SEC Filing | Incyte

View:

incy-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2023


o			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. x Yes o 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). x Yes o 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 o

Non-accelerated filer o			Smaller reporting company o

			Emerging growth company o

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. o

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

The number of outstanding shares of the registrant’s Common Stock, $.001 par value, was 224,109,238 as of October 24, 2023.

Table of Contents

INCYTE CORPORATION

INDEX


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	25

	Forward-Looking Statements	25

	Summary Risk Factors	28

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	52

Item 4.	Controls and Procedures	53

PART II: OTHER INFORMATION

Item 1A.	Risk Factors	53

Item 5.	Other Information	82

Item 6.	Exhibits	83

	Signatures	84

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)


	September 30, 2023		December 31, 2022*
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,227,230	$	2,951,422
Marketable securities—available-for-sale (amortized cost $290,583 and $292,580 as of September 30, 2023 and December 31, 2022, respectively; allowance for credit losses $0 as of September 30, 2023 and December 31, 2022)	289,223		287,543
Accounts receivable	657,263		644,879
Inventory	57,200		41,995
Prepaid expenses and other current assets	171,749		167,011
Total current assets	4,402,665		4,092,850

Restricted cash	1,717		1,698
Long term investments	153,663		133,676
Inventory	142,086		78,964
Property and equipment, net	733,046		739,310
Finance lease right-of-use assets, net	24,880		26,298
Other intangible assets, net	129,249		129,219
Goodwill	155,593		155,593
Deferred income tax asset	564,385		457,941
Other assets, net	80,955		25,435
Total assets	$	6,388,239	$	5,840,984

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	139,411	$	277,546
Accrued compensation	124,783		138,761
Accrued and other current liabilities	820,607		701,053
Finance lease liabilities	3,064		3,179
Acquisition-related contingent consideration	36,815		36,538
Total current liabilities	1,124,680		1,157,077

Acquisition-related contingent consideration	170,185		184,462
Finance lease liabilities	28,859		30,083
Other liabilities	133,068		99,243
Total liabilities	1,456,792		1,470,865

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; 224,101,839 and 222,746,719 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively	224		223
Additional paid-in capital	4,949,023		4,792,041
Accumulated other comprehensive income	22,894		15,069
Accumulated deficit	(40,694)		(437,214)
Total stockholders’ equity	4,931,447		4,370,119
Total liabilities and stockholders’ equity	$	6,388,239	$	5,840,984

*The condensed consolidated balance sheet at December 31, 2022 has been derived from the audited consolidated financial statements at that date.

See accompanying notes.

Table of Contents

INCYTE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues:
Product revenues, net	$	783,197	$	713,010	$	2,303,439	$	1,982,682
Product royalty revenues	130,828		110,293		373,869		350,253
Milestone and contract revenues	5,000		—		5,000		135,000
Total revenues	919,025		823,303		2,682,308		2,467,935

Costs and expenses:
Cost of product revenues (including definite-lived intangible amortization)	60,091		54,584		185,239		147,834
Research and development	375,709		384,007		1,183,100		1,084,576
Selling, general and administrative	267,893		266,460		867,428		729,321
(Gain) loss on change in fair value of acquisition-related contingent consideration	(426)		(21,893)		14,144		(12,198)
Loss and (profit) sharing under collaboration agreements	1,053		1,769		(858)		9,055
Total costs and expenses	704,320		684,927		2,249,053		1,958,588

Income from operations	214,705		138,376		433,255		509,347
Interest income and other, net	46,371		11,513		121,912		13,295
Interest expense	(623)		(641)		(1,747)		(1,999)
Unrealized (loss) gain on long term investments	(26,654)		(660)		9,839		(72,142)
Income before provision for income taxes	233,799		148,588		563,259		448,501
Provision for income taxes	62,530		35,813		166,739		136,302
Net income	$	171,269	$	112,775	$	396,520	$	312,199

Net income per share:
Basic	$	0.76	$	0.51	$	1.77	$	1.41
Diluted	$	0.76	$	0.50	$	1.76	$	1.40

Shares used in computing net income per share:
Basic	224,078		222,415		223,428		221,801
Diluted	226,167		224,175		225,756		223,626

See accompanying notes.

Table of Contents

INCYTE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited, in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income	$	171,269	$	112,775	$	396,520	$	312,199

Other comprehensive (loss) income:
Foreign currency translation (loss) gain	(4,855)		(2,513)		3,594		(5,132)
Unrealized gain (loss) on marketable securities, net of tax	768		(1,135)		3,677		(5,322)
Defined benefit pension gain, net of tax	175		282		554		846
Other comprehensive (loss) income	(3,912)		(3,366)		7,825		(9,608)

Comprehensive income	$	167,357	$	109,409	$	404,345	$	302,591

See accompanying notes.

Table of Contents

INCYTE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands, except number of shares)


	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders’ Equity
Balances at January 1, 2023	$	223	$	4,792,041	$	15,069	$	(437,214)	$	4,370,119
Issuance of 313,995 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units, net of shares withheld for taxes	—		11,235		—		—		11,235
Issuance of 1,073 shares of Common Stock for services rendered	—		80		—		—		80
Stock compensation	—		53,558		—		—		53,558
Other comprehensive income	—		—		5,873		—		5,873
Net income	—		—		—		21,703		21,703
Balance at March 31, 2023	$	223	$	4,856,914	$	20,942	$	(415,511)	$	4,462,568
Issuance of 59,093 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 216,168 shares of Common Stock under the ESPP	—		13,704		—		—		13,704
Issuance of 1,282 shares of Common Stock for services rendered	—		80		—		—		80
Stock compensation	—		54,928		—		—		54,928
Other comprehensive income	—		—		5,864		—		5,864
Net income	—		—		—		203,548		203,548
Balances at June 30, 2023	$	223	$	4,925,626	$	26,806	$	(211,963)	$	4,740,692
Issuance of 762,231 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units, net of shares withheld for taxes	1		(24,682)		—		—		(24,681)
Issuance of 1,278 shares of Common Stock for services rendered	—		80		—		—		80
Stock compensation	—		47,999		—		—		47,999
Other comprehensive loss	—		—		(3,912)		—		(3,912)
Net income	—		—		—		171,269		171,269
Balances at September 30, 2023	$	224	$	4,949,023	$	22,894	$	(40,694)	$	4,931,447

Table of Contents

INCYTE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

(unaudited, in thousands, except number of shares)


	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ 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 loss	—		—		(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
Issuance of 578,106 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units, net of shares withheld for taxes	—		(13,572)		—		—		(13,572)
Issuance of 1,337 shares of Common Stock for services rendered	—		94		—		—		94
Stock compensation	—		45,659		—		—		45,659
Other comprehensive loss	—		—		(3,366)		—		(3,366)
Net income	—		—		—		112,775		112,775
Balances at September 30, 2022	$	222	$	4,721,166	$	(29,062)	$	(465,675)	$	4,226,651

See accompanying notes.

Table of Contents

INCYTE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net income	$	396,520	$	312,199
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	60,898		49,637
Stock-based compensation	155,899		135,741
Deferred income taxes	(92,919)		40,432
Other, net	(543)		15,097
Unrealized (gain) loss on long term investments	(9,839)		72,142
Loss (gain) on change in fair value of acquisition-related contingent consideration	14,144		(12,198)
Changes in operating assets and liabilities:
Accounts receivable	(12,384)		(1,888)
Prepaid expenses and other assets	(62,081)		(40,016)
Inventory	(77,193)		(48,316)
Accounts payable	(138,135)		(8,935)
Accrued and other liabilities	114,391		172,384
Net cash provided by operating activities	348,758		686,279
Cash flows from investing activities:
Purchase of long term investments	(10,000)		—
Sale of long term investments	45		—
Capital expenditures	(30,219)		(56,560)
Payments for intangible assets	(15,000)		—
Purchases of marketable securities	(222,228)		(59,058)
Sale and maturities of marketable securities	224,225		57,988
Net cash used in investing activities	(53,177)		(57,630)
Cash flows from financing activities:
Proceeds from issuance of common stock under stock plans	28,319		42,989
Tax withholdings related to restricted and performance share vesting	(28,061)		(25,724)
Payment of finance lease liabilities	(2,523)		(2,106)
Payment of contingent consideration	(18,114)		(13,473)
Net cash (used in) provided by financing activities	(20,379)		1,686
Effect of exchange rates on cash, cash equivalents, restricted cash and investments	625		2,728
Net increase in cash, cash equivalents, restricted cash and investments	275,827		633,063
Cash, cash equivalents, restricted cash and investments at beginning of period	2,953,120		2,059,160
Cash, cash equivalents, restricted cash and investments at end of period	$	3,228,947	$	2,692,223
Supplemental Schedule of Cash Flow Information
Income taxes paid	$	253,180	$	116,537
Unpaid purchases of property and equipment	$	11	$	8,836
Leased assets obtained in exchange for new operating lease liabilities	$	5,275	$	3,650
Leased assets obtained in exchange for new finance lease liabilities	$	1,176	$	1,448

See accompanying notes.

Table of Contents

INCYTE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(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), MONJUVI® (tafasitamab-cxix), which is co-commercialized, and ZYNYZ™ (retifanlimab-dlwr). 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 September 30, 2023, the condensed consolidated statements of operations, comprehensive income (loss), and stockholders’ equity for the three and nine months ended September 30, 2023 and 2022, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022, 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, 2022 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, 2022.

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.

Other Intangible Assets, net. Other intangible assets, net consist of licensed intellectual property rights acquired in business combinations, which are reported at acquisition date fair value, less accumulated amortization, as well as milestone payments made to collaboration partners incurred at or after the product has obtained regulatory approval. Intangible assets with finite lives are amortized over their estimated useful lives using the straight-line method. Intangible assets with finite lives are tested for recoverability whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.

Cost of Product Revenues. Cost of product revenues includes all product related costs and royalties owed under our collaboration and license agreements, contingent on certain conditions. In addition, cost of product revenues includes the amortization of our licensed intellectual property for ICLUSIG and the amortization of capitalized milestone payments, using the straight-line method over the respective estimated useful lives, which range between approximately 11 to 14 years. Cost of product revenues also includes employee personnel costs, including stock compensation, for those employees dedicated to the production of our commercial products.

Table of Contents

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, 2022, which could have a significant effect on our condensed consolidated financial statements.

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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
JAKAFI revenues, net	$	636,252	$	619,595	$	1,898,605	$	1,761,732
OPZELURA revenues, net	91,836		38,140		228,621		67,454
ICLUSIG revenues, net	27,721		25,929		84,493		78,222
PEMAZYRE revenues, net	18,942		23,414		62,989		60,429
MINJUVI revenues, net	8,348		5,932		28,063		14,845
ZYNYZ revenues, net	98		—		668		—
Total product revenues, net	783,197		713,010		2,303,439		1,982,682
JAKAVI product royalty revenues	96,551		85,808		263,691		240,386
OLUMIANT product royalty revenues	29,615		20,371		95,779		98,689
TABRECTA product royalty revenues	4,139		4,114		13,115		11,178
PEMAZYRE product royalty revenues	523		—		1,284		—
Total product royalty revenues	130,828		110,293		373,869		350,253
Milestone and contract revenues	5,000		—		5,000		135,000
Total revenues	$	919,025	$	823,303	$	2,682,308	$	2,467,935

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):


	Amortized Cost		Net Unrealized Losses		Estimated Fair Value
September 30, 2023
Debt securities (government)	$	290,583	$	(1,360)	$	289,223

December 31, 2022
Debt securities (government)	$	292,580	$	(5,037)	$	287,543

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 September 30, 2023 and December 31, 2022, 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.

Table of Contents

Fair Value Measurements

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

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

Level 2—Valuations based on observable inputs and quoted prices in active markets for similar assets and liabilities.

Level 3—Valuations based on inputs that are unobservable and models that are significant to the overall fair value measurement.

Recurring Fair Value Measurements

Our marketable securities consist of investments in U.S. government debt securities that are classified as available-for-sale.

At September 30, 2023 and December 31, 2022, 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 nine months ended September 30, 2023.

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


	Fair Value Measurement at Reporting Date Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of September 30, 2023
Cash and cash equivalents	$	3,227,230	$	—	$	—	$	3,227,230
Debt securities (government)	—		289,223		—		289,223
Long term investments (Note 7)	153,663		—		—		153,663
Total assets	$	3,380,893	$	289,223	$	—	$	3,670,116


	Fair Value Measurement at Reporting Date Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2022
Cash and cash equivalents	$	2,951,422	$	—	$	—	$	2,951,422
Debt securities (government)	—		287,543		—		287,543
Long term investments (Note 7)	133,676		—		—		133,676
Total assets	$	3,085,098	$	287,543	$	—	$	3,372,641

Table of Contents

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


	Fair Value Measurement at Reporting Date Using:
	Quoted Prices in Active Markets for Identical Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of September 30, 2023
Acquisition-related contingent consideration	$	—	$	—	$	207,000	$	207,000
Total liabilities	$	—	$	—	$	207,000	$	207,000


	Fair Value Measurement at Reporting Date Using:
	Quoted Prices in Active Markets for Identical Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2022
Acquisition-related contingent consideration	$	—	$	—	$	221,000	$	221,000
Total liabilities	$	—	$	—	$	221,000	$	221,000

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


	2023
Balance at January 1,	$	221,000
Contingent consideration earned during the period but not yet paid	(10,684)
Payments made during the period	(17,460)
Change in fair value of contingent consideration	14,144
Balance at September 30,	$	207,000

The initial fair value of the contingent consideration was determined on the date of acquisition, June 1, 2016, using an income approach based on projected future net revenues of ICLUSIG in the European Union and other countries for the approved third line treatment over 18 years, and discounted to present value at a rate of 10%. The fair value of the contingent consideration is remeasured each reporting period, with changes in fair value recorded in the condensed consolidated statements of operations. The valuation inputs utilized to estimate the fair value of the contingent consideration as of September 30, 2023 and December 31, 2022 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 months ended September 30, 2023 was due primarily to the changes in foreign currency exchange rates included within the updated projections of future net revenues of ICLUSIG and the passage of time.

We generally make payments to Takeda Pharmaceutical Company Limited quarterly based on the royalties or any additional milestone payments earned in the previous quarter. At September 30, 2023 and December 31, 2022, contingent consideration earned but not yet paid was $10.7 million and $9.3 million, respectively, and was included in accrued and other current liabilities.

Note 5. Concentration of Credit Risk and Current Expected Credit Losses

In November 2009, we entered into a collaboration and license agreement with Novartis Pharmaceutical International Ltd. (“Novartis”). In December 2009, we entered into a license, development and commercialization agreement with Eli Lilly and Company (“Lilly”). The above collaboration partners comprised, in aggregate, 21% and 20% of the accounts receivable balance as of September 30, 2023 and December 31, 2022, respectively. For further information relating to these collaboration and license agreements, refer to Note 7.

Table of Contents

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


	Percentage of Total Net Product Revenues for the Three Months Ended				Percentage of Total Net Product Revenues for the Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Customer A	17	%	19	%	17	%	19	%
Customer B	10	%	10	%	10	%	11	%
Customer C	17	%	18	%	18	%	18	%
Customer D	8	%	9	%	9	%	10	%
Customer E	12	%	14	%	11	%	14	%

We are exposed to risks associated with extending credit to customers related to the sale of products. Customers A, B, C, D, and E comprised, in aggregate, 33% and 41% of the accounts receivable balance as of September 30, 2023 and December 31, 2022, respectively. The concentration of credit risk relating to our other product revenues or accounts receivable is not significant.

We assessed our collaborative and customer receivable assets as of September 30, 2023 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 September 30, 2023 and December 31, 2022, we had no allowance for doubtful accounts.

Note 6. Inventory

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


	September 30, 2023		December 31, 2022
Raw materials	$	22,006	$	31,874
Work-in-process	140,370		54,455
Finished goods	36,910		34,630
Total inventory	$	199,286	$	120,959

Inventories, stated at the lower of cost and net realizable value, consist of raw materials, work in process and finished goods. At September 30, 2023, $57.2 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 30, 2023, $142.1 million of inventory was classified as non-current on the condensed consolidated balance sheet as we did not expect this inventory to be consumed for commercial use within the next twelve months. We obtain some inventory components from a limited number of suppliers due to technology, availability, price, quality or other considerations. The loss of a supplier, the deterioration of our relationship with a supplier, or any unilateral violation of the contractual terms under which we are supplied components by a supplier could adversely affect our total revenues and gross margins.

We capitalize inventory after regulatory approval as the related costs are expected to be recoverable through the commercialization of the product. Costs incurred prior to regulatory approval are recorded as research and development expense in our statements of operations. At September 30, 2023, inventory with approximately $36.7 million of product costs incurred prior to regulatory approval had not yet been sold. We expect to sell the pre-commercialization inventory over the next 12 to 18 months and, as a result, cost of product revenues will reflect a lower average per unit cost of materials.

Table of Contents

Note 7. License Agreements

Novartis

In November 2009, we entered into a Collaboration and License Agreement with Novartis. Under the terms of the agreement, Novartis received exclusive development and commercialization rights outside of the United States to our JAK inhibitor ruxolitinib and certain back-up compounds for hematologic and oncology indications, including all hematological malignancies, solid tumors and myeloproliferative diseases. We retained exclusive development and commercialization rights to JAKAFI (ruxolitinib) in the United States and in certain other indications. Novartis also received worldwide exclusive development and commercialization rights to our MET inhibitor compound capmatinib and certain back-up compounds in all indications.

Under this agreement, we were initially eligible to receive up to $174.0 million for the achievement of development milestones, up to $495.0 million for the achievement of regulatory milestones and up to $500.0 million for the achievement of sales milestones. In addition, we are eligible to receive up to $75.0 million of additional potential development and regulatory milestones relating to graft-versus-host-disease (“GVHD”). Since the inception of the agreement through September 30, 2023, we have recognized and received, in the aggregate, $157.0 million for the achievement of development milestones, $345.0 million for the achievement of regulatory milestones, and $200.0 million for the achievement of sales milestones.

In September 2023, we recognized a $5.0 million regulatory milestone for the regulatory approval from the Japanese Ministry of Health, Labour and Welfare (MHLW) for the GVHD indication of JAKAVI (ruxolitinib).

We also are eligible to receive tiered, double-digit royalties ranging from the upper-teens to the mid-twenties on future JAKAVI net sales outside of the United States, and tiered, worldwide royalties on TABRECTA net sales that range from 12% to 14%. We are obligated to pay to Novartis tiered royalties in the low single-digits on future JAKAFI net sales within the United States contingent on certain conditions. During the three and nine months ended September 30, 2023, such royalties on net sales within the United States totaled $31.1 million and $88.0 million, respectively, and were reflected in cost of product revenues on the condensed consolidated statements of operations. During the three and nine months ended September 30, 2022, such royalties on net sales within the United States totaled $30.3 million and $81.3 million, respectively, and were reflected in cost of product revenues on the condensed consolidated statements of operations. At September 30, 2023 and December 31, 2022, $341.5 million and $253.5 million, respectively, of accrued royalties were included in accrued and other current liabilities on the condensed consolidated balance sheets, payment of which is dependent on the outcome of a contract dispute with Novartis. Each company is responsible for costs relating to the development and commercialization of ruxolitinib in its respective territories, with costs of collaborative studies shared equally. Novartis is also responsible for all costs relating to the development and commercialization of capmatinib.

Milestone and contract revenue under the Novartis agreement was $5.0 million for both the three and nine months ended September 30, 2023. We had no milestone and contract revenue under the Novartis agreement for the three months ended September 30, 2022, and we had $60.0 million for the nine months ended September 30, 2022. Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States for the three and nine months ended September 30, 2023 was $96.6 million and $263.7 million, respectively. Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States for the three and nine months ended September 30, 2022 was $85.8 million and $240.4 million, respectively. Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three and nine months ended September 30, 2023 was $4.1 million and $13.1 million, respectively. Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three and nine months ended September 30, 2022 was $4.1 million and $11.2 million, respectively.

Lilly – Baricitinib

In December 2009, we entered into a License, Development and Commercialization Agreement with Lilly. Under the terms of the agreement, Lilly received exclusive worldwide development and commercialization rights to our JAK inhibitor baricitinib, and certain back-up compounds for inflammatory and autoimmune diseases.

Table of Contents

Under this agreement, we were initially eligible to receive up to $150.0 million for the achievement of development milestones, up to $365.0 million for the achievement of regulatory milestones and up to $150.0 million for the achievement of sales milestones. Since the inception of the agreement through September 30, 2023, we have recognized and received, in aggregate, $149.0 million for the achievement of development milestones, $335.0 million for the achievement of regulatory milestones and $50.0 million for the achievement of sales milestones. We are also eligible to receive tiered, double-digit royalties on future global sales with rates ranging up to the mid-twenties if a product is successfully commercialized.

In May 2020, we amended our agreement with Lilly to enable Lilly to develop and commercialize baricitinib for the treatment of COVID-19. As part of the amended agreement, in addition to the royalties described above, we will be entitled to receive additional royalty payments with rates in the low teens on global net sales of baricitinib for the treatment of COVID-19 that exceed a specified aggregate global net sales threshold.

We had no milestone and contract revenue under the Lilly agreement for the three and nine months ended September 30, 2023. We had no milestone and contract revenue under the Lilly agreement for the three months ended September 30, 2022, and we had $70.0 million for the nine months ended September 30, 2022. Product royalty revenue related to Lilly net sales of OLUMIANT outside of the United States for the three and nine months ended September 30, 2023 was $29.6 million and $95.8 million, respectively. Product royalty revenue related to Lilly net sales of OLUMIANT outside of the United States for the three and nine months ended September 30, 2022 was $20.4 million and $98.7 million, respectively.

Lilly - Ruxolitinib

In March 2016, we entered into an amendment to the agreement with Lilly that amended the non-compete provision of the agreement to allow us to engage in the development and commercialization of ruxolitinib in the GVHD field. Lilly was eligible to receive up to $40.0 million in regulatory milestone payments relating to ruxolitinib in the GVHD field. In May 2019, the approval of JAKAFI in steroid-refractory acute GVHD triggered a $20.0 million milestone payment to Lilly. In March 2022, the positive recommendation from the European Medicines Agency for regulatory approval of ruxolitinib in the GVHD field triggered an additional $20.0 million milestone payment to Lilly, which was recorded as research and development expense in our condensed consolidated statements of operations for the three months ended March 31, 2022.

Agenus

In January 2015, we entered into a License, Development and Commercialization Agreement with Agenus Inc. and its wholly-owned subsidiary, 4-Antibody AG (now known as Agenus Switzerland Inc.), which we collectively refer to as Agenus. Under this agreement, which was amended in February 2017, the parties have agreed to collaborate on the discovery of novel immuno-therapeutics using Agenus’ antibody discovery platforms.

Since the inception of the agreement through September 30, 2023, we have paid Agenus milestones totaling $30.0 million, and Agenus is eligible to receive up to an additional $500.0 million in future contingent development, regulatory and commercialization milestones across all programs in the collaboration.

As of September 30, 2023, we held an investment of approximately 12.1 million shares of Agenus Inc. common stock. The fair market value of our long term investment in Agenus Inc. at September 30, 2023 and December 31, 2022 was $13.6 million and $29.0 million, respectively. For the three and nine months ended September 30, 2023, we recorded an unrealized loss of $5.6 million and $15.3 million, respectively, based on the change in fair value of Agenus Inc.’s common stock during the respective periods. For the three and nine months ended September 30, 2022, we recorded an unrealized gain of $1.3 million and an unrealized loss of $14.1 million, respectively, based on the change in fair value of Agenus Inc.’s common stock during the respective periods.

During May 2023, Agenus Inc. distributed a dividend of shares it owned of its publicly traded subsidiary MiNK Therapeutics' ("MiNK") common stock to shareholders who held Agenus Inc. shares. As a result, we acquired approximately 0.2 million shares of MiNK common stock. The fair market value of our long term investment in MiNK at September 30, 2023 was $0.2 million. During the three and nine months ended September 30, 2023, we recorded an unrealized loss of $0.2 million and a nominal unrealized gain, respectively, based on the change in fair value of MiNK’s common stock during the period.

Table of Contents

Merus

In December 2016, we entered into a Collaboration and License Agreement with Merus N.V. (“Merus”). Under this agreement, the parties have agreed to collaborate with respect to the research, discovery and development of bispecific antibodies utilizing Merus’ technology platform. The collaboration encompasses up to ten independent programs.

In January 2023, we paid Merus a milestone of $2.5 million, which was recorded as research and development expense in our condensed consolidated statements of operations during the three months ended March 31, 2023. In August 2023, we paid Merus a milestone of $2.5 million, which was recorded as research and development expense in our condensed consolidated statements of operations during the three months ended September 30, 2023. Since the inception of the agreement through September 30, 2023, we have paid and expensed Merus milestones totaling $8.0 million.

During August 2023, we purchased approximately 0.5 million shares of Merus’ common shares for an aggregate purchase price of $10.0 million in cash. As of September 30, 2023, we held an investment of approximately 4.0 million common shares. The fair market value of our total long term investment in Merus at September 30, 2023 and December 31, 2022 was $94.4 million and $54.9 million, respectively. For the three and nine months ended September 30, 2023, we recorded an unrealized loss of $9.1 million and an unrealized gain of $29.5 million, respectively, based on the change in fair value of Merus’ common shares during the respective periods. For the three and nine months ended September 30, 2022, we recorded an unrealized loss of $9.3 million and $41.8 million, respectively, based on the change in fair value of Merus’ common shares during the respective periods.

MacroGenics

In October 2017, we entered into a Global Collaboration and License Agreement with MacroGenics, Inc. (“MacroGenics”). Under this agreement, we received exclusive development and commercialization rights worldwide to MacroGenics’ INCMGA0012 (formerly MGA012), an investigational monoclonal antibody that inhibits PD-1. Except as set forth in the succeeding sentence, we have sole authority over and bear all costs and expenses in connection with the development and commercialization of INCMGA0012 in all indications, whether as a monotherapy or as part of a combination regimen. MacroGenics has retained the right to develop and commercialize, at its cost and expense, its pipeline assets in combination with INCMGA0012. In addition, MacroGenics has the right to manufacture a portion of both companies’ global clinical and commercial supply needs of INCMGA0012.

In July 2022, we amended our agreement with MacroGenics to reflect changes related to the payment of certain milestones and paid MacroGenics $30.0 million, which was previously recorded as research and development expense in our condensed consolidated statements of operations in the third quarter of 2022. In March 2023, we made a $15.0 million regulatory milestone payment to MacroGenics for the FDA approval of ZYNYZ for the treatment of adults with Merkel cell carcinoma. This milestone payment was capitalized as an intangible asset and included in Other intangible assets, net on the condensed consolidated balance sheet as of September 30, 2023, and is being amortized through cost of product revenues over the estimated useful life of 13.5 years.

Since the inception of the agreement through September 30, 2023, we have paid MacroGenics developmental and regulatory milestones totaling $115.0 million. After the amendment and subsequent payments, MacroGenics will be eligible to receive up to an additional $320.0 million in future contingent development and regulatory milestones, and up to $330.0 million in sales milestones as well as tiered royalties ranging from 15% to 24% of global net sales.

Research and development expenses for the three and nine months ended September 30, 2023 also included $12.9 million and $42.8 million, respectively, of development costs incurred pursuant to the MacroGenics agreement. Research and development expenses for the three and nine months ended September 30, 2022 also included $41.6 million and $69.9 million, respectively, of development costs incurred pursuant to the MacroGenics agreement. At September 30, 2023 and December 31, 2022, a total of $0.8 million and $2.9 million of such costs were included in accrued and other liabilities on the condensed consolidated balance sheets.

Table of Contents

Syros

In January 2018, we entered into a Target Discovery, Research Collaboration and Option Agreement with Syros Pharmaceuticals, Inc. (“Syros”). Under this agreement, Syros would use its proprietary gene control platform to identify novel therapeutic targets with a focus in myeloproliferative neoplasms and we had received options to obtain exclusive worldwide rights to intellectual property resulting from the collaboration for up to seven validated targets. In August 2023, we terminated the Target Discovery, Research Collaboration and Option Agreement with Syros, effective as of October 10, 2023.

As of September 30, 2023, we held an investment of approximately 0.1 million shares of Syros common stock. The fair market value of our long term investment in Syros as of September 30, 2023 and December 31, 2022 was $0.4 million and $0.3 million, respectively. For the three and nine months ended September 30, 2023, we recorded a unrealized gain of $0.1 million and a nominal unrealized gain, respectively, based on the change in fair value of Syros’ common stock during the respective periods. For the three and nine months ended September 30, 2022, we recorded an unrealized loss of $0.3 million and $2.5 million, respectively, based on the change in fair value of Syros’ common stock during the respective periods.

MorphoSys

In January 2020, we entered into a Collaboration and License Agreement with MorphoSys AG and MorphoSys US Inc., a wholly-owned subsidiary of MorphoSys AG (together with MorphoSys AG, “MorphoSys”), covering the worldwide development and commercialization of MOR208 (tafasitamab), an investigational Fc engineered monoclonal antibody directed against the target molecule CD19 that was under clinical development by MorphoSys at the beginning of the agreement, and has subsequently been commercialized as MONJUVI/MINJUVI. MorphoSys has exclusive worldwide development and commercialization rights to tafasitamab under a June 2010 collaboration and license agreement with Xencor, Inc.

Under the terms of the agreement, we received exclusive commercialization rights outside of the United States, and MorphoSys and we have co-commercialization rights in the United States, with respect to tafasitamab. MorphoSys is responsible for leading the commercialization strategy and booking all revenue from sales of tafasitamab in the United States, and we and MorphoSys are both responsible for commercialization efforts in the United States and will share equally the profits and losses from the co-commercialization efforts. We will lead the commercialization strategy outside of the United States, and will be responsible for commercialization efforts and book all revenue from sales of tafasitamab outside of the United States, subject to our royalty payment obligations set forth below. We and MorphoSys have agreed to co-develop tafasitamab and to share development costs associated with global and U.S.-specific clinical trials, with Incyte responsible for 55% of such costs and MorphoSys responsible for 45% of such costs. Each company is responsible for funding any independent development activities, and we are responsible for funding development activities specific to territories outside of the United States. All development costs related to the collaboration are subject to a joint development plan.

MorphoSys is eligible to receive up to $737.5 million in future contingent development and regulatory milestones and up to $315.0 million in commercialization milestones as well as tiered royalties ranging from the mid-teens to mid-twenties of net sales outside of the United States. MorphoSys’ right to receive royalties in any particular country will expire upon the last to occur of (a) the expiration of patent rights in that particular country, (b) a specified period of time after the first post-marketing authorization sale of a licensed product comprising tafasitamab in that country, and (c) the expiration of any regulatory exclusivity for that licensed product in that country. Since the inception of the agreement through September 30, 2023, we have paid MorphoSys milestones totaling $2.5 million, all of which have previously been recorded as research and development expenses.

As of September 30, 2023, we held an investment of approximately 3.6 million American Depository Shares, each representing 0.25 of an ordinary share of MorphoSys AG. The fair market value of our long term investment in MorphoSys AG as of September 30, 2023 and December 31, 2022 was $24.4 million and $13.0 million, respectively. For the three and nine months ended September 30, 2023, we recorded an unrealized loss of $2.7 million and an unrealized gain of $11.4 million, respectively, based on the change in fair value of MorphoSys AG's ordinary shares during the respective periods. For the three and nine months ended September 30, 2022, we recorded an unrealized gain of $0.8 million and an unrealized loss of $15.9 million, respectively, based on the change in fair value of MorphoSys AG's ordinary shares during the respective periods.

Table of Contents

Our 50% share of the United States loss or profit for the commercialization of tafasitamab for the three and nine months ended September 30, 2023 was a loss of $1.1 million and profit of $0.9 million, respectively, and is recorded as loss and (profit) sharing under collaboration agreements on the condensed consolidated statement of operations. Our 50% share of the United States loss for the commercialization of tafasitamab for the three and nine months ended September 30, 2022 was $1.8 million and $9.1 million, respectively, and is recorded as loss and (profit) sharing under collaboration agreements on the condensed consolidated statement of operations. Research and development expenses for the three and nine months ended September 30, 2023, includes $13.0 million and $58.5 million, respectively, related to our 55% share of the co-development costs for tafasitamab. Research and development expenses for the three and nine months ended September 30, 2022, includes $21.9 million and $70.4 million, respectively, related to our 55% share of the co-development costs for tafasitamab. At September 30, 2023 and December 31, 2022, $12.4 million and $28.5 million, respectively, was included in accrued and other liabilities on the condensed consolidated balance sheets for amounts due to MorphoSys under the agreement.

Syndax

In September 2021, we entered into a Collaboration and License Agreement with Syndax Pharmaceuticals, Inc. (“Syndax”), covering the worldwide development and commercialization of SNDX-6352 (“axatilimab”). The agreement became effective in December 2021. Axatilimab, which is currently in clinical development, is a monoclonal antibody that blocks the colony stimulating factor-1 (CSF-1) receptor. Syndax obtained exclusive worldwide development and commercialization rights to axatilimab under a June 2016 license agreement with UCB Biopharma Sprl.

Under the terms of our agreement with Syndax, we received exclusive commercialization rights to axatilimab outside of the United States, and share commercialization rights in the United States. We are responsible for leading the commercialization strategy and booking all revenue from sales of axatilimab globally. Incyte and Syndax will share equally the profits and losses from the co-commercialization efforts in the United States. Sales of axatilimab outside the United States will be subject to our royalty payment obligations to Syndax, as set forth below. We and Syndax have agreed to co-develop axatilimab and to share development costs associated with global and U.S.-specific clinical trials, with Incyte responsible for 55% of such costs and Syndax responsible for 45% of such costs. Each company is responsible for funding any independent development activities. All development costs related to the collaboration are subject to a joint development plan.

In December 2021, we paid Syndax an upfront, non-refundable payment of $117.0 million, which was recorded in research and development expense on the consolidated statement of operations for the year ended December 31, 2021. Syndax is eligible to receive up to $220.0 million in future contingent development and regulatory milestones and up to $230.0 million in sales milestones as well as tiered royalties ranging in the mid-teens on net sales in Europe and Japan and low double digit percentage on net sales in the rest of the world outside of the United States. Syndax’s right to receive royalties in any particular country will expire upon the last to occur of (a) the expiration of patent rights in that particular country, (b) a specified period of time after the first post-marketing authorization sale of a licensed product comprising axatilimab in that country, and (c) the expiration of any regulatory exclusivity for that licensed product in that country.

As of September 30, 2023, we held an investment of approximately 1.4 million shares of Syndax common stock. The fair market value of our long term investment in Syndax as of September 30, 2023 and December 31, 2022 was $20.6 million and $36.2 million. For the three and nine months ended September 30, 2023, we recorded an unrealized loss of $9.2 million and $15.6 million, respectively, based on the change in fair value of Syndax’s common stock during the respective periods. For the three and nine months ended September 30, 2022, we recorded an unrealized gain of $6.8 million and $3.1 million, respectively, based on the change in fair value of Syndax’s common stock during the respective periods.

Research and development expenses for the three and nine months ended September 30, 2023, includes $5.1 million and $16.9 million, respectively, related to our 55% share of the co-development costs for axatilimab. At September 30, 2023, $7.3 million was included in accrued and other liabilities on the condensed consolidated balance sheet for amounts due to Syndax under the agreement.

Table of Contents

Other Agreements

In addition to the license and collaboration agreements discussed above, we have various other license and collaboration agreements that are not individually material to our operating results or financial condition at this time. Pursuant to the terms of those agreements, we may be required to pay, or we may receive, additional amounts contingent upon the occurrence of various future events such as future discovery, development, regulatory or commercial milestones, which in the aggregate could be material. In addition, if any products related to these collaborations are approved for sale, we may be required to pay, or we may receive, royalties on future sales. The payment or receipt of these amounts, however, is contingent upon the occurrence of various future events, the likelihood of which cannot presently be determined.

Note 8. Property and Equipment, net

Property and equipment, net consists of the following (in thousands):


	September 30, 2023		December 31, 2022
Office equipment	$	23,235	$	22,734
Laboratory equipment	205,466		192,141
Computer equipment	142,888		92,115
Land	10,484		10,429
Building and leasehold improvements	568,733		564,170
Operating lease right-of-use assets	21,938		23,311
Construction in progress	13,567		47,224
	986,311		952,124
Less accumulated depreciation and amortization	(253,265)		(212,814)
Property and equipment, net	$	733,046	$	739,310

Note 9. Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following (in thousands):


	September 30, 2023		December 31, 2022
Royalties	$	354,947	$	263,466
Clinical related costs	100,282		130,570
Sales allowances	231,885		192,133
Sales and marketing	36,697		31,149
Construction in progress	11		3,493
Operating lease liabilities	6,181		8,195
Other current liabilities	90,604		72,047
Total accrued and other current liabilities	$	820,607	$	701,053

Table of Contents

Note 10. Stock Compensation

We recorded $48.0 million and $155.9 million of stock compensation expense on our condensed consolidated statements of operations for the three and nine months ended September 30, 2023, respectively. We recorded $45.4 million and $135.7 million of stock compensation expense on our condensed consolidated statements of operations for the three and nine months ended September 30, 2022, respectively. Stock compensation expense included within our condensed consolidated statements of operations included research and development expense of $26.9 million, $90.7 million, $25.8 million and $80.2 million for the three and nine months ended September 30, 2023 and 2022, respectively. Stock compensation expense included within our condensed consolidated statements of operations also included selling, general and administrative expense of $20.3 million, $62.8 million, $18.9 million and $53.5 million for the three and nine months ended September 30, 2023 and 2022, respectively. Stock compensation expense included within our condensed consolidated statements of operations also included cost of product revenues of $0.8 million, $2.4 million, $0.7 million and $2.0 million, respectively, for the three and nine months ended September 30, 2023 and 2022.

We utilized the Black-Scholes valuation model for estimating the fair value of the stock compensation granted, with the following weighted-average assumptions:


	Employee Stock Options												Employee Stock Purchase Plan
	For the Three Months Ended						For the Nine Months Ended						For the Three Months Ended						For the Nine Months Ended
	September 30,												September 30,
	2023			2022			2023			2022			2023			2022			2023			2022
Average risk-free interest rates	4.17		%	2.90		%	3.95		%	2.03		%	5.03		%	4.22		%	4.50		%	3.44		%
Average expected life (in years)	5.16			5.17			5.05			4.88			0.50			0.50			0.50			0.50
Volatility	32		%	35		%	32		%	36		%	24		%	31		%	22		%	27		%
Weighted-average fair value (in dollars)	$	22.32		$	27.57		$	24.68		$	25.96		$	15.36		$	16.46		$	14.72		$	15.38

The risk-free interest rate is derived from the U.S. Federal Reserve rate in effect at the time of grant. The expected life calculation is based on the observed and expected time to the exercise of options by our employees based on historical exercise patterns for similar type options. Expected volatility is based on the historical volatility of our common stock over the period commensurate with the expected life of the options. A dividend yield of zero is assumed based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends. Nonemployee awards are measured on the grant date by estimating the fair value of the equity instruments to be issued using the expected term, similar to our employee awards.

Option activity under our 2010 Stock Incentive Plan (the “2010 Stock Plan”) was as follows:


	Shares Subject to Outstanding Options
	Shares	Weighted Average Exercise Price
Balance at December 31, 2022	12,650,359	$	87.25
Options granted	1,324,295	$	70.76
Options exercised	(231,417)	$	67.05
Options cancelled	(950,614)	$	91.40
Balance at September 30, 2023	12,792,623	$	85.60

Our annual stock option grants generally have a 10-year term and vest over four years, with 25% vesting after one year and the remainder vesting in 36 equal monthly installments.

Table of Contents

Restricted stock unit (“RSU”) and performance share (“PSU”) award activity under the 2010 Stock Plan was as follows:


	Shares Subject to Outstanding Awards
	Shares	Grant Date Value
Balance at December 31, 2022	5,187,592	$	81.24
RSUs granted	3,510,406	$	65.41
PSUs granted	300,512	$	61.76
RSUs released	(1,236,318)	$	83.57
PSUs released	(108,712)	$	102.44
RSUs cancelled	(303,726)	$	77.97
PSUs cancelled	(52,392)	$	72.47
Balance at September 30, 2023	7,297,362	$	72.31

RSUs and PSUs are granted to our employees at the share price on the date of grant. Each RSU represents the right to acquire one share of our common stock. Each RSU granted in connection with our annual equity awards will vest 25% annually over four years, while each RSU granted as outstanding merit awards or as part of retention award programs will vest in a single installment at the end of four years.

We grant PSUs with performance and/or service-based milestones with graded and/or cliff vesting over three to four years. The shares of our common stock into which each PSU may convert is subject to a multiplier based on the level at which the financial, developmental and market performance conditions are achieved over the service period. Compensation expense for PSUs with financial and developmental performance conditions is recorded over the estimated service period for each milestone when the performance conditions are deemed probable of achievement. For PSUs containing performance conditions which were not deemed probable of achievement, no stock compensation expense is recorded. Compensation expense for PSUs with market performance conditions is calculated using a Monte Carlo simulation model as of the date of grant and recorded over the requisite service period. For the three and nine months ended September 30, 2023 we recorded $4.2 million and $13.4 million, respectively, of stock compensation expense for PSUs on our condensed consolidated statements of operations. For the three and nine months ended September 30, 2022 we recorded $3.2 million and $5.1 million of stock compensation expense for PSUs on our condensed consolidated statements of operations.

The following table summarizes our shares available for grant under the 2010 Stock Plan. Each RSU and PSU grant reduces the available share pool by 2 shares.


			Shares Available for Grant
Balance at December 31, 2022			5,056,370
Additional authorization			12,500,000
Options, RSUs and PSUs granted			(8,946,489)
Options, RSUs and PSUs cancelled			1,662,566
Balance at September 30, 2023			10,272,447

Based on our historical experience of employee turnover, we have assumed an annualized forfeiture rate of 5% for our options, RSUs and PSUs. Under the true-up provisions of the stock compensation guidance, we will record additional expense if the actual forfeiture rate is lower than we estimated, and will record a recovery of prior expense if the actual forfeiture is higher than we estimated.

Table of Contents

Total compensation cost of options granted but not yet vested, as of September 30, 2023, was $37.1 million, which is expected to be recognized over the weighted average period of approximately 1.2 years. Total compensation cost of RSUs granted but not yet vested, as of September 30, 2023, was $278.1 million, which is expected to be recognized over the weighted average period of approximately 2.0 years. Total compensation cost of PSUs granted but not yet vested, as of September 30, 2023, was $24.1 million, which is expected to be recognized over the weighted average period of 2.1 years, should the underlying performance conditions be deemed probable of achievement.

Note 11. Income Taxes

For the three and nine months ended September 30, 2023 and 2022, we recorded the following provisions for income taxes and effective tax rates as compared to our income before provision for income taxes (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Income before provision for income taxes	$	233,799	$	148,588	$	563,259	$	448,501
Provision for income taxes	62,530		35,813		166,739		136,302

Effective tax rate	26.7%		24.1%		29.6%		30.4%

Our effective tax rate for each of the three and nine months ended September 30, 2023 and 2022 was higher than the U.S. statutory rate primarily due to foreign losses with no associated tax benefit (i.e., full valuation allowance) and an increase in our valuation allowance against certain U.S. federal and state deferred tax assets offset to a lesser extent by tax rate benefits associated with research and development and orphan drug tax credit generations and foreign derived intangible income deductions.

The effective tax rate for the three months ended September 30, 2023 increased as compared to the prior year period primarily due to an increase in foreign losses with no associated tax benefit. The effective tax rate for the nine months ended September 30, 2023 decreased as compared to the prior year period primarily due to greater tax benefits recognized in 2023 associated with research and development and orphan drug tax credit generations, partially offset by a decrease in the tax benefit associated with foreign derived intangible income.

The balance of our unrecognized tax benefits (including penalties and interest) decreased by $2.1 million during the nine months ended September 30, 2023. This movement was primarily driven by reductions related to prior period tax positions of $10.1 million, offset by additions to current and prior period tax positions of $5.3 million, as well as $2.7 million of interest and penalties. We accrue interest and penalties related to unrecognized tax benefits as a component of its provision for income taxes.

In August 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted into law. The IRA includes a 15% corporate alternative minimum tax and a 1% excise tax on share repurchases. We do not expect the IRA's tax provisions to have a material impact on our consolidated financial statements.

Table of Contents

Note 12. Net Income Per Share

Net income per share was calculated as follows for the periods indicated below:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Basic net income	$	171,269	$	112,775	$	396,520	$	312,199

Weighted average common shares outstanding	224,078		222,415		223,428		221,801

Basic net income per share	$	0.76	$	0.51	$	1.77	$	1.41

Diluted net income	$	171,269	$	112,775	$	396,520	$	312,199

Weighted average common shares outstanding	224,078		222,415		223,428		221,801
Dilutive stock options and awards	2,089		1,760		2,328		1,825
Weighted average shares used to compute diluted net income per share	226,167		224,175		225,756		223,626

Diluted net income per share	$	0.76	$	0.50	$	1.76	$	1.40

The potential common shares that were excluded from the diluted net income per share computation are as follows:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023	2022	2023	2022
Outstanding stock options and awards	12,997,146	11,150,022	11,964,901	10,979,096

Note 13. Employee Benefit Plans

Defined Contribution Plans

We have a defined contribution plan qualified under Section 401(k) of the Internal Revenue Code covering all U.S. employees and defined contribution plans for other Incyte employees in Europe and Japan. Employees may contribute a portion of their compensation, which is then matched by us, subject to certain limitations. Defined contribution expense for the three and nine months ended September 30, 2023 was $5.0 million and $14.6 million, respectively. Defined contribution expense for the three and nine months ended September 30, 2022 was $5.1 million and $14.7 million, respectively.

Defined Benefit Pension Plans

We have defined benefit pension plans for our employees in Europe which provide benefits to employees upon retirement, death or disability. The assets of the pension plans are held in collective investment accounts represented by the cash surrender value of an insurance policy and are classified as Level 2 within the fair value hierarchy.

Table of Contents

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Service cost	$	1,999	$	2,376	$	5,820	$	7,336
Interest cost	1,060		61		1,721		187
Expected return on plan assets	(2,017)		(1,008)		(4,293)		(3,114)
Amortization of prior service cost	175		193		554		580
Amortization of actuarial losses	—		89		—		266
Net periodic benefit cost	$	1,217	$	1,711	$	3,802	$	5,255

The components of net periodic benefit cost other than the service cost component are included in Interest income and other, net on the condensed consolidated statements of operations. We expect to contribute a total of $8.0 million to the pension plans in 2023 inclusive of the amounts contributed to the plan during the current period.

Note 14. Commitments and Contingencies

We have entered into the collaboration agreements described in Note 7, as well as various other collaboration agreements that are not individually, or in the aggregate, significant to our operating results or financial condition at this time. We may in the future seek to license additional rights relating to technologies or drug development candidates in connection with our drug discovery and development programs. Under these agreements, we may be required to pay upfront fees, milestone payments, and royalties on sales of future products.

In the ordinary course of our business, we may become involved in lawsuits, proceedings, and other disputes, including commercial, intellectual property, regulatory, employment, and other matters. We record a reserve for these matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

We brought a lawsuit against the U.S. Centers for Medicare and Medicaid Services (“CMS”) alleging that a recent regulation issued by CMS on the definition of “line extension” for purposes of the Medicaid rebate program is too broad and has the unintended consequence of treating OPZELURA as a “line extension” of JAKAFI under this program. We believe that such a reading would be a violation of CMS’s statutory authority and that it would be arbitrary and capricious to treat OPZELURA which, among other differentiators, is indicated to treat entirely different medical conditions and entirely different patient populations than JAKAFI. As of September 30, 2023, we have accrued approximately $42.9 million within accrued and other current liabilities on the condensed consolidated balance sheet. The impact on OPZELURA gross to net deductions for the quarter ending September 30, 2023 is approximately 6.6%. If OPZELURA is not treated as a line extension of JAKAFI, this would result in a reversal of our accrual and a lower future gross to net deduction for OPZELURA.

In addition, we have an outstanding contractual dispute with Novartis relating to royalties on JAKAFI net sales within the United States. Refer to Note 7.

Table of Contents

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 months ended September 30, 2023 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, 2022 included in our Annual Report on Form 10-K for the year ended December 31, 2022 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:

•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), OPZELURA™ (ruxolitinib) cream and ZYNYZ™ (retifanlimab-dlwr);

•our plans to further develop our operations outside of the United States;

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

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

•our licensing, investment and commercialization strategies, including our plans to commercialize our drug products and drug candidates;

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

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

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

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

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

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

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

•plans to develop and commercialize products on our own;

•plans to use third-party manufacturers;

•plans for our manufacturing operations;

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

•expectations with respect to reimbursement for our products;

•the expected impact of recent accounting pronouncements and changes in tax laws;

•expected losses; fluctuation of losses; currency translation impact associated with non-U.S. operations and collaboration royalties;

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

•the need to raise additional capital;

Table of Contents

•the costs associated with resolving matters in litigation and governmental proceedings;

•our expectations regarding competition;

•our investments, including anticipated expenditures, losses and expenses; and

•our patent prosecution and maintenance efforts.

These 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:

•our ability to successfully commercialize our drug products and drug candidates;

•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;

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

•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;

•our ability to maintain regulatory approvals to market our products;

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

•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;

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

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

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

•risks relating to the conduct of our clinical trials, including geopolitical risks;

•changing regulatory requirements;

•the risk of adverse safety findings;

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

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

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

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

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

•risks relating to our collaborators’ ability to develop and commercialize JAKAVI, OLUMIANT, TABRECTA and the drug candidates licensed from us;

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

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

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

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

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

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

Table of Contents

•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;

•competition to develop and commercialize similar drug products;

•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;

•the impact of changing laws on our patent portfolio;

•developments in and expenses relating to litigation;

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

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

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

•our ability to obtain additional capital when needed;

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

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

•risks relating to our ability to sustain profitability;

•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

•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 PEMAZYRE are our registered trademarks and OPZELURA and ZYNYZ are our trademarks. We also refer to trademarks of other corporations and organizations in this Quarterly Report on Form 10-Q.

Table of Contents

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.

•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.

•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.

•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.

•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.

•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.

•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.

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

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

•Public health pandemics, natural disasters, and other geopolitical events, could adversely affect our business and results of operations.

•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.

•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.

•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.

•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.

•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.

•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.

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

•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.

•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.

Table of Contents

•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.

•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.

•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.

•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.

•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.

•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.

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

•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.

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

•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.

•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.

•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.

•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.

•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.

•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.

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

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

•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.

•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.

•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.

•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.