MF), in December 2014 for the treatment of ~~patients~~adults with polycythemia vera (PV) who have had an inadequate response to or are intolerant of ~~hydroxyurea.~~hydroxyurea, in May 2019 for the treatment of steroid-refractory acute graft-versus-host disease (GVHD) in adult and pediatric patients 12 years and older and in September 2021 for the treatment of chronic GVHD after failure of one or two lines of systemic therapy in adult and pediatric patients 12 years and older. Myelofibrosis and polycythemia vera are both myeloproliferative neoplasms (MPNs), a type of rare blood ~~cancers.~~cancer, and GVHD is an adverse immune response to an allogeneic hematopoietic stem cell transplant (HSCT). Under our collaboration agreement with our collaboration partner Novartis Pharmaceutical International ~~Pharmaceutical~~ Ltd., Novartis received exclusive development and commercialization rights to ruxolitinib outside of the United States for all hematologic and oncologic indications and sells ruxolitinib outside of the United States under the name JAKAVI.

In 2003, we initiated a research and development program to explore the inhibition of enzymes called janus associated kinases (JAK). The JAK family is composed of four tyrosine kinases—JAK1, JAK2, JAK3 and Tyk2—that are involved in the signaling of a number of cytokines and growth factors. JAKs are central to a number of biologic processes, including the formation and development of blood cells and the regulation of immune functions. Dysregulation of the ~~JAK‑STAT~~JAK-STAT signaling pathway has been associated with a number of diseases, including myeloproliferative neoplasms, other hematological malignancies, rheumatoid arthritis and other chronic inflammatory diseases. Myeloproliferative neoplasms are a closely related group of blood diseases in which blood cells, specifically platelets, white blood cells, and red blood cells, grow or act abnormally. These diseases include myelofibrosis (MF), polycythemia vera (PV) and essential thrombocythemia (ET).

We have discovered multiple potent, selective and orally bioavailable JAK inhibitors that are selective for JAK1 or JAK1 and JAK2. JAKAFI is the most advanced compound in our JAK program. It is an oral JAK1 and JAK2 inhibitor.

JAKAFI is marketed in the United States through our own specialty sales force and commercial team. JAKAFI was the first ~~FDA‑approved~~FDA-approved JAK inhibitor for any indication, ~~and~~ was the first FDA-approved product in MF, PV and steroid-refractory acute GVHD, and was recently approved in steroid-refractory chronic GVHD. JAKAFI remains the first-line standard of care in MF and remains the only FDA-approved product ~~approved by the FDA~~ for ~~use in MF and PV.~~steroid-refractory acute GVHD. The FDA has granted JAKAFI orphan drug status for MF, PV ~~ET, acute lymphoblastic leukemia (ALL)~~ and ~~graft-versus-host-disease (GVHD).~~

To help ensure that all eligible MF and PV patients have access to JAKAFI, we have established a patient assistance program called IncyteCARES (CARES stands for Connecting to Access, Reimbursement, Education and Support). IncyteCARES helps ensure that any patient with intermediate or high‑risk MF or uncontrolled PV who meets certain eligibility criteria and is prescribed JAKAFI has access to the product regardless of ability to pay and has access to ongoing support and educational resources during treatment. In addition, IncyteCARES works closely with payers to help facilitate insurance coverage of JAKAFI.

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GVHD.

JAKAFI is distributed primarily through a network of specialty pharmacy providers and wholesalers that allow for efficient delivery of the medication by mail directly to patients or direct delivery to the patient’s pharmacy. Our distribution process uses a model that is ~~well‑established~~well-established and familiar to physicians who practice within the oncology field.

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To further support appropriate use and future development of JAKAFI, our U.S. Medical Affairs department is responsible for providing appropriate scientific and medical education and information to physicians, preparing scientific presentations and publications, and overseeing the process for supporting investigator sponsored trials.

Myelofibrosis. ~~Myelofibrosis~~ MF is a rare, ~~life‑threatening~~life-threatening condition. MF, considered the most serious of the myeloproliferative neoplasms, can occur either as primary MF, or as secondary MF that develops in some patients who previously had polycythemia vera or essential thrombocythemia. We estimate there are between 16,000 and 18,500 patients with MF in the United States. Based on the modern prognostic scoring systems referred to as International Prognostic Scoring System and Dynamic International Prognostic Scoring System, we believe intermediate and ~~high‑risk~~high-risk patients represent 80% to 90% of all patients with MF in the United States and encompass patients over the age of 65, or patients who have or have ever had any of the following: anemia, constitutional symptoms, elevated white blood cell or blast counts, or platelet counts less than 100,000 per microliter of blood.

Most MF patients have enlarged spleens and many suffer from debilitating symptoms, including abdominal discomfort, pruritus (itching), night sweats and cachexia (involuntary weight loss). There were no FDA approved therapies for MF until the approval of JAKAFI.

The FDA approval was based on results from two randomized Phase III trials ~~(COMFORT‑I~~(COMFORT-I and ~~COMFORT‑II)~~COMFORT-II), which demonstrated that patients treated with JAKAFI experienced significant reductions in splenomegaly (enlarged spleen). ~~COMFORT‑I~~COMFORT-I also demonstrated improvements in symptoms. The most common hematologic adverse reactions in both trials were thrombocytopenia and anemia. These events rarely led to discontinuation of JAKAFI treatment. The most common ~~non‑hematologic~~non-hematologic adverse reactions were bruising, dizziness and headache.

In August 2014, the FDA approved supplemental labeling for JAKAFI to include ~~Kaplan‑Meier~~Kaplan-Meier overall survival curves as well as additional safety and dosing information. The overall survival information is based on ~~three‑year~~three-year data from ~~COMFORT‑I~~COMFORT-I and II, and shows that at three years the probability of survival for patients treated with JAKAFI in ~~COMFORT‑I~~COMFORT-I was 70% and for those patients originally randomized to placebo it was 61%. In ~~COMFORT‑II,~~COMFORT-II, at three years the probability of survival for patients treated with JAKAFI was 79% and for patients originally randomized to best available therapy it was 59%. In December 2016, we announced an exploratory pooled analysis of data from the five-year follow-up of the COMFORT-I and COMFORT-II trials of patients treated with JAKAFI, which further supported previously published overall survival findings.

In September 2016, we announced that JAKAFI had been included as a recommended treatment in the latest National Comprehensive Cancer Network (NCCN) Clinical Practice Guidelines in Oncology for myelofibrosis, underscoring the important and long-term clinical benefits seen in patients treated with JAKAFI.

In October 2017, the FDA approved updated labeling for JAKAFI to include the addition of new patient-reported outcome (PRO) data from the COMFORT-I study, as well as updating the warning related to progressive multifocal leukoencephalopathy. An exploratory analysis of PRO data of patients with myelofibrosis receiving JAKAFI showed improvement in fatigue-related symptoms at Week 24. Fatigue response (defined as a reduction of 4.5 points or more from baseline in the ~~PROMIS®~~PROMIS^® Fatigue total score) was reported in 35% of patients treated with JAKAFI versus 14% of the patients treated with placebo.

Polycythemia Vera. PV is a myeloproliferative neoplasm typically characterized by elevated hematocrit, the volume percentage of red blood cells in whole blood, which can lead to a thickening of the blood and an increased risk of blood clots, as well as an elevated white blood cell and platelet count. When phlebotomy can no longer control PV, chemotherapy such as hydroxyurea, or interferon, is utilized. Approximately 25,000 patients with PV in the United States are considered uncontrolled because they have an inadequate response to or are intolerant of hydroxyurea, the most commonly used chemotherapeutic agent for the treatment of PV.

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In December 2014, the FDA approved JAKAFI for the treatment of patients with PV who have had an inadequate response to or are intolerant of hydroxyurea. The approval of JAKAFI for PV was based on data from the pivotal Phase III RESPONSE trial. In this trial, patients treated with JAKAFI demonstrated superior hematocrit control and reductions in spleen volume compared to best available therapy. In addition, a greater proportion of patients treated with JAKAFI

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achieved complete hematologic remission—which was defined as achieving hematocrit control, and lowering platelet and white blood cell counts. In the RESPONSE trial, the most common hematologic adverse reactions (incidence > 20%) were thrombocytopenia and anemia. The most common ~~non‑hematologic~~non-hematologic adverse events (incidence >10%) were headache, abdominal pain, diarrhea, dizziness, fatigue, pruritus, dyspnea and muscle spasms.

In March 2016, the FDA approved supplemental labeling for JAKAFI to include additional safety data as well as efficacy analyses from the RESPONSE trial to assess the durability of response in JAKAFI treated patients after 80 weeks. At this time, 83% patients were still on treatment, and 76% of the responders at 32 weeks maintained their response through 80 weeks.

In June 2016, we announced data from the Phase 3III RESPONSE-2 study of JAKAFI in patients with inadequately controlled PV that was resistant to or intolerant of hydroxyurea who did not have an enlarged spleen. These data showed that JAKAFI was superior to best available therapy in maintaining hematocrit control (62.2% vs. 18.7%, respectively; P<0.0001) without the need for phlebotomy.

In August 2017, we announced that JAKAFI had been included as a recommended treatment in the latest NCCN Guidelines for patients with polycythemia vera who have had an inadequate response to first-line therapies, such as hydroxyurea.

Graft-versus-host disease. GVHD is a condition that can occur after an allogeneic HSCT (the transfer of genetically dissimilar stem cells or tissue). In GVHD, the donated bone marrow or peripheral blood stem cells view the recipient’s body as foreign and attack various tissues. 12-month survival rates in patients with Grade III or IV steroid-refractory acute GVHD are 50% or less, and the incidence of steroid-refractory acute and chronic GVHD is approximately 3,000 per year in the United States.

In June 2016, we announced that the FDA granted Breakthrough Therapy designation for ruxolitinib in patients with acute GVHD. In May 2019, the FDA approved JAKAFI for the treatment of steroid-refractory acute GVHD in adult and pediatric patients 12 years and older. The approval was based on data from REACH1, an open-label, single-arm, multicenter study of JAKAFI in combination with corticosteroids in patients with steroid-refractory grade II-IV acute GVHD. The overall response rate (ORR) in patients refractory to steroids alone was 57% with a complete response (CR) rate of 31%. The most frequently reported adverse reactions among all study participants were infections (55%) and edema (51%), and the most common laboratory abnormalities were anemia (75%), thrombocytopenia (75%) and neutropenia (58%).

In September 2021, the FDA approved JAKAFI for the treatment of chronic GVHD after failure of one or two lines of systemic therapy in adult and pediatric patients 12 years and older. This approval was based on data from REACH3, a Phase III, randomized, open-label, multicenter study of JAKAFI in comparison to best available therapy for treatment of steroid-refractory chronic GVHD after allogeneic stem cell transplantation. The overall response rate through Cycle 7 Day 1 was 70% for JAKAFI compared to 57% for best available therapy. The most common hematologic adverse reactions (incidence > 35%) were anemia and thrombocytopenia. The most common non-hematologic adverse reactions (incidence ≥ 20%) were infections (pathogen not specified) and viral infection. In addition, the FDA updated labeling for JAKAFI to include warnings of increased risk of major adverse cardiovascular events, thrombosis, and secondary malignancies related to another JAK-inhibitor treating rheumatoid arthritis, a condition for which JAKAFI is not indicated. In patients with MF and PV treated with JAKAFI in clinical trials, the rates of thromboembolic events were similar in JAKAFI and control treated patients.

We have retained all development and commercialization rights to JAKAFI in the United States and are eligible to receive development and ~~commercial~~sales milestones as well as royalties from product sales outside the United States. We hold patents that cover the composition of matter and use of ~~ruxolitinib which~~ruxolitinib. These patents, including applicable extensions, currently expire in mid-2028. A determination of pediatric exclusivity would add six months to the expiration.

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MONJUVI (tafasitamab-cxix) / MINJUVI (tafasitamab)

In January 2020, we and MorphoSys AG entered into a collaboration and license agreement to further develop and commercialize MorphoSys' proprietary anti-CD19 antibody tafasitamab (MOR208) globally. The agreement became effective March 2020. Tafasitamab is an Fc-engineered antibody against CD19 currently in clinical development for the treatment of B cell malignancies. We have rights to co-commercialize tafasitamab in the United States with MorphoSys, and we have exclusive development and commercialization rights outside of the United States.

In July 2020, we and MorphoSys announced that the FDA approved MONJUVI (tafasitamab-cxix), which is indicated in combination with lenalidomide for the treatment of adult patients with relapsed or refractory diffuse large B-cell lymphoma (DLBCL) not otherwise specified, including DLBCL arising from low grade lymphoma, and who are not eligible for autologous stem cell transplant (ASCT). MONJUVI was approved under accelerated approval based on overall response rate from the MorphoSys-sponsored Phase II L-MIND study, an open label, multicenter, single arm trial of MONJUVI in combination with lenalidomide as a treatment for adult patients with r/r DLBCL. Results from the study showed an objective response rate (ORR) of 55% (39 out of 71 patients; primary endpoint) and a complete response (CR) rate of 37% (26 out of 71 patients). The median duration of response (mDOR) was 21.7 months. The most frequent serious adverse reactions were infections (26%), including pneumonia (7%) and febrile neutropenia (6%). Updated three-year data from L-MIND were presented at the American Society of Clinical Oncology (ASCO) 2021.

In August 2020, we and MorphoSys announced that MONJUVI in combination with lenalidomide had been included in the latest National Comprehensive Cancer Network (NCCN) Clinical Practice Guidelines in Oncology for B-cell Lymphomas.

In August 2021, we and MorphoSys announced that the European Commission granted conditional marketing authorization for MINJUVI (tafasitamab) in combination with lenalidomide, followed by MINJUVI monotherapy, for the treatment of adult patients with relapsed or refractory DLBCL who are not eligible for autologous stem cell transplant (ASCT). The conditional approval was based on the three-year results from the L-MIND study evaluating the safety and efficacy of MINJUVI in combination with lenalidomide as a treatment for patients with r/r DLBCL who are not eligible for ASCT. The results showed best objective response rate (ORR) of 56.8% (primary endpoint), including a complete response (CR) rate of 39.5% and a partial response rate (PR) of 17.3%, as assessed by an independent review committee. The median duration of response (mDOR) was 43.9 months after a minimum follow up of 35 months (secondary endpoint). MINJUVI together with lenalidomide was shown to provide a clinically meaningful response and the side effects were manageable. Warnings and precautions for MINJUVI include infusion-related reactions, myelosuppression, including neutropenia and thrombocytopenia, infections and tumour lysis syndrome.

DLBCL is the most common type of non-Hodgkin lymphoma in adults worldwide, comprising 40% of all cases. DLBCL is characterized by rapidly growing masses of malignant B-cells in the lymph nodes, spleen, liver, bone marrow or other organs. It is an aggressive disease with ~40% of patients not responding to initial therapy or relapsing thereafter. We estimate that there are ~10,000 patients diagnosed in the United States each year with r/r DLBCL who are not eligible for ASCT. In the EU, we estimate there are ~14,000 patients diagnosed each year with r/r DLBCL who are not eligible for ASCT.

PEMAZYRE (pemigatinib)

PEMAZYRE is the first internally discovered product to be internationally commercialized by us.

In April 2020, we announced that the FDA approved PEMAZYRE (pemigatinib), a selective fibroblast growth factor receptor (FGFR) kinase inhibitor, for the treatment of adults with previously treated, unresectable locally advanced or metastatic cholangiocarcinoma with an FGFR2 fusion or other rearrangement as detected by an FDA-approved test. PEMAZYRE is the first FDA-approved treatment for this indication, which was approved under accelerated approval based on overall response rate and duration of response (DOR).

In March 2021, PEMAZYRE was approved by the Japanese Ministry of Health, Labour and Welfare (MHLW) for the treatment of patients with unresectable biliary tract cancer (BTC) with an FGFR2 fusion gene, worsening after

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cancer chemotherapy. Also in March 2021, PEMAZYRE was approved by the European Commission (EC) for the treatment of adults with locally advanced or metastatic cholangiocarcinoma with an FGFR2 fusion or rearrangement that have progressed after at least one prior line of systemic therapy.

In July 2021, the UK’s National Institute for Health and Care Excellence (NICE) recommended PEMAZYRE for patients with cholangiocarcinoma with a fibroblast growth factor receptor 2 (FGFR2) fusion or rearrangement that have progressed after at least one prior line of systemic therapy. NICE’s guidance enables all eligible patients in England and Wales to have access to PEMAZYRE through the National Health Service (NHS).

Cholangiocarcinoma is a rare cancer that arises from the cells within the bile ducts. It is often diagnosed late ~~2027.~~(stages III and IV) and the prognosis is poor. The incidence of cholangiocarcinoma with FGFR2 fusions or rearrangements is increasing, and it is currently estimated that there are 2,000-3,000 patients in the United States, Europe and Japan.

~~Marketed Indications -~~ The approval of PEMAZYRE was based on data from FIGHT-202, a multi-center, open-label, single-arm study evaluating PEMAZYRE as a treatment for adults with cholangiocarcinoma. In FIGHT-202, and in patients harboring FGFR2 fusions or rearrangements (Cohort A), PEMAZYRE monotherapy resulted in an overall response rate of 36% (primary endpoint), and median DOR of 9.1 months (secondary endpoint). FIGHT-302, a Phase III trial of pemigatinib for the first-line treatment of patients with cholangiocarcinoma and FGFR2 fusions or rearrangements, is ongoing.

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

ICLUSIG (ponatinib)

In June 2016, we acquired the European operations of ARIAD Pharmaceuticals, ~~Inc (ARIAD)~~Inc. and obtained an exclusive license to develop and commercialize ICLUSIG (ponatinib) in Europe and other select countries. ICLUSIG is a kinase inhibitor. The primary target for ICLUSIG is BCR-ABL, an abnormal tyrosine kinase that is expressed in chronic myeloid leukemia (CML) and Philadelphia-chromosome positive acute lymphoblastic leukemia (Ph+ ALL).

In the European Union, ICLUSIG is approved for the treatment of adult patients with chronic phase, accelerated phase or blast phase ~~chronic myeloid leukemia (CML)~~CML who are resistant to dasatinib or nilotinib; who are intolerant to dasatinib or nilotinib and for whom subsequent treatment with imatinib is not clinically appropriate; or who have the T315I mutation, or the treatment of adult patients with ~~Philadelphia-chromosome positive acute lymphoblastic leukemia (Ph+ ALL)~~Ph+ ALL who are resistant to dasatinib; who are intolerant to dasatinib and for whom subsequent treatment with imatinib is not clinically appropriate; or who have the T315I mutation.

Clinical Programs in Hematology and Oncology

Ruxolitinib

~~We believe that~~As part of our ongoing LIMBER (Leadership In MPNs BEyond Ruxolitinib) clinical development initiative, which is designed to improve and expand therapeutic options for patients with myeloproliferative neoplasms, we are evaluating combinations of ruxolitinib with other therapeutic modalities, as well as developing a once-a-day formulation of ruxolitinib for potential use as monotherapy and combination therapy. Bioavailability and bioequivalence data were published for ruxolitinib’s once-daily (QD) extended release (XR) formulation at the ~~future~~European Hematology Association (EHA) 2021 Virtual Congress in June 2021. The FDA accepted the NDA for QD ruxolitinib with a Prescription Drug User Fee Act (PDUFA) target action date of cancer treatment lies in the use of immune therapies, which seek to recruit the patient’s own immune system to tackle cancer, and targeted therapies, which aim to block, directly or indirectly, the effects of cancer-causing mutations. Our most advanced programs are detailed below.March 23, 2023.

~~We also have a number of other early programs at various stages of preclinical and clinical testing. We intend to describe these programs once~~Based on positive Phase II data, we ~~have obtained clinical proof‑of‑concept and established that a compound within a specific program warrants further development.~~

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~~Targeted Therapies~~

~~Building upon positive, independently published third-party data~~opened two pivotal trials of ruxolitinib in ~~GVHD, we have initiated the REACH clinical program~~combination with parsaclisib (PI3Kδ) in first-line MF (LIMBER-313) and in MF patients with a suboptimal response to ~~evaluate~~ ruxolitinib monotherapy (LIMBER-304), and both trials are ongoing. Additional Phase II trials combining ruxolitinib with investigational agents from our portfolio such as INCB57643 (BET) and INCB00928 (ALK2) in patients with ~~steroid-refractory GVHD. REACH1, a pivotal Phase II trial~~MF are in ~~steroid-refractory acute GVHD was initiated in December 2016. REACH2,~~preparation, and

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additional discovery and development initiatives are also ongoing within the ~~Novartis-sponsored Phase III trial in steroid-refractory acute GVHD,~~LIMBER program, which are evaluating internally-discovered compounds and REACH3, the Phase III trial in steroid-refractory chronic GVHD that is co-sponsored by Incyte and Novartis, are both now underway. In June 2016, we announced that the FDA granted Breakthrough Therapy Designation for ruxolitinib in patients with acute GVHD. In April 2016, we announced an agreement with Eli Lilly and Company enabling uscandidates from collaboration partners.

Itacitinib

We no longer intend to develop and commercialize ruxolitinib in the United States for the treatment of GVHD. We also announced an agreement with Novartis granting Novartis exclusive research, development and commercialization rights for ruxolitinib in GVHD outside the United States.

~~A proof-of-concept trial of~~ itacitinib, a selective JAK1 inhibitor, ~~is ongoing~~in treatment-naïve chronic GVHD (cGVHD). Based on efficacy data from Part I of the Phase II/II GRAVTIAS-309 trial, we determined that a pivotal trial was unlikely to be successful.

Axatilimab

In September 2021, we and Syndax Pharmaceuticals, Inc. announced an exclusive worldwide collaboration and license agreement to develop and commercialize axatilimab, Syndax’s anti-CSF-1R monoclonal antibody. Together, we plan to develop axatilimab as a therapy for patients with chronic GVHD as well as in additional immune-mediated diseases where CSF-1R-dependent monocytes and macrophages are believed to contribute to organ fibrosis. In December, updated positive data were presented at ASH from the Phase I/II trial evaluating axatilimab as a monotherapy in patients with recurrent or refractory chronic GVHD after two or more prior lines of therapy. A 68% overall response rate and broad clinical benefit across multiple organs were observed at doses being assessed in AGAVE-201, a global pivotal trial evaluating axatilimab monotherapy in patients with chronic GVHD in the third line setting. Additional trials of axatilimab are planned in patients with chronic GVHD, including a Phase II trial in combination with a JAK inhibitor in patients with steroid-refractory cGVHD. In May 2022, Syndax announced that axatilimab was granted fast-track designation by the FDA for the treatment of patients with ~~acute GVHD. Based on preliminary data from this~~chronic GVHD after failure of two or more lines of systemic therapy.

Tafasitamab

Tafasitamab is an anti-CD19 antibody and is being investigated as a therapeutic option in B cell malignancies in a number of ongoing and planned combination trials. An open-label Phase II combination trial ~~a pivotal program~~(L-MIND) is investigating ~~itacitinib for~~ the ~~treatment~~safety and efficacy of ~~patients~~tafasitamab in combination with ~~treatment-naïve acute GVHD was initiated in July 2017. The FDA has granted itacitinib orphan drug status for GVHD.~~

GVHD is a condition that can occur after an allogeneic transplant (the transfer of genetically dissimilar stem cells or tissue). In GVHD, the donated bone marrow or peripheral blood stem cells view the recipient’s body as foreign and attack the body. We estimate that the long-term survivallenalidomide in patients with ~~corticosteroid-refractory GVHD~~relapsed or refractory diffuse large B-cell lymphoma (r/r DLBCL), and the ongoing Phase III B-MIND trial is ~~approximately 5% to 30%~~assessing the combination of tafasitamab and ~~that the diagnosed incidence~~bendamustine versus rituximab and bendamustine in r/r DLBCL. firstMIND is a Phase Ib safety trial of ~~acute and chronic GVHD is approximately 17,000 per year across the United States and Europe.~~

~~Following positive proof-of-concept data, we have opened~~tafasitamab as a ~~pivotal program investigating ruxolitinib~~first-line therapy for ~~the treatment of~~ patients with ~~essential thrombocythemia. ET~~DLBCL, and frontMIND, a placebo-controlled Phase III trial evaluating tafasitamab in combination with lenalidomide added to rituximab plus chemotherapy (R-CHOP) as a first-line therapy for patients with DLBCL, is ongoing.

A placebo-controlled Phase III trial (inMIND) of tafasitamab added to lenalidomide plus rituximab (R²) in patients with relapsed or refractory follicular or marginal zone lymphomas is ongoing, as is a ~~Philadelphia chromosome negative myeloproliferative neoplasm, characterized by~~proof-of-concept study (topMIND) evaluating tafasitamab in combination with parsaclisib (PI3Kδ) in patients with relapsed or refractory B-cell malignancies. A proof-of-concept study of tafasitamab, lenalidomide and plamotamab in patients with r/r DLBCL is also ongoing.

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

Pemigatinib

Pemigatinib is a potent and selective inhibitor of ~~platelets~~the fibroblast growth factor receptor (FGFR) isoforms 1, 2 and 3 with demonstrated activity in ~~the bone marrow.~~preclinical studies. The ~~pivotal RESET-272 trial will enroll ET patients that are refractory to or intolerant~~FGFR family of ~~hydroxyurea, the current standard~~receptor tyrosine kinases can act as oncogenic drivers in a number of ~~care for first-line treatment of these patients.~~liquid and solid tumor types.

We ~~have a portfolio of wholly-owned selective JAK1 inhibitors, including itacitinib and INCB52793. The~~initiated the FIGHT clinical program to evaluate ~~itacitinib in solid tumors includes~~pemigatinib across a ~~clinical trial in combination with AstraZeneca/MedImmune’s EGFR inhibitor osimertinib. INCB52793 is in a~~spectrum of cancers that are driven by FGF/FGFR alterations. The program initially included three Phase I/II ~~trial~~trials – FIGHT-201 in patients with ~~advanced malignancies.~~bladder cancer, FIGHT-202 in patients with cholangiocarcinoma, and FIGHT-203 in patients with myeloid/lymphoid neoplasms with FGFR1 rearrangement. Based on data generated from these trials, we have initiated additional trials including FIGHT-302, a Phase III study in first-line cholangiocarcinoma. FIGHT-207, a solid tumor-agnostic trial evaluating pemigatinib in

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patients with driver-alterations of FGF/FGFR, is now closed to recruitment. Based on findings from this study, we have identified populations that may potentially benefit from treatment with pemigatinib and have initiated two Phase II trials – FIGHT-209 in patients with glioblastoma and FIGHT-210 in patients with non-small cell lung cancer.

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

Parsaclisib

The ~~PI3K-delta~~PI3Kδ pathway mediates oncogenic signaling in B cell malignancies. ~~INCB50465~~Parsaclisib is a ~~PI3K-delta~~PI3Kδ inhibitor that has demonstrated potency and selectivity in preclinical studies and has potential therapeutic utility in the treatment of patients with lymphoma. We ~~have~~ initiated the CITADEL clinical program to evaluate ~~INCB50465~~parsaclisib in non-Hodgkin lymphomas, including Phase II trials in follicular lymphoma, marginal zone lymphoma and mantle cell lymphoma. The FDA granted orphan drug designation and Fast Track designation to parsaclisib as a treatment for patients with ~~diffuse large b-cell lymphoma (DLBCL),~~ follicular lymphoma, marginal zone lymphoma and mantle cell lymphoma.

~~INCB54828 is~~In December 2020, we announced preliminary results from the ongoing CITADEL monotherapy development program, which was designed to enable registration of parsaclisib. Results from four cohorts were presented at the American Society of Hematology (ASH), including in r/r follicular lymphoma (CITADEL-203), in BTK-naïve r/r marginal zone lymphoma (CITADEL-204) and in both BTK-naïve and BTK-experienced r/r mantle cell lymphoma (CITADEL-205).

In October 2021, we announced the FDA acceptance of an ~~inhibitor~~NDA seeking approval of parsaclisib for the ~~FGFR isoforms 1, 2~~treatment of patients with relapsed or refractory follicular lymphoma, marginal zone lymphoma and ~~3 that has demonstrated potency and selectivity in preclinical studies.~~mantle cell lymphoma. The FGFR family of receptor tyrosine kinases can act as oncogenic drivers in a number of liquid and solid tumor types. We initiated the FIGHT clinical program to evaluate INCB54828 across a spectrum of cancers that are driven by FGF/FGFR mutations. The program now has threesubmission was based on data from several Phase II ~~trials enrolling – FIGHT-201~~studies (CITADEL-203, -204 and -205) evaluating parsaclisib as a treatment for relapsed or refractory non-Hodgkin lymphomas (follicular, marginal zone and mantle cell). In January 2022, we announced that we withdrew the NDA seeking approval of parsaclisib for the three indications in non-Hodgkin lymphoma. The decision to withdraw the NDA followed discussions with FDA regarding confirmatory studies that we determined cannot be completed within a reasonable time period to support an accelerated approval. In July 2022, we withdrew the Marketing Authorization Application (MAA) seeking approval of parsaclisib in marginal zone lymphoma following discussions with the European Medicines Agency regarding the confirmatory study needed to support the approval which we determined were not feasible.

A Phase II trial of parsaclisib in patients with ~~bladder cancer, FIGHT-202 in~~autoimmune hemolytic anemia (AIHA), a rare red blood cell disorder, is ongoing. In June 2021, data from the Phase II trial were presented at EHA. The majority of patients achieved a response with ~~cholangiocarcinoma,~~parsaclisib over the initial 12-week treatment period and ~~FIGHT-203 in patients~~treatment with ~~8p11 myeloproliferative syndrome (8p11 MPN).~~

~~BRDs are a family of proteins which play important roles in mediating gene transcription, most notably by facilitating the~~ expression of oncogenes such as MYC, one of the most frequently dysregulated oncogenes in all human cancer. We have two BRD inhibitors, INCB54329 and INCB57643, in open-label dose-escalation trials in patients with advanced malignancies. The evaluation of these two compounds has enabled an assessment of relative pharmacodynamics and, basedparsaclisib was generally well tolerated. Based on these ~~emerging data,~~results, we ~~have now decided to focus our development activities on INCB57643.~~

INCB53914 is a pan-PIM kinase inhibitor that has demonstrated potency and selectivity in preclinical studies. PIM kinases integrate signals from multiple pathways important for the survival and proliferation of malignant cells. Over

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expression of PIM kinases has been reported in human hematological cancers with each isoform showing a distinct expression pattern among the various malignancy subtypes. A clinical trial of INCB53914 in advanced malignancies is underway.

INCB59872 is an LSD1 inhibitor. LSD1 is a key enzyme that is involved in epigenetic regulation of gene transcription. Dysregulated LSD1 activity can perturb normal gene expression, leading to cellular transformation. In particular, the function of LSD1 has been reported to maintain stem cell-like gene expression patterns in various cancers, including acute myeloid leukemia and small cell lung cancer. A proof-of-concept clinical trial of INCB59872 is underway.

INCB62079 is a selective, irreversible inhibitor of FGFR4 that has exhibited 250 times greater selectivity for FGFR4 than other FGFR isoforms in preclinical studies. Preclinical data has also demonstrated the compound’s selective activity against cancer cell lines with FGF19-FGFR4 pathway activation, and dose-dependent activity in murine models of FGF19-driven hepatocellular carcinoma. A Phase I/II dose escalation trial in patients with advanced hepatocellular carcinoma and other malignancies is now underway.


	~~Indication~~	~~Status Update~~
~~Ruxolitinib (JAK1/JAK2)~~	~~Steroid-refractory acute GVHD~~	~~Pivotal Phase II (REACH1); Phase III (REACH2)~~
~~Ruxolitinib (JAK1/JAK2)~~	~~Steroid-refractory chronic GVHD~~	~~Phase III (REACH3)~~
~~Ruxolitinib (JAK1/JAK2)~~	~~Essential thrombocythemia~~	~~Pivotal Phase II (RESET-272) open for enrollment~~
~~Itacitinib (JAK1)~~	~~Treatment-naïve acute GVHD~~	~~Phase III (GRAVITAS-301)~~
~~Itacitinib (JAK1)~~	~~Non-small cell lung cancer~~	~~Phase I/II in combination with osimertinib (EGFR)~~
~~INCB52793 (JAK1)~~	~~Advanced malignancies~~	~~Phase I/II dose-escalation~~
~~INCB50465 (PI3Kδ)~~	~~Diffuse large b-cell lymphoma, follicular lymphoma, marginal zone lymphoma, mantle cell lymphoma~~	~~Phase II (CITADEL-202 initiated; CITADEL-203, CITADEL-204, CITADEL-205 all open for enrollment)~~
~~INCB54828 (FGFR1/2/3)~~	~~Bladder cancer, cholangiocarcinoma, 8p11 MPNs~~	~~Phase II (FIGHT-201, FIGHT-202, FIGHT-203)~~
~~INCB57643 (BRD)~~	~~Advanced malignancies~~	~~Phase I/II dose-escalation~~
~~INCB53914 (PIM)~~	~~Advanced malignancies~~	~~Phase I/II dose-escalation~~
~~INCB59872 (LSD1)~~	Acute myeloid leukemia, small cell lung cancer	~~Phase I/II dose-escalation~~
~~INCB62079 (FGFR4)~~	~~Hepatocellular carcinoma~~	~~Phase I/II dose-escalation~~

~~Immune Therapies~~

The enzyme indoleamine 2, 3‑dioxygenase‑1 (IDO1) is a key regulator of the mechanisms that are responsible for allowing tumors to escape from a patient’s immune surveillance. IDO1 expression by tumor cells, or by antigen presenting cells such as macrophages and dendritic cells in tumors, creates an environment in which tumor specific cytotoxic T lymphocytes are rendered functionally inactive or are no longer able to attack a patient’s cancer cells. By inhibiting IDO1, it is proposed that this “brake” on the anti‑tumor immune response is removed, allowing anti‑tumor specific cytotoxic T cells, generated in a patient spontaneously in response to the tumor, or through a therapy designed to stimulate the immune response, to have greater anti‑tumor efficacy.

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Epacadostat is a novel, potent and selective inhibitor of the enzyme IDO1, and the ECHO clinical development program will investigate the development of epacadostat in combination with other therapeutic agents, including checkpoint inhibitors, vaccines, epigenetic therapies, and chemotherapies. During 2014, we signed clinical trial collaboration agreements with Merck, Bristol-Myers Squibb, AstraZeneca/MedImmune and Roche/Genentech to evaluate epacadostat with their respective anti-PD-1 and anti-PD-L1 agents, pembrolizumab, nivolumab, durvalumab and atezolizumab, respectively, in Phase I/II trials. We have global development and commercialization rights to epacadostat for all indications.

~~In October 2015, we and Merck announced an expansion of the companies’ ongoing clinical trial collaboration to include ECHO-301,~~initiated a Phase III ~~study evaluating the combination of epacadostat with pembrolizumab~~trial (PATHWAY) in warm AIHA. The FDA has granted orphan drug designation to parsaclisib as a ~~first-line~~ treatment for patients with advanced or metastatic melanoma. In July 2017, the FDA granted Fast Track designation to the ECHO-301 trial to demonstrate a statistically robust and clinically meaningful improvement in progression free survival and/or overall survival compared to patients treated with pembrolizumab alone.AIHA.

In March 2017, we and Merck announced details of the companies’ planned expansion of the ongoing clinical trial collaboration to include four additional tumor types, evaluating epacadostat plus pembrolizumab in patients with non-small cell lung (NSCLC), renal, bladder, and head & neck cancers. Initial regulatory feedback on the designs of these Phase III trials in additional tumor types has been received, and these trials are expected to be initiated in 2017. In April 2017, we and Bristol-Myers Squibb announced an expansion of our clinical trial collaboration to include two pivotal programs in NSCLC and head & neck cancer. Phase III trials in these additional tumor types are also expected to be initiated in 2017.

In October 2017, we and AstraZeneca announced an expansion of our clinical trial collaboration to include a Phase III trial of epacadostat in combination with AstraZeneca’s PD-L1 inhibitor durvalumab in patients with Stage III NSCLC.

~~In June 2017, we and Roche/Genentech decided to close ECHO-110, the Phase I/II dose escalation trial of epacadostat in combination with atezolizumab, to future enrollment.~~

In January 2017, we licensed worldwide rights from Calithera Biosciences, Inc. to develop and commercialize INCB01158, a first-in-class, small molecule arginase inhibitor in hematology and oncology. In preclinical models, arginase inhibition has been shown to enhance anti-tumor immunity both as a single agent and in combination with other immuno-modulatory therapeutics. INCB01158 is currently being studied as a monotherapy and in combination with the anti-PD-1 agent pembrolizumab.

INCSHR1210 is an anti-PD-1 monoclonal antibody that we have licensed under our agreement with Jiangsu Hengrui Medicine Co., Ltd. (Hengrui). Many tumor cells express PD-L1, an immunosuppressive PD-1 ligand. Inhibition of the interaction between PD-1 and PD-L1, known as immune checkpoint blockade, can enhance T-cell responses and mediate preclinical antitumor activity. The dose-escalation portion of the proof-of-concept clinical trial of INCSHR1210 in patients with advanced solid tumors has been completed, revealing a side-effect profile that is different from that seen with other PD-1 inhibitors. Enrollment of new subjects into Part 2 of the Phase I trial was reinitiated in order to confirm the compound’s side effect profile, and enrollment of new subjects has now been halted.Retifanlimab

In October 2017, we and MacroGenics, Inc. announced an exclusive global collaboration and license agreement for MacroGenics’ ~~MGA012,~~retifanlimab (formerly INCMGA0012), an investigational monoclonal antibody that inhibits PD-1. ~~Upon closing,~~Under this collaboration, we ~~will obtain~~obtained exclusive worldwide rights for the development and commercialization of ~~MGA012~~retifanlimab in all indications. ~~Enrollment in the dose escalation portion of the Phase 1 study of MGA012 has been completed and the~~The molecule is currently being evaluated both as monotherapy and in combination therapy across ~~four solid~~various tumor ~~types~~types. Potentially registration-enabling trials in microsatellite instability-high (MSI-H) endometrial cancer and Merkel cell carcinoma are ongoing.

The Phase III POD1UM-303 trial of retifanlimab in combination with platinum-based chemotherapy as a first-line treatment for patients with SCAC is underway. In July 2021, we announced that the ~~dose expansion portion~~FDA issued a complete response letter (CRL) for the BLA of retifanlimab for the treatment of squamous cell carcinoma of the ~~study.~~

~~We have two co-stimulatory antibodies~~anal canal (SCAC). In October 2021, we announced that we withdrew the MAA seeking approval of retifanlimab in clinical development. INCAGN1876 is an anti-GITR agonist antibody and INCAGN1949 is an anti-OX40 agonist antibody. Both are programs within our antibody discovery alliance with Agenus Inc. GITR and OX40 are costimulatory receptors that are expressed on effector T cells and is important for T cell survival and enhanced cytokine production. Both are also expressed on regulatory T cells and can abrogate their suppressive function. Preclinical data demonstrate that anti-GITR and anti-OX40 agonist antibodies inhibit tumor growthSCAC.

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The Phase III POD1UM-304 trial is evaluating retifanlimab in combination with platinum-based chemotherapy as a first-line treatment for patients with non-small cell lung cancer (NSCLC), and in October 2020, our collaboration partner Zai Lab announced dosing of the first patient in China.

Retifanlimab has been granted Fast Track designation for the treatment of certain patients with advanced or metastatic MSI-H or DNA mismatch repair (dMMR) endometrial cancer, for the treatment of certain patients with locally advanced or metastatic SCAC and for the treatment of Merkel cell carcinoma (MCC). The FDA and EMA have granted orphan drug designation to retifanlimab as a treatment for patients with locally advanced or metastatic SCAC and the FDA has granted orphan drug designation to retifanlimab as a treatment for patients with MCC.


	Indication and status
Once-a-day ruxolitinib (JAK1/JAK2)	Myelofibrosis, polycythemia vera and GVHD: clinical pharmacology studies; NDA under review
ruxolitinib + parsaclisib (JAK1/JAK2 + PI3Kδ)	Myelofibrosis: Phase III (first-line therapy) (LIMBER-313) Myelofibrosis: Phase III (suboptimal responders to ruxolitinib) (LIMBER-304)
ruxolitinib + INCB57643 (JAK1/JAK2 + BET)	Myelofibrosis: Phase II
ruxolitinib + INCB00928 (JAK1/JAK2 + ALK2)	Myelofibrosis: Phase II
ruxolitinib + CK0804¹ (JAK1/JAK2 + CB-Tregs)	Myelofibrosis: PoC (LIMBER-TREG108)
axatilimab (anti-CSF-1R)²	Chronic GVHD: Pivotal Phase II (third-line plus therapy) (AGAVE-201)
tafasitamab (CD19)³	r/r DLBCL: Phase II (L-MIND); Phase III (B-MIND) 1L DLBCL: Phase III (frontMIND) r/r follicular & marginal zone lymphomas: Phase III (inMIND) r/r B-cell malignancies: PoC with parsaclisib (PI3Kδ) (topMIND) r/r B-cell malignancies: PoC with lenalidomide and plamotamab⁴
pemigatinib (FGFR1/2/3)	CCA: Phase III (FIGHT-302) Myeloid/lymphoid neoplasms (MLN): Phase II (FIGHT-203) Glioblastoma: Phase II (FIGHT-209) NSCLC: Phase II (FIGHT-210)
parsaclisib (PI3Kδ)	Warm autoimmune hemolytic anemia: Phase III (PATHWAY)
retifanlimab (PD-1)⁵	SCAC: Phase III (PODIUM-303) MSI-high endometrial cancer: Phase II (POD1UM-101, POD1UM-204) Merkel cell carcinoma: Phase II (POD1UM-201) NSCLC: Phase III (POD1UM-304)

^1. Development collaboration with Cellenkos, Inc.

^2. axatilimab development in collaboration with Syndax.

^3.tafasitamab development in collaboration with MorphoSys.

^4. Clinical collaboration with MorphoSys and Xencor, Inc. to investigate the combination of tafasitamab plus lenalidomide in combination with Xencor’s CD20xCD3 XmAb bispecific antibody, plamotamab.

^5. retifanlimab licensed from MacroGenics.

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Earlier-Stage Development Programs in Hematology and Oncology

Oral PD-L1

In November 2021, we highlighted Phase I clinical safety and efficacy data for our oral PD-L1 program which included three compounds, INCB86550, INCB99280 and INCB99318. Tumor shrinkage was observed for all three oral PD-L1 inhibitors. With regard to safety, both INCB99280 and INCB99318 did not show peripheral neuropathy seen with INCB86550. In May 2022, the ~~levels~~decision was made to prioritize the development of INCB99280 and ~~function~~INCB99318 based on positive therapeutic ratios.

INCB123667 (CDK2)

In the cell cycle, the serine threonine kinase, CDK2, regulates the transition from the G1 phase (cell growth) to the S-phase (DNA replication). INCB123667 is a novel, potent and selective oral small molecule inhibitor of ~~effector T cells and by decreasing regulatory T cells. Clinical trials of both INCAGN1876 and INCAGN1949 were initiated in 2016, and both agents are being studied~~CDK2 which has been shown to suppress tumor growth as a monotherapy and in combination with ~~other immune checkpoint inhibitors.~~

~~We have also launched two platform studies to investigate the effects~~standard of ~~PD-1, JAK1, IDO1 and PI3Kδ inhibition on the~~care, in Cyclin E amplified tumor microenvironment. The PD-1 platform study is investigating the effects of adding either itacitinib (JAK1) or INCB50465 (PI3Kδ) to pembrolizumab (PD-1). The JAK1 platform study is investigating all-oral doublets combining either INCB50465 (PI3Kδ) or epacadostat (IDO1) with itacitinib (JAK1).


	~~Indication~~	~~Status Update~~
~~Epacadostat (IDO1)~~	~~Unresectable or metastatic, advanced melanoma~~	~~Phase III (ECHO-301) in combination with pembrolizumab (PD-1)~~
~~Epacadostat (IDO1)~~	~~NSCLC, renal, bladder, head & neck cancer~~	~~Phase III in combination with pembrolizumab (PD-1) expected to begin in 2017~~
~~Epacadostat (IDO1)~~	~~NSCLC, head & neck cancer~~	~~Phase III in combination with nivolumab (PD-1) expected to begin in 2017~~
~~Epacadostat (IDO1)~~	~~NSCLC~~	~~Phase III in combination with durvalumab (PD-L1) expected to begin in H1 2018~~
~~Epacadostat (IDO1)~~	~~Multiple tumor types~~	~~Phase II (ECHO-202) expansion cohorts in combination with pembrolizumab (PD-1)~~
~~Epacadostat (IDO1)~~	~~Multiple tumor types~~	~~Phase II (ECHO-204) expansion cohorts in combination with nivolumab (PD-1)~~
~~Epacadostat (IDO1)~~	~~Multiple tumor types~~	~~Phase II (ECHO-203) expansion cohorts in combination with durvalumab (PD-L1)~~
~~INCB01158 (ARG)~~1	~~Solid tumors~~	~~Phase I/II~~
~~INCSHR1210 (PD-1)~~2	~~Solid tumors~~	~~Phase I/II dose-escalation completed; enrollment halted~~
~~INCAGN1876 (GITR)~~3	~~Solid tumors~~	~~Phase I/II~~
~~INCAGN1949 (OX40)~~3	~~Solid tumors~~	~~Phase I/II~~
~~PD-1 platform study~~	~~Solid tumors~~	~~Phase I/II, pembrolizumab (PD-1) in combination with itacitinib (JAK1) or INCB50465 (PI3Kδ)~~
~~JAK1 platform study~~	~~Solid tumors~~	~~Phase I/II, itacitinib (JAK1) in combination with epacadostat (IDO1) or INCB50465 (PI3Kδ)~~

1. ~~INCB01158 co-developed with Calithera~~

2. ~~INCSHR1210 licensed from Hengrui~~

3. ~~INCAGN1876 & INCAGN1949 from discovery alliance with Agenus~~

~~Clinical Programs outside Oncology~~

models, in vivo. In ~~January 2017,~~July 2022, we initiated a Phase ~~II trial~~I dose-escalation and dose-expansion study evaluating INCB123667 in adults with selected advanced or metastatic solid tumors.

INCA32459 (LAG-3xPD-1)

In collaboration with Merus we have developed INCA32459, a novel LAG3xPD-1 bispecific antibody that is planned to enter clinical studies later this year.

We also have a number of other earlier-stage clinical programs in hematology and oncology, as detailed in the table below. We intend to describe these programs more fully if we obtain clinical proof-of-concept and establish that a program warrants further development in a specific indication or group of indications.


Modality	Candidates
Small molecules	INCB81776 (AXL/MER), INCB99280 (PD-L1), INCB99318 (PD-L1), INCB106385 (A2A/A_2B), INCB123667 (CDK2)
Monoclonal antibodies¹	INCAGN1876 (GITR), INCAGN2385 (LAG-3), INCAGN1949 (OX40), INCAGN2390 (TIM-3), INCA00186 (CD73)
Bispecific antibodies	INCA32459 (LAG-3xPD-1)²

^1. Discovery collaboration with Agenus Inc.

^2. Development collaboration with Merus

Inflammation and AutoImmunity (IAI)

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

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

OPZELURA (ruxolitinib) cream

Atopic Dermatitis. In September 2021, we announced that the FDA approved OPZELURA (ruxolitinib) cream, a novel cream formulation of Incyte’s selective JAK1/JAK2 inhibitor ruxolitinib, ~~cream~~ for the topical short-term and non-continuous chronic treatment of mild to moderate atopic ~~dermatitis. Atopic~~ dermatitis (AD) in non-immunocompromised patients 12 years

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of age and older whose disease is not adequately controlled with topical prescription therapies, or when those therapies are not advisable.

AD is a skin disorder that causes long term inflammation of the skin ~~to become~~resulting in itchy, red, ~~scaly,~~swollen and ~~itchy.~~cracked skin. Onset can occur at any age, but is ~~much~~ more common in infants and children. In the United States, we estimate that there are approximately 10 million diagnosed adolescent and ~~European prevalence are estimated~~adult patients with AD.

The approval of OPZELURA was based on data from two randomized, double-blind, vehicle-controlled Phase III studies (TRuE-AD1 and TRuE-AD 2) evaluating the safety and efficacy of OPZELURA in adolescents and adults with mild to moderate AD. Significantly more patients treated with OPZELURA achieved Investigator’s Global Assessment (IGA) Treatment Success at ~~10.3 million~~Week 8 (defined as an IGA score of 0 or 1 with at least a 2-point improvement from baseline, the primary endpoint: 53.8% in TRuE-AD1 and 51.3% in TRuE-AD2, compared to vehicle (15.1% in TRuE-AD1, 7.6% in TRuE-AD2; P<0.0001). Significantly more patients treated with OPZELURA experienced a clinically meaningful reduction in itch from baseline at Week 8, as measured by a ≥4-point reduction in the itch Numerical Rating Scale (itch NRS4): 52.2% in TRuE-AD1 and ~~6.5 million~~50.7% in TRuE-AD2, compared to vehicle (15.4% in TRuE-AD1, 16.3% in TRuE-AD2; P<0.0001), among patients ~~respectively.~~

~~Table~~with an NRS score of ~~Contents~~

~~A Phase II trial of topical ruxolitinib~~at least 4 at baseline. The most common (≥1%) treatment-emergent adverse reactions in patients treated with OPZELURA were nasopharyngitis, diarrhea, bronchitis, ear infection, eosinophil count increased, urticaria, folliculitis, tonsillitis and rhinorrhea.

Vitiligo. In July 2022, we announced that the FDA approved OPZELURA for the topical treatment of nonsegmental vitiligo in adult and pediatric patients 12 years of age and older. OPZELURA was approved for continuous use and no limits to duration as a ~~long term~~treatment for nonsegmental vitiligo.

Vitiligo is a chronic autoimmune depigmenting skin ~~condition~~disease characterized by patches of the skin losing their ~~pigment,~~pigment. It is estimated that there are at least 1.5 million patients diagnosed with vitiligo in the United States, with the majority of patients (approximately 85%) suffering from nonsegmental vitiligo. OPZELURA is the first and only FDA approved treatment for repigmentation of vitiligo lesions.

The approval of OPZELURA in vitiligo was based on two randomized, double-blind, vehicle-controlled Phase III studies (TRuE-V1 and TRuE-V2) evaluating the safety and efficacy of OPZELURA in adolescents and adults with nonsegmental vitiligo. Treatment with 1.5% ruxolitinib cream twice daily (BID) resulted in greater improvement versus vehicle for the primary and all key secondary endpoints in both the TRuE-V1 and TRuE-V2 studies. Results, which were consistent across both studies, showed that 29.9% of patients applying ruxolitinib cream achieved >75% improvement from baseline in the facial Vitiligo Area Scoring Index (F-VASI75) at Week 24, the primary endpoint. At Week 52, approximately 50% of patients achieved F-VASI75. The most common (>1%) treatment-emergent adverse reactions in patients treated with OPZELURA were application site acne, application site pruritus, nasopharyngitis, headache, urinary tract infection, application site erythema and pyrexia.

Clinical Programs in Dermatology

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

We are currently evaluating ruxolitinib cream in a Phase III trial, TRuE-AD3, in pediatric atopic dermatitis patients ages ≥2 years to < 12 years. Two Phase III trials (TRuE-CHE1 and TRuE-CHE2) evaluating ruxolitinib cream in chronic hand eczema are in preparation.

In October 2021, we announced the validation of the MAA for ruxolitinib cream as a potential treatment for adolescents and adults (age ≥12 years) with nonsegmental vitiligo with facial involvement.

We are also developing povorcitinib (formerly INCB54707), which is an oral small molecule selective JAK1 inhibitor. Povorcitinib is undergoing evaluation in patients with hidradenitis suppurativa (HS), a chronic skin condition where lesions develop as a result of inflammation and infection of the sweat glands. In October 2020, initial results from

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the clinical program were presented and a randomized Phase IIb trial of povorcitinib is underway in patients with HS. In March 2021, we initiated a Phase II trial evaluating povorcitinib in ~~June 2017.~~patients with vitiligo. A Phase II trial evaluating povorcitinib in patients with prurigo nodularis is ongoing.


		Indication and status
ruxolitinib cream¹ (JAK1/JAK2)	Atopic dermatitis: Phase III pediatric study (TRuE-AD3)	Vitiligo: Phase III (TRuE-V1, TRuE-V2); approved by FDA; MAA under review Chronic hand eczema: Phase III (TRuE-CHE1 and TRuE-CHE2) in preparation
ruxolitinib cream + NB-UVB (JAK1/JAK2 + phototherapy)	~~Indication~~	~~Status Update~~Vitiligo: Phase II
~~Topical ruxolitinib (JAK1/JAK2)~~povorcitinib (JAK1)	~~Atopic dermatitis~~Hidradenitis suppurativa: Phase II; Phase III in preparation	Vitiligo: Phase II ~~(topical formulation~~1)
~~Topical ruxolitinib (JAK1/JAK2)~~	~~Vitiligo~~	Prurigo nodularis: Phase II ~~(topical formulation~~1)

^1. Novartis’ rights for ruxolitinib outside of the United States under our Collaboration and License Agreement with Novartis do not include topical administration.

Clinical Programs in Other IAI

In May 2022, we initiated a Phase II trial evaluating INCB00928 in patients with fibrodysplasia ossificans progressiva (FOP), a disorder in which muscle tissue and connective tissue are gradually replaced by bone. The FDA has granted Fast Track designation and orphan drug designation to INCB00928 as a treatment for patients with FOP.


		Indication and status
INCB00928 (ALK2)	Fibrodysplasia ossificans progressiva: Phase II

Collaborative Partnered Programs

As described below under “—License Agreements and Business Relationships,” we are eligible for milestone payments and royalties on certain products that we licensed to third parties. These include OLUMIANT (baricitinib), which is licensed to our collaborative partner Eli Lilly and Company, and JAKAVI (ruxolitinib) and TABRECTA (capmatinib), which are licensed to Novartis.

Baricitinib

We have a second JAK1 and JAK2 inhibitor, baricitinib, which is subject to our collaboration agreement with ~~Eli~~ Lilly, ~~and Company,~~ in which Lilly received exclusive worldwide development and commercialization rights to the compound for inflammatory and autoimmune diseases.

Rheumatoid Arthritis. Rheumatoid arthritis is an autoimmune disease characterized by aberrant or abnormal immune mechanisms that lead to joint inflammation and swelling and, in some patients, the progressive destruction of joints. Rheumatoid arthritis can also affect connective tissue in the skin and organs of the body.

Current rheumatoid arthritis treatments include the use of non-steroidal anti-inflammatory drugs, disease-modifying anti-rheumatic drugs, such as methotrexate, and the newer biological response modifiers that target pro-inflammatory cytokines, such as tumor necrosis factor, implicated in the pathogenesis of rheumatoid arthritis. None of these approaches to treatment is curative; therefore, there remains an unmet need for new safe and effective treatment options for these patients. Rheumatoid arthritis is estimated to affect about 1% of the world’s population.

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The Phase III program of baricitinib in patients with rheumatoid arthritis incorporated all three rheumatoid arthritis populations (methotrexate naïve, biologic naïve, and tumor necrosis factor (TNF) inhibitor inadequate responders); used event rates to fully power the baricitinib program for structural comparison and non-inferiority vs. adalimumab; and evaluated patient-reported outcomes. All four Phase III trials met their respective primary endpoints.

In January 2016, Lilly submitted ~~a New Drug Application (NDA)~~an NDA to the FDA and ~~a Marketing Authorization Application (MAA)~~an MAA to the ~~European Medicines Agency~~EMA for baricitinib as treatment for rheumatoid arthritis. In February 2017, we and Lilly announced that the European Commission approved baricitinib as OLUMIANT for the treatment of moderate-to-severe rheumatoid arthritis in adult patients who have responded inadequately to, or who are intolerant to, one or more disease-modifying antirheumatic drugs (DMARDs). In July 2017, ~~Japan's~~the Japanese Ministry of Health, ~~Labor~~Labour and Welfare (MHLW) granted marketing approval for OLUMIANTfor the treatment of rheumatoid arthritis (including the prevention of structural injury of joints) in patients with inadequate response to standard-of-care therapies.

In ~~April 2017, we and Lilly announced that~~June 2018, the FDA ~~had issued a complete response letter for~~approved the ~~New Drug Application~~2mg dose of ~~baricitinib as a once-daily oral medication~~OLUMIANT for the treatment of moderate-to-severe rheumatoid arthritis. The letter indicates that the FDA is unable to approve the application in its current form. Specifically, the FDA indicated that additional clinical data are needed to determine the most appropriate doses. The FDA also stated that additional data are necessary to further characterize safety concerns across treatment arms. In August 2017, we and Lilly announced that a resubmission of the NDA for baricitinib is now expected before the end of January 2018. The resubmission package will include new safety and efficacy data. The companies anticipate the FDA will classify the application as a Class II resubmission, which would start a new six-month review cycle.

~~Rheumatoid Arthritis.~~ Rheumatoid arthritis is an autoimmune disease characterized by aberrant or abnormal immune mechanisms that lead to joint inflammation and swelling and, in some patients, the progressive destruction of joints. Rheumatoid arthritis can also affect connective tissue in the skin and organs of the body.

~~Current~~adults with moderately-to-severely active rheumatoid arthritis ~~treatments include the use of non‑steroidal anti‑inflammatory drugs, disease‑modifying anti‑rheumatic drugs, such as methotrexate, and the newer biological~~(RA) who have had an inadequate response ~~modifiers that target pro‑inflammatory cytokines, such as~~to one or more tumor necrosis factor implicated in the pathogenesis of rheumatoid arthritis. None of these approaches to treatment is curative; therefore, there remains an unmet need for new safe and effective treatment options for these patients. Rheumatoid arthritis is estimated to affect about 1% of the world’s population.(TNF) inhibitor therapies.

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~~Psoriatic Arthritis~~. Psoriatic arthritis (PsA) is an inflammatory arthritis that is seen in association with skin psoriasis. It causes joint pain and swelling that can lead to damage of the joint if the inflammation is not controlled. Baricitinib has been shown to inhibit the JAK-STAT pathway in related conditions such as psoriasis in Phase II trials, and based on its activity profile, baricitinib also has the potential to demonstrate positive clinical outcomes in PsA. Lilly expects to initiate a Phase III program to evaluate the safety and efficacy of baricitinib in patients with PsA during 2018.

Atopic Dermatitis. Atopic dermatitis (AtD) is a condition that makes the skin red and itchy and which is common in children but can occur at any age. Atopic dermatitis is long lasting and tends to flare periodically and then subside. Lilly has conducted a Phase IIa trial and a Phase III program to evaluate the safety and efficacy of baricitinib in patients with moderate-to-severe atopic dermatitis. The JAK-STAT pathway has been shown to play an essential role in the dysregulation of immune responses in atopic dermatitis. Therefore, we believe that inhibiting cytokine pathways dependent on JAK1 and JAK2 may lead to positive clinical outcomes in ~~atopic dermatitis.~~ AD.

In ~~September 2017,~~February 2019, we and Lilly announced that baricitinib met the primary endpoint in BREEZE-AD1 and BREEZE-AD2, two Phase III studies evaluating the efficacy and safety of baricitinib monotherapy for the treatment of adult patients with moderate-to-severe AD and, in August 2019, we and Lilly ~~plans to initiate~~announced that baricitinib met the primary endpoint in BREEZE-AD7, a Phase III ~~program to evaluate~~study evaluating the ~~safety~~efficacy and ~~efficacy~~safety of baricitinib in combination with standard-of-care topical corticosteroids in patients with moderate-to-severe AD. In January 2020, we and Lilly announced that baricitinib met the primary endpoint in both BREEZE-AD4 and BREEZE-AD5, the results of which completed the placebo-controlled data program intended to support global registrations. An sNDA for baricitinib has been submitted by Lilly for the treatment of patients with moderate to severe ~~AtD.~~AD. In April 2021, we and Lilly announced the FDA extended the review period for the sNDA for baricitinib for the treatment of moderate to severe AD by three months to allow time for additional data analyses. In July 2021, we and Lilly announced that the FDA will not meet the PDUFA action date for the sNDA for baricitinib for the treatment of adults with moderate to severe AD due to the FDA's ongoing assessment of JAK inhibitors. In January 2022, Lilly provided a regulatory update on the sNDA based on ongoing discussions with the FDA. Lilly announced that alignment with the FDA on the indicated population had not yet been reached and given the FDA’s position, there would be the possibility of a Complete Response Letter (CRL).

In January 2020, Lilly announced that baricitinib had been submitted for regulatory review in Europe as a treatment for patients with moderate-to-severe AD. In October 2020, Lilly announced that the European Commission approved baricitinib as OLUMIANT for the treatment of moderate-to-severe AD in adult patients who are candidates for systemic therapy. In December 2020, baricitinib was approved by the MHLW for the treatment of patients with moderate-to-severe AD.

Alopecia Areata. Alopecia areata is an autoimmune disorder in which the immune system attacks the hair follicles, causing hair loss in patches. In March 2020, Lilly announced that baricitinib received Breakthrough Therapy designation for the treatment of alopecia areata, based on the positive Phase II results of Lilly’s adaptive Phase II/III study BRAVE-AA1. In March 2021, we and Lilly announced positive results from BRAVE-AA2, the Phase III trial evaluating the efficacy and safety of once-daily baricitinib in adults with severe alopecia areata. In April 2021, we and Lilly announced positive results from the Phase III portion of BRAVE-AA1. In September 2021, we and Lilly announced detailed results from BRAVE-AA1 and BRAVE-AA2 at the European Academy of Dermatology and Venereology Congress (EADV). The two studies showed statistically significant improvement in scalp hair regrowth across both baricitinib dosing groups when compared to placebo. In March 2022, we and Lilly announced positive 52 week results from BRAVE-AA1 and BRAVE-AA2 at the American Academy of Dermatology (AAD) annual meeting showing 40% of adults saw at least 80% scalp coverage. In June 2022, the FDA approved 2mg, and 4mg doses of OLUMIANT for the treatment of adults with severe alopecia areata, becoming the first and only systemic treatment in the indication. In June 2022, OLUMIANT was approved as a treatment for alopecia areata in Europe and Japan.

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Systemic Lupus Erythematosus. Systemic lupus erythematosus (SLE) is a chronic disease that causes inflammation. In addition to affecting the skin and joints, it can affect other organs in the body such as the kidneys, the tissue lining the lungs and heart, and the brain. Lilly has ~~initiated~~conducted a Phase II trial to evaluate the safety and efficacy of baricitinib in patients with SLE. Baricitinib’s activity profile suggests that it inhibits cytokines implicated in SLE such as type I interferon (IFN), type II IFN-γ, IL-6, and IL-23 as well as other cytokines that may have a role in SLE, including granulocyte macrophage colony stimulating factor (GM-CSF) and IL-12.

In January 2022, Lilly announced the discontinuation of the Phase III development program for baricitinib in SLE based on top-line efficacy results from two pivotal Phase III trials (SLE-BRAVE-I and –II). The ~~potential impact~~primary endpoint of SRI-4 response was reached in SLE-BRAVE-I but was not reached in SLE-BRAVE-II and key secondary endpoints were not met in either study.

COVID-19. In May 2020, we amended our agreement with Lilly to enable Lilly to commercialize baricitinib for the treatment of COVID-19. In November 2020, we and Lilly announced that the FDA issued an Emergency Use Authorization (EUA) for the distribution and emergency use of baricitinib onto be used in combination with remdesivir in hospitalized adult and pediatric patients two years of age or older with suspected or laboratory confirmed COVID-19 who require supplemental oxygen, invasive mechanical ventilation, or extracorporeal membrane oxygenation. In December 2020, we and Lilly announced that data from ACTT-2 supportive of the ~~IFN pathway is highly relevant to SLE, as clinical and preclinical studies have established that this pathway is involved~~EUA were published in the ~~pathogenesis~~New England Journal of ~~SLE.~~Medicine. In July 2021, we and Lilly announced that the FDA broadened the EUA for baricitinib to allow for treatment with or without remdesivir. The EUA now provides for the use of baricitinib for treatment of COVID-19 in hospitalized adults and pediatric patients two years of age or older requiring supplemental oxygen, non-invasive or invasive mechanical ventilation or extracorporeal membrane oxygenation (ECMO). In June 2022, we and Lilly announced the FDA approved baricitinib as OLUMIANT for the treatment of COVID-19 in hospitalized adults requiring supplemental oxygen, non-invasive or invasive mechanical ventilation, or extracorporeal membrane oxygenation (ECMO).

We exercised our co-development options in both rheumatoid arthritis and psoriatic arthritis to fund 30% of future global development costs through regulatory approval, including post-launch studies required by a regulatory authority, in exchange for increased tiered royalties ranging up to the high twenties on potential future sales. We also exercised our co-development options in both atopic dermatitis and axial spondyloarthritis, should Lilly decide to progress into a pivotal program in these indications.

Capmatinib

Capmatinib is a potent and highly selective ~~c-MET~~MET inhibitor. The investigational compound has demonstrated inhibitory activity in cell-based biochemical and functional assays that measure ~~c-MET~~MET signaling and ~~c-MET~~MET dependent cell proliferation, survival and migration. Under our agreement, Novartis received worldwide exclusive development and commercialization rights to capmatinib and certain ~~back‑up~~back-up compounds in all indications. Capmatinib is being evaluated in patients with hepatocellular carcinoma, ~~non‑small~~non-small cell lung cancer and other solid tumors, and may have potential utility as a combination agent.

c‑MET is a clinically validated receptor kinase cancer target. Abnormal c‑MET activation in cancer correlates with poor prognosis. Dysregulation of the c‑MET pathway triggers tumor growth, formation of new blood vessels that supply the tumor with nutrients, and causes cancer to spread to other organs. Dysregulation of the c‑MET pathway is seen in many types of cancers, including lung, kidney, liver, stomach, breast and brain.

In May 2020, we and Novartis announced the FDA approval of capmatinib as TABRECTA for the treatment of adult patients with metastatic NSCLC whose tumors have a mutation that leads to MET exon 14 skipping (METex14) as detected by an FDA-approved test. TABRECTA is the first and only treatment approved to specifically target NSCLC with this driver mutation and is approved for first-line and previously treated patients regardless of prior treatment type.

The FDA approval of TABRECTA was based on results from the pivotal GEOMETRY mono-1 study. In the METex14 population (n=97), the confirmed overall response rate was 68% and 41% among treatment-naive (n=28) and previously treated patients (n=69), respectively, based on the Blinded Independent Review Committee (BIRC) assessment per RECIST v1.1. In patients taking TABRECTA, the study also demonstrated a median duration of response of 12.6 months in treatment-naive patients (19 responders) and 9.7 months in previously treated patients (28 responders). The most common treatment-related adverse events (AEs) (incidence ≥20%) are peripheral edema, nausea, fatigue, vomiting, dyspnea, and decreased appetite. In September 2020, we and Novartis announced that GEOMETRY mono-1 results were published in The New England Journal of Medicine.

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In June 2020, we and Novartis announced that the MHLW approved TABRECTA for METex14 mutation-positive advanced and/or recurrent unresectable NSCLC. In April 2022, we and Novartis announced a positive opinion from the CHMP based on data from the Phase II GEOMETRY mono-1 study showing an overall response rate (ORR) of 51.6% in a cohort evaluating second-line patients only and 44% in all previously-treated patients with advanced non-small cell lung cancer (NSCLC) harboring alterations leading to MET exon 14 skipping.

In June 2022, we and Novartis announced the European Commission approval of capmatinib as TABRECTA as monotherapy treatment of adults with advanced non-small cell lung cancer (NSCLC) harboring alterations leading to mesenchymal-epithelial-transition factor gene (MET) exon 14 (METex14) skipping who require systemic therapy following prior treatment with immunotherapy and/or platinum-based chemotherapy.

NSCLC is the most common type of lung cancer, impacting more than 2 million people per year globally. Approximately 3-4 percent of all patients with NSCLC have tumors with a mutation that leads to MET exon 14 skipping. Though rare, this mutation is an indicator of especially poor prognosis and poor responses to standard therapies, including immunotherapy.

Ruxolitinib

Graft-versus-host disease. In March 2022, we and Novartis announced a positive opinion from the CHMP for ruxolitinib in acute and chronic GVHD, based on data from the Phase III REACH2 and REACH3 trials. GVHD is a life-threatening complication of stem cell transplants, with no established standard of care in Europe for patients who do not adequately respond to first-line steroid treatment. In May 2022, we and Novartis announced the EC approval of ruxolitinib as JAKAVI for the treatment of acute or chronic GVHD in patients aged 12 years and older who have inadequate response to corticosteroids or other systemic therapies.



		Indication and status
baricitinib (JAK1/JAK2)¹	~~Indication~~Atopic dermatitis: Phase III (BREEZE-AD); approved in Europe and Japan	~~Status Update~~Severe alopecia areata: Phase III (BRAVE-AA1, BRAVE-AA2); approved in the United States, Europe and Japan
~~Baricitinib (JAK1/JAK2)~~1capmatinib (MET)²	~~Rheumatoid arthritis~~	~~Approved~~NSCLC (with MET exon 14 skipping mutations): approved in the United States, Europe and ~~Japan; CRL issued by FDA~~Japan
~~Baricitinib~~ruxolitinib (JAK1/JAK2)1³	~~Psoriatic arthritis~~	~~Lilly expects the Phase III program to start~~Acute and chronic GVHD: approved in ~~2018~~
~~Baricitinib (JAK1/JAK2)~~1	~~Atopic dermatitis~~	~~Lilly expects the Phase III program to start in late 2017~~
~~Baricitinib (JAK1/JAK2)~~1	~~Systemic lupus erythematosus~~	~~Phase II~~
~~Capmatinib (c-MET)~~2	~~NSCLC, liver cancer~~	~~Phase II in EGFR wild-type ALK negative NSCLC patients with c-MET amplification and mutation~~Europe; J-NDA under review

^1. ~~Baricitinib~~ baricitinib licensed to ~~Lilly~~Lilly.

^2. ~~Capmatinib~~ capmatinib licensed to Novartis.

^3. ruxolitinib licensed to Novartis ex-US for use in hematology and oncology excluding topical administration.

License Agreements and Business Relationships

~~As part of our business strategy, we~~We establish business relationships, including collaborative arrangements with other companies and medical research institutions to assist in the clinical development and/or commercialization of certain of our drugs and drug candidates and to provide support for our research programs. We also evaluate opportunities for acquiring products or rights to products and technologies that are complementary to our business from other companies and medical research institutions.

Below is a brief description of our significant business relationships and collaborations and related license agreements that expand our pipeline and provide us with certain rights to existing and potential new products and technologies. Additional information regarding our collaboration agreements, including their financial and accounting impact on our business and results of operations, can be found in Note 7 of notes to the condensed consolidated financial statements.

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Out-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 ruxolitinib and certain ~~back‑~~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 c‑MET inhibitor compound capmatinib and certain ~~back‑~~back up compounds in all indications. We retained options to ~~co‑develop~~co-develop and to ~~co‑promote~~co-promote capmatinib in the United States.

Under this agreement, we received an upfront payment and immediate milestone payment totaling $210.0 million and were initially eligible to receive additional payments of up to approximately $1.2 billion if defined development and commercialization milestones are achieved. We are also eligible to receive tiered, double‑digit royalties ranging from the upper‑teens to the mid‑twenties percent on future ruxolitinib net sales outside of the United States, and tiered, worldwide royalties on future capmatinib net sales that range from 12% to 14%. In addition, Novartis has received reimbursement and pricing approval for ruxolitinib in a specified number of countries, and we are now obligated to pay to Novartis tiered royalties in the low single digits on future ruxolitinib net sales within the United States. 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.

In April 2016, we amended this agreement to provide that Novartis has exclusive research, development and commercialization rights outside of the United States to ruxolitinib (excluding topical formulations) in the GVHD field. ~~Under this amendment, we received a $5.0 million payment in exchange for the development and commercialization rights~~

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to ruxolitinib in GVHD outside of the United States and became eligible to receive up to $75.0 million of additional potential development and regulatory milestones relating to GVHD. In March 2017, we recognized a $25.0 million milestone payment for the first patient first visit in a GVHD study.

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 (1) the expiration of the last valid claim of the licensed patent rights covering the licensed product in the relevant country, (2) the expiration of regulatory exclusivity for the licensed product in such country and (3) 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.

Lilly

In December 2009, we entered into a License, Development and Commercialization Agreement with Lilly. Under the terms of the agreement, Lilly received exclusive worldwide development and commercialization rights to baricitinib and certain ~~back‑~~back up compounds for inflammatory and autoimmune diseases. We received an initial payment of $90.0 million, and were initially eligible to receive additional payments of up to $665.0 million based on the achievement of defined development, regulatory and commercialization milestones.

We retained options to co-develop our JAK1/JAK2 inhibitors with Lilly on a compound-by-compound and indication-by-indication basis. Lilly is responsible for all costs relating to the development and commercialization of the compounds unless we elect to co-develop any compounds or indications. If we elect to co-develop any compounds and/or indications, we would be responsible for funding 30% of the associated future global development costs from the initiation of a Phase IIb trial through regulatory approval, including post-launch studies required by a regulatory authority. We would receive an incremental royalty rate increase across all tiers resulting in effective royalty rates ranging up to the high twenties on potential future global net sales for compounds and/or indications that we elect to co-develop. For indications that we elect not to co-develop, we would receive tiered, double-digit royalty payments on future global net sales with rates ranging up to 20% if the product is successfully commercialized. We previously had retained an option to co-promote products in the United States but, in March 2016, we waived our co-promotion option as part of an amendment to the agreement.

In July 2010, we elected to co-develop baricitinib with Lilly in rheumatoid arthritis and we are responsible for funding 30% of the associated future global development costs for this indication from the initiation of the Phase IIb trial through regulatory approval, including post-launch studies required by a regulatory authority. In January 2017, we elected to co-develop baricitinib with Lilly in psoriatic arthritis. We also exercised our co-development options in both atopic dermatitis and axial spondyloarthritis, should Lilly decide to progress into a pivotal program in these indications.

In March 2016, we entered into an amendment to the agreement with Lilly that allows us to engage in the development and commercialization of ruxolitinib in the GVHD field. In May 2020, we amended our agreement with Lilly to enable Lilly to commercialize baricitinib for the treatment of COVID-19.

Innovent

In December 2018, we entered into a Research Collaboration and Licensing Agreement with Innovent Biologics, Inc. Under the terms of this agreement, Innovent received exclusive development and commercialization rights to pemigatinib and our clinical-stage product candidates itacitinib and parsaclisib in hematology and oncology indications in mainland China, Hong Kong, Macau and Taiwan.

Zai Lab

In July 2019, we entered into a Collaboration and License Agreement with a subsidiary of Zai Lab Limited. Under the terms of this agreement, Zai Lab’s subsidiary received development and exclusive commercialization rights to retifanlimab in hematology and oncology in mainland China, Hong Kong, Macau and Taiwan. We ~~paid Lilly~~retained an ~~upfront payment~~option to assist in the promotion of ~~$35.0 million~~retifanlimab in Zai Lab’s licensed territories.

InnoCare

In August 2021, we entered into a Collaboration and ~~Lilly is eligible~~License Agreement with a subsidiary of InnoCare Pharma Limited. Under the terms of this agreement, InnoCare’s subsidiary received development and exclusive commercialization rights to ~~receive up to $40.0 million~~tafasitamab in ~~additional regulatory milestone payments relating~~hematology and oncology in mainland China, Hong Kong, Macau and Taiwan.

Maruho

In April 2022, we entered into a Strategic Alliance Agreement with Maruho Co., Ltd. Under the terms of this agreement, Maruho received development, manufacturing and exclusive commercialization rights to ruxolitinib cream, and other potential future topical formulations of ruxolitinib, in ~~the GVHD field.~~

In February 2017, the European Commission announced the approval of baricitinib as OLUMIANT, triggering a $65.0 million milestone payment from Lilly. In July 2017, Japan's MHLW granted marketing approval for OLUMIANT, triggering a $15.0 million milestone payment to Incyte from Lilly.

~~The Lilly agreement will continue until Lilly no longer has any royalty payment obligations or, if earlier, the termination of the agreement~~autoimmune and inflammatory dermatologic diseases 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 (1) the expiration of the last valid claim of the licensed patent rights covering the licensed product in the relevant country, (2) the expiration of regulatory exclusivity for the licensed product in such country and (3) 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.

Japan.

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In-License Agreements

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, the parties have agreed to collaborate on the discovery of novel immuno-therapeutics using Agenus’ antibody discovery platforms. ~~In February 2017, we and Agenus amended this agreement.~~

Under the terms of this agreement, as amended in February 2017, we received exclusive worldwide development and commercialization rights to four checkpoint modulators directed against GITR, OX40, LAG-3 and TIM-3. In addition to the initial four program targets, we and Agenus have the option to jointly nominate and pursue additional targets within the framework of the collaboration, and in November 2015, three more targets were added. Targets may be designated profit-share programs, where all costs and profits are shared equally by us and Agenus, or royalty-bearing programs, where we are responsible for all costs associated with discovery, preclinical, clinical development and commercialization activities. The programs relating to GITR and OX40 andadded, two of ~~the undisclosed targets~~which were profit-share programs until February 2017, while the other targets currently under collaboration are royalty-bearing programs. The February 2017 amendment converted the programs relating to GITR and OX40 to royalty-bearing programs and removed from the collaboration the profit-share programs relating to the two undisclosed targets, with one reverting to us and one reverting to Agenus. Should any of those removed programs be successfully developed by a party, the other party will be eligible to receive the same milestone payments as the royalty-bearing programs and royalties at a 15% rate on global net sales. There are currently no profit-share programs. For each royalty-bearing product other than GITR and OX40, Agenus will be eligible to receive tiered royalties on global net sales ranging from 6% to 12%. For GITR and OX40, Agenus will be eligible to receive 15% royalties on global net sales. Underunder the February 2017 ~~amendment,~~amendments.

Takeda (ARIAD)

In June 2016, we ~~paid Agenus $20.0 million in accelerated milestones relating to the clinical development~~acquired from ARIAD Pharmaceuticals, Inc. all of the ~~GITR and OX40 programs. Agenus is eligible to receive up to an additional $510.0 million in future contingent development, regulatory and commercialization milestones across all programs in~~outstanding shares of ARIAD Pharmaceuticals (Luxembourg) S.à.r.l., the ~~collaboration. The agreement may be terminated by us for convenience upon 12 months’ notice and may also be terminated under certain other circumstances, including material breach.~~

~~Hengrui~~

~~In September 2015, we entered into a License and Collaboration Agreement with Hengrui. Under the terms~~parent company of this agreement, we received exclusive development and commercialization rights worldwide, with the exception of Mainland China, Hong Kong, Macau and Taiwan, to INCSHR1210, an investigational PD-1 monoclonal antibody, and certain back-up compounds. We paid to Hengrui an upfront payment of $25.0 million. Hengrui is also eligible to receive potential milestone payments of up to $770.0 million, consisting of $90.0 million for regulatory approval milestones, $530.0 million for commercial performance milestones, and $150.0 million for a clinical superiority milestone. Also, Hengrui may be eligible to receive tiered royalties in the high single digits to mid-double digits based on net sales in our territories. Each company will beARIAD’s European subsidiaries responsible for ~~costs relating to~~ the development and commercialization of ICLUSIG in the ~~PD-1 monoclonal antibody~~European Union and other countries. We obtained an exclusive license to develop and commercialize ICLUSIG in ~~its respective territories.~~Europe and other select countries. ARIAD was subsequently acquired by Takeda Pharmaceutical Company Limited in 2017.

The agreement will continue on a country-by-country basis until we have no royalty payment obligations with respect to such country or, if earlier, the termination of the agreement in accordance with its terms. The agreement may be terminated in its entirety by us for convenience, and may also be terminated under certain other circumstances, including material breach.

Merus

In December 2016, we entered into a Collaboration and License Agreement with Merus N.V. Under this agreement, which became effective in January 2017, the parties have agreed to collaborate with respect to the research, discovery and development of bispecific antibodies utilizing Merus’ technology platform. The collaboration encompasses up to eleven independent ~~programs, including two of Merus’ current preclinical immuno-oncology discovery~~ programs. ~~We received exclusive development and commercialization rights outside~~

In January 2022, we decided to opt-out of the ~~United States~~continued development of MCLA-145, a bispecific antibody targeting PD-L1 and CD137. We continue to ~~products~~collaborate with Merus and ~~product candidates resulting from one~~leverage the Merus platform to develop a pipeline of ~~Merus’ current preclinical discovery programs, referred~~novel agents, as we continue to ~~as “Program 1.” We also received~~hold worldwide exclusive development and commercialization rights to ~~products and product candidates resulting from the other current Merus preclinical discovery program that is subject to the collaboration and to~~ up to ~~nine~~ten additional

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programs. Merus retained exclusive development and commercialization rights in the United States to products and product candidates resulting from Program 1 and options, subject to certain conditions, to co-fund development of products resulting from two other programs in exchange for a share of profits in the United States. 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. Should Program 1 fail to successfully complete IND-enabling toxicology studies, Merus would be granted an additional option to co-fund development of a program in exchange for a share of profits in the United States. All costs related to the collaboration are subject to joint research and development plans. Each party will share equally the costs of mutually agreed global development activities for Program 1, and fund itself any independent development activities in its territory. We will be responsible for all research, development and commercialization costs relating to all other programs, subject to Merus’ election to co-fund development and co-detail described above. 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. All products as to which Merus has exercised its option to co-fund development would be subject to joint development plans and overseen by a joint development committee, but we will have final determination as to such plans in cases of dispute.

In February 2017, we paid Merus an upfront non-refundable payment of $120.0 million. For each program as to which Merus does not have commercialization or co-development rights, Merus will be eligible to receive up to $100.0 million in future contingent development and regulatory milestones and up to $250.0 million in commercialization milestones as well as tiered royalties ranging from 6% to 10% of global net sales. For each program as to which Merus exercises its option to co-fund development, Merus will be eligible to receive a 50% share of profits (or sustain 50% of any losses) in the United States and be eligible to receive tiered royalties ranging from 6% to 10% of net sales of products outside of the United States. If Merus opts to cease co-funding a program as to which it exercised its co-development option, then Merus will no longer receive a share of profits in the United States but will be eligible to receive the same milestones from the co-funding termination date and the same tiered royalties described above with respect to non-co-developed programs and, depending on the stage at which Merus chose to cease co-funding development costs, additional royalties ranging up to 4% of net sales in the United States. For Program 1, we and Merus will each be eligible to receive tiered royalties on net sales in the other party’s territory at rates ranging from 6% to 10%.

The Merus agreement will continue on a program-by-program basis until we have no royalty payment obligations with respect to such program or, if earlier, the termination of the agreement or any program in accordance with the terms of the agreement. The agreement may be terminated in its entirety or on a program-by-program basis by us for convenience. The agreement may also be terminated by either party under certain other circumstances, including material breach, as set forth in the agreement. If the agreement is terminated with respect to one or more programs, all rights in the terminated programs revert to Merus, subject to payment to us of a reverse royalty of up to 4% on sales of future products, if Merus elects to pursue development and commercialization of products arising from the terminated programs.

Calithera

In January 2017, we entered into a Collaboration and License Agreement with Calithera Biosciences, Inc. Under this agreement, we received an exclusive, worldwide license to develop and commercialize small molecule arginase inhibitors, including INCB01158 (CB-1158), which is currently in ~~phase I~~Phase II clinical trials, for hematology and oncology indications. We have agreed to co-fund 70% of the global development costs for the development of the licensed products for hematology and oncology indications. Calithera will have the right to conduct certain clinical development under the collaboration, including combination studies of a licensed product with a proprietary compound of Calithera. We will be entitled to 60% of the profits and losses from net sales of licensed product in the United States, and Calithera will have the right to co-detail licensed products in the United States, and we have agreed to pay Calithera tiered royalties ranging from the low to mid-double digits on net sales of licensed products outside the United States. Calithera may opt out of its co-funding obligation, in which case the U.S. profit sharing will no longer be in effect, and we have agreed to pay Calithera tiered royalties ranging from the low to mid-double digits on net sales of licensed products both in the United States and outside the United States, and additional royalties to reimburse Calithera for previously incurred development costs.multiple myeloma.

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Calithera retains rights to certain arginase inhibitors that are not part of the collaboration for specific orphan indications outside of hematology and oncology, subject to our rights to negotiate a license for any such programs under specified circumstances if Calithera elects to out-license them.

In January 2017, we paid Calithera an upfront license fee of $45.0 million and have agreed to pay potential development, regulatory and sales milestone payments of over $430.0 million if the profit share is in effect, or $750.0 million if the profit share terminates.

The Calithera agreement will continue on a product-by-product and country-by-country basis for so long as we are developing or commercializing products in the United States (if the parties are sharing profits in the United States) and until we have no further royalty payment obligations, unless earlier terminated according to the terms of the agreement. The agreement may be terminated in its entirety or on a product-by-product and/or a country-by-country basis by us for convenience. The agreement may also be terminated by us for Calithera’s uncured material breach, by Calithera for our uncured material breach and by either party for bankruptcy or patent challenge. If the agreement is terminated early with respect to one or more products or countries, all rights in the terminated products and countries revert to Calithera.

MacroGenics

In October 2017, we entered into a Global Collaboration and ~~MacroGenics announced an~~License Agreement with MacroGenics. Under this agreement, we received exclusive ~~global collaboration~~development and ~~license agreement for~~commercialization rights worldwide to MacroGenics’ ~~MGA012,~~INCMGA0012, an investigational monoclonal antibody that inhibits PD-1. ~~We have obtained exclusive worldwide rights for the development and commercialization of MGA012 in all indications, while~~ MacroGenics ~~retains~~has retained the right to develop and commercialize, at its cost and expense, its pipeline assets in combination with ~~MGA012. Upon closing,~~INCMGA0012.

Syros

In January 2018, we entered into a Target Discovery, Research Collaboration and Option Agreement with Syros Pharmaceuticals, Inc. Under this agreement, Syros will ~~pay MacroGenics an upfront payment of $150.0 million. MacroGenics will also be eligible~~use its proprietary gene control platform to ~~receive~~identify novel therapeutic targets with a focus in myeloproliferative neoplasms and we have received options to obtain exclusive worldwide rights to intellectual property resulting from the collaboration for up to $420.0 million in potential development and regulatory milestones, and up to $330.0 million in potential commercial milestones. If MGA012 is approved and commercialized, MacroGenics would be eligible to receive royalties, tiered from 15 percent to 24 percent, on future sales of MGA012.

seven validated targets. We will ~~lead global development of MGA012. MacroGenics retains the right~~have exclusive worldwide rights to develop ~~its pipeline assets in combination with MGA012,~~ and ~~we will~~ commercialize ~~MGA012 with MacroGenics commercializing its asset(s), if~~ any such potential combinations are approved. In addition, MacroGenics retains the right to manufacture a portion of both companies’ global clinical and commercial supply needs of MGA012. MacroGenics intends to utilize its commercial-scale GMP facility, which is expected to be fully operational in 2018.

~~The transaction is expected to close in the fourth quarter of 2017, subject to the early termination or expiration of any applicable waiting periods~~therapies under the ~~Hart-Scott Rodino Act and customary closing conditions.~~collaboration that modulate those validated targets.

~~ARIAD Pharmaceuticals (Luxembourg) S.à.r.l. Acquisition~~48

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MorphoSys

In ~~June 2016,~~January 2020, we ~~acquired from ARIAD all~~entered into a Collaboration and License Agreement with MorphoSys AG and MorphoSys US Inc., a wholly-owned subsidiary of MorphoSys AG, covering the ~~outstanding shares of ARIAD Pharmaceuticals (Luxembourg) S.à.r.l., the parent company of ARIAD’s European subsidiaries responsible for the~~worldwide development and commercialization of ~~ICLUSIG~~MOR208 (tafasitamab), an investigational Fc engineered monoclonal antibody directed against the target molecule CD19. Under the terms of this agreement, we received exclusive commercialization rights outside of the United States, and MorphoSys and we have co-commercialization rights in the ~~European Union~~United States, with respect to tafasitamab.

Syndax

In September 2021, we entered into a Collaboration and ~~other countries, including Switzerland, Norway, Turkey, Israel~~License Agreement with Syndax covering the worldwide development and ~~Russia,~~commercialization of SNDX-6352 (axatilimab), Syndax’s anti-CSF-1R monoclonal antibody. In March 2021, axatilimab was granted Orphan Drug Designation by the FDA for the treatment of chronic GVHD and a second designation in ~~exchange~~April 2021 for treatment of idiopathic pulmonary fibrosis. Under the terms of this agreement, we received exclusive commercialization rights outside of the United States, and Syndax has co-commercialization rights in the United States with respect to axatilimab.

COVID-19

In December 2019, coronavirus disease of 2019, or COVID-19, was first reported in Wuhan, China. In March 2020, the World Health Organization declared COVID-19 a pandemic. We and our collaboration partners Lilly and Novartis initiated a number of clinical trials to address COVID-19.

In April 2020, we announced the initiation of a Phase III clinical trial (RUXCOVID) to evaluate the efficacy and safety of ruxolitinib plus standard-of-care (SoC), compared to SoC therapy alone, in patients not on mechanical ventilation and who have COVID-19 associated cytokine storm. We sponsored this collaborative study in the United States and our collaboration partner Novartis International Pharmaceutical Ltd. sponsored the study outside of the United States.

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

In March 2021, results from a second Phase III clinical trial to evaluate the efficacy and safety of ruxolitinib plus SoC, compared to SoC therapy alone, in COVID-19 patients on mechanical ventilation and who have acute respiratory distress syndrome (ARDS), a type of respiratory failure characterized by rapid onset of widespread inflammation in the lungs were announced. Ruxolitinib failed to reduce mortality due to any cause through Day 29 although in the U.S. study population (91% of total study patients), there was a clinically and statistically significant improvement in mortality in each of the 5mg and 15mg ruxolitinib arms.

In April 2020, Lilly announced that it has entered into an ~~upfront payment~~agreement with the National Institute of ~~$147.5 million, including customary working capital adjustments. We obtained~~Allergy and Infectious Diseases (NIAID), part of the National Institutes of Health, to study baricitinib as an ~~exclusive license~~arm in NIAID's Adaptive COVID-19 Treatment Trial (ACTT-2). The study is investigating the efficacy and safety of baricitinib as a potential treatment for hospitalized patients diagnosed with COVID-19 in the United States, and Lilly is also planning an expansion to ~~develop and commercialize ICLUSIG in~~include Europe and ~~other select countries. ARIAD will be eligible~~Asia.

In September 2020, we and Lilly announced initial results from ACTT-2, where baricitinib in combination with remdesivir reduced the time to ~~receive from us tiered royalties on net sales of ICLUSIG~~recovery in ~~our territory~~comparison with remdesivir alone. Additional data announced in October 2020 showed that baricitinib plus remdesivir resulted in a numerical decrease in mortality through Day 29 compared to remdesivir alone, with a more pronounced reduction seen in more severely ill patients.

In November 2020, we and up to $135.0 million in potential future oncology development and regulatory approval milestone payments, together with additional milestone payments for non-oncology indications, if approved, in our territory.

~~Our license agreement with ARIAD contained a limited buy-back option~~Lilly announced that the FDA issued an Emergency Use Authorization (EUA) for the ~~acquirer~~distribution and emergency use of ~~ARIAD~~baricitinib to ~~reacquire~~be used in combination with remdesivir in hospitalized adult and pediatric patients two years of age or older with suspected or laboratory confirmed COVID-19 who require supplemental oxygen, invasive mechanical ventilation, or extracorporeal membrane oxygenation. In December 2020, we and Lilly announced

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that data from ACTT-2 supportive of the ~~rights~~EUA were published in the New England Journal of Medicine. In July 2021, we and Lilly announced that the FDA broadened the EUA for baricitinib to ~~ICLUSIG. Takeda Pharmaceutical Company Limited acquired ARIAD~~allow for treatment with or without remdesivir. The EUA now provides for the use of baricitinib for treatment of COVID-19 in ~~February 2017 but did~~hospitalized adults and pediatric patients two years of age or older requiring supplemental oxygen, non-invasive or invasive mechanical ventilation or extracorporeal membrane oxygenation (ECMO).

In April 2021, we and Lilly announced that the primary endpoint was not ~~exercise that option,~~met in COV-BARRIER, the Phase III randomized, double-blind, placebo–controlled study to evaluate the efficacy and ~~it has now lapsed.~~safety of baricitinib in hospitalized adults not on mechanical ventilation and who have COVID-19. There was, however, a 38% reduction in mortality by Day 28 in patients treated with baricitinib in addition to SoC. In August 2021, we and Lilly announced new data from an additional cohort of 101 adult patients from the COV-BARRIER trial. In this sub-study, patients with COVID-19 on mechanical ventilation or extracorporeal membrane oxygenation (ECMO) who received baricitinib plus standard of care were 46% less likely to die by Day 28 compared to patients who received placebo plus standard of care.

Critical Accounting Policies and Significant Estimates

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The preparation of financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ~~on-going~~ongoing basis, we evaluate our estimates. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates under different assumptions or conditions.

~~We believe the following~~For a discussion of our critical accounting policies, ~~affect the more significant judgments~~refer to “Item 7. Management’s Discussion and ~~estimates used~~Analysis of Financial Condition and Results of Operations” in ~~the preparation of~~ our ~~condensed consolidated financial statements:~~

~~Revenue recognition;~~

~~Research and development costs;~~

~~Stock compensation;~~

~~Convertible debt accounting;~~

~~Income taxes;~~

~~Business combinations; and~~

~~Contingent consideration.~~

~~Revenue Recognition.~~ ~~Revenues are recognized when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services~~2021 Form 10-K. There have been ~~rendered, (3)~~no significant changes to our critical accounting policies or estimates during the ~~price is fixed or determinable and (4) collectability is reasonably assured. Revenues are deferred for fees received before earned or until~~six months ended June 30, 2022.

Recent Accounting Pronouncements

There were no further obligations exist. We exercise judgment in determining that collectability is reasonably assured or that services have been delivered in accordance with the arrangement. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. We assess collectability based primarily on the customer’s payment history and on the creditworthinessnew accounting pronouncements issued nor adopted since our filing of the ~~customer.~~

~~Product Revenues~~

Our product revenues consist of U.S. sales of JAKAFI and European sales of ICLUSIG. Product revenues are recognized once we meet all four revenue recognition criteria described above. In November 2011, we began shipping JAKAFI to our customers in the U.S., which include specialty pharmacies and wholesalers. In June 2016, we acquired the right to and began shipping ICLUSIG to our customers in the European Union and certain other jurisdictions, which include retail pharmacies, hospital pharmacies and distributors.

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sector benefit providers. 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 basedAnnual Report on statutory discount rates and expected utilization as well as historical data we have accumulated since product launch. Our estimates for expected utilization of rebates are based on data received from our customers. Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurredForm 10-K 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,~~year ended December 31, 2021, which ~~would affect revenue in the period of adjustment.~~

~~Chargebacks:~~ Chargebacks are discounts that occur when certain contracted customers, which currently consist primarily of group purchasing organizations, Public Health Service institutions, non-profit clinics, and Federal government entities purchasing via the Federal Supply Schedule, purchase directly from our wholesalers. Contracted customers generally purchase the product at a discounted price. The wholesalers, in turn, charges back to us the difference between the price initially paid by the wholesalers and the discounted price paid by the contracted customers. In addition to actual chargebacks received, we maintain an accrual for chargebacks based on the estimated contractual discounts on the inventory levels on hand in our distribution channel. If actual future chargebacks vary from these estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

~~Product Royalty Revenues~~

Royalty revenues on commercial sales for JAKAVI by Novartis are estimated based on information provided by Novartis. Royalty revenues on commercial sales for OLUMIANT by Lilly are estimated based on information provided by Lilly. We exercise judgment in determining whether the information provided is sufficiently reliable for us to base our royalty revenue recognition thereon. If actual royalties vary from estimates, we may need to adjust the prior period, which would affect royalty revenue in the period of adjustment.

~~Cost of Product Revenues~~

~~Contract and License Revenues~~

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among the separate elements based on their respective fair values. The determination of fair value of each element is based on objective evidence from historical sales of the individual elements by us to other customers. If such evidence of fair value for each undelivered element of the arrangement does not exist, all revenue from the arrangement is deferred until such time that evidence of fair value for each undelivered element does exist or until all elements of the arrangement are delivered. When elements are specifically tied to a separate earnings process, revenue is recognized when the specific performance obligation tied to the element is completed. When revenues for an element are not specifically tied to a separate earnings process, they are recognized ratably over the term of the agreement. We assess whether a substantive milestone exists at the inception of our agreements. For all milestones within our arrangements that are considered substantive, we recognize revenue upon the achievement of the associated milestone. If a milestone is not considered substantive, we would recognize the applicable milestone payment over the remaining period of performance under the arrangement. As of September 30, 2017, all remaining potential milestones under our collaborative arrangements are considered substantive.

The regulatory review and approval process, which includes preclinical testing and clinical trials of each drug candidate, is lengthy, expensive and uncertain. Securing approval by the U.S. Food and Drug Administration (FDA) requires the submission of extensive preclinical and clinical data and supporting information to the FDA for each indication to establish a drug candidate’s safety and efficacy. The approval process takes many years, requires the expenditure of substantial resources, involves post-marketing surveillance and may involve ongoing requirements for post-marketing studies. Before commencing clinical investigations of a drug candidate in humans, we must submit an Investigational New Drug application (IND), which must be reviewed by the FDA.

The steps generally required before a drug may be marketed in the United States include preclinical laboratory tests, animal studies and formulation studies, submission to the FDA of an IND for human clinical testing, performance of adequate and well-controlled clinical trials in three phases, as described below, to establish the safety and efficacy of the drug for each indication, submission of a new drug application (NDA) or biologics license application (BLA) to the FDA for review and FDA approval of the NDA or BLA.

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subjects. Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. Phase I usually involves the initial introduction of the investigational drug into healthy volunteers to evaluate its safety, dosage tolerance, absorption, metabolism, distribution and excretion. Phase II usually involves clinical trials in a limited patient population to evaluate dosage tolerance and optimal dosage, identify possible adverse effects and safety risks, and evaluate and gain preliminary evidence of the efficacy of the drug for specific indications. Phase III clinical trials usually further evaluate clinical efficacy and safety by testing the drug in its final form in an expanded patient population, providing statistical evidence of efficacy and safety, and providing an adequate basis for labeling. We cannot guarantee that Phase I, Phase II or Phase III testing will be completed successfully within any specified period of time, if at all. Furthermore, we, the institutional review board for a trial, or the FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

~~Research and Development Costs.~~ Our policy is to expense research and development costs as incurred. We often contract with clinical research organizations (CROs) to facilitate, coordinate and perform agreed upon research and development of a new drug. To ensure that research and development costs are expensed as incurred, we record monthly accruals for clinical trials and preclinical testing costs based on the work performed under the contract.

These CRO contracts typically call for the payment of fees for services at the initiation of the contract and/or upon the achievement of certain clinical trial milestones. In the event that we prepay CRO fees, we record the prepayment as a prepaid asset and amortize the asset into research and development expense over the period of time the contracted research and development services are performed. Most professional fees, including project and clinical management, data management, monitoring, and medical writing fees are incurred throughout the contract period. These professional fees are expensed based on their percentage of completion at a particular date. Our CRO contracts generally include pass through fees. Pass through fees include, but are not limited to, regulatory expenses, investigator fees, travel costs, and other miscellaneous costs, including shipping and printing fees. We expense the costs of pass through fees under our CRO contracts as they are incurred, based on the best information available to us at the time. The estimates of the pass through fees incurred are based on the amount of work completed for the clinical trial and are monitored through correspondence with the CROs, internal reviews and a review of contractual terms. The factors utilized to derive the estimates include the number of patients enrolled, duration of the clinical trial, estimated patient attrition, screening rate and length of the dosing regimen. CRO fees incurred to set up the clinical trial are expensed during the setup period.

Under our clinical trial collaboration agreements, we may be reimbursed for certain development costs incurred. Such costs are recorded as a reduction of research and development expense in the period in which the related expense is incurred.

~~Stock Compensation.~~ Share-based payment transactions with employees, which include stock options, restricted stock units (“RSUs”) and performance shares (“PSUs”), are recognized as compensation expense over the requisite service period based on their estimated fair values as well as expected forfeiture rates. The stock compensation process requires significant judgment and the use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility over the option term and expected option lives, as well as expected forfeiture rates and the probability of PSUs vesting. The fair value of stock options, which are subject to graded vesting, are recognized as compensation expense over the requisite service period using the accelerated attribution method. The fair value of RSUs that are subject to cliff vesting are recognized as compensation expense over the requisite service period using the straight line attribution method, and the fair value of RSUs that are subject to graded vesting are recognized as compensation expense over the requisite service period using the accelerated attribution method. The fair value of PSUs are recognized as compensation expense beginning at the time in which the performance conditions are deemed probable of achievement, over the remaining requisite service period. We recorded $34.9 million and $99.3 million of stock compensation expense for the three and nine months ended September 30, 2017, respectively. We recorded $26.5 million and $68.6 million of stock compensation expense for the three and nine months ended September 30, 2016, respectively.

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~~Convertible Debt Accounting.~~ We perform an assessment of all embedded features of a debt instrument to determine if (1) such features should be bifurcated and separately accounted for, and (2) if bifurcation requirements are met, whether such features should be classified and accounted for as equity or liability instruments. If the embedded feature meets the requirements to be bifurcated and accounted for as a liability, the fair value of the embedded feature is measured initially, included as a liability on the condensed consolidated balance sheets, and re-measured to fair value at each reporting period. Any changes in fair value are recorded in the condensed consolidated statement of operations. We monitor, on an ongoing basis, whether events or circumstances could give rise to a change in our classification of embedded features.

We determined the embedded conversion options in the 0.375% convertible senior notes due 2018 (the 2018 Notes) and the 1.25% convertible senior notes due 2020 (the 2020 Notes) are not required to be separately accounted for as derivatives. However, since the 2018 Notes and the 2020 Notes can be settled in cash or common shares or a combination of cash and common shares at our option, we are required to separate the 2018 Notes and 2020 Notes into a liability and equity component. The carrying amount of the liability component is calculated by measuring the fair value of a similar liability that does not have an associated equity component. The carrying amount of the equity component representing the embedded conversion option is determined by deducting the fair value of the liability component from the initial proceeds. The excess of the principal amount of the liability component over its carrying amount is amortized to interest expense over the expected life of the 2018 Notes and 2020 Notes using the effective interest method. The equity component is not re-measured as long as it continues to meet the conditions for equity classification for contracts in an entity’s own equity.

The fair value of the liability component of the 2018 Notes was estimated at $299.4 million at issuance. Therefore, the difference between the $375.0 million face value of the 2018 Notes at issuance and the $299.4 million estimated fair value of the liability component will be amortized to interest expense over the term of the 2018 Notes through November 15, 2018 using the effective interest method.

The fair value of the liability component of the 2020 Notes was estimated at $274.8 million at issuance. Therefore, the difference between the $375.0 million face value of the 2020 Notes at issuance and the $274.8 million estimated fair value of the liability component will be amortized to interest expense over the term of the 2020 Notes through November 15, 2020 using the effective interest method.

The estimated fair value of the liability components at the date of issuance for the 2018 Notes and 2020 Notes were determined using valuation models and are complex and subject to judgment. Significant assumptions within the valuation models included an implied credit spread, the expected volatility and dividend yield of our common stock and the risk free interest rate for notes with a similar term.

Prior to May 14, 2014, the 2018 Notes and 2020 Notes were not convertible except in connection with a make-whole fundamental change, as defined in the respective indentures. Beginning on, and including, May 15, 2014, the 2018 Notes and 2020 Notes are convertible prior to the close of business on the business day immediately preceding May 15, 2018, in the case of the 2018 Notes, and May 15, 2020, in the case of the 2020 Notes, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2014 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the 2018 Notes or 2020 Notes, as applicable, on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the measurement period) in which the trading price per $1,000 principal amount of 2018 Notes or 2020 Notes, as applicable, for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the 2018 Notes or 2020 Notes, as applicable, on each such trading day; or (3) upon the occurrence of specified corporate events. On or after May 15, 2018, in the case of the 2018 Notes, and May 15, 2020, in the case of the 2020 Notes, until the close of business on the second scheduled trading day immediately preceding the relevant maturity date, the Notes are convertible at any time, regardless of the foregoing circumstances. Upon conversion we will pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at our election.

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Upon an induced conversion, we allocate the fair value of the consideration transferred to the convertible debt holder to the liability component equal to the fair value of the liability immediately before extinguishment. The difference between the consideration allocated to the liability component and the net carrying amount of the liability component is recorded as expense related to senior note conversions.

On a quarterly basis, we perform an assessment in order to determine whether the 2018 Notes or 2020 Notes have become convertible at the option of the holder, based on meeting any of the conversion criteria described above. Should either the 2018 Notes or the 2020 Notes become convertible, we then assess our intent and ability to settle the 2018 Notes or the 2020 Notes in cash, shares of common stock, or a combination of cash and shares of common stock, in order to determine the appropriate classification of the 2018 Notes and the 2020 Notes at the balance sheet date. On October 1, 2017, the 2018 Notes and 2020 Notes became convertible through at least December 31, 2017, based on meeting the conversion criteria related to the sale price of our common stock during the calendar quarter ended September 30, 2017 as described above. Management’s intent is to settle any conversions of 2018 Notes or 2020 Notes in common shares and, therefore, the 2018 and 2020 Notes are reflected in long term liabilities on the condensed consolidated balance sheet as of September 30, 2017.

~~Income Taxes.~~ We account for income taxes using an asset and liability approach to financial accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for years in which the basis differences are expected to reverse. We periodically assess the likelihood of the realization of deferred tax assets, and reduce the carrying amount of these deferred tax assets to an amount that is considered to be more-likely-than-not realizable. Our assessment considers recent cumulative earnings experience, projections of future taxable income (losses) and ongoing prudent and feasible tax planning strategies. When performing our assessment on projections of future taxable income (losses), we consider factors such as the likelihood of regulatory approval and commercial success of products currently under development, among other factors. Significant judgment is required in making this assessment and, to the extent that a reversal of any portion of our valuation allowance against our deferred tax assets is deemed appropriate, a tax benefit will be recognized against our income tax provision in the period of such reversal.

We do not recognize a tax benefit for an uncertain tax position unless it is more-likely-than-not that the position will be sustained upon examination 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.

~~Business combinations.~~ Acquired businesses are accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recorded at fair value, with limited exceptions. Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill. Transaction costs are expensed as incurred. The operating results of the acquired business are reflected in our consolidated financial statements after the date of acquisition. Acquired in-process research and development (“IPR&D”) is recognized at fair value and initially characterized as an indefinite-lived intangible asset, irrespective of whether the acquired IPR&D has an alternative future use. When the related research and development is completed, the asset will be assigned a useful life and amortized. Acquired intellectual property rights are recognized at fair value and amortized over the estimated useful life.

The fair value of an IPR&D intangible asset acquired in the Acquisition was determined using an income approach. The assumptions used to estimate the cash flows of the IPR&D (which relates to the potential approval of ICLUSIG as a second line treatment) included a probability of technical success (“PTS”) of 25%, discount rate of 16%, estimated gross margins of 98%, income tax rates ranging from 7.8% in periods in which we have established tax holidays to 13.8% thereafter, and operating expenses consisting of direct costs based on the anticipated level of revenues as well as probability weighted milestone payments estimated for 2020 related to the clinical results and potential approval of ICLUSIG in second line.

The fair value of licensed intellectual property rights acquired in the Acquisition was determined using an income approach. The assumptions used to estimate the cash flows of the licensed intellectual property from the Acquisition included a discount rate of 15%, estimated gross margins of 98%, income tax rates ranging from 7.8% in periods in which

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we have established tax holidays to 13.8% thereafter, and operating expenses consisting of direct costs based on the anticipated level of revenues as well as the $7.0 million of research and development cost sharing payments we have agreed to fund in 2016 and 2017.

Indefinite-lived intangible assets, including IPR&D, are tested for impairment annually or more frequently if events or changes in circumstances between annual tests indicate that the asset may be impaired. Impairment losses on indefinite-lived intangible assets are recognized based solely on a comparison of the fair value of the asset to its carrying value. Due to the discontinuation of the OPTIC-2L study, we considered our indefinite-lived IPR&D asset to be impaired and recorded $12.0 million of research and development expense on the condensed consolidated statements of operations during the three and nine months ended September 30, 2017.

Long-lived assets, including licensed intellectual property rights, with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If indicators of impairment are present, the asset is tested for recoverability by comparing the carrying value of the asset to the related estimated undiscounted future cash flows expected to be derived from the asset. If the expected cash flows are less than the carrying value of the asset, then the asset is considered to be impaired and its carrying value is written down to fair value, based on the related estimated discounted future cash flows.

Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. Goodwill is not amortized but is tested for impairment at least annually at the reporting unit level. 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.

~~Acquisition-related contingent consideration.~~ Acquisition-related contingent consideration, which consists of our future royalty and certain potential milestone obligations to ARIAD, is recorded on the acquisition date 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 preliminary fair value of contingent consideration was determined using an income approach based on estimated ICLUSIG revenues in our licensed territory for both the approved third line treatment, as well as the second line treatment that until the three months ended September 30, 2017 was under development. The PTS of the second line indication was estimated at 25% based on the early stage of development and competitive market landscape, and the estimated future cash flows for the second line indication were probability weighted accordingly. The total projected cash flows of the third line and second line indications were estimated over 18 years, and discounted to present value using a discount rate of 10%. In addition, based on the believed limited effectiveness of ICLUSIG beyond the existing oncology indications, the fact that no development is currently ongoing for any new oncology or any non-oncology indications, and the lack of intention by us and ARIAD to develop ICLUSIG in additional oncology or non-oncology indications, the fair value of any cash flows for any new oncology or non-oncology was determined to be nil.

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. Changes in the fair value of the acquisition-related contingent consideration can result from changes to one or multiple inputs including projected revenues, discount rates and the PTS of the second line indication for ICLUSIG, and a benefit of $24.0 million was recorded during the three and nine months ended September 30, 2017 related to the lack of expected future sales royalties payable due to the discontinued OPTIC-2L clinical trial for the second line indication for ICLUSIG. These inputs are analyzed on a quarterly basis as changes to the inputs could have a material impact on the amount of acquisition-related contingent consideration recorded during the reporting period.

~~Recent Accounting Pronouncements~~

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which will replace numerous requirements in U.S. GAAP, including industry-specific requirements. This guidance provides a five step model to be applied to all contracts with customers, with an underlying principle that an entity will recognize revenue to depict the transfer of goods or services to

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customers at an amount that the entity expects to be entitled to in exchange for those goods or services. ASC No. 2014-09 requires extensive quantitative and qualitative disclosures covering the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including disclosures on significant judgments made when applying the guidance. This guidance is effective for annual reporting periods beginning after December 15, 2017 and interim periods therein. An entity can elect to apply the guidance under one of the following two methods: (i) retrospectively to each prior reporting period presented – referred to as the full retrospective method or (ii) retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application in retained earnings – referred to as the modified retrospective method.

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basis over the consolidated book value basis in the intellectual property rights that were licensed from the U.S. parent company to our wholly-owned subsidiary in Switzerland during 2015 and a $2.1 million reversal of long-term prepaid taxes. Under previous guidance, companies were prohibited from recognizing an increase in tax basis and any income taxes incurred as a result of a sale or transfer of assets to companies that are part of a consolidated reporting entity. Given the full valuation allowance placed on the additional $34.9 million of deferred tax assets, the recognition upon adoption only required a $2.1 million adjustment to our retained earnings as of January 1, 2017 due to the adjustment of the prepaid tax asset.

In November 2016, the FASB issued ASU No. 2016-18, “Restricted Cash,” which requires entities to show the changes in total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions on the balance sheet. The reconciliation can either be presented either on the face of the statement of cash flows or in the notes to the financial statements. The new standard is effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods therein and is to be applied retrospectively. Early adoption is permitted. We are currently analyzing the impact of ASU No. 2016-18 on our condensed consolidated financial statements.

In March 2017, the FASB issued ASU No. 2017-07, “Compensation–Retirement Benefits,” which requires the presentation of the service cost component of the net periodic benefit cost in the same income statement line as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Disclosure of the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement, is also required. The new standard is effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods therein. The guidance on the presentation of the components of net periodic benefit cost in the income statement is to be applied retrospectively. The guidance limiting the capitalization of net periodic benefit cost in assets to the service cost component is to be applied prospectively. We are currently analyzing the impact of ASU No. 2017-07 on our condensed consolidated financial statements.

Results of Operations

We recorded net income of ~~$36.1 million and basic and diluted net income per share of $0.17 for the three months ended September 30, 2017, as compared to net income of $36.9~~$161.4 million and basic net income per share of ~~$0.20~~$0.73 and diluted net income per share of ~~$0.19 in the corresponding period in 2016. We recorded net loss of $163.5 million and basic and diluted net loss per share of $0.81,~~$0.72 for the ~~nine~~three months ended ~~September~~June 30, ~~2017,~~2022, as compared to net income of ~~$95.3~~$149.5 million and basic net income per share of ~~$0.51~~$0.68 and diluted net income per share of ~~$0.49~~$0.67 in the corresponding period in ~~2016.~~

2021. We recorded net income of $199.4 million and basic net income per share of $0.90 and diluted net income per share of $0.89 for the six months ended June 30, 2022, as compared to net income of $203.0 million and basic net income per share of $0.92 and diluted net income per share of $0.91 in the corresponding period in 2021.

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Revenues


	For the Three Months Ended,				For the Six Months Ended,
	June 30,				June 30,
	2022		2021		2022		2021

	(in millions)				(in millions)
JAKAFI revenues, net	$	597.7	$	529.1	$	1,142.1	$	994.8
ICLUSIG revenues, net		26.2		28.2		52.3		53.8
PEMAZYRE revenues, net		19.0		17.9		37.0		31.4
MINJUVI revenues, net		4.4		—		8.9		—
OPZELURA revenues, net		16.6		—		29.3		—
Total product revenues, net		663.9		575.2		1,269.6		1,080.0
JAKAVI product royalty revenues		83.6		82.0		154.6		147.6
OLUMIANT product royalty revenues		30.3		36.0		78.3		68.3
TABRECTA product royalty revenues		3.6		2.5		7.1		4.5
Total product royalty revenues		117.5		120.5		240.0		220.4
Milestone and contract revenues		130.0		10.0		135.0		10.0
Total revenues	$	911.4	$	705.7	$	1,644.6	$	1,310.4

~~Revenues.~~

For the Three Months Ended,

For the Nine Months Ended,

September 30,

September 30,


2017

2016

2017

2016


(in millions)

(in millions)

JAKAFI revenues, net

$
303.9

$
223.9

$
831.0

$
615.3

ICLUSIG revenues, net

18.1

12.7

47.5

16.7

Total product revenues, net

$
322.0

$
236.6

$
878.5

$
632.0

Product royalty revenues

44.5

29.6

108.5

77.5

Contract revenues

15.0

3.2

105.0

69.6

Other revenues

—

0.1

0.1

0.1

Total revenues

$
381.5

$
269.5

$
1,092.1

$
779.2

Our product revenues, net for the three and nine months ended September 30, 2017 were $322.0 million and $878.5 million, respectively. Our product revenues, net for the three and nine months ended September 30, 2016 were $236.6 million and $632.0 million, respectively. The increase in JAKAFI product revenues for the three months ended ~~September~~June 30, ~~2017~~2022 as compared to the corresponding period in ~~2016~~2021 was comprised of a volume increase of ~~$57.0~~$51.2 million and a price increase of ~~$23.0~~$17.4 million. The increase in JAKAFI product revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 as compared to the corresponding period in ~~2016~~2021 was comprised of a volume increase of ~~$155.1~~$94.3 million and a price increase of ~~$60.6~~$53.0 million. ~~ICLUSIG~~Additionally, our product revenues ~~commenced~~may fluctuate from quarter to quarter due to our customers’ purchasing patterns over the course of the year, including as a result of increased inventory building by customers in ~~June 2016 following the Acquisition.~~advance of expected or announced price increases. Product revenues are recorded net of estimated product returns, pricing discounts including rebates offered pursuant to mandatory federal and state government programs and chargebacks, prompt pay discounts and distribution fees and co-pay assistance. Our revenue recognition policies require estimates of the aforementioned sales allowances each period.

The following table provides a summary of activity with respect to our sales allowances and ~~accruals:~~accruals (in thousands):


					Co-Pay
	Discounts and		Government		Assistance
	Distribution		Rebates and		and Other		Product
Nine Months Ended September 30, 2017	Fees		Chargebacks		Discounts		Returns		Total
Balance at January 1, 2017	$	2,818	$	22,412	$	199	$	1,211	$	26,640

															Co-Pay
											Discounts and		Government		Assistance
											Distribution		Rebates and		and Other		Product
Six Months Ended June 30, 2022											Fees		Chargebacks		Discounts		Returns		Total
Balance at January 1, 2022											$	14,678	$	99,304	$	24,074	$	4,740	$	142,796
Allowances for current period sales		23,936		106,331		3,401		668		134,336		54,248		282,198		150,487		1,717		488,650
Allowances for prior period sales		(59)		(971)		(10)		(353)		(1,393)		(143)		(3,564)		(5)		—		(3,712)
Credits/payments for current period sales		(21,759)		(82,363)		(3,225)		(34)		(107,381)		(37,062)		(220,389)		(142,086)		—		(399,537)
Credits/payments for prior period sales		(800)		(16,964)		(17)		(404)		(18,185)		(12,017)		(58,264)		(8,230)		(1,158)		(79,669)
Balance at September 30, 2017	$	4,136	$	28,445	$	348	$	1,088	$	34,017
Balance at June 30, 2022											$	19,704	$	99,285	$	24,240	$	5,299	$	148,528

Government rebates and chargebacks are the most significant component of our sales allowances. Increases in certain government reimbursement rates are limited to a measure of inflation, and when the price of a drug increases faster than this measure of inflation it will result in a penalty adjustment factor that causes a larger sales allowance to those government related entities. We expect government rebates and chargebacks as a percentage of our gross product sales will continue to increase in connection with any future ~~JAKAFI~~product price increases greater than the rate of inflation, and any such increase in these government rebates and chargebacks will have a negative impact on our reported product revenues, net. We adjust our estimates for government rebates and chargebacks based on new information regarding actual rebates as it becomes available. Claims by third-party payors for rebates and chargebacks are frequently submitted after the period in which the related sales occurred, which may result in adjustments to prior period accrual balances in the period in which the new information becomes available. We also adjust our allowance for product returns based on new information regarding actual returns as it becomes available.

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

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Product royalty revenues on commercial sales of JAKAVI and TABRECTA by Novartis are based on net sales of licensed products in licensed territories as provided by Novartis. Our JAKAVI product royalty revenues for the three and nine months ended September 30, 2017 were $41.3 million and $104.0 million, respectively. Our JAKAVI product royalty revenues for the three and nine months ended September 30, 2016 were $29.6 million and $77.5 million, respectively. Product royalty revenues on commercial sales of OLUMIANT by Lilly are based on net sales of licensed products in licensed territories as provided by Lilly. ~~Our~~The increase in OLUMIANT product royalty revenues for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017 were $3.2 million and $4.5 million, respectively.~~

~~Our contract revenues were $15.0 million and $105.0 million for~~2022 as compared to the ~~three and nine months ended September 30, 2017, respectively. Our contract revenues were $3.2 million and $69.6 million for~~corresponding period in 2021 reflects an increase in net product sales as a result of the three and nine months ended September 30, 2016, respectively. For the nine months ended September 30, 2017, contract revenues were derived from milestone payments from Lilly and Novartis earned during the period. For the nine months ended September 30, 2016, contract revenues were derived from the straight line recognitionuse of revenue associated with the Lilly upfront fees over the estimated performance period as well as milestone payments from Lilly and Novartis earned during the period. During the nine months ended September 30, 2017, under the Lilly agreement, we recognized a $15.0 million regulatory milestone payment for the approval of baricitinibOLUMIANT for the treatment of ~~rheumatoid arthritis by Japan’s Ministry~~COVID-19.

Our milestone and contract revenues for the six months ended June 30, 2022, were derived from total regulatory milestones of ~~Health, Labor~~$60.0 million under the Novartis collaboration and ~~Welfare~~license agreement, regulatory milestones of $70.0 million under the license, development and commercialization agreement with Lilly, and a ~~$65.0~~$5.0 million regulatory milestone ~~payment~~under the Innovent research collaboration and licensing agreement. Our milestone and contract revenues for the ~~approval of baricitinib for the treatment of moderate-to-severe rheumatoid arthritis in adult patient by the European Commission and~~six months ended June 30, 2021, were derived from a $10.0 million milestone under the Novartis agreement, we recognized a $25.0 million development milestone payment based on the formal initiation by Novartis of a Phase III clinical trial evaluating ruxolitinib in the GVHD field. During the nine months ended September 30, 2016, under the Novartis agreement, we recognized a $5.0 million payment for the developmentInnovent research collaboration and commercialization of ruxolitinib in GVHD outside of the United States and under the Lilly agreement, we recognized a $35.0 million regulatory milestone payment for the submission of a new drug application to the U.S. Food and Drug Administration for the approval of oral once-daily baricitinib for the treatment of moderate-to-severe rheumatoid arthritis and a $20.0 million regulatory milestone for the submission of a Marketing Authorization Application to the European Medicines Agency for the approval of oral once-daily baricitinib for the treatment of moderate-to-severe rheumatoid arthritis.licensing agreement.

Cost of Product ~~Revenues.~~Revenues

For the Three Months Ended,

For the Nine Months Ended,

September 30,

September 30,


2017

2016

2017

2016


(in millions)

(in millions)

Product costs

$
1.7

$
3.8

$
5.2

$
6.3

Royalty expense

14.9

11.0

35.7

25.1

Amortization of definite-lived intangible assets

5.4

5.4

16.2

7.2

Total cost of product revenues

$
22.0

$
20.2

$
57.1

$
38.6


	For the Three Months Ended,				For the Six Months Ended,
	June 30,				June 30,
	2022		2021		2022		2021

	(in millions)				(in millions)
Product costs	$	12.2	$	5.0	$	24.3	$	9.5
Salary and benefits related		2.3		1.3		4.5		2.6
Stock compensation		0.7		0.4		1.3		0.6
Royalty expense		30.0		25.9		52.4		43.7
Amortization of definite-lived intangible assets		5.4		5.4		10.8		10.8
Total cost of product revenues	$	50.6	$	38.0	$	93.3	$	67.2

Cost of product revenues includes all ~~JAKAFI~~product related ~~product~~ costs, ~~all ICLUSIG related product~~employee personnel costs, and low single digit royalties to Novartis on all sales of JAKAFI in the United States. The ICLUSIG inventories were recorded at fair value less costs to sell in connection with the Acquisition, which resulted in a higher cost of ICLUSIG product revenues over a one year period from the acquisition date. Subsequentincluding stock compensation, for those employees dedicated to the ~~acquisition on June 1, 2016, cost~~production of ~~product revenues also includes the~~our commercial products, royalties under our collaborative agreements and amortization of our licensed intellectual property rights for ~~ICLUSIG using the straight-line method over the estimated useful life of 12.5 years.~~

Cost of product revenues was $22.0 million and $57.1 million for the three and nine months ended September 30, 2017, respectively. Cost of product revenues was $20.2 million and $38.6 million for the three and nine months ended September 30, 2016, respectively.ICLUSIG. The increase in cost of product revenues for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 as compared to the same periods in ~~2016 is~~2021 was primarily due ~~primarily~~ to ~~increased royalties to Novartis on all JAKAFI sales in the United States and amortization of~~product related costs for our ~~licensed intellectual property acquired on June 1, 2016.~~commercial products including OPZELURA.

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Operating Expenses

~~Operating Expenses.~~

Research and development ~~expenses.~~expenses


									For the Three Months Ended,				For the Six Months Ended,
									June 30,				June 30,
									2022		2021		2022		2021

	For the Three Months Ended,				For the Nine Months Ended,
	September 30,				September 30,
	2017		2016		2017		2016
	(in millions)				(in millions)
									(in millions)				(in millions)
Salary and benefits related	$	51.4	$	36.7	$	141.6	$	101.5	$	83.3	$	76.8	$	167.8	$	153.4
Stock compensation		23.4		16.2		67.8		42.8		28.1		28.0		54.4		57.9
Clinical research and outside services		173.9		76.1		612.6		235.7		197.7		207.8		407.8		379.6
Occupancy and all other costs		20.9		14.2		57.4		40.3		38.1		30.9		70.6		59.5
Total research and development expenses	$	269.6	$	143.2	$	879.4	$	420.3	$	347.2	$	343.5	$	700.6	$	650.4

We ~~currently~~ account for research and development costs by natural expense line and not costs by project. ~~Salary~~The increase in salary and benefits related expense ~~increased from~~for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2022 as compared to the ~~three and nine months ended September 30, 2017~~corresponding periods in 2021 was due primarily to increased development headcount to sustain our development pipeline. Stock

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

The ~~increase~~decrease in clinical research and outside services expense ~~from~~for the three ~~and nine~~ months ended ~~September~~June 30, ~~2016~~2022 as compared to the ~~three and nine months ended September 30, 2017~~corresponding period in 2021 was primarily due to the timing of studies, and the increase in such expense for the six months ended June 30, 2022 as compared to the corresponding period in 2021 was due to continued investment in our late stage development assets. Research and development expenses include upfront and milestone expenses related to our collaborative agreements ~~as well as an overall increase in development costs to advance our clinical pipeline. Specifically, we recorded charges~~of $2.5 million and $22.5 million, respectively, for the ~~new Calithera~~three and ~~Merus agreements, and the amended Agenus agreement, during the nine~~six months ended ~~September~~June 30, ~~2017. The total charges recorded for these agreements was $209.1 million during the nine months ended September 30, 2017. In addition, research~~2022. Research and development expenses include upfront and milestone expenses related to our collaborative agreements of $5.0 million and $16.5 million, respectively, for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017 includes expense related to Incyte Biosciences Luxembourg S.à.r.l. resulting from the Acquisition on June 1, 2016.~~2021. Research and development expenses for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 were net of ~~$3.2~~$24.3 million, ~~$12.3~~$34.6 million, ~~$3.7~~$8.9 million and ~~$11.0~~$12.5 million, respectively, of costs reimbursed by our collaborative partners. ~~Research~~

In addition to one-time expenses resulting from upfront fees in connection with the entry into any new or amended collaboration agreements and payment of milestones under those agreements, research and development expenses may fluctuate from period to period depending upon the stage of certain projects and the level of ~~pre‑clinical~~pre-clinical and clinical trial related activities. Many factors can affect the cost and timing of our clinical trials, including requests by regulatory agencies for more information, inconclusive results requiring additional clinical trials, slow patient enrollment, adverse side effects among patients, insufficient supplies for our clinical trials, timing of drug supply, including API, and real or perceived lack of effectiveness or safety of our investigational drugs in our clinical trials. In addition, the development of all of our products will be subject to extensive governmental regulation. These factors make it difficult for us to predict the timing and costs of the further development and approval of our products.

~~In July 2010, we elected to co-develop baricitinib with Lilly~~Selling, general and administrative expenses


	For the Three Months Ended,				For the Six Months Ended,
	June 30,				June 30,
	2022		2021		2022		2021

	(in millions)				(in millions)
Salary and benefits related	$	65.4	$	57.2	$	132.7	$	105.1
Stock compensation		17.7		16.4		34.6		33.6
Other contract services and outside costs		170.2		95.3		295.6		184.0
Total selling, general and administrative expenses	$	253.3	$	168.9	$	462.9	$	322.7

The increase in ~~rheumatoid arthritis~~salary and we are responsible for funding 30% of the associated future global development costs for this indication from the initiation of the Phase IIb trial through regulatory approval. In January 2017, we exercised our co-development option in psoriatic arthritis to fund 30% of future global development costs through regulatory approval, including post-launch studies required by a regulatory authority. We also exercised our co-development options in both atopic dermatitis and axial spondyloarthritis, should Lilly decide to progress into a pivotal program in these indications. Research and development expenses recorded under the Lilly agreement representing 30% of the global development costs for baricitinib for the treatment of rheumatoid arthritis, psoriatic arthritis and atopic dermatitis were $9.1 million and $27.2 millionbenefits related expense for the three and ~~nine~~six months ended ~~September~~June 30, 2017, respectively. Research and development expenses recorded under the Lilly agreement representing 30% of the global development costs for baricitinib for the treatment of rheumatoid arthritis were $10.6 million and $21.0 million for the three and nine months ended September 30, 2016, respectively. We have retained certain mechanisms to give us cost protection2022 as baricitinib advances in clinical development. We can defer our portion of co-development study costs by indication if they exceed a predetermined level. This deferment would be credited against future milestones or royalties and we would still be eligible for the full incremental royalties relatedcompared to the co-development option. In addition, even if we have started co-development funding for any indication, we can at any time opt out, which will stop future co-development cost sharing. If we elect to do this we would still be eligible for our base royalties plus an incremental pro-

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~~rated royalty commensurate with our contribution to the total co-development cost for those indications for which we contributed funding.~~

~~Selling, general and administrative expenses.~~

For the Three Months Ended,

For the Nine Months Ended,

September 30,

September 30,


2017

2016

2017

2016


(in millions)

(in millions)

Salary and benefits related

$
27.4

$
23.2

$
76.9

$
58.7

Stock compensation

11.5

10.3

31.5

25.8

Other contract services and outside costs

52.4

42.3

160.2

122.7

Total selling, general and administrative expenses

$
91.3

$
75.8

$
268.6

$
207.2

~~Salary and benefits related expense increased from the three and nine months ended September 30, 2016 to the three and nine months ended September 30, 2017~~corresponding period in 2021 was due primarily to increased headcount. This increased headcount was due primarily to the ~~ongoing commercialization efforts related~~establishment of our dermatology commercial organization and activities to ~~JAKAFI~~support the launch of OPZELURA for ~~intermediate or high‑risk myelofibrosis and uncontrolled polycythemia vera, as well as increased headcount related to~~ the ~~Acquisition on June 1, 2016.~~treatment of atopic dermatitis. Stock compensation expense may fluctuate from period to period based on the number of awards granted, stock price volatility and expected award lives, as well as expected award forfeiture rates which are used to value ~~equity‑based~~equity-based compensation. The increase in other contract services and outside costs for the three and six months ended June 30, 2022, as compared to the corresponding periods in 2021, was due primarily to expenses related to our dermatology commercial organization and activities to support the ~~result~~launch of ~~marketing~~OPZELURA for the treatments of atopic dermatitis and pre-launch activities for JAKAFI for intermediate or high‑risk myelofibrosis and uncontrolled polycythemia vera in addition to an increase in donations to independent non-profit patient assistance organizations in the United States. vitiligo.

Change in fair value of acquisition-related contingent consideration

Acquisition-related contingent consideration, which consists of our future royalty ~~and certain potential milestone~~ obligations to ~~ARIAD,~~ARIAD/Takeda, was recorded on the acquisition date, June 1, 2016, at the estimated fair value of the obligation, in accordance with the acquisition method of accounting. The fair value of the acquisition-related contingent consideration is remeasured ~~quarterly, resulting~~quarterly. The change in ~~a benefit~~fair value of ~~$16.3 million and $1.9 million~~the acquisition-related contingent consideration for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022 was $3.3 million and $9.7 million, respectively, which is recorded in change in fair value of acquisition-related contingent consideration on the condensed consolidated statements of operations. The change in fair value of the acquisition-related contingent consideration for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2021 was ~~expense of $8.0~~$4.6 million and ~~$10.3~~$10.2 million, respectively, which is recorded in change in fair value of acquisition-related contingent consideration on the

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condensed consolidated statements of operations. The change in fair value ~~of the contingent consideration~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 is~~2022 and 2021 was due primarily to the passage of time and ~~a benefit~~updated projections of ~~$24.0 million recorded during~~future net revenues of ICLUSIG.

Collaboration loss sharing

Under the ~~third quarter related to~~collaboration and license agreement with MorphoSys, which was executed in March 2020, we and MorphoSys are both responsible for the ~~lack~~commercialization efforts of ~~expected future sales royalties payable due to~~tafasitamab in the ~~discontinued OPTIC-2L clinical trial.~~

~~Other income (expense).~~

~~Interest~~United States and ~~other income, net.~~ ~~Interest~~will share equally the profits and ~~other income, net, for~~losses from the co-commercialization efforts. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022, our 50% share of the losses for tafasitamab was ~~$5.6~~$2.5 million and ~~$10.9~~$7.3 million, ~~respectively. Interest and other income, net, for~~respectively, as recorded in collaboration loss sharing on the condensed consolidated statement of operations. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2021, our 50% share of the losses for tafasitamab was ~~and $1.2~~$9.8 million and ~~$3.8 million, respectively.~~

~~Interest expense.~~ ~~Interest expense for the three and nine months ended September 30, 2017 was $0.2 million and $6.5~~$20.3 million, respectively, as ~~compared to $9.5 million and $29.3 million, respectively, for the same periods~~recorded in 2016. The decrease in interest expense during the three and nine months ended September 30, 2017 relates to the conversion of senior notes during the period. Included in interest expense for the three and nine months ended September 30, 2017 was $0.3 million and $5.8 million, respectively, of non-cash charges to amortize the discountscollaboration loss sharing on the ~~2018 Notes and the 2020 Notes. Included in interest expense for the three and nine months ended September 30, 2016 was $7.9 million and $23.6 million, respectively,~~condensed consolidated statement of ~~non-cash charges to amortize the discounts on the 2018 Notes and the 2020 Notes.~~operations.

Other income (expense)

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

~~Table~~ The following table provides a summary of ~~Contents~~

~~With respect to our long term investment in Agenus, the~~those unrealized ~~gain on investment~~gains and (losses):


	For the Three Months Ended,				For the Six Months Ended,
	June 30,				June 30,
	2022		2021		2022		2021

	(in millions)				(in millions)
Agenus	$	(6.3)	$	37.8	$	(15.4)	$	31.9
Calithera		(0.5)		(0.5)		(0.9)		(4.8)
Merus		(13.5)		0.6		(32.5)		10.0
MorphoSys		(7.1)		(9.2)		(16.7)		(32.9)
Syndax		2.7		—		(3.8)		—
Syros		(0.2)		(1.9)		(2.2)		(5.1)
Total unrealized (loss) gain on long term investments	$	(24.9)	$	26.8	$	(71.5)	$	(0.9)

Provision for income taxes. The provision for income taxes for the three and ~~nine~~six months ended ~~September 31, 2017~~June 30, 2022 was ~~$10.2~~$67.9 million and ~~$6.8~~$100.5 million, ~~respectively, as compared to the unrealized gain of $24.3 million and $20.5 million, respectively,~~respectively. The provision for the same periods in 2016. The unrealized gain on our long term investment in Merus for the three months ended September 30, 2017 was $12.9 million and the unrealized loss for the nine months ended September 30, 2017 was $9.2 million.

~~Expense related to senior note conversions.~~ ~~Expense related to senior note conversions~~income taxes for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and was ~~$0.0~~$22.2 million and ~~$54.9~~$38.0 million, ~~respectively, on~~respectively. The provision for income taxes increased in 2022 as compared to that for the ~~conversions~~prior year period due to the release of our ~~2018 Notes~~valuation allowance against a majority of our U.S. research and ~~2020 Notes.~~development tax credit carryforwards and other deferred tax assets at December 31, 2021.

Liquidity and Capital Resources

Due to historical net losses, we had an accumulated deficit of ~~$1.8~~$0.6 billion as of ~~September~~June 30, ~~2017.~~2022. We have funded our research and development operations through cash received from customers, sales of equity securities, the issuance of convertible notes, ~~cash received from customers,~~ and collaborative arrangements. At ~~September~~June 30, ~~2017,~~2022, we had available cash, cash equivalents and marketable securities of ~~$1.3~~$2.7 billion. Our cash and marketable securities balances are held in a variety of interest-bearing instruments, including money market accounts, ~~corporate debt securities~~ and U.S. government debt securities. Available cash is invested in accordance with our investment policy’s primary objectives of liquidity, safety of principal and diversity of investments.

Net cash ~~used by operating activities was $3.7 million for the nine months ended September 30, 2017, compared to $210.4 million~~ provided by operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2022 and 2021 was $389.9 million and $379.0 million, respectively. The ~~$214.1 million decrease~~increase in cash provided by operating activities was due primarily to ~~the payments made to our collaborative partners for new or amended arrangements during the first quarter of 2017, expense related to our senior note conversions and~~ changes in working ~~capital during the 2017 period.~~capital.

Our investing activities, other than purchases, sales and maturities of marketable securities, have consisted predominantly of capital expenditures and purchases of long term investments. Net cash used byin investing activities was ~~$207.0~~$29.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, which represented purchases of marketable securities of ~~$131.9~~$44.0 million and capital expenditures of ~~$85.8 million and purchases of long term investments of $123.9~~$28.7 million, offset in part by the sale and ~~maturity~~maturities of marketable securities of ~~$134.6~~ $43.5

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million. Net cash used in investing activities was ~~$196.5~~$108.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2021, which represented purchases of marketable securities of ~~$26.9~~$102.3 million, capital expenditures of ~~$104.4~~$114.4 million, and ~~acquisition~~purchases of ~~ARIAD Pharmaceuticals (Luxembourg) S.a.r.l. for net cash~~long term equity investments of ~~$143.0~~$8.7 million, offset in part by the sale of long term investment of $9.3 million and ~~maturity~~the sales and maturities of marketable securities of ~~$77.8~~$107.1 million. In the future, net cash used by investing activities may fluctuate significantly from period to period due to the timing of strategic equity investments, acquisitions, and capital expenditures and maturities/sales and purchases of marketable securities.

Net cash provided by financing activities was ~~$686.4 million and $44.8~~$16.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016, respectively,~~net cash provided by financing activities was $16.5 million for the six months ended June 30, 2021, primarily representing ~~proceeds from the issuance of common stock in our September 2017 public offering and, to a lesser extent,~~ proceeds from the issuance of common stock under our stock plans, ~~and employee stock purchase plan,~~ offset in part by cash paid to ~~ARIAD~~ARIAD/Takeda for contingent ~~consideration~~consideration.

Our capital expenditures for construction activities are discussed in Note 8 of notes to our condensed consolidated financial statements. In addition, in October 2019, we entered into an agreement with Wilmington Friends School Inc., to purchase property for $50.0 million to expand our global headquarters. Under that agreement, closing of the purchase is subject to certain standard closing conditions, including an initial diligence period and a subsequent approval period.

In August 2021, we entered into a $500.0 million, three-year senior unsecured revolving credit facility. We may increase the maximum revolving commitments or add one or more incremental term loan facilities, subject to obtaining commitments from any participating lenders and certain other conditions, in an amount not to exceed $250.0 million plus a contingent additional amount that is dependent on our pro forma consolidated leverage ratio. As of June 30, 2022, we had no outstanding borrowings and were in compliance with all covenants under this facility.

Our U.S. income tax payments will increase significantly due to the mandatory capitalization and amortization of research and development expenses for tax years beginning after December 31, 2021, as required under the Tax Cuts and Jobs Act of 2017, which eliminated the immediate expensing of such expenses.

We believe that our cash ~~paid~~flow from operations, together with our cash, cash equivalents and marketable securities and funds available under our revolving credit facility, will be adequate to satisfy our capital needs for the foreseeable future. Our cash requirements depend on numerous factors, including our expenditures in connection with ~~senior note conversions.~~

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~~The following summarizes~~ our ~~significant contractual obligations as of September 30, 2017~~drug discovery and ~~the effect those obligations are expected to have on our liquidity~~development programs and ~~cash flow~~commercialization operations; expenditures in connection with litigation or other legal proceedings; costs for future ~~periods (in millions):~~

Less Than

Years

Years

Over


Total

1 Year

2 - 3

4 - 5

5 Years

Contractual Obligations:

Principal on convertible senior debt

$
26.8

$
—

$
7.7

$
19.1

$
—

Interest on convertible senior debt

0.9

0.3

0.5

0.1

—

Non-cancelable lease obligations

28.8

12.4

12.5

2.3

1.6

Total contractual obligations

$
56.5

$
12.7

$
20.7

$
21.5

$
1.6

facility requirements; and expenditures for future strategic equity investments or potential acquisitions. We have entered into and 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 licenses, we may be required to pay upfront fees, milestone payments, and royalties on sales of future ~~products, which~~products. These contingent future payments are ~~not reflected~~discussed in detail in Note 7 of notes to the ~~table above.~~condensed consolidated financial statements.

We believe that our cash flow from operations, together with our cash, cash equivalents and marketable securities, will be adequate to satisfy our capital needs for at least the next twelve months. Our cash requirements depend on numerous factors, including our expenditures in connection with our drug discovery and development programs and commercialization operations; expenditures in connection with litigation or other legal proceedings; competing technological and market developments; the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; costs for future facility requirements; our receipt of any milestone or other payments under any collaborative agreements we may enter into, including the agreements with Novartis and Lilly; expenditures in connection with potential exchanges of our outstanding convertible senior notes; and expenditures in connection with strategic relationships and license agreements, including our agreements with Agenus, ARIAD, Calithera, Hengrui, Lilly, MacroGenics and Merus, strategic equity investments or potential acquisitions. Changes in our research and development or commercialization plans or other changes affecting our operating expenses may result in changes in the timing and amount of expenditures of our capital resources. To the extent we seek to augment our existing cash resources and cash flow from operations to satisfy our cash requirements for future acquisitions or other strategic purposes, we expect that additional funding can be obtained ~~primarily~~ through ~~public~~equity or ~~private equity offerings,~~ debt financings ~~borrowings~~ or ~~strategic collaborations.~~from other sources. The sale of equity or ~~additional~~ convertible debt securities in the future may be dilutive to our stockholders, and may provide for rights, preferences or privileges senior to those of our holders of common stock. Debt financing arrangements may require us to pledge certain assets or enter into covenants that could restrict our operations or our ability to incur further indebtedness.

~~Off Balance Sheet Arrangements~~

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our investments in marketable securities, which are composed primarily of ~~corporate debt securities and~~ U.S. government debt securities, are subject to default, changes in credit rating and changes in market value. These investments are also subject to interest rate risk and will decrease in value if market ~~rate~~ interest rates increase. As of ~~September~~June 30, ~~2017,~~2022, marketable securities were ~~$153.3~~$287.0 million. Due to the nature of these investments, if market interest rates were to increase immediately and uniformly by 10% from levels as of ~~September~~June 30, ~~2017,~~2022, the decline in fair value would not be material.

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Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing

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and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for the ~~nine~~three months ended ~~September~~June 30, ~~2017,~~2022, that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II:OTHER INFORMATION

Item 1A.Risk Factors

RISKS RELATING TO COMMERCIALIZATION OF OUR PRODUCTS

We depend heavily on our lead product, JAKAFI (ruxolitinib), which is marketed as JAKAVI outside the United States. If we are unable to ~~successfully commercialize~~maintain revenues from JAKAFI ~~in its approved indications~~ or ~~to successfully obtain regulatory approval for and commercialize ruxolitinib for the treatment of additional indications, or if we are significantly delayed or limited in doing so,~~those revenues decrease, our business may be materially harmed.

JAKAFI is our first ~~and, currently, only~~ product marketed by us that is approved for sale in the United States. ItJAKAFI was approved by the U.S. Food and Drug Administration, or FDA, in November 2011 for the treatment of patients with intermediate or ~~high‑risk~~high-risk myelofibrosis, ~~and~~ in December 2014 for the treatment of patients with polycythemia vera who have had an inadequate response to or are intolerant of hydroxyurea, which we refer to as uncontrolled polycythemia ~~vera.~~vera, in May 2019 for the treatment of steroid-refractory acute graft-versus-host disease in adult and pediatric patients 12 years and older and in September 2021 for the treatment of steroid-refractory chronic graft-versus-host disease in adult and pediatric patients 12 years and older. Although we have received regulatory approval for these indications, such approval does not guarantee future revenues. While we ~~recently acquired exclusive rights to develop and commercialize~~also sell ICLUSIG in the European Union, or EU, and other countries for the treatment of certain types of leukemia, PEMAZYRE in the United States, Europe and Japan for the treatment of certain metastatic cholangiocarcinoma indications, MONJUVI in the United States and MINJUVI in the European Union for the treatment of certain lymphoma indications, and OPZELURA in the Unites States for the treatment of certain indications of atopic dermatitis, and our exclusive licensees sell OLUMIANT (baricitinib) for the treatment of specified rheumatoid arthritis and atopic dermatitis indications and TABRECTA for the treatment of a certain type of non-small cell lung cancer, we anticipate that JAKAFI product sales will continue to contribute a significant percentage of our total revenues over the next several years.

The commercial success of JAKAFI and our ability to ~~generate~~maintain and ~~maintain~~continue to increase revenues from the sale of JAKAFI will depend on a number of factors, including:

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●

the number of patients with intermediate or ~~high‑risk~~high-risk myelofibrosis, or uncontrolled polycythemia vera or steroid-refractory graft-versus-host disease who are diagnosed with the ~~disease~~diseases and the number of such patients that may be treated with JAKAFI;

●

the acceptance of JAKAFI by patients and the healthcare community;

●

whether physicians, patients and healthcare payors view JAKAFI as therapeutically effective and safe relative to cost and any alternative ~~therapies;~~

therapies, as well as whether patients will continue to use JAKAFI;

●

the ability to obtain and maintain sufficient coverage or reimbursement by ~~third‑party payors;~~

third-party payors and pricing;

●

the ability of our ~~third‑party~~third-party manufacturers to manufacture JAKAFI in sufficient quantities ~~with acceptable quality;~~

that meet all applicable quality standards;

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●

the ability of our company and our ~~third‑party~~third-party providers to provide marketing and distribution support for JAKAFI;

●

the effects of the COVID-19 pandemic, any associated quarantine, travel restriction, stay-at-home or shutdown orders, guidelines or practices, and any disruption in our supply chain for JAKAFI on our ability to provide marketing and distribution support for JAKAFI, our ability to produce sufficient quantities of JAKAFI that meet all applicable quality standards, patient demand (including new patient prescriptions and hesitancy of patients to make office visits) and other risks detailed further below under “—Other Risks Relating to our Business—Public health epidemics, such as the COVID-19 pandemic, could adversely affect our business, results of operations, and financial condition”;

●

the label and promotional claims allowed by the FDA;

●

the maintenance of regulatory approval for the approved indications in the United States; and

●

our ability to develop, obtain regulatory approval for and commercialize ruxolitinib in the United States for additional indications.

If we are not ~~successful in commercializing~~able to maintain revenues from JAKAFI in the United States, or ~~are significantly delayed or limited in doing so,~~our revenues from JAKAFI decrease, our business may be materially harmed and we may need to delay other drug discovery, development and ~~development~~commercialization initiatives or even significantly curtail ~~operations.~~operations, and our ability to license or acquire new products to diversify our revenue base could be limited.

In addition, revenues from our other products and our receipt of royalties under our collaboration ~~agreement~~agreements with Novartis for sales of JAKAVI outside the United States and TABRECTA globally and with Eli Lilly and Company for worldwide sales of OLUMIANT will depend on factors similar to those listed above, ~~for~~with similar regulatory, pricing and reimbursement issues driven by applicable regulatory authorities and governmental and third-party payors affecting jurisdictions outside the United States.

If we are unable to obtain, or maintain at anticipated levels, coverage and reimbursement for our products from government health administration authorities, private health insurers and other organizations, our pricing may be affected orand our product sales, results of operations orand financial condition could be harmed.

Our ability to commercialize our current and any future approved products successfully will depend in part on the prices we are able to charge for these products and the extent to which adequate coverage and reimbursement levels for the cost of our products and related treatment are obtained from third-party payors, such as private insurers, government insurance programs, including Medicare and Medicaid, health maintenance organizations (HMOs) and other health care related organizations in the United States and abroad. We may not be able to sell our products on a profitable basis or our profitability may be reduced if we are required to sell our products at lower than anticipated prices or reimbursement is

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unavailable or limited in scope or amount. The costs of JAKAFI, ICLUSIG, PEMAZYRE, MONJUVI/MINJUVI and ~~ICLUSIG~~OPZELURA are ~~expensive~~not insignificant and almost all patients will require some form of ~~third party~~third-party coverage to afford their cost. Our future revenues and profitability will be adversely affected if we cannot depend on government and other ~~third‑party~~third-party payors to defray the cost of our products to the patient.

Governments and other third-party payors continue to pursue initiatives to manage drug costs. Pricing and reimbursement for our products may be adversely affected by a number of factors, including;

●

actions of federal, state and foreign governments and other third-party payors to implement or modify laws, regulations or policies addressing payment and reimbursement for drugs;

●

pressure by employers on private health insurance plans to reduce costs or moderate cost increases, as well as continued public scrutiny of the price of drugs and other healthcare costs; and

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consolidation of third-party payors and continued initiatives of government and other third-party payors to reduce costs by seeking price discounts or rebates, reducing reimbursement rates or imposing restrictions on access to or coverage of particular drugs based on perceived value.

In many markets outside of the United States, including countries of the EU, drug pricing and reimbursement are subject to government control, and government authorities are making greater efforts to limit or regulate the price of drug products. Reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis. Reimbursement in the EU must be negotiated on a country-by-country basis and in many countries ~~the~~a drug product cannot be commercially launched until reimbursement is approved. The timing to complete the negotiation process in each country is highly uncertain, and in some countries, we expect that it may exceed 12 months. Some countries set prices by reference to prices in other countries, and countries may refuse to reimburse or may restrict the reimbursed population for a drug product based on their national health technology assessments and cost effectiveness thresholds. In addition, governmental authorities in many countries may reduce prices for approved drug products from previously established prices.

Third-party payors are increasingly challenging the prices charged for medical products and services, and payors and employers are adopting benefit plan changes that shift a greater portion of prescription drug costs to patients. Third party pharmacy benefit managers, or PBMs, other similar organizations and payors can limit coverage to specific products on an approved list, or formulary, which might not include all of the approved products for a particular indication, and to exclude drugs from their formularies in favor of competitor drugs or alternative treatments, or place drugs on formulary tiers with higher patient co-pay obligations, and/or to mandate stricter utilization criteria. Formulary exclusion effectively encourages patients and providers to seek alternative treatments, make a complex and time-intensive request for medical exemptions, or pay 100% of the cost of a drug. In addition, in many instances, certain PBMs, other similar organizations and third party payors may exert negotiating leverage by requiring incremental rebates, discounts or other concessions from manufacturers in order to maintain formulary positions, which could continue to result in higher gross to net deductions for affected products. There has been significant consolidation in the health insurance industry, resulting in large insurers and PBMs exerting greater pressure and leverage in pricing and usage negotiations with drug manufacturers. In this regard, we are in the process of negotiating agreements with PBMs and payor accounts to provide rebates to those entities related to formulary coverage for OPZELURA, but we cannot guarantee that we will be able to agree to coverage terms with these PBMs and other third party payors. Payors could decide to exclude OPZELURA from formulary coverage lists, impose step edits that require patients to try alternative, including generic, treatments before authorizing payment for OPZELURA, limit the types of diagnoses for which coverage will be provided or impose a moratorium on coverage for products while the payor makes a coverage decision. An inability to maintain adequate formulary positions could increase patient cost-sharing for OPZELURA and cause some patients to determine not to use OPZELURA. Any delays or unforeseen difficulties in reimbursement approvals could limit patient access, depress therapy adherence rates, and adversely impact our ability to successfully commercialize OPZELURA. If we are unsuccessful in obtaining and maintaining broad coverage and reimbursement for OPZELURA, our anticipated revenue from and growth prospects for OPZELURA could be negatively affected.

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If third parties institute high co-payment amounts or other benefit limits for our products, the demand for our products and, accordingly, our revenues and results of operations, could be adversely affected. Our patient assistance programs have provided support for non-profit organizations that provide financial assistance to eligible patients or in some cases, we have provided our products without charge to eligible patients who have no insurance coverage or are underinsured. Substantial support in this manner could harm our profitability in the future. Further, non-profit organizations’ ability to provide assistance to patients is dependent on funding from external sources, and we cannot guarantee that such funding will be provided at adequate levels, or at all.

Risks related to ~~pricing~~proposed changes in government regulations and ~~reimbursement~~health care reform measures are described below under “—Other Risks Relating to our Business—Health care reform measures could impact the pricing and profitability of pharmaceuticals, and adversely affect the commercial viability of our or our collaborators’ products and drug candidates. Our ability to generate revenues will be diminished if we are unable to obtain an adequate level of reimbursement from private insurers, government insurance programs or other third party payors of health care costs, which could be affected by current and potential healthcare reform legislation.” If government and other ~~third‑party~~third-party payors refuse to provide coverage and reimbursement with respect to our products, determine to provide a lower level of coverage and reimbursement than anticipated, or reduce previously approved levels of coverage and reimbursement, or delay reimbursement payments due to budgetary constraints relating to the COVID-19 pandemic, then our pricing or reimbursement for our products may be affected and our product sales, results of operations or financial condition could be harmed. Our collaborators Novartis and Eli Lilly are affected by similar considerations for the drugs that they market and for which we may receive royalties.

We depend upon a limited number of specialty pharmacies and wholesalers for a significant portion of any revenues from JAKAFI and most of our other drug products, and the loss of, or significant reduction in sales to, any one of these specialty pharmacies or wholesalers could adversely affect our operations and financial condition.

We sell JAKAFI and our other drug products other than OPZELURA primarily to specialty pharmacies and wholesalers. Specialty pharmacies dispense JAKAFI and our other drug products to patients in fulfillment of prescriptions and wholesalers sell JAKAFI and our other drug products to hospitals and physician offices. We do not promote JAKAFI or our other drug products to specialty pharmacies or wholesalers, and they do not set or determine demand for ~~JAKAFI.~~JAKAFI or our other drug products. Our ability to successfully commercialize JAKAFI and our other drug products will depend, in part, on the extent to which we are able to provide adequate distribution of JAKAFI and our other drug products to patients. Although we have contracted with a number of specialty pharmacies and wholesalers, they are expected generally to carry a very limited inventory and may be reluctant to be part of our distribution network in the future if demand for the product does not increase. Further, it is possible that these specialty pharmacies and wholesalers could decide to change their policies or fees, or both, at some time in the future. This could result in their refusal to carry smaller volume products such as JAKAFI and our other drug products, or lower margins or the need to find alternative methods of distributing our product. Although we believe we can find alternative channels to distribute JAKAFI or our other drug products on relatively short notice, our revenue

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during that period of time may suffer and we may incur additional costs to replace any such specialty pharmacy or wholesaler. The loss of any large specialty pharmacy or wholesaler as part of our distribution network, a significant reduction in sales we make to specialty pharmacies or wholesalers, or any failure to pay for the products we have shipped to them could materially and adversely affect our results of operations and financial condition.

Prior to our commercialization of JAKAFI, we had no experience selling and marketing drug products and with pricing and obtaining adequate third‑party reimbursement for drug products. Under our collaboration and license agreement with Novartis, we have retained commercialization rights to JAKAFI in the United States. We have established commercial capabilities in the United States and outside of the United States, but cannot guarantee that we will be able to enter into and maintain any marketing, distribution or ~~third‑party~~third-party logistics agreements with ~~third‑party~~third-party providers on acceptable terms, if at all. In connection with our recent acquisition from ARIAD Pharmaceuticals, Inc. we licensed rights to develop and commercialize ICLUSIG in certain countries and we acquired the European sales, marketing and distribution operations of ARIAD. We may not be able to maintain those operations or retain their personnel or distribution arrangements. We may not be able to correctly judge the size and experience of the sales and marketing force and the scale of distribution capabilities necessary to successfully market and sell ~~our~~any new products. Establishing and maintaining sales, marketing and distribution capabilities are expensive and ~~time‑consuming.~~time-consuming. Competition for personnel with experience in sales and marketing can be high. Our expenses associated with building and maintaining the sales force and distribution capabilities may be disproportional compared to the revenues we may be able to generate on sales of our products.

We are working to establish and maintain sales, marketing and distribution capabilities for OPZELURA that will generally be separate from our existing capabilities for oncology indications, and we have no prior experience in commercializing products for dermatology indications. Successful commercialization of our drug candidates for

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dermatology indications requires us to establish new physician and payor relationships, reimbursement strategies and governmental interactions. Our inability to commercialize successfully products in indications outside of oncology could harm our business and operating results.

If we fail to comply with applicable laws and regulations, we could lose our approval to market our products or be subject to other governmental enforcement activity.

We cannot guarantee that we will be able to maintain regulatory approval to market our products in the jurisdictions in which they are currently marketed. If we do not maintain our regulatory approval to market our products, in particular JAKAFI, our results of operations will be materially harmed. We and our collaborators, ~~third‑party~~third-party manufacturers and suppliers are subject to rigorous and extensive regulation by the FDA and other federal and state agencies as well as foreign governmental agencies. These regulations continue to apply after product marketing approval, and cover, among other things, testing, manufacturing, quality control and assurance, labeling, advertising, promotion, risk mitigation, and adverse event reporting requirements.

The commercialization of our products is subject to ~~post‑regulatory~~post-regulatory approval product surveillance, and our products may have to be withdrawn from the market or subject to restrictions if previously unknown problems occur. Regulatory agencies may also require additional clinical trials or testing for our products, and our products may be recalled or may be subject to reformulation, additional studies, changes in labeling, warnings to the public and negative publicity. For example, from late 2013 through 2014, ICLUSIG was subject to review by the European Medicines Agency, or EMA, of the benefits and risks of ICLUSIG to better understand the nature, frequency and severity of events obstructing the arteries or veins, the potential mechanism that leads to these side effects and whether there needed to be a revision in the dosing recommendation, patient monitoring and a risk management plan for ICLUSIG. This review was completed in January 2015, with additional warnings in the product information but without any change in the approved indications. The EMA could take additional actions in the future that reduce the commercial potential of ICLUSIG. In addition, in September 2021, the FDA approved a labeling update for JAKAFI, adding warnings of increased risk of major adverse cardiovascular events, thrombosis, and secondary malignancies related to another JAK-inhibitor treating rheumatoid arthritis, a condition for which JAKAFI is not indicated. As part of the FDA labeling update for oral JAK inhibitors in treating inflammatory conditions, class “boxed” warnings were also included in the OPZELURA label. We cannot predict the effects on sales of JAKAFI with the updated warnings or OPZELURA as a result of the “boxed” warnings, but it is possible that future sales of JAKAFI and OPZELURA can be negatively affected, which could have a material and adverse effect on our business, results of operations and prospects.

Failure to comply with the laws and regulations administered by the FDA or other agencies could result in:

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administrative and judicial sanctions, including warning letters;

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fines and other civil penalties;

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suspension or withdrawal of regulatory approval to market or manufacture our products;

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interruption of production;

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operating restrictions;

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product recall or seizure;

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injunctions; and

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criminal prosecution.

The occurrence of any such event may have a material adverse effect on our business.

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If the use of our products harms patients, or is perceived to harm patients even when such harm is unrelated to our products, our regulatory approvals could be revoked or otherwise negatively impacted or we could be subject to costly and damaging product liability claims.

The testing of JAKAFI, ICLUSIG, PEMAZYRE, MONJUVI/MINJUVI and ~~ICLUSIG,~~OPZELURA, the manufacturing, marketing and sale of JAKAFI, PEMAZYRE and OPZELURA and the marketing and sale of ICLUSIG and MONJUVI/MINJUVI expose us to product liability and other risks. Side effects and other problems experienced by patients from the use of our productscould:

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lessen the frequency with which physicians decide to prescribe our products;

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encourage physicians to stop prescribing our products to their patients who previously had been prescribed our products;

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cause serious harm to patients that may give rise to product liability claims against us; and

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result in our need to withdraw or recall our products from the marketplace.

If our products are used by a wide patient population, new risks and side effects may be discovered, the rate of known risks or side effects may increase, and risks previously viewed as less significant could be determined to be significant.

Previously unknown risks and adverse effects of our products may also be discovered in connection with unapproved, or ~~off‑label,~~off-label, uses of our products. We are prohibited by law from promoting or in any way supporting or encouraging the promotion of our products for ~~off‑label~~off-label uses, but physicians are permitted to use products for ~~off‑label~~off-label purposes. In addition, we are studying and expect to continue to study JAKAFI in diseases for potential additional indications in controlled clinical settings, and independent investigators are doing so as well. In the event of any new risks or adverse effects discovered as new patients are treated for intermediate or ~~high‑risk~~high-risk myelofibrosis, or uncontrolled polycythemia vera or acute graft-versus-host disease and as JAKAFI is studied in or used by patients for ~~off‑label~~off-label indications, regulatory authorities may delay or revoke their approvals, we may be required to conduct additional clinical trials, make changes in labeling of JAKAFI, reformulate JAKAFI or make changes and obtain new approvals. We may also experience a significant drop in the sales of JAKAFI, experience harm to our reputation and the reputation of JAKAFI in the marketplace or become subject to lawsuits, including class actions. Any of these results could decrease or prevent sales of JAKAFI or substantially increase the costs and expenses of commercializing JAKAFI. Similar results could occur with respect to our commercialization of ~~ICLUSIG.~~ICLUSIG, PEMAZYRE, MONJUVI/MINJUVI and OPZELURA.

Patients who have been enrolled in our clinical trials or who may use our products in the future often have severe and advanced stages of disease and known as well as unknown significant ~~pre‑existing~~pre-existing and potentially ~~life‑threatening~~life-threatening health risks. During the course of treatment, patients may suffer adverse events, including death, for reasons that may or may not be related to our products. Such events could subject us to costly litigation, require us to pay substantial amounts of money to injured patients, delay, negatively impact or end our opportunity to receive or maintain regulatory approval to market our products, or require us to suspend or abandon our commercialization efforts. Even in a circumstance in which we do not believe that an adverse event is related to our products, the investigation into the circumstance may be time

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consuming or inconclusive. These investigations may interrupt our sales efforts, impact and limit the type of regulatory approvals our products receive or maintain, or delay the regulatory approval process in other countries.

Factors similar to those listed above also apply to our ~~collaboration partner~~collaborator Novartis for jurisdictions in which it has development and commercialization rights, to ICLUSIG for jurisdictions outside the United ~~States.~~States, to our collaborator Lilly for all jurisdictions and to our collaborator Innovent for PEMAZYRE in the jurisdictions in which it has development and commercialization rights.

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

In addition to FDA and related regulatory requirements, we are subject to health care “fraud and abuse” laws, such as the federal False Claims Act, the ~~anti‑kickback~~anti-kickback provisions of the federal Social Security Act, and other state and federal laws and regulations. Federal and state ~~anti‑kickback~~anti-kickback laws prohibit, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any health care item or service reimbursable under Medicare, Medicaid, or other ~~federally‑~~federally- or ~~state‑financed~~state-financed health care programs. Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. Pharmaceutical companies have been prosecuted under these laws for a variety of alleged promotional and marketing activities.

Although physicians are permitted, based on their medical judgment, to prescribe products for indications other than those approved by the FDA, manufacturers are prohibited from promoting their products for such ~~off‑label~~off-label uses. We market JAKAFI for intermediate or ~~high‑risk~~high-risk myelofibrosis, ~~and~~ uncontrolled polycythemia vera and acute graft-versus-host disease and provide promotional materials to physicians regarding the use of JAKAFI for these indications. Although we believe that our promotional materials for physicians do not constitute ~~off‑label~~improper promotion of JAKAFI, the FDA or other agencies may disagree. If the FDA or another agency determines that our promotional materials or other activities constitute ~~off‑label~~improper promotion of JAKAFI, it could request that we modify our promotional materials or other activities or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure, civil fine and criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action if they believe that the alleged improper promotion led to the submission and payment of claims for an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. Even if it is later determined we are not in violation of these laws, we may be faced with negative publicity, incur significant expenses defending our position and have to divert significant management resources from other matters. Similar risks exist for our marketing of PEMAZYRE and OPZELURA and our collaborator MorphoSys’s marketing of MONJUVI.

The European Union and member countries, as well as governmental authorities in other countries, impose similar strict restrictions on the promotion and marketing of drug products. The off-label promotion of medicinal products is prohibited in the EU and in other ~~territories.~~territories, and the EU also maintains strict controls on advertising and promotional materials. The promotion of medicinal products that are not subject to a marketing authorization is also prohibited in the EU. Violations of the rules governing the promotion of medicinal products in the EU and in other territories could be penalized by administrative measures, fines and imprisonment.

The majority of states also have statutes or regulations similar to the federal ~~anti‑kickback~~anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. ~~In recent years, several~~Numerous states and localities ~~including California, Connecticut, the District of Columbia, Massachusetts, Minnesota, Nevada, New Mexico, Texas, Vermont, and West Virginia,~~ have enacted or are considering enacting legislation requiring pharmaceutical companies to establish marketing compliance programs, file periodic reports ~~with the state~~ or make periodic public disclosures on sales, marketing, pricing, clinical trials, and other activities. ~~Similar legislation is being considered in other states.~~ Additionally, as part of the Patient Protection and Affordable Care Act, the federal government has enacted the Physician Payment Sunshine provisions. The Sunshine provisions and similar laws and regulations in other jurisdictions where we do business require manufacturers to publicly report certain payments or other transfers of value made to physicians and teaching hospitals. Many of these requirements are new and uncertain, and the penalties for failure to comply with these requirements are unclear. Nonetheless, if we are found not to be in full compliance with these laws, we could face enforcement action and fines and other penalties, which could be significant in amount or result in exclusion from federal healthcare programs such as Medicare and Medicaid. Any action initiated against us for violation of these laws, even if we successfully defend against it, could ~~receive adverse publicity.~~require the expenditure of significant resources and generate negative publicity, which could harm our business and operating results. See also “—Other Risks Relating to our Business—If we fail to comply with the extensive legal and regulatory requirements affecting the health care industry, we could face increased costs, penalties and a loss of business” below.

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

Our products compete, and our product candidates may in the future compete, with currently existing therapies, including generic drugs, product candidates currently under development by us and others, or future product candidates, including new chemical entities that may be safer or more effective or more convenient than our products. Any products that we develop may be commercialized in competitive markets, and our competitors, which include large global pharmaceutical and biopharmaceutical companies and smaller research-based biotechnology companies, may succeed in developing products that render our products obsolete or noncompetitive. Many of our competitors, particularly large pharmaceutical and biopharmaceutical companies, have substantially greater financial, operational and human resources than we do. Smaller or earlier stage companies may also prove to be significant competitors, particularly through focused development programs and collaborative arrangements with large, established companies. In addition, many of our competitors deploy more personnel to market and sell their products than we do, and we compete with other companies to recruit, hire, train and retain pharmaceutical sales and marketing personnel. If our sales force and sales support organization are not appropriately resourced and sized to adequately promote our products, the commercial potential of our current and any future products may be diminished. In any event, the commercial potential of our current products and any future products may be reduced or eliminated if our competitors develop or acquire and commercialize generic or branded products that are safer or more effective, are more convenient or are less expensive than our products. See “Item 1. Business —Competition” in this Annual Report on Form 10-K for additional information regarding the effects of competition. If we are unable to compete successfully, our commercial opportunities will be reduced and our business, results of operations and financial conditions may be materially harmed.

Present and potential competitors for JAKAFI ~~could~~ include major pharmaceutical and biotechnology companies, as well as specialty pharmaceutical firms. ~~For example, Gilead Sciences, Inc. has a drug candidate in Phase III clinical trials for the treatment of myelofibrosis. See “—~~Other Risks Relating to our Business— We face significant competition for our drug discovery and development efforts, and if we do not compete effectively, our commercial opportunities will be reduced or eliminated” for a description of risks relating to this type of competition. In addition, JAKAFI could face competition from generic products. As a result of the Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act, in the United States, generic manufacturers may seek approval of a generic version of an innovative pharmaceutical by filing with the FDA an Abbreviated New Drug Application, or ANDA. The Hatch-Waxman Act provides significant incentives to generic manufacturers to challenge U.S. patents on successful innovative pharmaceutical products. In February 2016, we received a notice letter regarding an ANDA that requested approval to market a generic version of JAKAFI and purported to challenge patents covering ruxolitinib phosphate and its use that expire in 2028. The notice letter does not challenge the ruxolitinib composition of matter patent, which expires in December 2027. To date, to our knowledge, the FDA has taken no action with respect to this ANDA. Separately, in January 2018 the Patent Trial and Appeal Board (PTAB) of United States Patent and Trademark Office denied a petition challenging our patent covering deuterated ruxolitinib analogs and the PTAB subsequently denied the petitioner’s request for rehearing in May 2018. Nevertheless, the petitioner still has the right separately to challenge the validity of our patent in federal court. There can be no assurance that our patents will be upheld or that any litigation in which we might engage with any such generic manufacturer would be successful in protecting JAKAFI’s exclusivity. The entry of a competitive drug product from another company or a generic version of JAKAFI could result in a decrease in JAKAFI sales and materially harm our business, operating results and financial condition.

ICLUSIG currently competes with existing therapies that are approved for the treatment of patients with chronic myeloid leukemia, or CML, who are resistant or intolerant to prior tyrosine kinase inhibitor, or TKI, therapies, on the basis of, among other things, efficacy, cost, breadth of approved use and the safety and side-effect profile. In addition, a generic ~~version~~versions of imatinib ~~was launched in the United States in February 2016,~~are available and, ~~generic versions are expected to be launched in other markets. Although~~while we currently believe that generic versions of imatinib will not materially impact our commercialization of ICLUSIG, given ICLUSIG’s various indication statements globally that are currently focused on resistant or intolerant CML, we cannot be certain how physicians, payors, patients, regulatory authorities and other market participants will respond to the availability of generic versions of imatinib.

MONJUVI/MINJUVI currently competes with existing therapies that are approved for the treatment of patients with diffuse large B-cell lymphoma on the basis of, among other things, efficacy, cost, breadth of approved use and the safety and side-effect profile. These existing therapies are offered by major pharmaceutical and biotechnology companies, as well as specialty pharmaceutical firms. Competitors and potential competitors for PEMAZYRE include major pharmaceutical and biotechnology companies, as well as specialty pharmaceutical firms. Competitors for OPZELURA include existing over-the-counter topical treatments, prescription topical treatments, including generic versions, such as tacrolimus, pimecrolimus, topical steroids, and EUCRISA (crisaborole) from Pfizer Inc., as well as oral and injectable

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therapies such as prednisone and other oral steroids and injectable DUPIXENT (dupilimab) from Sanofi and Regeneron Pharmaceuticals, Inc.

OTHER RISKS RELATING TO OUR BUSINESS

Public health epidemics and pandemics, such as the COVID-19 pandemic, have adversely affected and could in the future adversely affect our business, results of operations, and financial condition.

Our global operations expose us to risks associated with public health epidemics and pandemics, such as the COVID-19 pandemic that has spread globally and continues with the proliferation of new variants. The extent to which the COVID-19 pandemic and the measures taken to limit COVID-19’s spread impact our operations and those of our suppliers, collaborators, service providers and healthcare organizations serving patients, as well as demand for our drug products, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak and any future resurgence of the outbreak, additional or modified government actions, including any further restrictions or reopening of local, state or national social or economic activity, new information that may emerge concerning the severity of COVID-19 and the actions taken to contain COVID-19 or treat its impact, among others.

As a result of the COVID-19 pandemic, we have experienced and may in the future experience disruptions that could severely impact our business, results of operations and financial condition, including the following:

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When the COVID-19 pandemic commenced, to protect the health of our employees and their families, and our communities, in accordance with – and in some cases in advance of – direction from state and local government authorities, we limited access to our facilities and a significant percentage of our personnel worked remotely. In the event that governmental authorities were to re-establish workplace restrictions, our employees conducting research and development activities may not be able to access our laboratory space or access may be limited, and our research and development activities may be significantly limited or curtailed, possibly for an extended period of time. These research and development activities could include completing Investigational New Drug (IND)/Clinical Trial Application (CTA)-enabling studies, our ability to select future development candidates, and initiation of additional clinical trials for our development programs. Having a significant portion of our employees work from home can strain our information technology infrastructure, which may affect our ability to operate effectively, may make us more susceptible to communications disruptions, and expose us to greater cybersecurity risks.

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Our sales and marketing activities, including our interactions with healthcare professionals, have been limited and made more difficult by government or employer imposed work from home orders and travel and workplace visitor restrictions resulting from measures to address the COVID-19 pandemic, as well as employee-initiated remote work and travel limitations resulting from, among other things, the spread of the COVID-19 variants. In addition, demand for our products has been affected by decreases in new patients, which we believe resulted in large part from decreases in patient visits to healthcare professionals and prioritization of hospital resources for the COVID-19 pandemic, resulting in decreases in disease screening and diagnosis. We cannot predict the effects on patient demand or future sales if there are prolonged quarantines, work from home orders or travel restrictions.

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Our clinical trials have been and will likely continue to be affected by delays in site initiation, patient screening, patient enrollment, and monitoring and data collection as a result of prioritization of hospital resources for the COVID-19 pandemic, difficulty in recruiting and retaining healthcare providers and staff due to their diversion toward treating COVID-19 patients, the potential unwillingness of patients to enroll or continue in clinical trials for fear of exposure to COVID-19 at sites, and the inability to access sites for initiation and monitoring. In addition, some patients may be unable to comply with clinical trial protocols if quarantines or travel restrictions impede patient movement or interrupt health services, we may be unable to obtain blood samples for testing, and we may not be able to provide the trial drug candidate to patients. Also, we rely on independent clinical investigators, contract research organizations and other third-party service providers to assist us in managing, monitoring and otherwise carrying out our preclinical studies and clinical trials, and the COVID-19 pandemic has

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affected and may continue to affect their ability to devote sufficient time and resources to our programs or to travel to sites to perform work for us.

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Regulatory agencies globally have experienced disruptions in their operations as a result of the coronavirus pandemic. The FDA and comparable foreign regulatory agencies may have slower response times or be under-resourced to continue to monitor our clinical trials and, as a result, review, inspection, and other timelines may be materially delayed. If any of these disruptions occur or continue to occur, we cannot predict how long they may last. Our drug candidate application reviews and potential approvals could be impacted or delayed by these disruptions, if they occur or continue to occur.

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The outbreak and measures taken to limit the spread of the outbreak, especially if prolonged, could also disrupt our supply chain or limit our ability to obtain sufficient materials for our drug products and product candidates, which could adversely affect our revenues and clinical trial timelines. Currently, our supply chain for our drug products and product candidates depends on operations by us and by other companies in multiple countries around the world, and the effects of the COVID-19 pandemic on any or all of these countries is uncertain and unpredictable and potential disruption is possible. In addition, our third-party manufacturers might experience capacity constraints and delays in producing materials for our drug products and product candidates if they are required, under the U.S. Defense Production Act or similar governmental mandates, to prioritize production of raw materials, supplies, drugs or vaccines to address COVID-19. And, for JAKAFI, while our strategy is to maintain a 24 month stock of active pharmaceutical ingredient, or API, inclusive of finished product, ruxolitinib phosphate might be used by us either to make JAKAFI or for ruxolitinib drug candidates in clinical trials.

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Any deterioration of worldwide credit and financial markets could result in losses on our holdings of cash and investments due to failures of financial institutions and other parties, and interruptions and delays in our ability to collect, or potential losses on, our accounts receivable.

Our collaborators could be affected by similar factors as those that have or could affect our business. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of potential impacts or delays on our or our collaborators’ businesses, our revenues, including milestone and royalty revenues from our collaborators, our and our collaborators’ clinical trials, healthcare systems or the global economy as a whole. However, these effects could have a material adverse impact on our business, results of operations, and financial condition.

We may be unsuccessful in our efforts to discover and develop drug candidates and commercialize drug products.

~~None~~Our long-term success, revenue growth and diversification of revenues depends on our ability to obtain regulatory approval for new drug ~~candidates, other than JAKAFI/JAKAVI, has received regulatory approval.~~products and additional indications for our existing drug products. Our ability to discover and develop drug candidates and to commercialize additional drug products and indications will depend on our ability to:

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hire and retain key employees;

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identify high quality therapeutic targets;

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identify potential drug candidates;

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develop products internally or license or acquire drug candidates from others;

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identify and enroll suitable human subjects, either in the United States or abroad, for our clinical trials;

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complete laboratory testing;

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commence, conduct and complete safe and effective clinical trials on humans;

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obtain and maintain necessary intellectual property rights to our products;

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obtain and maintain necessary regulatory approvals for our products, both in the United States and abroad;

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enter into arrangements with third parties to provide services or to manufacture our products on our behalf;

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deploy sales, marketing, distribution and ~~marketing~~manufacturing resources effectively or enter into arrangements with third parties to provide these functions in compliance with all applicable laws;

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obtain appropriate coverage and reimbursement levels for the cost of our products from governmental authorities, private health insurers and other ~~third‑party~~third-party payors;

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lease facilities at reasonable rates to support our growth; and

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enter into arrangements with third parties to license and commercialize our products.

We ~~have limited experience with many of the activities listed above and~~ may not be successful in discovering, developing, or commercializing additional drug ~~products.~~products or our existing drug products in new indications. Discovery and development of drug candidates are expensive, uncertain and ~~time‑consuming,~~time-consuming, and we do not know if our efforts will lead to discovery of any drug candidates that can be successfully developed and marketed. Of the compounds or biologics that we identify as potential drug products or that we may ~~in‑license~~in-license from other companies, including potential products for which we are conducting clinical trials, only a few, if any, are likely to lead to successful drug development programs and commercialized drug products.

We depend heavily on the success of our most advanced drug candidates. We and our collaborators might not be able to commercialize any of our or their drug candidates successfully, and we may spend significant time and money attempting to do so.

We have invested significant resources in the development of our most advanced drug candidates. Ruxolitinib recently entered into a pivotal Phase II clinical trial for the treatment of patients with steroid-refractory acute graft-versus-host disease and is in other clinical trials. Epacadostat commenced Phase III clinical trials in late 2016. Further, weWe have a number of drug candidates in Phase IIII clinical trials as monotherapies or in combination with other drugs and ~~Phase II clinical trials.~~drug candidates, including parsaclisib, pemigatinib, ruxolitinib, ruxolitinib cream and tafasitamab. Our ability to generate product revenues will depend on the successful development and eventual commercialization of our most advanced drug candidates. We, or our collaborators or licensees, may decide to discontinue development of any or all of our drug candidates at any time for commercial, scientific or other reasons. For example, in ~~early 2016,~~April 2018, we ~~decided to discontinue~~along with Merck stopped the ~~studies of ruxolitinib in pancreatic cancer~~ECHO-301 study with epacadostat, and ~~solid tumors and INCB39110 in pancreatic cancer.~~we also significantly downsized the epacadostat development program. If a product is developed but not approved or marketed, or becomes approved for a narrower set of indications than those for which we initially conducted clinical trials, we may have spent significant amounts of time and money on it without achieving potential returns initially anticipated, which could adversely affect our operating results and financial condition as well as our business plans.

If we or our collaborators are unable to obtain regulatory approval for our drug candidates in the United States and foreign jurisdictions, we or our collaborators will not be permitted to commercialize products resulting from our research.

In order to commercialize drug products in the United States, drug candidates will have to obtain regulatory approval from the FDA. Satisfaction of regulatory requirements typically takes many years. To obtain regulatory approval, we or our collaborators, as the case may be, must first show that our or our collaborators’ drug candidates are safe and effective for target indications through preclinical testing (animal testing) and clinical trials (human testing). Preclinical testing and clinical development are long, expensive and uncertain processes, and we do not know whether the FDA will allow us or our collaborators to undertake clinical trials of any drug candidates in addition to our or our collaborators’ compounds currently in clinical trials. If regulatory approval of a product is granted, this approval will be limited to those disease states and conditions for which the product is demonstrated through clinical trials to be safe and effective.

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Completion of clinical trials may take several years and failure may occur at any stage of testing. The length of time required varies substantially according to the type, complexity, novelty and intended use of the drug candidate. Interim results of a preclinical test or clinical trial do not necessarily predict final results, and acceptable results in early clinical trials may not be repeated in later clinical trials. For example, a drug candidate that is successful at the preclinical level may cause harmful or dangerous side effects when tested at the clinical level. Our rate of commencement and completion of clinical trials may be delayed, and existing clinical trials with our or our collaborators’ drug candidates may be stopped, due to many potential factors, including:

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the high degree of risk and uncertainty associated with drug development;

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our inability to formulate or manufacture sufficient quantities of materials for use in clinical trials;

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variability in the number and types of patients available for each study;

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difficulty in maintaining contact with patients after treatment, resulting in incomplete data;

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unforeseen safety issues or side effects;

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poor or unanticipated effectiveness of drug candidates during the clinical trials; or

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government or regulatory delays.

Data obtained from clinical trials are susceptible to varying interpretation, which may delay, limit or prevent regulatory approval. Many companies in the pharmaceutical and biopharmaceutical industry, including our company, have suffered significant setbacks in advanced clinical trials, even after achieving promising results in earlier clinical trials. In addition, regulatory authorities may refuse or delay approval as a result of other factors, such as changes in regulatory policy during the period of product development and regulatory agency review. For example, the FDA has in the past required, and could in the future require, that we or our collaborators conduct additional trials of any of our drug candidates, which would result in delays. In April 2017, we and our collaborator Lilly announced that the FDA had issued a complete response letter for the New Drug Application, ~~(NDA)~~or NDA, of OLUMIANT ~~(baricitinib)~~ as a once-daily oral medication for the treatment of moderate-to-severe rheumatoid arthritis. The letter ~~indicates that the FDA is unable to approve the application in its current form. Specifically, the FDA~~ indicated that additional clinical data ~~are~~were needed to determine the most appropriate ~~doses. The FDA also stated that additional data are necessary~~doses and to further characterize safety concerns across treatment arms. In ~~July 2017,~~June 2018, after a resubmission of the NDA, the FDA approved the 2mg dose of OLUMIANT for the treatment of adults with moderately-to-severely active rheumatoid arthritis who have had an inadequate response to one or more tumor necrosis factor inhibitor therapies. The FDA did not at that time approve any higher dose of OLUMIANT and required a warning label in connection with its approval. In addition, in January 2022, we ~~and Lilly~~ announced that ~~a resubmission to~~we withdrew the ~~FDA~~NDA seeking approval of parsaclisib for the treatment of patients with relapsed or refractory follicular lymphoma, marginal zone lymphoma and mantle cell lymphoma. The decision to withdraw the NDA ~~for baricitinib will~~followed discussions with FDA regarding confirmatory clinical trials that we determined cannot be ~~delayed for a~~completed within the time period ~~anticipated~~ to ~~be a minimum of 18 months and that~~support the ~~FDA had requested an additional clinical study.~~investment.

Compounds or biologics developed by us or with or by our collaborators and licensees may not prove to be safe and effective in clinical trials and may not meet all of the applicable regulatory requirements needed to receive marketing approval. For example, in January 2016, a Phase II trial that was evaluating ruxolitinib in combination with regorafenib in patients with relapsed or refractory metastatic colorectal cancer and high C-reactive protein was stopped early after a planned analysis of interim efficacy data determined that the likelihood of the trial meeting its efficacy endpoint was insufficient. In addition, in February 2016, we made a decision to discontinue our JANUS 1 study, our JANUS 2 study, our other studies of ruxolitinib in colorectal, breast and lung cancer, and our study of INCB39110 in pancreatic cancer after a planned analysis of interim efficacy data of JANUS 1 demonstrated that ruxolitinib plus capecitabine did not show a sufficient level of efficacy to warrant continuation. Also, in April 2018, we along with Merck announced that the ECHO-301 study had been stopped and we also significantly downsized the epacadostat development program and in January 2020 we stopped our Phase III trial of itacitinib for the treatment of acute graft-versus-host-disease. If clinical trials of any of our or our collaborators’ compounds or biologics are stopped for safety, efficacy or other reasons or fail to meet their

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respective endpoints, our overall development plans, business, prospects, expected operating results and financial condition could be materially harmed and the value of our company could be negatively affected.

Even if any of our applications receives an FDA Fast Track or priority review designation (including based on a priority review voucher, one of which we recently acquired and used in connection with our submission seeking FDA approval of ruxolitinib cream for atopic dermatitis), these designations may not result in faster review or approval for our product candidate compared to product candidates considered for approval under conventional FDA procedures and, in any event, do not assure ultimate approval of our product candidate by FDA. For example, in June 2021 we were informed by the FDA that the FDA had extended by three months the review period for the NDA for ruxolitinib cream for atopic dermatitis. Also, in July 2021, we announced that the FDA issued a complete response letter for the BLA of retifanlimab for the treatment of squamous cell carcinoma of the anal canal, in which the FDA stated it cannot approve the BLA and that additional data are needed. In addition, while the FDA had granted orphan drug designation and Fast Track designation to parsaclisib as a treatment for patients with follicular lymphoma, marginal zone lymphoma and mantle cell lymphoma, as discussed above we withdrew our NDA seeking approval for treatment of patients with those lymphomas. The FDA has recently increased its attention on mandated confirmatory trials for oncology drug candidates with accelerated approvals, and the logistics, cost and timing required for confirmatory trials may conflict with the investment thesis for drug candidates, resulting in withdrawal of approval applications.

Outside the United States, our and our collaborators’ ability to market a product is contingent upon receiving a marketing authorization from the appropriate regulatory authorities. This foreign regulatory approval process typically includes all of the risks associated with the FDA approval process described above and may also include additional risks. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country and may require us to perform additional testing and expend additional resources. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other countries or by the FDA.

Health care reform measures could impact the pricing and profitability of pharmaceuticals, and adversely affect the commercial viability of our or our collaborators’ products and drug candidates. Our ability to generate revenues will be diminished if we are unable to obtain an adequate level of reimbursement from private insurers, government insurance programs or other third‑party payors of health care costs, which could be affected by current and potential healthcare reform legislation.

Our ability to commercialize our current and any future approved products successfully will depend in part on the extent to which adequate reimbursement levels for the cost of our products and related treatment are obtained from

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~~third‑party payors, such as private insurers, government insurance programs, including Medicare and Medicaid, health maintenance organizations (HMOs) and other health care related organizations.~~

In recent years, through legislative and regulatory actions and executive orders, the U.S. federal government has made substantial changes to various payment systems under the Medicare and other federal health care programs. Comprehensive reforms to the U.S. healthcare system were enacted, including changes to the methods for, and amounts of, Medicare reimbursement. For example, a provision in the American Rescue Plan Act of 2021 that is expected to be implemented in 2024 will have the effect of increasing the Medicaid rebate liability for some medicines that increase prices in excess of inflation. While there is currently significant uncertainty regarding the implementation of some of these reforms or the scope of amended or additional reforms, the implementation of reforms could significantly reduce payments from Medicare and Medicaid. Reforms or other changes to these payment systems may change the availability, methods and rates of reimbursements from Medicare, private insurers and other third-party payors for our current and any future approved products. Some of these changes and proposed changes could result in reduced reimbursement rates or in eliminating dual sources of payment, which could reduce the price that we or any of our collaborators or licensees receive for any products in the future, and which would adversely affect our business strategy, operations and financial results. ~~Further federal~~

In addition, there has been an increasing legislative and ~~state~~enforcement interest in the United States with respect to drug pricing practices. This has resulted in significant legislative activity and proposals from the prior and current Administrations relating to ~~regulate~~prescription drug prices and reimbursement, any of ~~pharmaceutical products and other health care reforms are possible,~~ which, if enacted, could ~~limit~~impose downward pressure on the prices that we can ~~be charged~~charge for ~~any of~~ our products and may further limit the commercial viability of our products and drug candidates. Specifically, there have been ongoing federal congressional inquiries and proposed and enacted federal and state legislation, executive orders and administrative agency rules designed to, among other things, bring more transparency to drug pricing, reduce drug prices, reform government program reimbursement methodologies for prescription drugs, expand access to government-mandated discounted pricing (known as 340B pricing) through broader contract pharmacy arrangements, allow importation of drugs into the United States from other countries, and limit allowable prices for drugs through reference to an average price from foreign markets that may be substantially lower than what we currently or would otherwise charge. In certain foreign markets, pricing or profitability of prescription pharmaceuticals is subject to government control. We expect that the health care reform measures that have been adopted

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in the United States and in foreign markets, and further reforms that may be adopted in the future, could result in more rigorous coverage criteria and additional downward pressure on the prices that we may receive for our approved products. If reimbursement for our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be materially ~~harmed.~~harmed, including by our revenue potentially being materially adversely affected and our research and development efforts potentially being materially curtailed or, in some cases, ceasing. There may be future changes that result in reductions in current prices, coverage and reimbursement levels for our current or any future approved products, and we cannot predict the scope of any future changes or the impact that those changes would have on our operations.

~~Third‑party payors are increasingly challenging~~The consequences of the ~~prices charged~~COVID-19 pandemic, including the economic effect on government budgets in the United States and elsewhere, may accelerate any of the healthcare reform efforts described above or result in future reform efforts, any of which could have adverse effects on our business, including higher costs for ~~medical~~us, lower reimbursement rates for our products and ~~services. Also,~~lower demand for our products.

Further, if we become the subject of any governmental or other regulatory hearing or investigation with respect to the pricing of our products or other business practices, we could incur significant expenses and could be distracted from the operation of our business and execution of our business strategy. Any such hearing or investigation could also result in significant negative publicity and harm to our reputation, reduced market acceptance and demand, which could adversely affect our financial results and growth prospects.

In addition, the trend toward managed health care in the United States, the organizations for which could control or significantly influence the purchase of health care services and products, as well as legislative and regulatory proposals to reform health care or ~~reduce~~address the cost of government insurance programs, may all result in lower prices for or rejection of our products. Adoption of our products by the medical community and patients may be limited without adequate reimbursement for those products. Cost control initiatives may decrease coverage and payment levels for our products and, in turn, the price that we will be able to charge for any product. Our products may not be considered ~~cost‑effective,~~cost-effective, and coverage and reimbursement may not be available or sufficient to allow us to sell our products on a profitable basis. We are unable to predict all changes to the coverage or reimbursement methodologies that will be applied by private or government payors to our current and any future approved products.

The continuing efforts of legislatures, health agencies and ~~third‑party~~third-party payors to contain or reduce the costs of health care, any denial of private or government payor coverage or inadequate reimbursement for our drug candidates could materially and adversely affect our business strategy, operations, future revenues and profitability, and the future revenues and profitability of our potential customers, suppliers, collaborators and licensees and the availability of capital. The same risks apply to our compounds developed and marketed by our collaborators, and our future potential milestone and royalty revenues could be affected in a similar manner.

We depend on our collaborators and licensees for the future development and commercialization of some of our drug candidates. Conflicts may arise between our collaborators and licensees and us, or our collaborators and licensees may choose to terminate their agreements with us, which may adversely affect our business.

We have licensed to Novartis rights to ruxolitinib outside of the United States and worldwide rights to our c‑MET inhibitor compounds, including TABRECTA, and licensed to Lilly worldwide rights to baricitinib. WeIn addition, we have ~~also~~ licensed to ~~Pfizer~~Innovent, Zai Lab, InnoCare and Maruho certain Asian rights to some of our ~~portfolio of CCR2 antagonist~~drug products and clinical stage compounds. Under the terms of our agreements with these collaborators, we have no or limited control over the further clinical development of these drug candidates in the relevant territories and any revenues we may receive if these drug candidates receive regulatory approval and are commercialized in the relevant territories will depend primarily on the development and commercialization efforts of others. While OLUMIANT ~~(baricitinib)~~ was approved by the European Commission in February 2017 for the treatment of moderate-to-severe rheumatoid arthritis in adult patients and by Japan’s Ministry of Health, Labor and Welfare in July 2017 for the treatment of rheumatoid arthritis in patients with inadequate response to standard-of-care therapies, if the ~~New Drug Application~~NDA for ~~baricitinib~~OLUMIANT for the treatment of moderate-to-severe rheumatoid arthritis ~~does not receive FDA approval, we will not receive future milestone payments or royalties related to that indication~~was approved in June 2018, and only in the ~~United States under our agreement~~lower dosage tablet and with ~~Lilly. In addition, even if baricitinib is approved~~a warning label. Delays in any marketing approval by the FDA, ~~in this indication, delays in any~~

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~~such approval,~~European or other regulatory authorities, or any label modifications or restrictions in connection with any such approval, ~~by the FDA, European or other regulatory authorities,~~ or the existence of other risks relating to approved drug products, including those described under “Risks

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Relating to Commercialization of Our Products,” could delay the receipt of and reduce resulting potential royalty and milestone revenue from ~~baricitinib.~~baricitinib or any of our other out-licensed drug candidates.

Conflicts may arise with our collaborators and licensees if they pursue alternative technologies or develop alternative products either on their own or in collaboration with others as a means for developing treatments for the diseases that we have targeted. Competing products and product opportunities may lead our collaborators and licensees to withdraw their support for our drug candidates. Any failure of our collaborators and licensees to perform their obligations under our agreements with them or otherwise to support our drug candidates could negatively impact the development of our drug candidates, lead to our loss of potential revenues from product sales and milestones and delay our achievement, if any, of profitability. Additionally, conflicts have from time to time occurred, and may in the future arise, ~~if,~~relating to, among other things, ~~there is a dispute~~disputes about the achievement and payment of a milestone ~~amount or~~amounts and royalties owed, the ownership of intellectual property that is developed during the course of a collaborative ~~relationship.~~relationship or the operation or interpretation of other provisions in our collaboration agreements. These disputes have led and could in the future lead to litigation or arbitration, which could be costly and divert the efforts of our management and scientific staff, and could diminish the expected effectiveness of the collaboration.

Our existing collaborative and license agreements can be terminated by our collaborators and licensees for convenience, among other circumstances. If any of our collaborators or licensees terminates its agreement with us, or terminates its rights with respect to certain indications or drug candidates, we may not be able to find a new collaborator for them, and our business could be adversely affected. Should an agreement be terminated before we have realized the benefits of the collaboration or license, our reputation could be harmed, we may not obtain revenues that we anticipated receiving, and our business could be adversely affected.

The success of our drug discovery and development efforts may depend on our ability to find suitable collaborators to fully exploit our capabilities. If we are unable to establish collaborations or if these future collaborations are unsuccessful in the development and commercialization of our drug candidates, our research, development and commercialization efforts may be unsuccessful, which could adversely affect our results of operations, financial condition and ~~financial condition.~~future revenue prospects.

An ~~important~~ element of our business strategy is to enter into collaborative or license arrangements with other parties, under which we license our drug candidates to those parties for development and commercialization or under which we study our drug candidates in combination with other parties’ compounds or biologics. For example, in addition to our Novartis, Lilly, Innovent, Zai Lab, InnoCare and ~~Pfizer~~Maruho collaborations, we ~~have entered into clinical study relationships with respect to epacadostat and~~ are evaluating strategic relationships with respect to several of our other programs. However, because collaboration and license arrangements are complex to negotiate, we may not be successful in our attempts to establish these arrangements. Also, we may not have drug candidates that are desirable to other parties, or we may be unwilling to license a drug candidate to a particular party because such party interested in it is a competitor or for other reasons. The terms of any such arrangements that we establish may not be favorable to us. Alternatively, potential collaborators may decide against entering into an agreement with us because of our financial, regulatory or intellectual property position or for scientific, commercial or other reasons. If we are not able to establish collaboration or license arrangements, we may not be able to develop and commercialize a drug product, which could adversely affect our business, our revenues and our ~~revenues.~~future revenue prospects.

We will likely not be able to control the amount and timing of resources that our collaborators or licensees devote to our programs or drug candidates. If our collaborators or licensees prove difficult to work with, are less skilled than we originally expected, do not devote adequate resources to the program, are unable to obtain regulatory approval of our drug candidates, pursue alternative technologies or develop alternative products, or do not agree with our approach to development or manufacturing of the drug candidate, the relationship could be unsuccessful. Our collaborations with respect to epacadostat ~~involve~~involved the study of our collaborators’ drugs used in combination with epacadostat on a number of indications or tumor types, many of which ~~are~~were the same across multiple collaborations. We cannot assure you that potential conflicts will not arise or be alleged among these or future collaborations. If a business combination involving a collaborator or licensee and a ~~third party~~third-party were to occur, the effect could be to terminate or cause delays in development of a drug candidate.

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If we fail to enter into additional licensing agreements or if these arrangements are unsuccessful, our business and operations might be adversely affected.

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In addition to establishing collaborative or license arrangements under which other parties license our drug candidates for development and commercialization or under which we study our drug candidates in combination with such parties’ compounds or biologics, we may explore opportunities to develop our clinical pipeline by in-licensing drug candidates or therapeutics targets that fit within our focus on oncology, such as our collaborations with Agenus Inc., Calithera Biosciences, Inc., MacroGenics, Inc., Merus N.V., MorphoSys, Syros Pharmaceuticals, Inc., and ~~Jiangsu Hengrui Medicine Co., Ltd.~~Syndax Pharmaceuticals, Inc., or explore additional opportunities to further develop and commercialize existing drug candidates in specific jurisdictions, such as our ~~recent~~June 2016 acquisition of the development and commercialization rights to ICLUSIG in certain countries. We may be unable to enter into any additional in-licensing agreements because suitable drug candidates that are within our expertise may not be available to us on terms that are acceptable to us or because competitors with greater resources seek to in-license the same drug candidates. Drug candidates that we would like to develop or commercialize may not be available to us because they are controlled by competitors who are unwilling to license the rights to the drug candidate to us. In addition, we may enter into license agreements that are unsuccessful and our business and operations might be adversely affected if we are unable to realize the expected economic benefits of a collaboration or other licensing arrangement, by the termination of a drug candidate and termination and winding down of the related license agreement, or due to other business or regulatory issues, including financial difficulties, that may adversely affect a licensor’s ability to continue to perform its obligations under an in-license agreement. For example, in January 2022, we decided to opt-out of the continued development with Merus of MCLA-145, which was the most advanced compound under our collaboration with Merus. If we make or incur contractual obligations to make significant upfront payments in connection with licenses for late-stage drug candidates, as we did in March 2020 in connection with the effectiveness of our collaboration agreement with MorphoSys, and if any of those drug candidates do not receive marketing approval or commercial sales as anticipated or we have to fund additional clinical trials before marketing approval can be obtained, we will have expended significant funds that might otherwise be applied for other uses or have to expend funds that were not otherwise budgeted or anticipated in connection with the collaboration, and such developments could have a material adverse effect on our stock price and our ability to pursue other transactions. As discussed above under “We depend on our collaborators and licensees for the future development and commercialization of some of our drug candidates. Conflicts may arise between our collaborators and licensees and us, or our collaborators and licensees may choose to terminate their agreements with us, which may adversely affect our business,” conflicts or other issues may arise with our licensors. Those conflicts could result in delays in our plans to develop drug candidates or result in the expenditure of additional funds to resolve those conflicts that could have an adverse effect on our results of operations. We may also need to license drug delivery or other technology in order to continue to develop our drug candidates. If we are unable to enter into additional agreements to license drug candidates, drug delivery technology or other technology or if these arrangements are unsuccessful, our research and development efforts could be adversely ~~affected.~~affected, and we may be unable to increase our number of successfully marketed products and our revenues.

Even if a drug candidate that we develop receives regulatory approval, we may decide not to commercialize it if we determine that commercialization of that product would require more money and time than we are willing to invest.

Even if any of our drug candidates receives regulatory approval, it could be subject to ~~post‑regulatory~~post-regulatory surveillance, and may have to be withdrawn from the market or subject to restrictions if previously unknown problems occur. Regulatory agencies may also require additional clinical trials or testing, and the drug product may be recalled or may be subject to reformulation, additional studies, changes in labeling, warnings to the public and negative publicity. As a result, we may not continue to commercialize a product even though it has obtained regulatory approval. Further, we may decide not to continue to commercialize a product if the market does not accept the product because it is too expensive or because third parties such as insurance companies or Medicare, ~~have~~will not ~~approved~~cover it for substantial reimbursement. In addition, we may decide not to continue to commercialize a product if competitors develop and commercialize similar or superior products or have proprietary rights that preclude us from ultimately marketing our products.

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Any approved drug product that we bring to the market may not gain market acceptance by physicians, patients, healthcare payors and others in the medical community.

Even if we or our collaborators are successful in gaining regulatory approval of any of our or our collaborators’ drug candidates in addition to JAKAFI, OLUMIANT, PEMAZYRE, MONJUVI/MINJUVI and OPZELURA or acquire rights to approved drug products in addition to ICLUSIG, we may not generate significant product revenues ~~and we may not become profitable~~ if these drug products do not achieve an adequate level of acceptance. Physicians may not recommend our or our collaborators’ drug products until ~~longer‑term~~longer-term clinical data or other factors demonstrate the safety and efficacy of our or our collaborators’ drug products as compared to other alternative treatments. Even if the clinical safety and efficacy of our or our collaborators’ drug products is established, physicians may elect not to prescribe these drug products for a variety of reasons, including the reimbursement policies of government and other ~~third‑party~~third-party payors and the effectiveness of our or our collaborators’ competitors in marketing their products.

Market acceptance of our drug products, if approved for commercial sale, will depend on a number of factors, ~~including:~~including the following, and market acceptance of our collaborators’ drug products will depend on similar factors:

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the willingness and ability of patients and the healthcare community to use our drug products;

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the ability to manufacture our drug products in sufficient quantities ~~with acceptable~~that meet all applicable quality standards and to offer our drug products for sale at competitive prices;

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the perception of patients and the healthcare community, including ~~third‑party~~third-party payors, regarding the safety, efficacy and benefits of our drug products compared to those of competing products or therapies;

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the label and promotional claims allowed by the FDA;

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the pricing and reimbursement of our drug products relative to existing treatments; and

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marketing and distribution support for our drug products.

In September 2021, the FDA updated labeling for JAKAFI and other JAK-inhibitor drugs to include warnings of increased risk of major adverse cardiovascular events, thrombosis, and secondary malignancies related to another JAK-inhibitor treating rheumatoid arthritis, a condition for which JAKAFI is not indicated. The label for OPZELURA contains similar warnings seen with JAK inhibitors for inflammatory conditions. We cannot predict the effects on sales of JAKAFI as a result of the labeling change or OPZELURA as a result of warning included in its label, but it is possible that future sales of JAKAFI and the commercial success of OPZELURA can be negatively affected by the updated labeling, which could have a material and adverse effect on our business, results of operations and prospects.

We have limited internal resources and capacity to perform preclinical testing and clinical trials. As part of our development strategy, we often hire ~~clinical~~contract research organizations, or CROs, to perform preclinical testing and clinical trials for drug candidates. If the CROs that we hire to perform our preclinical testing and clinical trials do not meet deadlines, do not follow proper procedures, or a conflict arises between us and our CROs, our preclinical testing and clinical trials may take longer than expected, may cost more, may be delayed or may be terminated. If we were forced to find a replacement entity to perform any of our preclinical testing or clinical trials, we may not be able to find a suitable entity on favorable terms, or at all. Even if we were able to find another company to perform a preclinical test or clinical trial, the delay in the test or trial may result in significant additional expenditures. Events such as these may result in delays in our obtaining regulatory approval for our drug candidates or our ability to commercialize our products and could result in increased expenditures that would adversely affect our operating results.

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We face significant competition for our drug discovery and development efforts, and if we do not compete effectively, our commercial opportunities will be reduced or eliminated.

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. Our drug discovery and development efforts may target diseases and conditions that are already subject to existing therapies or that are being developed by our competitors, many of which have substantially greater resources, larger research and development staffs and facilities, more experience in completing preclinical testing and clinical trials, and formulation, marketing and manufacturing capabilities. As a result of these resources, our competitors may develop drug products that render our products obsolete or noncompetitive by developing more effective drugs, developing their products more efficiently or pricing their products more competitively. Our ability to develop competitive products would be limited if our competitors succeeded in obtaining regulatory approvals for drug candidates more rapidly than we were able to or in obtaining patent protection or other intellectual property rights that limited our drug development efforts. Any drug products resulting from our research and development efforts, or from our joint efforts with collaborators or licensees, might not be able to compete successfully with our competitors’ existing and future products, or obtain regulatory approval in the United States or elsewhere. The development of products or processes by our competitors with significant advantages over those that we are developing could harm our future revenues and profitability.

Our reliance on other parties to manufacture our drug products and drug candidates could result in a short supply of the drugs, delays in clinical trials or drug development, increased costs, and withdrawal or denial of a regulatory authority’s approval.

We do not currently operate manufacturing facilities for clinical or commercial production of JAKAFI, PEMAZYRE, OPZELURA and most of our other drug candidates or for ICLUSIG. We currently hire third parties to manufacture the raw materials, ~~active pharmaceutical ingredient, or~~ API and finished drug product of JAKAFI, ICLUSIG, PEMAZYRE, OPZELURA and our other drug candidates for clinical ~~trials. Under~~trials and our ~~license agreement with ARIAD, we receive our supply~~collaborator MorphoSys is currently responsible for sourcing manufacturing of ~~ICLUSIG from ARIAD.~~MONJUVI/MINJUVI. In addition, we expect to continue to rely on third parties for the manufacture of commercial supplies of raw materials, API and finished drug product for any drugs that we successfully develop. We also hire third parties to package and label the finished product. The FDA requires that the raw materials, API and finished product for drug products such as JAKAFI, PEMAZYRE and OPZELURA and our other drug candidates be manufactured

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according to its current Good Manufacturing Practices regulations and regulatory authorities in other countries have similar requirements. There are only a limited number of manufacturers that comply with these requirements. Failure to comply with current Good Manufacturing Practices and the applicable regulatory requirements of other countries in the manufacture of our drug candidates and products could result in the FDA or a foreign regulatory authority halting our clinical trials, withdrawing or denying regulatory approval of our drug product, enforcing product recalls or other enforcement actions, which could have a material adverse effect on our business.

We may not be able to obtain sufficient quantities of our drug candidates or any drug products we may develop if our designated manufacturers do not have the capacity or capability to manufacture them according to our schedule and specifications. Manufacturers of pharmaceutical products often encounter difficulties in production, especially in scaling up initial ~~production.~~production to commercial quantities from clinical quantities. These problems include difficulties with production costs and yields, quality control and assurance and shortages of qualified personnel. To the extent problems are experienced, we could encounter difficulties in supplying sufficient product to meet demand or incur additional costs to remedy the problems or to recall defective products. Any such recall could also harm our sales efforts and our reputation. To the extent our supply chain involves parties in China or materials originating in areas of China that are or could be affected by disease outbreaks such as the COVID-19 pandemic or geopolitical events such as the Russian invasion of Ukraine, we could see disruptions to our supply chain. Currently, our supply chain for our drug products and product candidates depends on operations by us and by other companies in multiple countries around the world, and the effects of the COVID-19 pandemic and measures to address the COVID-19 pandemic, as well as the effects resulting from the Russian invasion of Ukraine and related sanctions and other actions, on any or all of these countries is uncertain and unpredictable and potential disruption is possible. And, for JAKAFI, while our strategy is to maintain a 24 months stock of API, inclusive of finished product, ruxolitinib phosphate might be used by us either to make JAKAFI or for ruxolitinib drug candidates in clinical trials. In addition, we may not be able to arrange for our drug candidates or any drug products that we may develop to be manufactured by one of these parties on reasonable terms, if at all. We generally have a single source or a limited number of suppliers that are qualified to supply each of the API and finished product of ~~JAKAFI~~our drug

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products and our other drug candidates and, in the case of JAKAFI, we only have a single source for its raw materials. If any of these suppliers were to become unable or unwilling to supply us with raw materials, API or finished product that complies with applicable regulatory requirements, we could incur significant delays in our clinical trials or interruption of commercial supply that could have a material adverse effect on our business. If we have promised delivery of a drug candidate or drug product and are unable to meet the delivery requirement due to manufacturing difficulties, our development programs could be delayed, we may have to expend additional sums in order to ensure that manufacturing capacity is available when we need it even if we do not use all of the manufacturing capacity, and our business and operating results could be harmed.

We may not be able to adequately manage and oversee the manufacturers we choose, they may not perform as agreed or they may terminate their agreements with us. Foreign manufacturing approval processes typically include all of the risks associated with the FDA approval process for manufacturing and may also include additional risks.

~~Two~~A number of our collaborations involve the manufacture of antibodies. ~~Under~~Either we or our collaboration with Agenus, Agenus had primary responsibility for manufacturing activities, including selecting and monitoring third-party manufacturers. Under the February 2017 amendment to our collaboration agreement, we assumed primary responsibility for manufacturing activities, including selecting and monitoring third party manufacturers, of all products from royalty-bearing programs under the collaboration. Under our collaboration with Hengrui, Hengrui currently hascollaborators have primary responsibility for manufacturing activities, and we ~~are in the process of transferring manufacturing activities~~intend to ~~a third party~~continue to use third-party contract manufacturing ~~organization.~~organizations for the manufacture of antibodies in conjunction with our manufacturing facility in Switzerland, which became accredited by the Swiss Health Authority in June 2022. Manufacturing antibodies and products containing antibodies is a more complex process than manufacturing small molecule drugs and subject to additional risks. The process of manufacturing antibodies and products containing antibodies is highly susceptible to product loss due to contamination, equipment failure or improper installation or operation of equipment, vendor or operator error, inconsistency in yields, variability in product characteristics, and difficulties in scaling up the production process. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. We may encounter delays and difficulties in scaling up production at our new facility.

If we fail to comply with the extensive legal and regulatory requirements affecting the health care industry, we could face increased costs, penalties and a loss of business.

Our activities, and the activities of our collaborators, partners and ~~third‑party~~third-party providers, are subject to extensive government regulation and oversight both in the United States and in foreign jurisdictions. The FDA and comparable agencies in other jurisdictions directly regulate many of our most critical business activities, including the conduct of preclinical and clinical studies, product manufacturing, advertising and promotion, product distribution, adverse event reporting and product risk management. States increasingly have been placing greater restrictions on the marketing practices of healthcare ~~companies.~~companies and have instituted pricing disclosure and other requirements for companies selling pharmaceuticals. In addition, pharmaceutical and biotechnology companies have been the target of lawsuits and investigations alleging violations of government regulations, including claims asserting submission of incorrect pricing information, ~~impermissible off‑label~~improper promotion of pharmaceutical products, payments intended to

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influence the referral of federal or state healthcare business, submission of false claims for government reimbursement, antitrust violations, violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar ~~anti‑bribery~~anti-bribery or ~~anti‑corruption~~anti-corruption laws, or violations related to environmental matters. There is also enhanced scrutiny of company-sponsored patient assistance programs, including insurance premium and co-pay assistance programs and donations to third-party charities that provide such assistance. In December 2018, we received a civil investigative demand from the U.S. Department of Justice, or DOJ, for documents and information relating to our speaker programs and patient assistance programs, including our support of non-profit organizations that provide financial assistance to eligible patients and in November 2019, the qui tam complaint underlying the DOJ inquiry was unsealed, at which time we learned that a former employee whom we had terminated had made certain allegations relating to the programs described above. While we deny that any improper claims were submitted to government payers, we agreed in May 2021 to settle the matter with the DOJ Civil Division for $12.6 million, plus certain statutory fees. Violations of governmental regulation by us, our vendors or donation recipients may be punishable by criminal and civil sanctions, including damages, fines and ~~civil monetary~~ penalties and exclusion from participation in government programs, including Medicare and Medicaid. In addition to damages, fines and penalties for violation of laws and regulations, we could be required to repay amounts we received from government payors, or pay additional rebates and interest if we are found to have miscalculated the pricing information we have submitted to the government. Actions taken

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by federal or local governments, legislative bodies and enforcement agencies with respect to these legal and regulatory compliance matters could also result in reduced demand for our products, reduced coverage of our products by health care payors, or both. We cannot ensure that our compliance controls, policies, and procedures will in every instance protect us from acts committed by our employees, collaborators, partners or ~~third‑party~~third-party providers that would violate the laws or regulations of the jurisdictions in which we operate. Whether or not we have complied with the law, an investigation into alleged unlawful conduct could increase our expenses, damage our reputation, divert management time and attention and adversely affect our ~~business.~~business, and any settlement of these proceedings could result in significant payments by us. Risks relating to compliance with laws and regulations may be heightened as we continue to expand our global operations and enter new therapeutic areas with different patient populations, which due to different product distribution methods, marketing programs or patient assistance programs may result in additional regulatory burdens and obligations.

The illegal distribution and sale by third parties of counterfeit or unfit versions of our or our collaborators’ products or stolen products could harm our business and reputation.

We are aware that counterfeit versions of our products have been distributed or sold by entities not authorized by us using product packaging suggesting that the product was provided by us. If unauthorized third parties illegally distribute and sell counterfeit versions of our or our collaborators’ products, those products may not meet our or our collaborators’ rigorous manufacturing, distribution and handling standards. In addition, inventory that is stolen from warehouses, plants or while in-transit, and that is subsequently improperly stored and sold through unauthorized channels, may not meet our or our collaborators’ distribution and handling standards. A patient who receives a counterfeit or unfit drug may suffer dangerous health consequences. Our reputation and business could suffer harm as a result of counterfeit or unfit drugs sold under our brand name and could result in lost sales for us and decreased revenues. If counterfeit or unfit drugs are sold under our or our collaborators’ brand names, our reputation and business could suffer harm and we could experience decreased royalty revenues.

As most of our drug discovery and development operations are conducted at our headquarters in Wilmington, Delaware, the loss of access to this facility would negatively impact our business.

Our facility in Wilmington, Delaware is our headquarters and is also where we conduct ~~all~~most of our drug discovery, research, development and marketing activities. In addition, natural disasters, the effects of or measures taken to limit the effects of health epidemics such as the COVID-19 pandemic, or actions of activists opposed to aspects of pharmaceutical research may disrupt our experiments or our ability to access or use our facility. The loss of access to or use of our Wilmington, Delaware facility, either on a temporary or permanent basis, would result in an interruption of our business and, consequently, would adversely affect our overall business.

We depend on key employees in a competitive market for skilled personnel, and the loss of the services of any of our key employees or our inability to attract and retain additional personnel would affect our ability to expand our drug discovery and development programs and achieve our objectives.

We are highly dependent on the members of our executive management team and principal members of our commercial, development, medical, operations and scientific staff. We experience intense competition for qualified personnel. Our future success also depends in part on the continued service of our executive management team and key personnel and our ability to recruit, train and retain essential personnel for our drug discovery and development programs, and for our medical affairs and commercialization activities. If we lose the services of any of these people or if we are unable to recruit sufficient qualified personnel, our research and product development goals, and our commercialization efforts could be delayed or curtailed. We do not maintain “key person” insurance on any of our employees.

If we fail to manage our growth effectively, our ability to develop and commercialize products could suffer.

We expect that if our drug discovery efforts continue to generate drug candidates, our clinical drug candidates continue to progress in development, and we continue to build our development, medical and commercial organizations, we will require significant additional investment in personnel, management and resources. Our ability to achieve our research, development and commercialization objectives depends on our ability to respond effectively to these demands and expand our internal organization, systems, controls and facilities to accommodate additional anticipated growth. If we

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are unable to manage our growth effectively, our business could be harmed and our ability to execute our business strategy could suffer.

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As part of our business strategy, we may pursue additional acquisitions of what we believe to be complementary businesses or assets or seek to enter into joint ventures. We also may pursue strategic alliances in an effort to leverage our existing infrastructure and industry experience to expand our product offerings or distribution, or make investments in other companies. For example, in June 2016, we completed the acquisition of the European operations of ~~ARIAD and obtained the exclusive license to develop and commercialize ICLUSIG in Europe and other countries.~~ARIAD. The success of our acquisitions, joint ventures, strategic alliances and investments will depend on our ability to identify, negotiate, complete and, in the case of acquisitions, integrate those transactions and, if necessary, obtain satisfactory debt or equity financing to fund those transactions. We may not realize the anticipated benefits of any acquisition, joint venture, strategic alliance or investment. We may not be able to integrate acquisitions successfully into our existing business, achieve planned synergies or cost savings, maintain the key business relationships of businesses we acquire, or retain key personnel of an acquired business, and we could assume unknown or contingent liabilities or incur unanticipated expenses. Integration of acquired companies or businesses also may require management resources that otherwise would be available for ongoing development of our existing business. Any acquisitions or investments made by us also could result in significant write-offs or the incurrence of debt and contingent liabilities, any of which could harm our operating results. For example, infor the ~~years~~year ended December 31, ~~2016~~2021 and ~~December 31, 2015,~~for the three and six months ended June 30, 2022, we recorded unrealized losses related to our ~~investment~~investments in ~~Agenus Inc.,~~ our collaboration partners,and we may in ~~the future~~ experience additional losses related to our ~~investments.~~investments in future period. In addition, if we choose to issue shares of our stock as consideration for any acquisition, dilution to our stockholders could result.

Risks associated with ~~the expansion of~~ our operations outside of the United States could adversely affect our business.

Our acquisition of ARIAD’s European operations significantly expanded our operations in Europe, and we plan to continue to expand our operations and conduct certain development activities outside of the United States. ~~We have limited experience with conducting~~For example, as part of our plans to expand our activities outside of the United ~~States.~~States, we now conduct some of our operations in Canada, commercial and clinical development activities in Japan and have opened an office in China. International operations and business expansion plans are subject to numerous additional risks, including:

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multiple, conflicting and changing laws and regulations such as tax laws, privacy regulations, tariffs, export and import restrictions, employment, immigration and labor laws, regulatory requirements, and other governmental approvals, permits and ~~licenses;~~

licenses, compliance with which can increase in complexity as we enter into additional jurisdictions;

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difficulties in staffing and managing ~~foreign~~ operations in diverse countries and difficulties in connection with assimilating and integrating ~~the ARIAD operations and personnel, and~~ any ~~other~~ operations and personnel we might acquire into our company;

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risks associated with obtaining and maintaining, or the failure to obtain or maintain, regulatory approvals for the sale or use of our products in various countries;

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complexities associated with managing government payor systems, multiple ~~payor‑reimbursement~~payor-reimbursement regimes or patient ~~self‑pay~~self-pay systems;

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financial risks, such as longer payment cycles, difficulty obtaining financing in foreign markets, difficulty enforcing contracts and intellectual property rights, difficulty collecting accounts receivable and exposure to foreign currency exchange rate fluctuations;

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general political and economic conditions in the countries in which we operate, including terrorism and political unrest, geopolitical events such as the Russian invasion of Ukraine, curtailment of trade and other business restrictions, and uncertainties associated with the ~~future~~implementation of the relationship between the United Kingdom and the European Union; ~~and~~

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public health risks, such as the effects of the COVID-19 pandemic, and related effects on new patient starts, clinical trial activity, regulatory agency response times, supply chain, travel and employee health and availability; and

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regulatory and compliance risks that relate to maintaining accurate information and control over activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act, its books and records provisions or its ~~anti‑bribery~~anti-bribery provisions, or similar ~~anti‑bribery~~anti-bribery or ~~anti‑corruption~~anti-corruption laws and ~~regulations.~~

regulations in other countries, such as the U.K. Anti-Bribery Act and the U.K. Criminal Finances Act, which may have similarly broad extraterritorial reach.

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~~Although we conducted~~In addition, our revenues are subject to foreign currency exchange rate fluctuations due ~~diligence of ARIAD’s European operations prior~~ to the ~~acquisition, we may discover or identify deficiencies or non-compliance with such laws and regulations as we complete~~global nature of our operations. To the ~~integration~~extent that our non-U.S. source revenues represent a more significant portion of ~~the ARIAD business and conduct~~ our ~~European operations.~~total revenues, these fluctuations could materially affect our operating results. Any of the risks described above, if encountered, could significantly increase our costs of operating internationally, prevent us from operating in certain jurisdictions, or otherwise significantly harm our future international expansion and operations, which could have a material adverse effect on our business, financial condition and results of operations.

If product liability lawsuits are brought against us, we could face substantial liabilities and may be required to limit commercialization of our products and our results of operations could be harmed.

In addition to the risks described above under “—Risks Relating to Commercialization of Our Products—If the use of our products harms patients, or is perceived to harm patients even when such harm is unrelated to our products, our regulatory approvals could be revoked or otherwise negatively impacted or we could be subject to costly and damaging product liability claims,” the conduct of clinical trials of medical products that are intended for human use entails an inherent risk of product liability. If any product that we or any of our collaborators or licensees develops causes or is alleged to cause injury during clinical trials or commercialization, we may be held liable. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities, including substantial damages to be paid to the plaintiffs and legal costs, or we may be required to limit further development and commercialization of our products. Additionally, any product liability lawsuit could cause injury to our reputation, participants and investigators to withdraw from clinical trials, and potential collaborators or licensees to seek other partners, any of which could impact our results of operations.

Our product liability insurance policy may not fully cover our potential liabilities. In addition, we may determine that we should increase our coverage, and this insurance may be prohibitively expensive to us or our collaborators or licensees and may not fully cover our potential liabilities. Since December 30, 2017, we elected to self-insure a portion of our exposure to product liability risks through our wholly-owned captive insurance subsidiary, in tandem with third-party insurance policies. Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the development or commercialization of our drug candidates and ~~products.~~products, and if our liabilities from any such claims exceed our third-party insurance limits and self-insurance reserves, our results of operations, cash flows and financial condition could be adversely impacted.

We are subject to various environmental, health and safety laws and regulations governing, among other things, the use, handling, storage and disposal of regulated substances and the health and safety of our employees. Our research and development processes involve the controlled use of hazardous and radioactive materials and biological waste resulting in the production of hazardous waste products. We cannot completely eliminate the risk of accidental contamination or discharge and any resultant injury from these materials. If any injury or contamination results from our use or the use by our collaborators or licensees of these materials, we may be sued and our liability may exceed our insurance coverage and our total assets. Further, we may be required to indemnify our collaborators or licensees against all damages and other liabilities arising out of our development activities or products produced in connection with these collaborations or licenses. Compliance with the applicable environmental and workplace laws and regulations is expensive. Future changes to

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environmental, health, workplace and safety laws could cause us to incur additional expense or may restrict our operations or impair our research, development and production efforts.

Business disruptions could seriously harm our operations, future revenues and financial condition and increase our costs and expenses.

Our operations, and those of our CROs, suppliers, and other contractors and consultants, could be subject to geopolitical events, natural disasters, power and other infrastructure failures or shortages, public health pandemics or epidemics, and other natural or man-made disasters or business interruptions. In addition, geopolitical and other events, such as the Russian invasion of Ukraine, could lead to sanctions, embargoes, supply shortages, regional instability, geopolitical shifts, cyberattacks, other retaliatory actions, and adverse effects on macroeconomic conditions, currency exchange rates, and financial markets, which could adversely impact our operations and financial results, as well as those of third parties with whom we conduct business. The occurrence of any of these business disruptions could seriously harm our operations, future revenues and financial condition and increase our costs and expenses. We have engaged CROs to conduct clinical trials outside the United States, including a limited number of trials in Ukraine and Russia. We may not be able to complete any additional dosing or follow-up visits of patients in Ukraine and Russia who are participating in these clinical trials. We may also be unable to ship additional clinical drug and other supplies necessary to complete the clinical trials in Ukraine and Russia. Although the impact of Russia’s invasion is highly unpredictable, certain clinical trial activities have already been changed or suspended, and may continue to be changed, suspended or terminated, which could potentially increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues.

RISKS RELATING TO OUR FINANCIAL RESULTS

We may incur losses in the future, and we expect to continue to incur significant expenses to discover and develop drugs, which may ~~not~~make it difficult for us to achieve sustained profitability on a quarterly or ~~maintain profitability~~annual basis in the future.

Due to historical net losses, we had an accumulated deficit of ~~$1.8~~$0.6 billion as of ~~September~~June 30, ~~2017.~~2022. We intend to continue to spend significant amounts on our efforts to discover and develop drugs. As a result, we may incur losses ~~for the year ending December 31, 2017 and~~ in future periods as well. Our revenues, expenses and net income (loss) may fluctuate, even significantly, due to the risks described in these “Risk Factors” and factors discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as the timing of charges and expenses that we may take, including those relating to transactions such as acquisitions and the entry into collaborative agreements.

We anticipate that our drug discovery and development efforts and related expenditures will increase as we focus on the studies, including preclinical tests and clinical trials prior to seeking regulatory approval, that are required before we can sell a drug product.

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The development of drug products will require us to spend significant funds on research, development, testing, obtaining regulatory approvals, manufacturing and marketing. To date, we do not have any drug products that have generated significant revenues other than from sales of JAKAFI and we cannot assure you that we will generate ~~significant~~substantial revenues from the drug candidates that we license or develop, including ICLUSIG, PEMAZYRE, MONJUVI/MINJUVI, and OPZELURA, for several years, if ever.

We cannot be certain whether or when we will achieve sustained or increased profitability on a quarterly or annual basis because of the factors discussed under “Risks Relating to Commercialization of our Products” and in the above paragraphs and the significant uncertainties relating to our ability to generate commercially successful drug products. Even if we are successful in obtaining regulatory approvals for manufacturing and commercializing drug products in addition to JAKAFI, ICLUSIG, PEMAZYRE, MONJUVI/MINJUVI, and ~~ICLUSIG,~~OPZELURA, we may incur losses if our drug products do not generate significant revenues. ~~If we achieve profitability, we may not be able to sustain or increase profitability.~~

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We may need additional capital in the future. If we are unable to generate sufficient funds from operations, the capital markets may not permit us to raise additional capital at the time that we require it, which could result in limitations on our research and development or commercialization efforts or the loss of certain of our rights in our technologies or drug candidates.

Our future funding requirements will depend on many factors and we anticipate that we may need to raise additional capital to fund our business plan and research and development efforts ~~going‑forward and to repay our indebtedness.~~going-forward.

Additional factors that may affect our future funding requirements include:

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the acquisition of businesses, technologies, or drug candidates, or the licensing of technologies or drug candidates, if any;

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the amount of revenues generated from our business activities;

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any changes in the breadth of our research and development programs;

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the results of research and development, preclinical testing and clinical trials conducted by us or our current or future collaborators or licensees, if any;

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our exercise of any ~~co‑development~~co-development options with collaborators that may require us to fund future development;

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~~the acquisition of businesses, technologies, or drug candidates, or the licensing of technologies or drug candidates, if any;~~

costs for future facility requirements;

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our ability to maintain and establish new corporate relationships and research collaborations;

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competing technological and market developments;

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the time and costs involved in filing, prosecuting, defending and enforcing patent and intellectual property claims;

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the receipt or payment of contingent licensing or milestone fees or royalties on product sales from our current or future collaborative and license arrangements, if established; and

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the timing of regulatory approvals, if any.

If we require additional capital at a time when investment in companies such as ours, or in the marketplace generally, is limited due to the then prevailing market or other conditions, we may have to scale back our operations, eliminate one or more of our research or development programs, or attempt to obtain funds by entering into an agreement with a collaborator or licensee that would result in terms that are not favorable to us or relinquishing our rights in certain

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of our proprietary technologies or drug candidates. If we are unable to raise funds at the time that we desire or at any time thereafter on acceptable terms, we may not be able to continue to develop our drug candidates. The sale of equity or ~~additional convertible debt~~equity-linked securities in the future may be dilutive to our stockholders and may provide for rights, preferences or privileges senior to those of our holders of common stock, and debt financing arrangements may require us to pledge certain assets or enter into covenants that could restrict our operations or our ability to pay dividends or other distributions on our common stock or incur further indebtedness.

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Our marketable securities and long term investments are subject to risks that could adversely affect our overall financial position.

We invest our cash in accordance with an established internal policy and customarily in short-term instruments, ~~corporate bonds and~~ money market funds, U.S. government backed-funds and Treasury securities, which are investment grade and historically have been highly liquid and carried relatively low risk. ~~In recent periods, similar types of investments and money market funds have experienced losses in value or liquidity issues that differ from their historical pattern.~~

Should a portion of our cash or marketable securities lose value or have their liquidity impaired, it could adversely affect our overall financial position by imperiling our ability to fund our operations and forcing us to seek additional financing sooner than we would otherwise. Such financing, if available, may not be available on commercially attractive terms.

As discussed under “Other Risks Relating to Our Business— We may acquire businesses or assets, form joint ventures or make investments in other companies that may be unsuccessful, divert our management’s attention and harm our operating results and prospects,” any investments that we may make in companies with which we have strategic alliances, such as Agenus, Merus and ~~Merus,~~MorphoSys, could result in our recognition of losses on those investments. In addition, to the extent we may seek to sell or otherwise monetize those investments, we may not be able to do so at our desired price or valuation levels, or at all, due to the limited liquidity of some or all of those investments.

Any loss in value of our long term investments could adversely affect our financial position on the consolidated balance sheets and consolidated statements of operations.

~~Our current~~Changes in tax laws or regulations could adversely affect our results of operations, business and financial condition.

New tax laws or regulations could be enacted at any time, and existing tax laws or regulations could be interpreted, modified or applied in a manner that is adverse to us or our customers, which could adversely affect our results of operations, business and financial condition. The Administration and Congress are considering significant changes to existing U.S. tax law, including an increase in the corporate tax rate and the effective tax rate on foreign earnings. These changes could substantially increase U.S. taxation of our operations. In addition, the Organisation for Economic Co-Operation and Development (OECD) in October 2021 announced an agreement on an outline for new tax rules that would align countries on a minimum corporate tax rate and an expansion of the taxing rights of market countries. If enacted by member countries, this agreement could result in tax increases in both the United States and many foreign jurisdictions where we operate or have a presence. These initiatives not only could significantly increase our tax provision, cash tax liabilities, and effective tax rate, but could also significantly increase tax uncertainty due to differing interpretations and increased audit scrutiny.

We derive a substantial portion of our revenues ~~are derived~~ from ~~JAKAFI~~royalties, milestone payments and ~~ICLUSIG product sales, JAKAVI product royalties, collaborations and from licensing~~other payments under our ~~intellectual property.~~collaboration agreements. If we are unable to achieve milestones, develop ~~products~~product candidates to license or renew or enter into new collaborations, our revenues may decrease, and future milestone and royalty payments may not contribute significantly to revenues for several years, and may never result in revenues.

We derived ~~substantially all~~a substantial portion of our revenues for the year ended December 31, 2021 and the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 from ~~JAKAFI~~JAKAVI and ~~ICLUSIGproduct revenues, JAKAVI~~OLUMIANT product royalties and from milestone payments under our ~~collaborations and licensing our intellectual property to others.~~collaboration agreements. Future revenues from research and development collaborations depend upon continuation of the collaborations, the achievement of milestones and royalties we earn from any future products developed from our research. If we are unable to successfully achieve milestones or our collaborators fail to develop successful products, we will not earn the future revenues contemplated under our collaborative agreements. For example, delays in or other limitations with respect to the approval of baricitinib in the United States for the treatment of moderate-to-severe rheumatoid arthritis, or the failure to obtain such approval as a first line therapy, as discussed under “—We depend on our collaborators and licensees for the future development and commercialization of some of our drug candidates. Conflicts may arise between our collaborators and licensees and us, or our collaborators and licensees may choose to terminate their agreements with us, which may adversely affect our business.” ~~would~~could affect potential future royalty and milestone and contract revenue.

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RISKS RELATING TO INTELLECTUAL PROPERTY AND LEGAL MATTERS

If we are subject to arbitration, litigation and infringement claims, they could be costly and disrupt our drug discovery and development efforts.

The technology that we use to make and develop our drug products, the technology that we incorporate in our products, and the products we are developing may be subject to claims that they infringe the patents or proprietary rights of others. The success of our drug discovery and development efforts will also depend on our ability to develop new

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compounds, drugs and technologies without infringing or misappropriating the proprietary rights of others. We are aware of patents and patent applications filed in certain countries claiming intellectual property relating to some of our drug discovery targets and drug candidates. While the validity of issued patents, patentability of pending patent applications and applicability of any of them to our programs are uncertain, if any of these patents are asserted against us or if we choose to license any of these patents, our ability to commercialize our products could be harmed or the potential return to us from any product that may be successfully commercialized could be diminished.

From time to time we have received, and we may in the future receive, notices from third parties offering licenses to technology or alleging patent, trademark, or copyright infringement, claims regarding trade secrets or other contract claims. Receipt of these notices could result in significant costs as a result of the diversion of the attention of management from our drug discovery and development efforts. Parties sending these notices may have brought and in the future may bring litigation against us or seek arbitration relating to contract claims.

We may be involved in future lawsuits or other legal proceedings alleging patent infringement or other intellectual property rights or contract violations. In addition, litigation or other legal proceedings may be necessary to:

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assert claims of infringement;

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enforce our patents or trademarks;

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protect our trade secrets or ~~know‑how;~~know-how; or

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determine the enforceability, scope and validity of the proprietary rights of others.

We may be unsuccessful in defending or pursuing these lawsuits, claims or other legal proceedings. Regardless of the outcome, litigation or other legal proceedings can be very costly and can divert management’s efforts. An adverse determination may subject us to significant liabilities or require us or our collaborators or licensees to seek licenses to other parties’ patents or proprietary rights. We or our collaborators or licensees may also be restricted or prevented from manufacturing or selling a drug or other product that we or they develop. Further, we or our future collaborators or licensees may not be able to obtain any necessary licenses on acceptable terms, if at all. If we are unable to develop ~~non‑infringing~~non-infringing technology or license technology on a timely basis or on reasonable terms, our business could be harmed.

We may be unable to adequately protect or enforce our proprietary information, which may result in its unauthorized use, a loss of revenue under a collaboration agreement or loss of sales to generic versions of our products or otherwise reduce our ability to compete in developing and commercializing products.

Our business and competitive position depends in significant part upon our ability to protect our proprietary technology, including any drug products that we create. Despite our efforts to protect this information, unauthorized parties may attempt to obtain and use information that we regard as proprietary. For example, one of our collaborators may disclose proprietary information pertaining to our drug discovery efforts. In addition, while we have filed numerous patent applications with respect to ruxolitinib and our drug candidates in the United States and in foreign countries, our patent applications may fail to result in issued patents. In addition, because patent applications can take several years to issue as patents, there may be pending patent applications of others that may later issue as patents that cover some aspect of ruxolitinib and our drug candidates. Our existing patents and any future patents we may obtain may not be broad enough to protect our products or all of the potential uses of our products, or otherwise prevent others from developing competing products or technologies. In addition, our patents may be challenged and invalidated or may fail to provide us with any

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competitive advantages if, for example, others were first to invent or first to file a patent application for the technologies and products covered by our patents. As noted above under “—Risks Relating to Commercialization of Our Products—Competition for our products could potentially harm our business and result in a decrease in our revenue,”�� a potential generic drug company competitor has challenged certain patents relating to JAKAFI.

Additionally, when we do not control the prosecution, maintenance and enforcement of certain important intellectual property, such as a drug candidate ~~in‑licensed~~in-licensed to us or subject to a collaboration with a ~~third party,~~third-party, the protection of the intellectual property rights may not be in our hands. If we do not control the intellectual property rights ~~in‑licensed~~

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in-licensed to us with respect to a drug candidate and the entity that controls the intellectual property rights does not adequately protect those rights, our rights may be impaired, which may impact our ability to develop, market and commercialize the ~~in‑licensed~~in-licensed drug candidate.

Our means of protecting our proprietary rights may not be adequate, and our competitors may:

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independently develop substantially equivalent proprietary information, products and techniques;

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otherwise gain access to our proprietary information; or

●

design around patents issued to us or our other intellectual property.

We pursue a policy of having our employees, consultants and advisors execute proprietary information and invention agreements when they begin working for us. However, these agreements may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure. If we fail to maintain trade secret and patent protection, our potential future revenues may be decreased.

If the effective term of our patents is decreased due to changes in the United States patent laws or if we need to refile some of our patent applications, the value of our patent portfolio and the revenues we derive from it may be decreased.

The value of our patents depends, in part, on their duration. A shorter period of patent protection could lessen the value of our rights under any patents that we obtain and may decrease the revenues we derive from our patents. The United States patent laws ~~were amended in 1995 to change the~~provide a term of patent protection ~~from 17 years from patent issuance to~~of 20 years from the earliest effective filing date of the patent application. Because the time from filing to issuance of biotechnology applications may be more than three years depending on the subject matter, a ~~20‑year~~20-year patent term from the filing date may result in substantially shorter patent protection.

Additionally, United States patent laws were amended in 2011 with the enactment of the America Invents Act and third parties are now able to challenge the validity of issued U.S. patents through various review proceedings; thus rendering the validity of U.S. patents more uncertain. We may be obligated to participate in review proceedings to determine the validity of our U.S. patents. We cannot predict the ultimate outcome of these proceedings, the conduct of which could result in substantial costs and diversion of our efforts and resources. If we are unsuccessful in these proceedings some or all of our claims in the patents may be narrowed or invalidated and the patent protection for our products and drug candidates in the United States could be substantially shortened. Further, if all of the patents covering one of our products are invalidated, the FDA could approve requests to manufacture a generic version of that product prior to the expiration date of those patents.

Other changes in the United States patent laws or changes in the interpretation of patent laws could diminish the value of our patents or narrow the scope of our patent protection. For example, the Supreme Court of the United States recently ruled that isolated DNA sequences cannot be patented. Although we no longer receive significant revenues generated from our former information products business, the majority of our gene patent portfolio from that business consists of patents on isolated DNA sequences, and this ruling limits our ability to derive additional revenues from our gene patent portfolio. Additionally, the Supreme Court recently resolved a split among the circuit courts of appeals regarding antitrust challenges to settlements of patent infringement lawsuits under the ~~Hatch‑Waxman~~Hatch-Waxman Act between ~~brand‑name~~brand-name drug companies and generic drug companies. The Court rejected the “scope of the patent” test and ruled that settlements involving “reverse payments” from ~~brand‑name~~brand-name drug companies to generic drug companies should be analyzed under the rule of reason. This ruling may create uncertainty and make it more difficult to settle patent litigation if a company seeking to manufacture a generic version of one of our products challenges the patents covering that product prior to the expiration date of those patents.

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International patent protection is particularly uncertain and costly, and our involvement in opposition proceedings in foreign countries may result in the expenditure of substantial sums and management resources.

Biotechnology and pharmaceutical patent law outside the United States is even more uncertain and costly than in the United States and is currently undergoing review and revision in many countries. Further, the laws of some foreign countries may not protect our intellectual property rights to the same extent as United States laws. For example, certain countries do not grant patent claims that are directed to the treatment of humans. We have participated, and may in the future participate, in opposition proceedings to determine the validity of our foreign patents or our competitors’ foreign patents, which could result in substantial costs and diversion of our efforts. For example, there is a patent opposition proceeding in India against our Indian patent that covers the composition of matter and use of certain Janus Kinase inhibitors, including ruxolitinib phosphate, for the treatment of myeloid proliferative disorders, cancer, immune‑related diseases, skin disorders, and other diseases. Successful challenges to our patent or other intellectual property rights through these proceedings could result in a loss of rights in the relevant jurisdiction and allow third parties to use our proprietary technologies without a license from us or our collaborators, which may also result in loss of future royalty payments. In addition, successful challenges may jeopardize or delay our ability to enter into new collaborations or commercialize potential products, which could harm our business and results of operations.

RISKS RELATING TO INFORMATION TECHNOLOGY AND DATA PRIVACY

Significant disruptions of information technology systems, breaches of data security, or unauthorized disclosures of sensitive data or personally identifiable information or individually identifiable health information could adversely affect our business,and couldsubject us to liability or reputational damage.

Our business is increasingly dependent on critical, complex, and interdependent information technology (IT) systems, including Internet-based systems, some of which are managed or hosted by third parties, to support business processes as well as internal and external communications. The size and complexity of our IT systems make us potentially vulnerable to IT system breakdowns, malicious intrusion, and computer viruses, which may result in the impairment of our ability to operate our business effectively. In addition, having a significant portion of our employees work remotely due to the COVID-19 pandemic can strain our information technology infrastructure, which may affect our ability to operate effectively, may make us more susceptible to communications disruptions, and expose us to greater cybersecurity risks.

We are continuously evaluating and, where appropriate, enhancing our IT systems to address our planned growth, including to support our planned manufacturing operations. In particular, we are currently in the process of implementing a new enterprise resource planning system. There are inherent costs and risks associated with implementing the enhancements to our IT systems, including potential delays in access to, or errors in, critical business and financial information, substantial capital expenditures, additional administrative time and operating expenses, retention of sufficiently skilled personnel to implement and operate the enhanced systems, demands on management time, and costs of delays or difficulties in transitioning to the enhanced systems, any of which could harm our business and results of operations. In addition, the implementation of enhancements to our IT systems may not result in productivity improvements at a level that outweighs the costs of implementation, or at all.

In addition, our systems and the systems of our third-party providers and collaborators are potentially vulnerable to data security breaches which may expose sensitive data to unauthorized persons or to the public. Such data security breaches could lead to the loss of confidential information, trade secrets or other intellectual property, or could lead to the public exposure of personal information (including personally identifiable information or individually identifiable health information) of our employees, clinical trial patients, customers, business partners, and ~~others.~~others, could lead to potential identity theft, or could lead to reputational harm. Data security breaches could also result in loss of clinical trial data or damage to the integrity of that data. In addition, the increased use of social media by our employees and contractors could result in inadvertent disclosure of sensitive data or personal information, including but not limited to, confidential information, trade secrets and other intellectual property.

Any such disruption or security breach, as well as any action by us or our employees or contractors that might be inconsistent with the rapidly evolving data privacy and security laws and regulations applicable within the United States and elsewhere where we conduct business, could result in enforcement actions by U.S. states, the U.S. Federal government or foreign governments, liability or sanctions under data privacy laws, including healthcare laws such as HIPAA, that protect ~~personally identifiable~~certain types of sensitive information, regulatory penalties, other legal proceedings such as but not limited to private

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litigation, the incurrence of significant remediation costs, disruptions to our development programs, business operations and collaborations, diversion of management efforts and damage to our reputation, which could harm our business and operations. Because of the rapidly moving nature of technology and the increasing sophistication of cybersecurity threats, our measures to prevent, respond to and minimize such risks may be unsuccessful.

~~Table~~In addition, the European Parliament and the Council of ~~Contents~~

the European Union has adopted a comprehensive general data privacy regulation, known as the GDPR, which governs the collection and use of personal data in the European Union. The GDPR, which is wide-ranging in scope, imposes several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, the security and confidentiality of the personal data, data breach notification and the use of third party processors in connection with the processing of the personal data. The GDPR also imposes strict rules on the transfer of personal data out of the European Union to the United States, provides an enforcement authority and imposes large penalties for noncompliance, including the potential for fines of up to €20 million or 4% of the annual global revenues of the infringer, whichever is greater. Moreover, the European Court of Justice in July 2020 invalidated the Privacy Shield framework that had been in place between the European Union and the United States, which invalidation has created uncertainty about how data can now be shared in a compliant manner. Additionally, the California Consumer Privacy Act (CCPA) affords a private right of action to such consumers if certain data breaches result in the loss or theft of their personal information. The GDPR, CCPA and other similar laws or regulations enacted in the United States or other jurisdictions associated with the enhanced protection of certain types of sensitive data, including healthcare data or other personal information, may increase our costs of doing business, and the differing requirements of these laws and regulations can complicate our compliance efforts.

Increasing use of social media could give rise to liability, breaches of data security, or reputational damage.

We and our employees are increasingly utilizing social media tools as a means of communication both internally and externally. Despite our efforts to monitor evolving social media communication guidelines and comply with applicable rules, there is risk that the use of social media by us or our employees to communicate about our products or business may cause us to be found in violation of applicable requirements. In addition, our employees may knowingly or inadvertently make use of social media in ways that may not comply with our social media policy or other legal or contractual requirements, which may give rise to liability, lead to the loss of trade secrets or other intellectual property, or result in public exposure of personal information of our employees, clinical trial patients, customers, and others. Furthermore, negative posts or comments about us or our products in social media could seriously damage our reputation, brand image, and goodwill.

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Item 6.Exhibits


Exhibit Number		Description of Document
Exhibit Number10.1†*		~~Description~~Amendment No. 2, dated as of ~~Document~~April 7, 2022, to Global Collaboration and License Agreement, dated October 24, 2017, by and between the Company and MacroGenics, Inc.

31.1*		Rule 13a-14(a) Certification of Chief Executive Officer.

31.2*		Rule 13a-14(a) Certification of Chief Financial Officer.

32.1**		Statement of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

32.2**		Statement of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

101.INS*		XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*		XBRL Taxonomy Extension Schema ~~Document~~Document.

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase ~~Document~~Document.

101.LAB*		XBRL Taxonomy Extension Label Linkbase ~~Document~~Document.

101.PRE*		XBRL Taxonomy Presentation Linkbase ~~Document~~Document.

101.DEF*		XBRL Taxonomy Definition Linkbase ~~Document~~

	Document.
*	~~Filed herewith.~~
104		Cover Page Interactive Data File (embedded within the Inline XBRL document).

*Filed herewith.

In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.

†Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.

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SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	INCYTE CORPORATION

Dated: ~~October 31, 2017~~August 2, 2022	By:	/s/ HERVÉ HOPPENOT
		Hervé Hoppenot
		Chairman, President, and Chief Executive Officer
		(Principal Executive Officer)

Dated: ~~October 31, 2017~~August 2, 2022	By:	/s/ ~~DAVID W. GRYSKA~~CHRISTIANA STAMOULIS
		~~David W. Gryska~~Christiana Stamoulis
		Chief Financial Officer
		(Principal Financial Officer)

9386


Delaware		94-3136539
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

1801 Augustine Cut-Off Wilmington, DE 19803		19803
(Address of principal executive offices)		(Zip Code)



Title of each class	Trading Symbol(s)	Name of exchange on which registered
Common Stock, $.001 par value per share	INCY	The Nasdaq Stock Market LLC


Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐
~~(Do not check if a smaller reporting company)~~
		Emerging growth company ☐

0
PART I: FINANCIAL INFORMATION			3

~~PART I~~: ~~FINANCIAL INFORMATION~~Item 1.		3
Financial Statements			3
~~Item 1.~~	~~Financial Statements~~		3

	Condensed Consolidated Balance Sheets		3
			3

	Condensed Consolidated Statements of Operations		4
			4

	Condensed Consolidated Statements of Comprehensive Income (Loss)		5
			5

	Condensed Consolidated Statements of Stockholders’ Equity		6

	Condensed Consolidated Statements of Cash Flows		6
			8

	Notes to Condensed Consolidated Financial Statements		7 9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		38 28

	Forward-Looking Statements		28

	Summary Risk Factors		31

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		69 55

Item 4.	Controls and Procedures		69 56

PART II: OTHER INFORMATION

Item 1A.	Risk Factors		70 56

Item 6.	Exhibits		92
			85

	Signatures		93 86


	September 30,		December 31,
	2017		2016*
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,128,046	$	652,343
Marketable securities—available-for-sale		153,343		156,203
Accounts receivable		198,345		148,758
Inventory		3,261		4,106
Prepaid expenses and other current assets		58,327		32,768
Total current assets		1,541,322		994,178

Restricted cash and investments		926		886
Long term investments		169,020		31,987
Inventory		11,297		15,193
Property and equipment, net		246,825		167,679
Other intangible assets, net		242,285		258,437
In-process research and development		—		12,000
Goodwill		155,593		155,593
Other assets, net		7,033		2,644
Total assets	$	2,374,301	$	1,638,597

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	69,933	$	75,599
Accrued compensation		61,274		50,904
Interest payable		100		762
Accrued and other current liabilities		164,298		126,697
Acquisition-related contingent consideration		24,330		19,539
Total current liabilities		319,935		273,501

Convertible senior notes		23,711		651,481
Acquisition-related contingent consideration		259,670		281,461
Other liabilities		13,235		12,687
Total liabilities		616,551		1,219,130

Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued or outstanding as of September 30, 2017 and December 31, 2016		—		—
Common stock, $0.001 par value; 400,000,000 shares authorized; 211,019,366 and 188,848,752 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively		211		189
Additional paid-in capital		3,585,403		2,096,929
Accumulated other comprehensive income (loss)		12,512		(2,886)
Accumulated deficit		(1,840,376)		(1,674,765)
Total stockholders’ equity		1,757,750		419,467
Total liabilities and stockholders’ equity	$	2,374,301	$	1,638,597



									Total
	Common		Additional		Accumulated Other		Accumulated		Stockholders’
	Stock		Paid-in Capital		Comprehensive Loss		Deficit		Equity
Balances at January 1, 2022	$	221	$	4,567,111	$	(19,454)	$	(777,874)	$	3,770,004
Issuance of 323,582 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units, net of shares withheld for taxes		—		14,237		—		—		14,237
Issuance of 1,535 shares of Common Stock for services rendered		—		112		—		—		112
Stock compensation		—		44,320		—		—		44,320
Other comprehensive loss		—		—		(3,593)		—		(3,593)
Net income		—		—		—		37,992		37,992
Balances at March 31, 2022	$	221	$	4,625,780	$	(23,047)	$	(739,882)	$	3,863,072
Issuance of 274,693 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units and performance shares, net of shares withheld for taxes and 189,684 shares of Common Stock under the ESPP		1		16,600		—		—		16,601
Issuance of 1,469 shares of Common Stock for services rendered		—		109		—		—		109
Stock compensation		—		46,496		—		—		46,496
Other comprehensive income		—		—		(2,649)		—		(2,649)
Net income		—		—		—		161,432		161,432
Balances at June 30, 2022	$	222	$	4,688,985	$	(25,696)	$	(578,450)	$	4,085,061


	Acquisition
(in thousands)	Fair Values
Current assets	$	21,363
Property and equipment		850
Restricted cash		432
Intangible assets(a)		283,000
Total identifiable assets		305,645
Current liabilities		(15,538)
Other long term liabilities		(5,226)
Total liabilities assumed		(20,764)
Goodwill(b)		155,593
Total fair value of consideration transferred	$	440,474


	For the Three Months Ended		For the Nine Months Ended
	September 30,		September 30,
	2016		2016
Pro forma revenues	$	269,469	$	821,743
Pro forma net income	$	36,877	$	91,248


	Level 3
Balance at January 1, 2017	$	301,000
Contingent consideration earned during the period but not yet paid		(5,657)
Payments made during the period		(9,429)
Change in fair value of contingent consideration		(1,914)
Balance at September 30, 2017	$	284,000


			Net		Net
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
	(in thousands)
September 30, 2017
Debt securities (corporate and government)	$	153,650	$	—	$	(307)	$	153,343

December 31, 2016
Debt securities (corporate and government)	$	156,330	$	—	$	(127)	$	156,203


	Percentage of Total				Percentage of Total
	Contract Revenues for the				Contract Revenues for the
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Collaboration Partner A	—	%	—	%	24	%	7	%
Collaboration Partner B	100	%	100	%	76	%	93	%


	Weighted-	Gross				Net
	Average Useful	Carrying		Accumulated		Carrying
	Lives (Years)	Amount		Amortization		Amount
Finite-lived intangible assets:
Licensed IP(1)	12.5	$	271,000	$	28,715	$	242,285
Indefinite-lived intangible assets:
Acquired IPR&D(1)	N/A		—		—		—
		$	271,000	$	28,715	$	242,285


		Remainder of
		2017		2018		2019		2020		2021		Thereafter
Amortization expense	$	5,384	$	21,536	$	21,536	$	21,536	$	21,536	$	150,757


	Employee Stock Options								Employee Stock Purchase Plan
	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended				For the Nine Months Ended
	September 30,								September 30,
	2017		2016		2017		2016		2017		2016		2017		2016

																	Employee Stock Options								Employee Stock Purchase Plan
																	For the Three Months Ended				For the Six Months Ended				For the Three Months Ended				For the Six Months Ended
																	June 30,								June 30,
																	2022		2021		2022		2021		2022		2021		2022		2021
Average risk-free interest rates	1.81	%	1.05	%	1.79	%	1.31	%	1.47	%	0.77	%	1.37	%	0.77	%	3.04	%	0.75	%	1.67	%	0.44	%	2.92	%	0.25	%	2.77	%	0.18	%
Average expected life (in years)	4.99		4.96		5.24		4.99		0.50		0.50		0.50		0.50		5.51		5.32		4.77		4.84		0.50		0.50		0.50		0.50
Volatility	48	%	50	%	49	%	50	%	39	%	38	%	41	%	48	%	33	%	38	%	37	%	39	%	39	%	26	%	28	%	33	%
Weighted-average fair value (in dollars)	55.80		36.66		53.81		39.29		20.46		18.33		19.89		18.94		26.35		29.55		25.30		29.80		14.91		16.14		14.53		18.48


		Shares Subject to
		Outstanding Options
	Shares Available		Weighted Average
	for Grant	Shares	Exercise Price
Balance at December 31, 2016	6,327,138	11,504,572	$	48.40

					Shares Subject to
					Outstanding Options
						Weighted Average
					Shares	Exercise Price
Balance at December 31, 2021					12,763,460	$	88.39
Options granted	(2,437,233)	2,437,233	$	120.15	1,245,450	$	74.54
Options exercised	—	(2,546,517)	$	30.68	(384,281)	$	69.03
Options cancelled	116,586	(116,586)	$	96.30	(723,224)	$	87.40
Balance at September 30, 2017	4,006,491	11,278,702	$	67.41
Balance at June 30, 2022					12,901,405	$	87.69


		Shares Subject to
	Shares Available	Outstanding Awards
	for Grant	Shares	Grant Date Value
Balance at December 31, 2016	1,146,152	1,246,570	$	82.05

					Shares Subject to
					Outstanding Awards
					Shares	Grant Date Value
Balance at December 31, 2021					3,966,888	$	84.91
RSUs granted	(396,331)	396,331	$	126.45	359,524		74.37
RSUs cancelled	41,376	(41,376)	$	89.68
RSUs released	—	(382,133)	$	127.72	(153,897)		83.43
PSUs released	—	(43,376)	$	122.29	(152,009)		67.18
Balance at September 30, 2017	791,197	1,176,016	$	100.86
RSUs cancelled					(171,234)		86.06
PSUs cancelled					(1,720)		65.76
Balance at June 30, 2022					3,847,552	$	84.64


		Shares Available
		for Grant
Balance at December 31, 2021		10,113,298
Options, RSUs and PSUs granted		(1,964,498)
Options, RSUs and PSUs cancelled		1,083,976
Balance at June 30, 2022		9,232,776


		~~Shares Issued~~
		~~and Outstanding~~
~~Balance at December 31, 2016~~		~~188,848,752~~
~~Exercise of stock options and issuance under ESPP~~		~~2,643,324~~
~~Settlement of employee restricted stock units and performance shares~~		~~285,958~~
~~Conversion of convertible senior notes~~		~~14,296,332~~
~~Public issuance of common stock~~		~~4,945,000~~
~~Balance at September 30, 2017~~		~~211,019,366~~


				Carrying Amount,
	Interest Rates			September 30,		December 31,
Debt	September 30, 2017		Maturities	2017		2016
0.375% Convertible Senior Notes due 2018	0.375	%	2018	$	7,303	$	340,916
1.25% Convertible Senior Notes due 2020	1.25	%	2020		16,408		310,565
					23,711		651,481
Less current portion					—		—
				$	23,711	$	651,481


			Less Than		Years		Years		Over
	Total		1 Year		2 - 3		4 - 5		5 Years
Contractual Obligations:
Principal on convertible senior debt	$	26.8	$	—	$	7.7	$	19.1	$	—
Interest on convertible senior debt		0.9		0.3		0.5		0.1		—
Non-cancelable lease obligations		28.8		12.4		12.5		2.3		1.6
Total contractual obligations	$	56.5	$	12.7	$	20.7	$	21.5	$	1.6