INCY Incyte Corporation

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

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

Delaware			94-3136539
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)
1801 Augustine Cut-Off Wilmington, DE 19803			19803
(Address of principal executive offices)			(Zip Code)

Title of each class

Trading Symbol(s)

Name of exchange on which registered

Common Stock, $.001 par value per share

INCY

The Nasdaq Stock Market LLC

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 223,088,306 as of April 25, 2023.

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			7
			Notes to Condensed Consolidated Financial Statements			8
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
			Forward-Looking Statements			23
			Summary Risk Factors			26
Item 3.			Quantitative and Qualitative Disclosures about Market Risk			49
Item 4.			Controls and Procedures			49
PART II: OTHER INFORMATION
Item 1A.			Risk Factors			50
Item 6.			Exhibits			79
			Signatures			80

			March 31, 2023						December 31, 2022*
			(unaudited)
ASSETS
Current assets:
Cash and cash equivalents			$	2,821,051					$	2,951,422
Marketable securities—available-for-sale (amortized cost $294,278 and $292,580 as of March 31, 2023 and December 31, 2022, respectively; allowance for credit losses $0 as of March 31, 2023 and December 31, 2022)			291,661						287,543
Accounts receivable			623,788						644,879
Inventory			40,876						41,995
Prepaid expenses and other current assets			194,257						167,011
Total current assets			3,971,633						4,092,850
Restricted cash			1,717						1,698
Long term investments			128,313						133,676
Inventory			116,688						78,964
Property and equipment, net			741,701						739,310
Finance lease right-of-use assets, net			25,849						26,298
Other intangible assets, net			140,658						129,219
Goodwill			155,593						155,593
Deferred income tax asset			494,751						457,941
Other assets, net			20,720						25,435
Total assets			$	5,797,623					$	5,840,984
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable			$	55,633					$	277,546
Accrued compensation			84,717						138,761
Accrued and other current liabilities			825,443						701,053
Finance lease liabilities			3,149						3,179
Acquisition-related contingent consideration			37,169						36,538
Total current liabilities			1,006,111						1,157,077
Acquisition-related contingent consideration			180,831						184,462
Finance lease liabilities			29,699						30,083
Other liabilities			118,414						99,243
Total liabilities			1,335,055						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; 223,061,787 and 222,746,719 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively			223						223
Additional paid-in capital			4,856,914						4,792,041
Accumulated other comprehensive income			20,942						15,069
Accumulated deficit			(415,511)						(437,214)
Total stockholders’ equity			4,462,568						4,370,119
Total liabilities and stockholders’ equity			$	5,797,623					$	5,840,984

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

									Three Months Ended March 31,
															2023						2022
Revenues:
Product revenues, net															$	693,237					$	605,821
Product royalty revenues															115,436						122,414
Milestone and contract revenues															—						5,000
Total revenues															808,673						733,235
Costs and expenses:
Cost of product revenues (including definite-lived intangible amortization)															56,822						42,614
Research and development															406,641						353,373
Selling, general and administrative															315,606						209,584
Loss on change in fair value of acquisition-related contingent consideration															6,196						6,382
(Profit) and loss sharing under collaboration agreements															(1,362)						4,742
Total costs and expenses															783,903						616,695
Income from operations															24,770						116,540
Interest income and other, net															32,873						1,260
Interest expense															(469)						(680)
Unrealized loss on long term investments															(5,318)						(46,585)
Income before provision for income taxes															51,856						70,535
Provision for income taxes															30,153						32,543
Net income															$	21,703					$	37,992
Net income per share:
Basic															$	0.10					$	0.17
Diluted															$	0.10					$	0.17
Shares used in computing net income per share:
Basic															222,960						221,326
Diluted															225,589						222,950

									Three Months Ended March 31,
															2023						2022
Net income															$	21,703					$	37,992
Other comprehensive income (loss):
Foreign currency translation gain (loss)															3,260						(782)
Unrealized gain (loss) on marketable securities, net of tax															2,420						(3,093)
Defined benefit pension gain, net of tax															193						282
Other comprehensive income (loss)															5,873						(3,593)
Comprehensive income															$	27,576					$	34,399

			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

			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

			Three Months Ended March 31,
			2023						2022
Cash flows from operating activities:
Net income			$	21,703					$	37,992
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			19,211						16,438
Stock-based compensation			53,379						43,841
Deferred income taxes			(22,163)						2,106
Other, net			(2,651)						2,091
Unrealized loss on long term investments			5,318						46,585
Loss on change in fair value of acquisition-related contingent consideration			6,196						6,382
Changes in operating assets and liabilities:
Accounts receivable			21,091						53,956
Prepaid expenses and other assets			(24,354)						(13,971)
Inventory			(33,320)						(13,903)
Accounts payable			(221,913)						(19,563)
Accrued and other liabilities			71,900						53,787
Net cash (used in) provided by operating activities			(105,603)						215,741
Cash flows from investing activities:
Sale of long term investments			45						—
Capital expenditures			(11,906)						(17,006)
Payments for intangible assets			(15,000)						—
Purchases of marketable securities			(54,887)						—
Sale and maturities of marketable securities			53,189						258
Net cash used in investing activities			(28,559)						(16,748)
Cash flows from financing activities:
Proceeds from issuance of common stock under stock plans			13,988						16,398
Tax withholdings related to restricted and performance share vesting			(2,753)						(2,161)
Payment of finance lease liabilities			(802)						(668)
Payment of contingent consideration			(6,424)						(13,473)
Net cash provided by financing activities			4,009						96
Effect of exchange rates on cash, cash equivalents, restricted cash and investments			(199)						210
Net (decrease) increase in cash, cash equivalents, restricted cash and investments			(130,352)						199,299
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			$	2,822,768					$	2,258,459
Supplemental Schedule of Cash Flow Information
Income taxes paid			$	7,107					$	3,472
Unpaid purchases of property and equipment			$	3,059					$	15,764
Leased assets obtained in exchange for new operating lease liabilities			$	809					$	1,618
Leased assets obtained in exchange for new finance lease liabilities			$	385					$	584

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.

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 March 31, 2023, the condensed consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for the three months ended March 31, 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.

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.

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 March 31,
															2023						2022
JAKAFI revenues, net															$	579,969					$	544,464
ICLUSIG revenues, net															27,685						26,069
PEMAZYRE revenues, net															22,475						18,032
MINJUVI revenues, net															6,556						4,502
OPZELURA revenues, net															56,552						12,754
Total product revenues, net															693,237						605,821
JAKAVI product royalty revenues															76,692						70,867
OLUMIANT product royalty revenues															34,155						48,064
TABRECTA product royalty revenues															4,177						3,483
PEMAZYRE product royalty revenues															412						—
Total product royalty revenues															115,436						122,414
Milestone and contract revenues															—						5,000
Total revenues															$	808,673					$	733,235

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

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

			Amortized Cost						Net Unrealized Losses						Estimated Fair Value
March 31, 2023
Debt securities (government)			$	294,278					$	(2,617)					$	291,661
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 March 31, 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.

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 March 31, 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 three months ended March 31, 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 March 31, 2023
Cash and cash equivalents			$	2,821,051					$	—					$	—					$	2,821,051
Debt securities (government)			—						291,661						—						291,661
Long term investments (Note 7)			128,313						—						—						128,313
Total assets			$	2,949,364					$	291,661					$	—					$	3,241,025

			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

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 March 31, 2023
Acquisition-related contingent consideration			$	—					$	—					$	218,000					$	218,000
Total liabilities			$	—					$	—					$	218,000					$	218,000

			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			(9,196)
Change in fair value of contingent consideration			6,196
Balance at March 31,			$	218,000

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 March 31, 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 loss on change in fair value of the contingent consideration during the three months ended March 31, 2023 was due primarily to 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 March 31, 2023 and December 31, 2022, contingent consideration earned but not yet paid was $9.2 million and $9.3 million, respectively, and was included in accrued and other current liabilities.

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, 18% and 20% of the accounts receivable balance as of March 31, 2023 and December 31, 2022, respectively. For further information relating to these collaboration and license agreements, refer to Note 7.

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 these customers. 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
									March 31,
															2023						2022
Customer A															17		%				19		%
Customer B															11		%				12		%
Customer C															17		%				18		%
Customer D															10		%				10		%
Customer E															12		%				15		%

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, 40% and 41% of the accounts receivable balance as of March 31, 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 March 31, 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 March 31, 2023 and December 31, 2022, we had no allowance for doubtful accounts.

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

			March 31, 2023						December 31, 2022
Raw materials			$	29,448					$	31,874
Work-in-process			93,829						54,455
Finished goods			34,287						34,630
Total inventory			$	157,564					$	120,959

Inventories, stated at the lower of cost and net realizable value, consist of raw materials, work in process and finished goods. At March 31, 2023, $40.9 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 March 31, 2023, $116.7 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 March 31, 2023, inventory with approximately $40.7 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 24 months and, as a result, cost of product revenues will reflect a lower average per unit cost of materials.

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 March 31, 2023, we have recognized and received, in the aggregate, $157.0 million for the achievement of development milestones, $340.0 million for the achievement of regulatory milestones, and $200.0 million for the achievement of sales milestones.

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 months ended March 31, 2023 and 2022, such royalties on net sales within the United States totaled $23.4 million and $21.7 million, respectively, and were reflected in cost of product revenues on the condensed consolidated statements of operations. At March 31, 2023 and December 31, 2022, $276.9 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.

Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States for the three months ended March 31, 2023 and 2022 was $76.7 million and $70.9 million, respectively. Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three months ended March 31, 2023 and 2022 was $4.2 million and $3.5 million, respectively.

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

Under this agreement, we were initially eligible to receive up to $150.0 million for the achievement of development milestones, up to $365.0 million for the achievement of regulatory milestones and up to $150.0 million for the achievement of sales milestones. Since the inception of the agreement through March 31, 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.

Product royalty revenue related to Lilly net sales of OLUMIANT outside of the United States for the three months ended March 31, 2023 and 2022 was $34.2 million and $48.1 million, respectively.

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.

In January 2015, we entered into a License, Development and Commercialization Agreement with Agenus Inc. and its wholly-owned subsidiary, 4-Antibody AG (now known as Agenus Switzerland Inc.), which we collectively refer to as Agenus. Under this agreement, which was amended in February 2017, the parties have agreed to collaborate on the discovery of novel immuno-therapeutics using Agenus’ antibody discovery platforms. Under the terms of the amended agreement, we received exclusive worldwide development and commercialization rights to four checkpoint modulators directed against GITR, OX40, LAG-3 and TIM-3 as well as two undisclosed targets. Targets may be designated profit-share programs, where all costs and profits are shared equally by us and Agenus, or royalty-bearing programs, where we are responsible for all costs associated with discovery, preclinical, clinical development and commercialization activities. There are currently no profit-share programs. For each royalty-bearing product other than GITR and one undisclosed target, Agenus will be eligible to receive tiered royalties on global net sales ranging from 6% to 12%. For GITR and one undisclosed target, Agenus will be eligible to receive 15% royalties on global net sales. The agreement may be terminated by us for convenience upon 12 months’ notice and may also be terminated under certain other circumstances, including material breach. On October 19, 2022 we notified Agenus that we were terminating the OX40 project.

Since the inception of the agreement through March 31, 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 March 31, 2023, we held an investment of approximately 12.1 million shares of Agenus common stock. The fair market value of our long term investment in Agenus at March 31, 2023 and December 31, 2022 was $18.3 million and $29.0 million, respectively. For the three months ended March 31, 2023 and 2022, we recorded an unrealized loss of $10.6 million and $9.2 million, respectively, based on the change in fair value of Agenus Inc.’s common stock during the respective periods.

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 2022, we decided to opt-out of the continued development of MCLA-145, a bispecific antibody targeting PD-L1 and CD137. We continue to collaborate with Merus and leverage the Merus platform to develop a pipeline of novel agents, as we continue to hold worldwide exclusive development and commercialization rights to up to ten additional programs. Of these ten additional programs, Merus retained the option, subject to certain conditions, to co-fund development of up to two such programs. If Merus exercises its co-funding option for a program, Merus would be responsible for funding 35% of the associated future global development costs and, for certain of such programs, would be responsible for reimbursing us for certain development costs incurred prior to the option exercise. Merus will also have the right to participate in a specified proportion of detailing activities in the United States for one of those co-developed programs. All costs related to the co-funded collaboration programs are subject to joint research and development plans and overseen by a joint development committee, but we will have final determination as to such plans in cases of dispute. We will be responsible for all research, development and commercialization costs relating to all other programs.

For each program as to which Merus does not have commercialization or development co-funding rights, Merus is eligible to receive up to $100.0 million in future contingent development and regulatory milestones, and up to $250.0 million in commercialization milestones as well as tiered royalties ranging from 6% to 10% of global net sales. For each program as to which Merus exercises its option to co-fund development, Merus is eligible to receive a 50% share of profits (or sustain 50% of any losses) in the United States and be eligible to receive tiered royalties ranging from 6% to 10% of net sales of products outside of the United States. If Merus opts to cease co-funding a program as to which it exercised its co-development option, then Merus will no longer receive a share of profits in the United States but will be eligible to receive the same milestones from the co-funding termination date and the same tiered royalties described above with respect to programs where Merus does not have a right to co-fund development and, depending on the stage at which Merus chose to cease co-funding development costs, Merus will be eligible to receive additional royalties ranging up to 4% of net sales in the United States. 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. Since the inception of the agreement through March 31, 2023, we have paid and expensed Merus milestones totaling $5.5 million.

As of March 31, 2023, we held an investment of approximately 3.6 million common shares. The fair market value of our total long term investment in Merus at March 31, 2023 and December 31, 2022 was $65.3 million and $54.9 million, respectively. For the three months ended March 31, 2023 and 2022, we recorded an unrealized gain $10.4 million and an unrealized loss of $19.0 million, respectively, based on the change in fair value of Merus’ common shares during the respective periods.

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 March 31, 2023, and will be amortized through cost of product revenues over the estimated useful life of 13.5 years.

Since the inception of the agreement through March 31, 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 months ended March 31, 2023 and 2022 also included $17.8 million and $13.5 million, respectively, of development costs incurred pursuant to the MacroGenics agreement. At March 31, 2023 and December 31, 2022, a total of $1.3 million and $2.9 million of such costs were included in accrued and other liabilities on the condensed consolidated balance sheets.

In January 2018, we entered into a Target Discovery, Research Collaboration and Option Agreement with Syros Pharmaceuticals, Inc. (“Syros”). Under this agreement, Syros will use its proprietary gene control platform to identify novel therapeutic targets with a focus in myeloproliferative neoplasms and we have received options to obtain exclusive worldwide rights to intellectual property resulting from the collaboration for up to seven validated targets. We will have exclusive worldwide rights to develop and commercialize any therapies under the collaboration that modulate those validated targets. We have agreed to pay Syros up to $54.0 million in target selection and option exercise fees should we decide to exercise all of our options under the agreement. For products resulting from the collaboration against each of the seven selected and validated targets, we have agreed to pay up to $50.0 million in potential development and regulatory milestones and up to $65.0 million in potential sales milestones. Syros is also eligible to receive low single-digit royalties on net sales of products resulting from the collaboration.

As of March 31, 2023, we held an investment of 93,753 shares of Syros common stock. The fair market value of our long term investment in Syros as of March 31, 2023 and December 31, 2022 was $0.3 million and $0.3 million, respectively. For the three months ended March 31, 2023 and 2022, we recorded an unrealized loss of $0.1 million and $1.9 million, respectively, based on the change in fair value of Syros’ common stock during the respective periods.

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 March 31, 2023, we have paid MorphoSys milestones totaling $2.5 million, all of which have previously been recorded as research and development expenses.

As of March 31, 2023, we held an investment of approximately 3.6 million American Depository Shares, each representing 0.25 of an ordinary share of MorphoSys. The fair market value of our long term investment in MorphoSys as of March 31, 2023 and December 31, 2022 was $14.4 million and $13.0 million, respectively. For the three months ended March 31, 2023 and 2022, we recorded an unrealized gain of $1.4 million and an unrealized loss of $9.6 million, respectively, based on the change in fair value of MorphoSys’ ordinary shares during the respective periods.

Our 50% share of the United States profit or loss for the commercialization of tafasitamab for the three months ended March 31, 2023 was a profit of $1.4 million, and was a $4.7 million loss for the three months ended March 31, 2022, and is recorded as (profit) and loss sharing under collaboration agreements on the condensed consolidated statement of operations. Research and development expenses for the three months ended March 31, 2023 and 2022, includes $25.2 million and $21.0 million, respectively, related to our 55% share of the co-development costs for tafasitamab. At March 31, 2023 and December 31, 2022, $27.1 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.

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”). Axatilimab, currently in clinical development by Syndax, is a monoclonal antibody that blocks the colony stimulating factor-1 (CSF-1) receptor. Syndax has exclusive worldwide development and commercialization rights to axatilimab under a June 2016 license agreement with UCB Biopharma Sprl. The agreement became effective in December 2021.

Under the terms of the agreement, we received exclusive commercialization rights outside of the United States, and Syndax and we have co-commercialization rights in the United States, with respect to axatilimab. We will be responsible for leading the commercialization strategy and booking all revenue from sales of axatilimab globally, and Syndax will have the option to co-commercialization axatilimab with Incyte in the United States. 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’ 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 March 31, 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 March 31, 2023 and December 31, 2022 was $30.0 million and $36.2 million. For the three months ended March 31, 2023 and 2022, we recorded an unrealized loss of $6.2 million and $6.4 million, respectively, based on the change in fair value of Syndax’s common stock during the respective periods.

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.

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

			March 31, 2023						December 31, 2022
Office equipment			$	23,144					$	22,734
Laboratory equipment			195,999						192,141
Computer equipment			94,661						92,115
Land			10,484						10,429
Building and leasehold improvements			567,863						564,170
Operating lease right-of-use assets			21,818						23,311
Construction in progress			53,408						47,224
			967,377						952,124
Less accumulated depreciation and amortization			(225,676)						(212,814)
Property and equipment, net			$	741,701					$	739,310

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

			March 31, 2023						December 31, 2022
Royalties			$	286,230					$	263,466
Clinical related costs			117,417						130,570
Sales allowances			220,753						192,133
Sales and marketing			60,674						31,149
Construction in progress			3,059						3,493
Operating lease liabilities			7,388						8,195
Other current liabilities			129,922						72,047
Total accrued and other current liabilities			$	825,443					$	701,053

We recorded $53.4 million and $43.8 million of stock compensation expense on our condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022, respectively. Stock compensation expense included within our condensed consolidated statements of operations included research and development expense of $31.0 million and $26.3 million for the three months ended March 31, 2023 and 2022, respectively. Stock compensation expense included within our condensed consolidated statements of operations also included selling, general and administrative expense of $21.6 million and $16.9 million for the three months ended March 31, 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 and $0.6 million for the three months ended March 31, 2023 and 2022, respectively.

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 Three Months Ended
															March 31,																								March 31,
															2023						2022																		2023						2022
Average risk-free interest rates															3.72		%				1.47		%																4.06		%				2.28		%
Average expected life (in years)															4.73						4.66																		0.50						0.50
Volatility															33		%				38		%																22		%				24		%
Weighted-average fair value (in dollars)															$	28.24					$	25.15																	$	13.70					$	13.76

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			521,152						$	83.07
Options exercised			(207,650)						$	67.37
Options cancelled			(544,806)						$	95.30
Balance at March 31, 2023			12,419,055						$	87.06

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.

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			577,956						$	83.12
RSUs released			(140,791)						$	78.04
RSUs cancelled			(73,338)						$	81.34
PSUs cancelled			(971)						$	106.47
Balance at March 31, 2023			5,550,448						$	81.52

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 months ended March 31, 2023 and 2022, we recorded $6.5 million and $1.8 million, respectively, 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
Options, RSUs and PSUs granted			(1,677,064)
Options, RSUs and PSUs cancelled			692,169
Balance at March 31, 2023			4,071,475

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.

Total compensation cost of options granted but not yet vested, as of March 31, 2023, was $42.3 million, which is expected to be recognized over the weighted average period of approximately 1.1 years. Total compensation cost of RSUs granted but not yet vested, as of March 31, 2023, was $202.8 million, which is expected to be recognized over the weighted average period of approximately 1.8 years. Total compensation cost of PSUs granted but not yet vested, as of March 31, 2023, was $24.1 million, which is expected to be recognized over the weighted average period of 1.7 years, should the underlying performance conditions be deemed probable of achievement.

									Three Months Ended March 31,
															2023						2022
Income before provision for income taxes															$	51,856					$	70,535
Provision for income taxes															30,153						32,543
Effective tax rate															58.1%						46.1%

Our effective tax rate for both of the three months ended March 31, 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). While the tax expense for the three months ended March 31, 2023 decreased marginally as compared to that for the prior year period, the effective tax rate increased as a result of lower U.S. earnings, while unbenefited foreign losses remained flat.

The balance of our unrecognized tax benefits (including penalties and interest) increased by approximately $2.7 million during the three months ended March 31, 2023, resulting in movements to other liabilities and deferred income tax asset on the condensed consolidated balance sheet. The overall increase is primarily driven by unrecognized tax benefits related to current year operations and research and development tax credits. 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 to have a material impact on our consolidated financial statements.

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

									Three Months Ended March 31,
															2023						2022
Basic net income															$	21,703					$	37,992
Weighted average common shares outstanding															222,960						221,326
Basic net income per share															$	0.10					$	0.17
Diluted net income															$	21,703					$	37,992
Weighted average common shares outstanding															222,960						221,326
Dilutive stock options and awards															2,629						1,624
Weighted average shares used to compute diluted net income per share															225,589						222,950
Diluted net income per share															$	0.10					$	0.17

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

									Three Months Ended March 31,
															2023						2022
Outstanding stock options and awards															10,078,342						11,116,177

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 months ended March 31, 2023 and 2022 was $5.6 million and $4.9 million, respectively.

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.

									Three Months Ended March 31,
															2023						2022
Service cost															$	2,088					$	2,522
Interest cost															617						64
Expected return on plan assets															(1,540)						(1,071)
Amortization of prior service cost															103						194
Amortization of actuarial losses															90						88
Net periodic benefit cost															$	1,358					$	1,797

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.

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.

The following discussion of our financial condition and results of operations as of and for the three months ended March 31, 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.

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;

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

•our expectations regarding competition;

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

•our patent prosecution and maintenance efforts; and

•the potential effects of the COVID-19 pandemic and efforts undertaken or to be undertaken by us or applicable governmental authorities on local and global economic conditions, and on our business, results of operations and financial condition.

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;

•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.

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.

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

•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.

•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.

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

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

Our hematology and oncology franchise comprises five approved products, which are JAKAFI (ruxolitinib), MONJUVI (tafasitamab-cxix)/MINJUVI (tafasitamab), PEMAZYRE (pemigatinib), ICLUSIG (ponatinib) and ZYNYZ (retifanlimab-dlwr), as well as numerous clinical development programs.

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

In 2003, we initiated a research and development program to explore the inhibition of enzymes called janus associated kinases (JAK). The JAK family is composed of four tyrosine kinases—JAK1, JAK2, JAK3 and Tyk2—that are involved in the signaling of a number of cytokines and growth factors. JAKs are central to a number of biologic processes, including the formation and development of blood cells and the regulation of immune functions. Dysregulation of the JAK-STAT signaling pathway has been associated with a number of diseases, including myeloproliferative neoplasms, other hematological malignancies, rheumatoid arthritis and other chronic inflammatory diseases.

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

JAKAFI is marketed in the United States through our own specialty sales force and commercial team. JAKAFI was the first FDA-approved JAK inhibitor for any indication, was the first FDA-approved product in MF, PV and steroid-refractory acute GVHD, and was recently approved in steroid-refractory chronic GVHD. JAKAFI remains the first-line standard of care in MF and remains the only FDA-approved product for steroid-refractory acute GVHD. The FDA has granted JAKAFI orphan drug status for MF, PV and GVHD.

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

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

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

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

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

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

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

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

In December 2014, the FDA approved JAKAFI for the treatment of patients with PV who have had an inadequate response to or are intolerant of hydroxyurea. The approval of JAKAFI for PV was based on data from the pivotal Phase III RESPONSE trial. In this trial, patients treated with JAKAFI demonstrated superior hematocrit control and reductions in spleen volume compared to best available therapy. In addition, a greater proportion of patients treated with JAKAFI achieved complete hematologic remission—which was defined as achieving hematocrit control, and lowering platelet and white blood cell counts. In the RESPONSE trial, the most common hematologic adverse reactions (incidence > 20%) were thrombocytopenia and anemia. The most common non-hematologic adverse events (incidence >10%) were headache, abdominal pain, diarrhea, dizziness, fatigue, pruritus, dyspnea and muscle spasms.

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

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

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

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

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

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

We have retained all development and commercialization rights to JAKAFI in the United States and are eligible to receive development and sales milestones as well as royalties from product sales outside the United States. We hold patents that cover the composition of matter and use of ruxolitinib. These patents, including applicable extensions, currently expire in mid-2028 and late-2028. In December 2022, we were granted pediatric exclusivity which adds six months to the expiration for all ruxolitinib patents listed in FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (Orange Book) as of the date of the grant.

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

In July 2020, we and MorphoSys announced that the FDA approved MONJUVI (tafasitamab-cxix), which is indicated in combination with lenalidomide for the treatment of adult patients with relapsed or refractory diffuse large B-cell lymphoma (DLBCL) not otherwise specified, including DLBCL arising from low grade lymphoma, and who are not eligible for autologous stem cell transplant (ASCT). MONJUVI was approved under accelerated approval based on overall response rate from the MorphoSys-sponsored Phase II L-MIND study, an open label, multicenter, single arm trial of MONJUVI in combination with lenalidomide as a treatment for adult patients with r/r DLBCL. Results from the study showed an objective response rate (ORR) of 55% (39 out of 71 patients; primary endpoint) and a complete response (CR) rate of 37% (26 out of 71 patients). The median duration of response (mDOR) was 21.7 months. The most frequent serious adverse reactions were infections (26%), including pneumonia (7%) and febrile neutropenia (6%). Updated three-year data from L-MIND were presented at the American Society of Clinical Oncology (ASCO) 2021 and final five-year data were presented at the American Association for Cancer Research (AACR) 2023, which showed that the Monjuvi plus lenalidomide regimen followed by Monjuvi monotherapy provided prolonged, durable responses in adult patients with r/r DLBCL.

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

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

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

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

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

In March 2021, PEMAZYRE was approved by the Japanese Ministry of Health, Labour and Welfare (MHLW) for the treatment of patients with unresectable biliary tract cancer (BTC) with an FGFR2 fusion gene, worsening after cancer chemotherapy. Also in March 2021, PEMAZYRE was approved by the European Commission (EC) for the treatment of adults with locally advanced or metastatic cholangiocarcinoma with an FGFR2 fusion or rearrangement that have progressed after at least one prior line of systemic therapy.

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

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

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

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

In August 2022, PEMAZYRE was approved by the FDA as the first and only targeted treatment for myeloid/lymphoid neoplasms (MLNs) with FGFR1 rearrangement. MLNs with FGFR1 rearrangement are extremely rare and aggressive blood cancers.

In March 2023, PEMAZYRE was approved by the MHLW for the treatment of MLNs with FGFR1 fusion.

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

In the European Union, ICLUSIG is approved for the treatment of adult patients with chronic phase, accelerated phase or blast phase CML who are resistant to dasatinib or nilotinib; who are intolerant to dasatinib or nilotinib and for whom subsequent treatment with imatinib is not clinically appropriate; or who have the T315I mutation, or the treatment of adult patients with Ph+ ALL who are resistant to dasatinib; who are intolerant to dasatinib and for whom subsequent treatment with imatinib is not clinically appropriate; or who have the T315I mutation.

In October 2017, we and MacroGenics, Inc. announced an exclusive global collaboration and license agreement for MacroGenics’ retifanlimab (formerly INCMGA0012), an investigational monoclonal antibody that inhibits PD-1. Under this collaboration, we obtained exclusive worldwide rights for the development and commercialization of retifanlimab in all indications. The molecule is currently being evaluated both as monotherapy and in combination therapy across various tumor types. Two Phase III trials evaluating retifanlimab in squamous cell anal cancer (SCAC) and non-small cell lung cancer (NSCLC) are ongoing.

In March 2023, we announced that the FDA approved ZYNYZ (retifanlimab-dlwr), a humanized monoclonal antibody targeting programmed death receptor-1 (PD-1), under accelerated approval, for the treatment of adults with metastatic or recurrent locally advanced Merkel cell carcinoma (MCC). This represents the first regulatory approval for our PD-1 inhibitor.

In early 2023, as part of our efforts to continuously optimize our R&D portfolio, we prioritized several programs in dermatology and oncology that we determined to have high potential value. As part of this process, we also de-prioritized and discontinued certain programs, including parsaclisib in myelofibrosis and warm hemolytic anemia, as well as certain early stage programs.

Ruxolitinib

As part of our ongoing LIMBER (Leadership In MPNs BEyond Ruxolitinib) clinical development initiative, which is designed to improve and expand therapeutic options for patients with myeloproliferative neoplasms, we are evaluating combinations of ruxolitinib with other therapeutic modalities, as well as developing a once-a-day formulation of ruxolitinib for potential use as monotherapy and combination therapy. Bioavailability and bioequivalence data were published for ruxolitinib’s once-daily (QD) extended release (XR) formulation at the European Hematology Association (EHA) 2021 Virtual Congress in June 2021. In March 2023, the FDA issued a complete response letter for ruxolitinib extended-release (XR) tablets for once-daily (QD) use in the treatment of certain types of MF, PV and GVHD. The complete response letter stated that the FDA could not approve the application in its present form but acknowledged that the study submitted in the NDA met its objective of bioequivalence based on area under the curve parameters but identified additional requirements for approval. We will work with the FDA to determine the appropriate next steps.

Phase II trials combining ruxolitinib with investigational agents from our portfolio such as INCB57643 (BET) and INCB00928 (ALK2) in patients with MF are ongoing, and additional discovery and development initiatives are also ongoing within the LIMBER program, which are evaluating internally-discovered compounds, and candidates from collaboration partners. We recently announced the discontinuation of LIMBER-304 and LIMBER-313, two Phase III studies evaluating ruxolitinib in combination with parsaclisib in MF patients with a suboptimal response to ruxolitinib monotherapy and in first-line MF, respectively. These studies were discontinued as a result of planned interim analyses which indicated that the studies were unlikely to meet their primary endpoint in the intent-to-treat patient population. The recommendation to stop the studies was not due to safety.

Axatilimab

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

INCA033989 (mCALR)

In December 2022, new research detailing the development and mechanism of action of INCA033989, an Incyte-discovered, investigational novel anti-mutant calreticulin (CALR)-targeted monoclonal antibody, was featured in the Plenary Scientific Session at the 64th American Society of Hematology (ASH) Annual Meeting. INCA033989 binds with high affinity to mutant CALR and inhibits oncogenesis, the process of cells becoming cancerous, in cells expressing this oncoprotein. CALR mutations are responsible for disease development in approximately 25-35% of patients with MF and ET. INCA033989 is expected to enter clinical studies in 2023.

Tafasitamab

Tafasitamab is an anti-CD19 antibody and is being investigated as a therapeutic option in B cell malignancies in a number of ongoing and planned combination trials. An open-label Phase II combination trial (L-MIND) is investigating the safety and efficacy of tafasitamab in combination with lenalidomide in patients with relapsed or refractory diffuse large B-cell lymphoma (r/r DLBCL), and the ongoing Phase III B-MIND trial is assessing the combination of tafasitamab and bendamustine versus rituximab and bendamustine in r/r DLBCL. firstMIND is a Phase Ib safety trial of tafasitamab as a first-line therapy for patients with DLBCL, and frontMIND, a placebo-controlled Phase III trial evaluating tafasitamab in combination with lenalidomide added to rituximab plus chemotherapy (R-CHOP) as a first-line therapy for patients with DLBCL, is ongoing.

A placebo-controlled Phase III trial (inMIND) of tafasitamab added to lenalidomide plus rituximab (R2) in patients with relapsed or refractory follicular or marginal zone lymphomas is ongoing.

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

Pemigatinib

Pemigatinib is a potent and selective inhibitor of the fibroblast growth factor receptor (FGFR) isoforms 1, 2 and 3 with demonstrated activity in preclinical studies. The FGFR family of receptor tyrosine kinases can act as oncogenic drivers in a number of liquid and solid tumor types.

We initiated the FIGHT clinical program to evaluate pemigatinib across a spectrum of cancers that are driven by FGF/FGFR alterations. The program initially included three Phase II trials – FIGHT-201 in patients with bladder cancer, FIGHT-202 in patients with cholangiocarcinoma, and FIGHT-203 in patients with myeloid/lymphoid neoplasms with FGFR1 rearrangement. Based on data generated from these trials, we have initiated additional trials including FIGHT-302, a Phase III study in first-line cholangiocarcinoma. FIGHT-207, a solid tumor-agnostic trial evaluating pemigatinib in patients with driver-alterations of FGF/FGFR, is now closed to recruitment. Based on findings from this study, we have identified populations that may potentially benefit from treatment with pemigatinib and a Phase II trial, FIGHT-209, in patients with glioblastoma is ongoing.

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

Retifanlimab

The Phase III POD1UM-303 trial of retifanlimab in combination with platinum-based chemotherapy as a first-line treatment for patients with squamous cell carcinoma of the anal canal (SCAC) is ongoing. In July 2021, we announced that the FDA issued a complete response letter (CRL) for the BLA of retifanlimab for the treatment of SCAC. In October 2021, we announced that we withdrew the MAA seeking approval of retifanlimab in SCAC.

The Phase III POD1UM-304 trial is evaluating retifanlimab in combination with platinum-based chemotherapy as a first-line treatment for patients with non-small cell lung cancer (NSCLC).

Oral PD-L1

In November 2021, we highlighted Phase I clinical safety and efficacy data for our oral PD-L1 program which included two compounds, INCB99280 and INCB99318. Tumor shrinkage was observed for both oral PD-L1 inhibitors and both were generally well tolerated. We plan to evaluate INCB99280 in Phase II as monotherapy and in combination with other antitumor agents. Further dose escalation and dose expansion trials are ongoing with INCB99318.

In November 2022, (i) updated safety and preliminary efficacy data for INCB99280 and INCB99318 was presented at the Society for Immunotherapy of Cancer, and (ii) we and Mirati Therapeutics, Inc. announced a clinical trial collaboration and supply agreement to investigate the combination of INCB99280 and adagrasib, a KRASG12C selective inhibitor, in patients with KRASG12C-mutated solid tumors.

			Indication and status
ruxolitinib XR (QD) (JAK1/JAK2)			Myelofibrosis, polycythemia vera and GVHD
ruxolitinib + zilurgisertib (JAK1/JAK2 + ALK2)			Myelofibrosis: Phase II
ruxolitinib + INCB57643 (JAK1/JAK2 + BET)			Myelofibrosis: Phase II
ruxolitinib + CK08041 (JAK1/JAK2 + CB-Tregs)			Myelofibrosis: Phase I (LIMBER-TREG108)
axatilimab (anti-CSF-1R)2			Chronic GVHD: Pivotal Phase II (third-line plus therapy) (AGAVE-201)
ruxolitinib + axatilimab (JAK1/JAK2 + anti-CSF-1R)			Chronic GVHD: Phase I/II in preparation
INCA033989 (mCALR)			Myelofibrosis, essential thrombocythemia: Entering clinic in 2023
tafasitamab (CD19)3			r/r DLBCL: Phase III (B-MIND) 1L DLBCL: Phase III (frontMIND) r/r follicular & marginal zone lymphomas: Phase III (inMIND)
pemigatinib (FGFR1/2/3)			Myeloid/lymphoid neoplasms (MLN): approved in the U.S. and Japan CCA: Phase III (FIGHT-302) Glioblastoma: Phase II (FIGHT-209)
retifanlimab (PD-1)4			Merkel cell carcinoma: approved in the U.S. SCAC: Phase III (PODIUM-303) NSCLC: Phase III (POD1UM-304) MSI-high endometrial cancer: Phase II (POD1UM-101, POD1UM-204)
INCB99280 (Oral PD-L1)			Solid tumors: Phase I KRASG12C-mutated solid tumors: Phase I/Ib in combination with adagrasib5, in preparation
INCB99318 (Oral PD-L1)			Solid tumors: Phase I

1.Development collaboration with Cellenkos, Inc.

2.axatilimab development in collaboration with Syndax.

3.tafasitamab development in collaboration with MorphoSys.

4.retifanlimab licensed from MacroGenics.

5.Clinical trial collaboration and supply agreement with Mirati Therapeutics.

INCB123667 (CDK2)

In the cell cycle, the serine threonine kinase, CDK2, regulates the transition from the G1 phase (cell growth) to the S-phase (DNA replication). INCB123667 is a novel, potent and selective oral small molecule inhibitor of CDK2 which has been shown to suppress tumor growth as monotherapy and in combination with standard of care, in Cyclin E amplified tumor models, in vivo.

In April 2023, we presented data at the American Association for Cancer Research (AACR) Annual Meeting, demonstrating INCB123667 exhibited significant single-agent activity in vivo, in CCNE1high breast cancer xenograft and patient-derived xenograft models. INCB123667 is currently being evaluated in a Phase I clinical trial in patients with advanced malignancies including CCNE1high TNBC and HR+HER2- tumors post-CDK4/6 inhibitors.

INCA32459 (LAG-3xPD-1)

In collaboration with Merus N.V. we have developed INCA32459, a novel LAG3xPD-1 bispecific antibody that is currently being evaluated in clinical studies.

INCA33890 (TGFβR2xPD-1)

INCA33890 is a TGFβR2xPD-1 bispecific antibody which has been engineered to avoid the known toxicity of broad TGFβ pathway blockade. INCA33989 has a 10-fold higher binding affinity for PD-1 relative to TGFβR2, and blocks TGFβ signaling specifically in cells co-expressing PD-1. In April 2023, we presented preclinical data at AACR which showed INCA33890 inhibits tumor growth in PD-1-resistant mouse models.

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

Modality			Candidates
Small molecules			INCB123667 (CDK2)
Monoclonal antibodies			INCAGN2385 (LAG-3)1, INCAGN2390 (TIM-3)1
Bispecific antibodies			INCA32459 (LAG-3xPD-1)2, INCA33890 (TGFβR2xPD-1)2

1. Discovery collaboration with Agenus Inc.

2. Development collaboration with Merus

Incyte Dermatology launched its first approved product, OPZELURA (ruxolitinib) cream, in October 2021, following FDA approval for atopic dermatitis in September 2021. OPZELURA was subsequently approved by the FDA and European Commission for vitiligo in July 2022 and April 2023, respectively.

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

Atopic Dermatitis. In September 2021, we announced that the FDA approved OPZELURA (ruxolitinib) cream, a novel cream formulation of Incyte’s selective JAK1/JAK2 inhibitor ruxolitinib, for the topical short-term and non-continuous chronic treatment of mild to moderate atopic dermatitis (AD) in non-immunocompromised patients 12 years of age and older whose disease is not adequately controlled with topical prescription therapies, or when those therapies are not advisable.

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

The approval of OPZELURA was based on data from two randomized, double-blind, vehicle-controlled Phase III studies (TRuE-AD1 and TRuE-AD 2) evaluating the safety and efficacy of OPZELURA in adolescents and adults with mild to moderate AD. Significantly more patients treated with OPZELURA achieved Investigator’s Global Assessment (IGA) Treatment Success at Week 8 (defined as an IGA score of 0 or 1 with at least a 2-point improvement from baseline, the primary endpoint: 53.8% in TRuE-AD1 and 51.3% in TRuE-AD2, compared to vehicle (15.1% in TRuE-AD1, 7.6% in TRuE-AD2; P<0.0001)). Significantly more patients treated with OPZELURA experienced a clinically meaningful reduction in itch from baseline at Week 8, as measured by a ≥4-point reduction in the itch Numerical Rating Scale (itch NRS4): 52.2% in TRuE-AD1 and 50.7% in TRuE-AD2, compared to vehicle (15.4% in TRuE-AD1, 16.3% in TRuE-AD2; P<0.0001), among patients with an NRS score of at least 4 at baseline. The most common (≥1%) treatment-emergent adverse reactions in patients treated with OPZELURA were nasopharyngitis, diarrhea, bronchitis, ear infection, eosinophil count increased, urticaria, folliculitis, tonsillitis and rhinorrhea.

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

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

The approval of OPZELURA in vitiligo was based on two randomized, double-blind, vehicle-controlled Phase III studies (TRuE-V1 and TRuE-V2) evaluating the safety and efficacy of OPZELURA in adolescents and adults with nonsegmental vitiligo. Treatment with 1.5% ruxolitinib cream twice daily (BID) resulted in greater improvement versus vehicle for the primary and all key secondary endpoints in both the TRuE-V1 and TRuE-V2 studies. Results, which were consistent across both studies, showed that 29.9% of patients applying ruxolitinib cream achieved >75% improvement from baseline in the facial Vitiligo Area Scoring Index (F-VASI75) at Week 24, the primary endpoint. At Week 52, approximately 50% of patients achieved F-VASI75. The most common (>1%) treatment-emergent adverse reactions in patients treated with OPZELURA were application site acne, application site pruritus, nasopharyngitis, headache, urinary tract infection, application site erythema and pyrexia. In March 2023, at the American Academy of Dermatology (AAD), long-term 104-week safety and efficacy data for ruxolitinib cream in vitiligo were presented, demonstrating that patients who achieved a high level of facial repigmentation (≥F-VASI90) at Week 52 maintained durable response one year following withdrawal of treatment and that those patients who continued treatment with Opzelura for up to two years demonstrated sustained facial repigmentation and further improvements in facial and total body repigmentation.

In April 2023, we announced that the European Commission approved OPZELURA for the topical treatment of nonsegmental vitiligo with facial involvement in adults and adolescents 12 years and older following a positive opinion from the Committee for Medicinal Products for Human Use (CHMP).

Ruxolitinib cream

Ruxolitinib cream is a potent, selective inhibitor of JAK1 and JAK2 that provides the opportunity to directly target diverse pathogenic pathways that underlie certain dermatologic conditions, including atopic dermatitis, vitiligo, lichen planus, lichen sclerosus, hidradenitis suppurativa and prurigo nodularis.

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

In November 2022, we initiated two Phase II trials evaluating ruxolitinib cream in lichen planus and lichen sclerosus. Lichen planus is a recurrent inflammatory condition affecting the skin and mucosal surfaces and can result in itchy, purple bumps on the skin. Lichen sclerosus is a chronic inflammatory skin disease most commonly affecting women and can result in painful ulcers and intense itching. A Phase II trial evaluating ruxolitinib cream in mild to moderate hidradenitis suppurativa is ongoing and two Phase III trials evaluating ruxolitinib cream in prurigo nodularis were initiated. We continue to expand the development of ruxolitinib cream into new indications as part of our efforts to maximize the potential opportunity with ruxolitinib cream.

Povorcitinib

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

In March 2021, we initiated a Phase II trial evaluating povorcitinib in patients with vitiligo. A Phase II trial evaluating povorcitinib in patients with prurigo nodularis is ongoing. In August 2022, we presented results from the Phase II trial of povorcitinib in HS. In December 2022, we initiated two Phase III trials (STOP-HS1 and STOP-HS2) in moderate to severe hidradenitis suppurativa.

In February 2023, 52-week results from the Phase II study evaluating povorcitinib in HS were presented as an oral presentation at the European Hidradenitis Suppurativa Foundation (EHSF) Annual Meeting. The data demonstrated that longer-term treatment with povorcitinib 75 mg resulted in sustained and durable efficacy across all treatment arms and importantly, 22-29% of patients achieved HiSCR100, which is defined as a 100% reduction from baseline in total AN count with no increase from baseline in abscess or draining tunnel count. Povorcitinib is currently in two phase 3 studies in moderate to severe HS.

In March 2023, 36-week results from the Phase IIb study evaluating povorcitinib in patients with extensive vitiligo were presented as an oral late-breaking presentation at the American Academy of Dermatology (AAD) Annual Meeting. The data demonstrated that treatment with oral povorcitinib was associated with substantial total body repigmentation in patients with extensive nonsegmental vitiligo, as measured by total Vitiligo Area Scoring Index (T-VASI) scores. Specifically, the study met its primary endpoint and patients receiving povorcitinib experienced statistically superior improvements in T-VASI at Week 24 compared to placebo.

Auremolimab

In November 2022, we acquired Villaris Therapeutics, Inc., an asset-centric biopharmaceutical company focused on the development of novel antibody therapeutics for vitiligo. Its lead asset, auremolimab (VM6) is a novel, humanized anti-IL-15Rβ monoclonal antibody designed to target and deplete autoreactive tissue resident memory T cells (TRM) that has demonstrated efficacy as a treatment for vitiligo in preclinical models. IND-enabling studies are underway, and clinical development for auremolimab is currently expected to begin in 2023.

			Indication and status
ruxolitinib cream1 (JAK1/JAK2)			Atopic dermatitis: Phase III pediatric study (TRuE-AD3) Vitiligo: Phase III (TRuE-V1, TRuE-V2); approved in the U.S. and Europe Lichen planus: Phase II Lichen sclerosus: Phase II Hidradenitis suppurativa: Phase II Prurigo nodularis: Phase III initiated (TRuE-PN1, TRuE-PN2)
ruxolitinib cream + NB-UVB (JAK1/JAK2 + phototherapy)			Vitiligo: Phase II
povorcitinib (JAK1)			Hidradenitis suppurativa: Phase IIb; Phase III (STOP-HS1, STOP-HS2) Vitiligo: Phase II; Phase III planned Prurigo nodularis: Phase II Asthma: PoC planned Chronic spontaneous urticaria: PoC planned
auremolimab (anti-IL-15Rβ)			Vitiligo: Phase I in preparation

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

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

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

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

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

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

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

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

In January 2016, Lilly submitted an NDA to the FDA and an MAA to the EMA for baricitinib as treatment for rheumatoid arthritis. In February 2017, we and Lilly announced that the European Commission approved baricitinib as OLUMIANT for the treatment of moderate-to-severe rheumatoid arthritis in adult patients who have responded inadequately to, or who are intolerant to, one or more disease-modifying antirheumatic drugs (DMARDs). In July 2017, the MHLW granted marketing approval for OLUMIANT for the treatment of rheumatoid arthritis (including the prevention of structural injury of joints) in patients with inadequate response to standard-of-care therapies. In June 2018, the FDA approved the 2mg dose of OLUMIANT for the treatment of adults with moderately-to-severely active rheumatoid arthritis (RA) who have had an inadequate response to one or more tumor necrosis factor (TNF) inhibitor therapies.

Atopic Dermatitis. Lilly has conducted a Phase IIa trial and a Phase III program to evaluate the safety and efficacy of baricitinib in patients with moderate-to-severe atopic dermatitis. The JAK-STAT pathway has been shown to play an essential role in the dysregulation of immune responses in atopic dermatitis. Therefore, we believe that inhibiting cytokine pathways dependent on JAK1 and JAK2 may lead to positive clinical outcomes in AD.

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

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

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

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

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

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

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

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

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

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

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

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

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

Ruxolitinib

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

			Indication and status
baricitinib (JAK1/JAK2)1			Atopic dermatitis: approved in Europe and Japan Severe alopecia areata: approved in the United States, Europe and Japan
capmatinib (MET)2			NSCLC (with MET exon 14 skipping mutations): approved in the United States, Europe and Japan
ruxolitinib (JAK1/JAK2)3			Acute and chronic GVHD: approved in Europe; J-NDA under review

1. baricitinib licensed to Lilly.

2. capmatinib licensed to Novartis.

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

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

Below is a brief description of our significant business relationships and collaborations and related license agreements that expand our pipeline and provide us with certain rights to existing and potential new products and technologies. Additional information regarding our collaboration agreements, including their financial and accounting impact on our business and results of operations, can be found in Note 7 of notes to the consolidated financial statements included in Item 8 of this report.

Novartis

In November 2009, we entered into a Collaboration and License Agreement with Novartis. Under the terms of the agreement, Novartis received exclusive development and commercialization rights outside of the United States to ruxolitinib and certain back 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. We retained options to co-develop and to co-promote capmatinib in the United States. In April 2016, we amended this agreement to provide that Novartis has exclusive research, development and commercialization rights outside of the United States to ruxolitinib (excluding topical formulations) in the GVHD field.

Lilly

In December 2009, we entered into a License, Development and Commercialization Agreement with Lilly. Under the terms of the agreement, Lilly received exclusive worldwide development and commercialization rights to baricitinib and certain back up compounds for inflammatory and autoimmune diseases. In March 2016, we entered into an amendment to the agreement with Lilly that allows us to engage in the development and commercialization of ruxolitinib in the GVHD field. In May 2020, we amended our agreement with Lilly to enable Lilly to commercialize baricitinib for the treatment of COVID-19.

Innovent

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

InnoCare

In August 2021, we entered into a Collaboration and License Agreement with a subsidiary of InnoCare Pharma Limited. Under the terms of this agreement, InnoCare’s subsidiary received development and exclusive commercialization rights to tafasitamab in hematology and oncology in mainland China, Hong Kong, Macau and Taiwan.

Maruho

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

CMS Aesthetics Limited

In December 2022, we entered into a Collaboration and License Agreement with CMS Aesthetics Limited, a subsidiary of China Medical System Holdings Limited. Under the terms of the agreement, CMS received an exclusive license to develop and commercialize, and a non-exclusive license to manufacture, ruxolitinib cream, and potentially other future topical formulations of ruxolitinib, in autoimmune and inflammatory dermatologic diseases, including vitiligo and atopic dermatitis, for patients in mainland China, Hong Kong, Macau, Taiwan and Southeast Asia.

Agenus

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

Merus

In December 2016, we entered into a Collaboration and License Agreement with Merus. Under this agreement, which became effective in January 2017, the parties have agreed to collaborate with respect to the research, discovery and development of bispecific antibodies utilizing Merus’ technology platform. The collaboration encompasses up to eleven independent programs.

In January 2022, we decided to opt-out of the continued development of MCLA-145, a bispecific antibody targeting PD-L1 and CD137. We continue to collaborate with Merus and leverage the Merus platform to develop a pipeline of novel agents, as we continue to hold worldwide exclusive development and commercialization rights to up to ten additional programs.

MacroGenics

In October 2017, we entered into a Global Collaboration and License Agreement with MacroGenics. Under this agreement, we received exclusive development and commercialization rights worldwide to MacroGenics’ INCMGA0012, an investigational monoclonal antibody that inhibits PD-1. MacroGenics has retained the right to develop and commercialize, at its cost and expense, its pipeline assets in combination with INCMGA0012.

Syros

In January 2018, we entered into a Target Discovery, Research Collaboration and Option Agreement with Syros Pharmaceuticals, Inc. Under this agreement, Syros will use its proprietary gene control platform to identify novel therapeutic targets with a focus in myeloproliferative neoplasms and we have received options to obtain exclusive worldwide rights to intellectual property resulting from the collaboration for up to seven validated targets. We will have exclusive worldwide rights to develop and commercialize any therapies under the collaboration that modulate those validated targets.

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, covering the worldwide development and commercialization of MOR208 (tafasitamab), an investigational Fc engineered monoclonal antibody directed against the target molecule CD19. Under the terms of this agreement, we received exclusive commercialization rights outside of the United States, and MorphoSys and we have co-commercialization rights in the United States, with respect to tafasitamab.

Syndax

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

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

For a discussion of our critical accounting policies, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Form 10-K. There have been no significant changes to our critical accounting policies or estimates during the three months ended March 31, 2023.

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.

We recorded net income of $21.7 million and basic and diluted net income per share of $0.10 for the three months ended March 31, 2023, as compared to net income of $38.0 million and basic and diluted net income per share of $0.17 in the corresponding period in 2022.

									Three Months Ended March 31,
															2023						2022
									(in millions)
JAKAFI revenues, net															$	580.0					$	544.5
ICLUSIG revenues, net															27.7						26.1
PEMAZYRE revenues, net															22.5						18.0
MINJUVI revenues, net															6.5						4.5
OPZELURA revenues, net															56.6						12.8
Total product revenues, net															693.3						605.9
JAKAVI product royalty revenues															76.7						70.8
OLUMIANT product royalty revenues															34.1						48.0
TABRECTA product royalty revenues															4.2						3.5
PEMAZYRE product royalty revenues															0.4						—
Total product royalty revenues															115.4						122.3
Milestone and contract revenues															—						5.0
Total revenues															$	808.7					$	733.2

The increase in JAKAFI net product revenues for the three months ended March 31, 2023 as compared to the corresponding period in 2022 was comprised of a volume increase of $26.1 million and a price increase of $9.4 million. The JAKAFI net product revenues increase was primarily driven by growth in patient demand across all indications and was partially offset by higher gross-to-net deductions for Medicare and commercial co-pay assistance consistent with historical prior year’s first quarters, as well as an increase in the volume of JAKAFI sold at discounted prices under the federal 340B drug pricing program. The quarter was also impacted by lower weeks on hand channel inventory than normal due to timing of certain customer purchases. The increase in OPZELURA net product revenues for the three months ended March 31, 2023 was driven by increased patient demand and expanded coverage. OPZELURA net product revenues for the three months ended March 31, 2023 were negatively impacted by an increase in co-pay assistance due to higher commercial patient deductibles at the beginning of the plan year and higher Medicaid utilization volume. In addition, OPZELURA volume was negatively impacted by an acceleration of refills in December 2022 driven by patient demand in advance of annual deductible reset or health plan changes.

Our product revenues may fluctuate from quarter to quarter due to our customers’ purchasing patterns over the course of the year, including as a result of increased inventory building by customers in advance of expected or announced price increases. Product revenues are recorded net of estimated product returns, pricing discounts including rebates offered pursuant to mandatory federal and state government programs and chargebacks, prompt pay discounts and distribution fees and co-pay assistance. Our revenue recognition policies require estimates of the aforementioned sales allowances each period.

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

Three Months Ended March 31, 2023						Discounts and Distribution Fees						Government Rebates and Chargebacks						Co-Pay Assistance and Other Discounts						Product Returns						Total
Balance at January 1, 2023						$	25,316					$	148,465					$	25,580					$	6,366					$	205,727
Allowances for current period sales						30,366						236,129						39,806						888						307,189
Allowances for prior period sales						(1,045)						4,559						3,314						3,512						10,340
Credits/payments for current period sales						(20,400)						(126,899)						(38,092)						—						(185,391)
Credits/payments for prior period sales						(15,436)						(76,254)						(17,073)						(3,991)						(112,754)
Balance at March 31, 2023						$	18,801					$	186,000					$	13,535					$	6,775					$	225,111

Government rebates and chargebacks are the most significant component of our sales allowances. Increases in certain government reimbursement rates are limited to a measure of inflation, and when the price of a drug increases faster than this measure of inflation it will result in a penalty adjustment factor that causes a larger sales allowance to those government related entities. We expect government rebates and chargebacks as a percentage of our gross product sales will continue to increase in connection with any future product price increases greater than the rate of inflation, and any such increase in these government rebates and chargebacks will have a negative impact on our reported product revenues, net. We adjust our estimates for government rebates and chargebacks based on new information regarding actual rebates as it becomes available. Claims by third-party payors for rebates and chargebacks are frequently submitted after the period in which the related sales occurred, which may result in adjustments to prior period accrual balances in the period in which the new information becomes available. Our company-sponsored patient savings program in which we provide financial assistance to enable commercially-insured patients to afford their insurance premium and co-pays may fluctuate as the commercial insurance landscape evolves and may impact net revenues, particularly for drugs like OPZELURA. We also adjust our allowance for product returns based on new information regarding actual returns as it becomes available.

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

Product royalty revenues on commercial sales of JAKAVI and TABRECTA by Novartis are based on net sales of licensed products in licensed territories as provided by Novartis. Product royalty revenues on commercial sales of OLUMIANT by Lilly are based on net sales of licensed products in licensed territories as provided by Lilly. JAKAVI and OLUMIANT product royalty revenues for the three months ended March 31, 2023 as compared to the corresponding period in 2022 were impacted by unfavorable changes in foreign currency exchange rates, while OLUMIANT product royalty revenues were also impacted by a decrease in net product sales of OLUMIANT for use as a treatment for COVID-19. Product royalty revenues on commercial sales of PEMAZYRE by Innovent are based on net sales of licensed products in licensed territories as provided by Innovent.

									Three Months Ended March 31,
															2023						2022
									(in millions)
Product costs															$	23.5					$	12.0
Salary and benefits related															2.7						2.2
Stock compensation															0.8						0.6
Royalty expense															24.4						22.4
Amortization of definite-lived intangible assets															5.4						5.4
Total cost of product revenues															$	56.8					$	42.6

Cost of product revenues includes all product related costs, reserves for obsolescence, employee personnel costs, including stock compensation, for those employees dedicated to the production of our commercial products, royalties under our collaborative agreements and amortization of our licensed intellectual property rights for ICLUSIG. The increase in cost of product revenues for the three months ended March 31, 2023 as compared to the same periods in 2022 was primarily due to product related costs for our commercial products including OPZELURA.

Research and development expenses

									Three Months Ended March 31,
															2023						2022
									(in millions)
Salary and benefits related															$	100.4					$	84.5
Stock compensation															31.0						26.3
Clinical research and outside services															229.9						210.1
Occupancy and all other costs															45.3						32.5
Total research and development expenses															$	406.6					$	353.4

We account for research and development costs by natural expense line and not costs by project. The increase in salary and benefits related expense for the three months ended March 31, 2023 as compared to the corresponding periods in 2022 was due primarily to increased development headcount to sustain our development pipeline. Stock compensation expense may fluctuate from period to period based on the number of awards granted, stock price volatility and expected award lives, as well as expected award forfeiture rates which are used to value equity-based compensation.

The increase in clinical research and outside services expense for the three months ended March 31, 2023 as compared to the corresponding period in 2022 was primarily due to continued investment in our late stage development assets and the timing of certain expenses. Research and development expenses include upfront and milestone expenses related to our collaborative agreements of $2.7 million and $20.0 million, respectively, for the three months ended March 31, 2023 and 2022. Research and development expenses for the three months ended March 31, 2023 and 2022 were net of $0.6 million and $10.3 million, respectively, of costs reimbursed by our collaborative partners.

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

Selling, general and administrative expenses

									Three Months Ended March 31,
															2023						2022
									(in millions)
Salary and benefits related															$	72.9					$	67.3
Stock compensation															21.6						16.9
Other contract services and outside costs															221.1						125.4
Total selling, general and administrative expenses															$	315.6					$	209.6

The increase in salary and benefits related expense for the three months ended March 31, 2023 as compared to the corresponding period in 2022 was due primarily to increased headcount. This increased headcount was due primarily to the establishment of our dermatology commercial organization. Stock compensation expense may fluctuate from period to period based on the number of awards granted, stock price volatility and expected award lives, as well as expected award forfeiture rates which are used to value equity-based compensation. The increase in other contract services and outside costs for the three months ended March 31, 2023, as compared to the corresponding periods in 2022, was primarily due to expenses related to promotional activities to support the launch of OPZELURA for the treatments of atopic dermatitis and vitiligo, and timing of certain expenses.

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

Acquisition-related contingent consideration, which consists of our future royalty obligations to ARIAD/Takeda, was recorded on the acquisition date, June 1, 2016, at the estimated fair value of the obligation, in accordance with the acquisition method of accounting. The fair value of the acquisition-related contingent consideration is remeasured quarterly. The loss on change in fair value of the acquisition-related contingent consideration for the three months ended March 31, 2023 and 2022 was $6.2 million and $6.4 million, respectively, which is recorded in loss on change in fair value of acquisition-related contingent consideration on the condensed consolidated statements of operations. The loss on change in fair value of the contingent consideration during the three months ended March 31, 2023 was due primarily to the passage of time.

(Profit) and loss sharing under collaboration agreements

Under the collaboration and license agreement with MorphoSys, which was executed in March 2020, we and MorphoSys are both responsible for the commercialization efforts of tafasitamab in the United States and will share equally the profits and losses from the co-commercialization efforts. Our 50% share of the United States profit or loss for the commercialization of tafasitamab for the three months ended March 31, 2023 was a profit of $1.4 million, and was a $4.7 million loss for the three months ended March 31, 2022, and is recorded as (profit) and loss sharing under collaboration agreements on the condensed consolidated statement of operations.

Interest income and other, net. Interest income and other, net for the three months ended March 31, 2023 and 2022 was $32.9 million and $1.3 million, respectively. The increase in Interest income and other, net for the three months ended March 31, 2023 primarily relates to an increase in interest income.

Unrealized loss on long term investments. Unrealized gains and losses on long term investments will fluctuate from period to period, based on the change in fair value of the securities we hold in our publicly held collaboration partners. The following table provides a summary of those unrealized losses:

									Three Months Ended March 31,
															2023						2022
									(in millions)
Agenus															$	(10.6)					$	(9.2)
Calithera															(0.2)						(0.5)
Merus															10.4						(19.0)
MorphoSys															1.4						(9.6)
Syndax															(6.2)						(6.4)
Syros															(0.1)						(1.9)
Total unrealized loss on long term investments															$	(5.3)					$	(46.6)