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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to            

Commission File Number: 001-12400

INCYTE CORPORATION

(Exact name of registrant as specified in its charter)

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)

(302) 498-6700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes   No

The number of outstanding shares of the registrant’s Common Stock, $.001 par value, was 222,430,635 as of July 26, 2022.

Table of Contents

INCYTE CORPORATION

INDEX

0

PART I: FINANCIAL INFORMATION

    

3

Item 1.

Financial Statements

3

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statements of Operations

4

Condensed Consolidated Statements of Comprehensive Income (Loss)

5

Condensed Consolidated Statements of Stockholders’ Equity

6

Condensed Consolidated Statements of Cash Flows

8

Notes to Condensed Consolidated Financial Statements

9

Item 2.

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

28

Forward-Looking Statements

28

Summary Risk Factors

31

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

55

Item 4.

Controls and Procedures

56

PART II: OTHER INFORMATION

Item 1A.

Risk Factors

56

Item 6.

Exhibits

85

Signatures

86

2

Table of Contents

PART I:    FINANCIAL INFORMATION

Item 1.    Financial Statements

INCYTE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except number of shares and par value)

June 30,

December 31,

    

2022

    

2021*

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

2,435,381

$

2,057,440

Marketable securities—available-for-sale (amortized cost $292,350 and $291,871 as of June 30, 2022 and December 31, 2021, respectively; allowance for credit losses $0 as of June 30, 2022 and December 31, 2021)

 

287,044

 

290,752

Accounts receivable

 

682,968

 

616,300

Inventory

 

54,502

 

27,904

Prepaid expenses and other current assets

165,950

 

126,278

Total current assets

 

3,625,845

 

3,118,674

Restricted cash and investments

 

1,644

1,720

Long term investments

 

149,784

221,266

Inventory

 

39,626

29,034

Property and equipment, net

 

721,328

723,920

Finance lease right-of-use assets, net

27,349

27,548

Other intangible assets, net

139,987

150,755

Goodwill

155,593

155,593

Deferred income tax asset

434,867

467,538

Other assets, net

 

23,012

37,304

Total assets

$

5,319,035

$

4,933,352

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

194,770

$

172,110

Accrued compensation

 

93,145

 

108,962

Accrued and other current liabilities

 

598,808

 

533,595

Finance lease liabilities

3,036

2,635

Acquisition-related contingent consideration

36,915

37,006

Total current liabilities

 

926,674

 

854,308

Acquisition-related contingent consideration

200,085

206,994

Finance lease liabilities

31,157

31,632

Other liabilities

 

76,058

70,414

Total liabilities

 

1,233,974

 

1,163,348

Commitments and contingencies (Note 14)

Stockholders’ equity:

Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued or outstanding

 

 

Common stock, $0.001 par value; 400,000,000 shares authorized; 221,875,396 and 221,084,433 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

 

222

221

Additional paid-in capital

 

4,688,985

4,567,111

Accumulated other comprehensive loss

 

(25,696)

(19,454)

Accumulated deficit

 

(578,450)

(777,874)

Total stockholders’ equity

 

4,085,061

 

3,770,004

Total liabilities and stockholders’ equity

$

5,319,035

$

4,933,352

*   The condensed consolidated balance sheet at December 31, 2021 has been derived from the audited consolidated financial statements at that date.

See accompanying notes.

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INCYTE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share amounts)

Three Months Ended

Six Months Ended

June 30,

June 30,

    

2022

    

2021

    

2022

    

2021

 

Revenues:

Product revenues, net

$

663,851

$

575,150

$

1,269,672

$

1,079,961

Product royalty revenues

 

117,546

 

120,559

 

239,960

 

220,466

Milestone and contract revenues

 

130,000

 

10,000

 

135,000

 

10,000

Total revenues

 

911,397

 

705,709

 

1,644,632

 

1,310,427

Costs and expenses:

Cost of product revenues (including definite-lived intangible amortization)

 

50,636

38,028

93,250

67,248

Research and development

 

347,196

343,511

700,569

650,407

Selling, general and administrative

 

253,277

168,859

462,861

322,654

Change in fair value of acquisition-related contingent consideration

3,313

4,632

9,695

10,158

Collaboration loss sharing

2,544

9,843

7,286

20,327

Total costs and expenses

 

656,966

 

564,873

 

1,273,661

 

1,070,794

Income from operations

 

254,431

 

140,836

 

370,971

 

239,633

Other income (expense), net

 

522

4,390

1,782

2,983

Interest expense

 

(678)

(358)

(1,358)

(717)

Unrealized (loss) gain on long term investments

 

(24,897)

26,765

(71,482)

(944)

Income before provision for income taxes

 

229,378

 

171,633

 

299,913

 

240,955

Provision for income taxes

 

67,946

22,177

100,489

37,964

Net income

$

161,432

$

149,456

$

199,424

$

202,991

Net income per share:

Basic

$

0.73

$

0.68

$

0.90

$

0.92

Diluted

$

0.72

$

0.67

$

0.89

$

0.91

Shares used in computing net income per share:

Basic

221,660

220,083

221,493

219,942

Diluted

223,661

222,250

223,277

222,061

See accompanying notes.

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INCYTE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited, in thousands)

Three Months Ended

Six Months Ended

June 30,

June 30,

    

2022

    

2021

    

2022

    

2021

 

Net income

$

161,432

$

149,456

$

199,424

$

202,991

Other comprehensive income (loss):

Foreign currency translation (loss) gain

(1,837)

1,876

(2,619)

(3,432)

Unrealized loss on marketable securities, net of tax

 

(1,094)

(133)

(4,187)

(165)

Defined benefit pension gain, net of tax

282

342

564

684

Other comprehensive income (loss)

 

(2,649)

 

2,085

 

(6,242)

 

(2,913)

Comprehensive income

$

158,783

$

151,541

$

193,182

$

200,078

See accompanying notes.

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INCYTE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands, except number of shares)

Total

Common

Additional

Accumulated Other

Accumulated

Stockholders’

Stock

Paid-in Capital

Comprehensive Loss

Deficit

Equity

Balances at January 1, 2022

$

221

$

4,567,111

$

(19,454)

$

(777,874)

$

3,770,004

Issuance of 323,582 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units, net of shares withheld for taxes

 

 

14,237

 

 

 

14,237

Issuance of 1,535 shares of Common Stock for services rendered

112

112

Stock compensation

 

44,320

 

44,320

Other comprehensive loss

 

 

(3,593)

 

(3,593)

Net income

 

 

 

37,992

37,992

Balances at March 31, 2022

$

221

$

4,625,780

$

(23,047)

$

(739,882)

$

3,863,072

Issuance of 274,693 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units and performance shares, net of shares withheld for taxes and 189,684 shares of Common Stock under the ESPP

 

1

16,600

16,601

Issuance of 1,469 shares of Common Stock for services rendered

109

109

Stock compensation

 

46,496

46,496

Other comprehensive income

 

 

 

(2,649)

 

 

(2,649)

Net income

 

 

 

 

161,432

 

161,432

Balances at June 30, 2022

$

222

$

4,688,985

$

(25,696)

$

(578,450)

$

4,085,061

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INCYTE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

(unaudited, in thousands, except number of shares)

Total

Common

Additional

Accumulated Other

Accumulated

Stockholders’

Stock

Paid-in Capital

Comprehensive Loss

Deficit

Equity

Balances at January 1, 2021

$

219

$

4,352,864

$

(15,360)

$

(1,726,455)

$

2,611,268

Issuance of 389,512 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units, net of shares withheld for taxes

 

1

 

20,027

 

 

 

20,028

Issuance of 1,357 shares of Common Stock for services rendered

108

108

Stock compensation

 

47,903

 

47,903

Other comprehensive loss

 

 

(4,998)

 

(4,998)

Net income

 

 

 

53,535

53,535

Balances at March 31, 2021

$

220

$

4,420,902

$

(20,358)

$

(1,672,920)

$

2,727,844

Issuance of 390,001 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units and performance shares, net of shares withheld for taxes and 153,082 shares of Common Stock under the ESPP

 

11,016

11,016

Issuance of 1,288 shares of Common Stock for services rendered

109

109

Stock compensation

 

45,351

45,351

Other comprehensive income

 

 

 

2,085

 

 

2,085

Net income

 

 

 

 

149,456

 

149,456

Balances at June 30, 2021

$

220

$

4,477,378

$

(18,273)

$

(1,523,464)

$

2,935,861

See accompanying notes.

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INCYTE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

Six Months Ended

June 30,

    

2022

    

2021

 

Cash flows from operating activities:

Net income

$

199,424

$

202,991

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

 

32,945

28,295

Stock-based compensation

 

90,337

92,090

Deferred income taxes

32,475

(160)

Other, net

8,467

3,214

Unrealized loss on long term investments

 

71,482

944

Change in fair value of acquisition-related contingent consideration

9,695

10,158

Changes in operating assets and liabilities:

Accounts receivable

 

(66,668)

43,824

Prepaid expenses and other assets

 

(25,380)

(2,981)

Inventory

 

(37,190)

(16,287)

Accounts payable

 

22,660

23,333

Accrued and other liabilities

 

51,651

(6,382)

Net cash provided by operating activities

 

389,898

 

379,039

Cash flows from investing activities:

Purchase of long term investments

 

 

(8,662)

Sale of long term investments

9,328

Capital expenditures

 

(28,749)

 

(114,390)

Purchases of marketable securities

 

(43,988)

 

(102,288)

Sale and maturities of marketable securities

 

43,509

 

107,114

Net cash used in investing activities

 

(29,228)

 

(108,898)

Cash flows from financing activities:

Proceeds from issuance of common stock under stock plans

 

37,692

43,669

Tax withholdings related to restricted and performance share vesting

(6,854)

(12,625)

Payment of finance lease liabilities

 

(1,368)

(1,173)

Payment of contingent consideration

(13,473)

(13,357)

Net cash provided by financing activities

 

15,997

 

16,514

Effect of exchange rates on cash, cash equivalents, restricted cash and investments

1,198

(2,159)

Net increase in cash, cash equivalents, restricted cash and investments

 

377,865

 

284,496

Cash, cash equivalents, restricted cash and investments at beginning of period

2,059,160

1,514,765

Cash, cash equivalents, restricted cash and investments at end of period

$

2,437,025

$

1,799,261

Supplemental Schedule of Cash Flow Information

Income taxes paid

$

76,464

$

35,996

Unpaid purchases of property and equipment

$

8,952

$

30,823

Leased assets obtained in exchange for new operating lease liabilities

$

2,025

$

7,217

Leased assets obtained in exchange for new finance lease liabilities

$

1,308

$

408

See accompanying notes.

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INCYTE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(Unaudited)

Note 1.     Organization and business

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

Note 2.     Summary of significant accounting policies

Basis of presentation

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

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

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

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

Use of Estimates.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Recent Accounting Pronouncements

There were no new accounting pronouncements issued nor adopted since our filing of the Annual Report on Form 10-K for the year ended December 31, 2021, which could have a significant effect on our condensed consolidated financial statements.

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Note 3.     Revenues

Revenues are recognized under guidance within ASC 606, Revenue from Contracts with Customers. The following table presents our disaggregated revenue for the periods presented (in thousands):

Three Months Ended

Six Months Ended

    

June 30,

    

June 30,

    

2022

2021

2022

2021

JAKAFI revenues, net

$

597,673

$

529,055

$

1,142,137

$

994,765

ICLUSIG revenues, net

26,224

28,189

52,293

53,834

PEMAZYRE revenues, net

18,983

17,906

37,015

31,362

MINJUVI revenues, net

4,411

8,913

OPZELURA revenues, net

16,560

29,314

Total product revenues, net

663,851

575,150

1,269,672

1,079,961

JAKAVI product royalty revenues

83,711

82,038

154,578

147,640

OLUMIANT product royalty revenues

30,254

36,045

78,318

68,303

TABRECTA product royalty revenues

3,581

2,476

7,064

4,523

Total product royalty revenues

117,546

120,559

239,960

220,466

Milestone and contract revenues

130,000

10,000

135,000

10,000

Total revenues

$

911,397

$

705,709

$

1,644,632

$

1,310,427

For further information on our revenue-generating contracts, refer to Note 7.  

Note 4.     Fair value of financial instruments

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

Net

Amortized

Unrealized

Estimated

    

Cost

    

Losses

    

Fair Value

 

June 30, 2022

    

    

    

Debt securities (government)

$

292,350

$

(5,306)

$

287,044

December 31, 2021

Debt securities (government)

$

291,871

$

(1,119)

$

290,752

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

Fair Value Measurements

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

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

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

At June 30, 2022 and December 31, 2021, our Level 2 U.S. government debt securities were valued using readily available pricing sources which utilize market observable inputs, including the current interest rate and other characteristics for similar types of investments. Our long term investments classified as Level 1 were valued using their respective closing stock prices on The Nasdaq Stock Market.  We did not experience any transfers of financial instruments between the fair value hierarchy levels during the six months ended June 30, 2022.

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

Fair Value Measurement at Reporting Date Using:

Quoted Prices in

Significant Other

Significant

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

Balance as of

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

June 30, 2022

 

Cash and cash equivalents

$

2,435,381

$

$

$

2,435,381

Debt securities (government)

 

 

287,044