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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(mark one)
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-12400
INCYTE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State of other jurisdiction
of incorporation or organization)
1801 Augustine Cut-Off
Wilmington, DE
(address of principal executives offices)
94-3136539
(irS Employer
identification no.)
19803
(zip code)
(302) 498-6700
(registrant’s telephone number, including area code)
Title of each class
Common Stock, $.001 par value per share
Trading Symbol(s)
inCY
Name of exchange on which registered
the nasdaq Stock market llC
Securities registered pursuant to Section 12(b) of the act:
indicate by check mark if the registrant is a well-known seasoned issuer, as defined in rule 405 of the Securities act. Yes ☒ no ☐
indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the act. Yes ☐ no ☒
Securities registered pursuant to Section 12(g) of the act:
None
indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ☒ no ☐
indicate by check mark whether the registrant has submitted electronically every interactive Data File required to be submitted pursuant to rule 405 of regulation S-
t (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ no ☐
indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in rule 12b-2 of the Exchange act. (check one)
large accelerated filer ☒
accelerated filer ☐
non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
if an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange act. ☐
indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-oxley act (15 u.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange act). Yes ☐ no ☒
the aggregate market value of Common Stock held by non-affiliates (based on the closing sale price on the nasdaq Global Select market on June 30, 2020) was
approximately $19.1 billion.
as of February 2, 2021 there were 219,843,497 shares of Common Stock, $.001 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
items 10 (as to directors and Delinquent Section 16(a) reports), 11, 12, 13 and 14 of part iii incorporate by reference information from the registrant’s proxy
statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for the registrant’s 2021 annual meeting of Stockholders to be
held on may 26, 2021.
table of Contents
PART I
item 1.
item 1a.
item 1B.
item 2.
item 3.
item 4.
PART II
item 5.
item 6.
item 7.
item 7a.
item 8.
item 9.
item 9a.
item 9B.
PART III
item 10.
item 11.
item 12.
item 13.
item 14.
PART IV
item 15.
item 16.
SiGnaturES
Table of Contents
Forward-looking Statements
Summary risk Factors
Business
risk Factors
unresolved Staff Comments
properties
legal proceedings
mine Safety Disclosures
information about our Executive officers
market for registrant’s Common Equity, related Stockholder matters and issuer purchases of Equity
Securities
Selected Financial Data
management’s Discussion and analysis of Financial Condition and results of operations
quantitative and qualitative Disclosures about market risk
Financial Statements and Supplementary Data
Changes in and Disagreements With accountants on accounting and Financial Disclosure
Controls and procedures
other information
Directors, Executive officers and Corporate Governance
Executive Compensation
Security ownership of Certain Beneficial owners and management and related Stockholder matters
Certain relationships and related transactions, and Director independence
principal accountant Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
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Forward-Looking Statements
This report contains forward-looking statements that involve risks and uncertainties. These statements relate to future
periods, future events or our future operating or financial plans or performance. Often, these statements include the words
“believe,” “expect,” “target,” “anticipate,” “intend,” “plan,” “seek,” “estimate,” “potential,” or words of similar meaning, or
future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” or “may,” or the negative of these terms, and
other similar expressions. These forward-looking statements include statements as to:
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the discovery, development, formulation, manufacturing and commercialization of our compounds, our drug
candidates and JAKAFI®/JAKAVI® (ruxolitinib), PEMAZYRE ® (pemigatinib), ICLUSIG ® (ponatinib) and
MONJUVI® (tafasitamab-cxix);
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 JAKAFI,
PEMAZYRE, ICLUSIG and MONJUVI;
the regulatory approval process, including obtaining U.S. Food and Drug Administration and other international
health 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 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;
our expectations regarding competition;
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expectations relating to our new European headquarters and the anticipated completion date for our large molecule
production facility;
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:
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our ability to successfully commercialize JAKAFI, ICLUSIG, PEMAZYRE and MONJUVI;
our ability to maintain at anticipated levels 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;
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;
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our ability to maintain or obtain adequate product liability and other insurance coverage;
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the risk that our drug candidates may not obtain or maintain regulatory approval;
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 construction, other delays or changes in plans relating to our new European headquarters and 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;
our history of operating losses;
risks related to public health pandemics such as the COVID-19 pandemic; 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. We also refer to trademarks of other corporations and
organizations in this Annual Report on Form 10-K.
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Summary Risk Factors
our business is subject to numerous risks and uncertainties that could affect our ability to successfully implement our
business strategy and affect our financial results. You should carefully consider all of the information in this report and, in
particular, the following principal risks and all of the other specific factors described in item 1a. of this report, “risk Factors,”
before deciding whether to invest in our company.
● We depend heavily on JaKaFi/JaKavi (ruxolitinib), and if we are not able to maintain revenues from
JaKaFi/JaKavi or those revenues decrease, our business may be materially harmed.
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if we or our collaborators are unable to obtain, or maintain at anticipated levels, reimbursement for JaKaFi/JaKavi or
our other 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
the loss of, or significant reduction in sales to, any one of these specialty pharmacies or wholesalers could harm our
operations and financial condition.
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if we are unable to establish and maintain effective sales, marketing and distribution capabilities, or to enter into
agreements with third parties to do so, we will not be able to successfully commercialize our products.
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, in particular JaKaFi/JaKavi, could harm our business and result in a decrease in our
revenue.
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the CoviD-19 pandemic and measures to address the pandemic have adversely affected and can 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.
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if we or our collaborators are unable to obtain regulatory approval in and outside of the united States for drug
candidates, we and our collaborators will be unable to commercialize those drug candidates.
● 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.
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if we are unable to establish collaborations to fully exploit our drug discovery and development capabilities or if future
collaborations are unsuccessful, our future revenue prospects could be diminished.
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.
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● We have limited capacity to conduct preclinical testing and clinical trials, and our resulting dependence on other parties
could result in delays in and additional costs for our drug development efforts.
● 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.
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if we fail to comply with the extensive legal and regulatory requirements affecting the health care industry, we could
face increased costs, penalties and a loss of business.
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.
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if we lose any of our key employees or are unable to attract and retain additional personnel, our business and ability to
achieve our objectives could be harmed.
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if we fail to manage our growth effectively, our ability to develop and commercialize products could suffer.
● 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.
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if product liability lawsuits are brought against us, we could face substantial liabilities and may be required to limit
commercialization of our products, and our results of operations could be harmed.
● 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.
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if we are unable to raise additional capital in the future when we require it, our efforts to broaden our product portfolio
or commercialization efforts could be limited.
● our marketable securities and long term investments are subject to risks that could adversely affect our overall financial
position.
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if we are unable to achieve milestones, develop product candidates to license or renew or enter into new collaborations,
our royalty and milestone revenues and future prospects for those revenues may decrease.
● 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.
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if the effective term of our patents is decreased or if we need to refile some of our patent applications, the value of our
patent portfolio and the revenues we derive from it may be decreased.
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.
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Item 1. Business
Overview
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 commercial and clinical
development operations. We also conduct commercial and clinical development operations from our European headquarters in
morges, Switzerland and clinical development operations from our Japanese office in tokyo.
as described in more detail below, our business is composed of three franchises that are defined by the indications of
our approved medicines and the diseases for which our clinical candidates are being developed.
Hematology and Oncology
our hematology and oncology franchise is comprised of four approved products, which are JaKaFi (ruxolitinib),
monJuvi (tafasitamab-cxix), pEmaZYrE (pemigatinib) and iCluSiG (ponatinib), as well as numerous clinical development
programs.
JAKAFI (ruxolitinib)
JaKaFi (ruxolitinib) is our first product to be approved for sale in the united States. it was approved by the u.S. Food
and Drug administration (FDa) in november 2011 for the treatment of 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 and in may 2019 for the treatment of steroid-refractory acute graft-versus-host disease (GvhD) in adult
and pediatric patients 12 years and older. myelofibrosis and polycythemia vera 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 and was the first FDa-approved product in all three of its current
indications. JaKaFi remains the first-line standard of care in mF and remains the only FDa-approved product for pv and
steroid-refractory acute GvhD. the FDa has granted JaKaFi orphan drug status for mF, pv, Et, acute lymphoblastic leukemia
(all) and GvhD.
to help ensure that all eligible patients have access to JaKaFi, we have established a patient assistance program called
incyteCarES (CarES stands for Connecting to access, reimbursement, Education and Support). incyteCarES helps ensure
that any patient with intermediate or high-risk mF, uncontrolled pv or steroid-refractory acute GvhD who meets certain
eligibility criteria and is prescribed JaKaFi has access to the product regardless of ability to pay and has access to ongoing
support and educational resources during treatment.
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JaKaFi is distributed primarily through a network of specialty pharmacy providers and wholesalers that allow for
efficient delivery of the medication by mail directly to patients or direct delivery to the patient’s pharmacy. our distribution
process uses a model that is well-established and familiar to physicians who practice within the oncology field.
to further support appropriate use and future development of JaKaFi, our u.S. medical affairs department is
responsible for providing appropriate scientific and medical education and information to physicians, preparing scientific
presentations and publications, and overseeing the process for supporting investigator sponsored trials.
Myelofibrosis. myelofibrosis 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.
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in December 2014, the FDa approved JaKaFi for the treatment of patients with pv who have had an inadequate
response to or are intolerant of hydroxyurea. the approval of JaKaFi for pv was based on data from the pivotal phase iii
rESponSE trial. in this trial, patients treated with JaKaFi demonstrated superior hematocrit control and reductions in spleen
volume compared to best available therapy. in addition, a greater proportion of patients treated with JaKaFi 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%).
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, which patents, including applicable extensions, expire in late 2027.
MONJUVI (tafasitamab-cxix)
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
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eligible for autologous stem cell transplant (aSCt). monJuvi was approved under accelerated approval based on overall
response rate.
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.
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 relapsed or refractory diffuse large B-cell lymphoma (r/r
DlBCl) who are not eligible for aSCt.
the approval of monJuvi was based on data 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%).
PEMAZYRE (pemigatinib)
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
and only FDa-approved treatment for this indication, which was approved under accelerated approval based on overall response
rate and duration of response (Dor).
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.
We have retained all rights to pEmaZYrE globally, other than those granted to innovent Biologics, inc. to develop and
commercialize pemigatinib in hematology and oncology in mainland China, hong Kong, macau and taiwan.
ICLUSIG (ponatinib)
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.
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Clinical Programs in Hematology and Oncology
Ruxolitinib and itacitinib
as part of our development efforts to evaluate JaK inhibition in GvhD, the rEaCh clinical program is evaluating
ruxolitinib in patients with steroid-refractory GvhD and includes rEaCh2, a novartis-sponsored phase iii trial in steroid-
refractory acute GvhD, and rEaCh3, a phase iii trial in steroid-refractory chronic GvhD that is co-sponsored by incyte and
novartis.
in october 2019, we and novartis announced that rEaCh2 met its primary endpoint of superior orr at Day 28 with
ruxolitinib treatment compared to best available therapy. no new safety signals were observed, and the ruxolitinib safety profile
in rEaCh2 was consistent with that seen in previously reported studies in steroid-refractory acute GvhD. in april 2020, we and
novartis announced that data from rEaCh2 were published in the new England Journal of medicine.
in July 2020, we and novartis announced that rEaCh3 met its primary endpoint of superior orr at month 6 with
ruxolitinib treatment compared to best available therapy (Bat), as well as both key secondary endpoints, significantly improving
patient-reported symptoms and failure-free survival. no new safety signals were observed, and the ruxolitinib safety profile in
rEaCh3 was consistent with that seen in previously reported studies in steroid-refractory chronic GvhD. additional data
announced in December 2020 showed that best overall response (Bor) rate, defined as any response up to week 24, was achieved
in a significantly higher percentage of patients with ruxolitinib therapy compared to Bat. an snDa seeking FDa approval of
ruxolitinib in steroid-refractory chronic GvhD has been submitted.
a second JaK inhibitor in development is itacitinib, which is a selective JaK1 inhibitor. itacitinib is being evaluated in
GravitaS-309, a pivotal phase iii trial of itacitinib in patients with steroid-naïve chronic GvhD. the FDa has granted
itacitinib orphan drug status for GvhD.
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.
Based on positive phase ii data, we have opened two pivotal trials of ruxolitinib in combination with parsaclisib (pi3Kδ) in
first-line mF (limBEr-313) and in mF patients with a suboptimal response to ruxolitinib monotherapy (limBEr-304),
respectively. additional phase ii trials combining ruxolitinib with investigational agents from our portfolio such as inCB57643
(BEt) and inCB00928 (alK2) in patients with mF are in preparation, and additional discovery and development initiatives are
also ongoing within the limBEr program, which are evaluating both internally-discovered compounds, including itacitinib
(JaK1), and candidates from collaboration partners.
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 planned to
begin in 2021.
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 now recruiting patients, and we are preparing to initiate both a
proof-of-concept study of tafasitamab in combination with parsaclisib (pi3Kδ) in patients with relapsed or refractory B-cell
malignancies and a proof-of-concept study of tafasitamab, lenalidomide and plamotamab in patients
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with r/r DlBCl.
in may 2020, we announced the validation of the European marketing authorization application (maa) for tafasitamab
seeking approval of tafasitamab in combination with lenalidomide, followed by tafasitamab monotherapy, for the treatment of
adult patients with r/r DlBCl; the validation of the maa by the European medicines agency (Ema) confirms that the
submission is ready to enter the formal review process. in January 2021, we announced that health Canada accepted the new
Drug Submission (nDS) for tafasitamab in combination with lenalidomide, followed by tafasitamab monotherapy, as a treatment
for adults with r/r DlBCl.
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 8p11 myeloproliferative syndrome (8p11 mpn). Based
on data generated from these ongoing trials, we have initiated additional trials, including FiGht-207, which is a solid tumor-
agnostic trial evaluating pemigatinib in patients with driver-alterations of FGF/FGFr.
in april 2020, we announced the FDa approval of pemigatinib as pEmaZYrE 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. pemigatinib was previously granted Breakthrough therapy designation by the FDa as a
treatment for patients with previously treated, advanced/metastatic or unresectable FGFr2 translocated cholangiocarcinoma and
has Breakthrough therapy designation as a treatment for patients with myeloid/lymphoid neoplasms with FGFr1 rearrangement
(8p11 mpn) who have relapsed or are refractory to initial chemotherapy.
in January 2021, we announced that the Ema’s Committee for medicinal products for human use (Chmp) issued a
positive opinion recommending the conditional marketing authorization of pemigatinib for the treatment of adults with
unresectable locally advanced or metastatic cholangiocarcinoma with an FGFr2 fusion or rearrangement that is relapsed or
refractory, after at least one line of systemic therapy. in September 2020, we submitted a J-nDa seeking approval for pemigatinib
as a treatment for CCa in Japan. in october 2020, we announced that health Canada accepted the new Drug Submission (nDS)
for pemigatinib as a treatment for adults with previously treated, locally advanced or metastatic cholangiocarcinoma with FGFr2
fusion or other rearrangement.
Parsaclisib
the pi3Kδ pathway mediates oncogenic signaling in B cell malignancies. parsaclisib is a pi3Kδ inhibitor that has
demonstrated potency and selectivity in preclinical studies and has potential therapeutic utility in the treatment of patients with
lymphoma. We initiated the CitaDEl clinical program to evaluate parsaclisib in non-hodgkin lymphomas, and we are currently
running phase ii trials in follicular lymphoma, marginal zone lymphoma and mantle cell lymphoma. the FDa has granted orphan
drug designation and Fast track designation to parsaclisib as a treatment for patients with follicular lymphoma, marginal zone
lymphoma and mantle cell lymphoma.
in December 2020, we announced preliminary results from the ongoing CitaDEl monotherapy development program,
which was designed to enable registration of parsaclisib. results from four cohorts were presented at the american Society of
hematology (aSh), including in r/r follicular lymphoma (CitaDEl-203), in BtK-naïve r/r marginal zone lymphoma
(CitaDEl-204) and in both BtK-naïve and BtK-experienced r/r mantle cell lymphoma (CitaDEl-205).
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Retifanlimab
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. potentially registration-enabling trials in squamous cell carcinoma of the anal canal (SCaC), microsatellite instability-high
(mSi-h) endometrial cancer and merkel cell carcinoma are ongoing.
in January 2021, we announced that the FDa had accepted for priority review the Biologics license application (Bla)
for retifanlimab as a treatment for previously treated patients with advanced squamous cell carcinoma of the anal canal (SCaC)
who have progressed following standard platinum-based chemotherapy. the Bla submission was based on data from the phase
ii poD1um-202 trial of retifanlimab in patients with advanced SCaC who have progressed following standard platinum-based
chemotherapy, preliminary results of which were presented at ESmo in September 2020. the phase iii poD1um-303 trial of
retifanlimab in combination with platinum-based chemotherapy as a first-line treatment for patients with SCaC is underway.
the phase iii poD1um-304 trial is evaluating retifanlimab in combination with platinum-based chemotherapy as a
first-line treatment for patients with non-small cell lung cancer (nSClC), and in october 2020, our collaboration partner Zai lab
announced dosing of the first patient in China.
retifanlimab has been granted Fast track designation for the treatment of certain patients with advanced or metastatic
mSi-h or Dna mismatch repair (dmmr) endometrial cancer, for the treatment of certain patients with locally advanced or
metastatic SCaC and for the treatment of merkel cell carcinoma (mCC). the FDa and Ema have granted orphan drug
designation to retifanlimab as a treatment for patients with locally advanced or metastatic SCaC and the FDa has granted orphan
drug designation to retifanlimab as a treatment for patients with mCC.
ruxolitinib (JAK1/JAK2)
Steroid-refractory chronic GvhD1: snDa submitted
Indication and status
itacitinib (JAK1)
treatment-naïve chronic GvhD: phase iii (GravitaS-309)
Once-a-day ruxolitinib
(JAK1/JAK2)
myelofibrosis, polycythemia vera and GvhD: clinical pharmacology studies
ruxolitinib + parsaclisib
(JAK1/JAK2 + PI3Kδ)
myelofibrosis: phase iii (first-line therapy)
myelofibrosis: phase iii (suboptimal responders to ruxolitinib)
ruxolitinib + INCB57643
(JAK1/JAK2 + BET)
ruxolitinib + INCB00928
(JAK1/JAK2 + ALK2)
myelofibrosis: phase ii in preparation
myelofibrosis: phase ii in preparation
itacitinib (JAK1)
myelofibrosis: phase ii (low platelets)
ruxolitinib + CK08042
(JAK1/JAK2 + CB-Tregs)
myelofibrosis: poC in preparation
tafasitamab
(CD19)3
r/r DlBCl: phase ii (l-minD); phase iii (B-minD); maa and nDS under review
1l DlBCl: phase ib (firstminD); phase iii (frontminD) in preparation
r/r follicular & marginal zone lymphomas: phase iii (inminD) in preparation
r/r B-cell malignancies: poC with parsaclisib (pi3Kδ) in preparation
r/r B-cell malignancies: poC with lenalidomide and plamotamab in preparation4
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pemigatinib
(FGFR)
parsaclisib
(PI3Kδ)
retifanlimab
(PD-1)5
CCa: phase ii (FiGht-202), phase iii (FiGht-302); nDS and J-nDa under review
8p11 mpn: phase ii (FiGht-203)
tumor agnostic: phase ii (FiGht-207)
r/r follicular lymphoma: phase ii (CitaDEl-203)
r/r marginal zone lymphoma: phase ii (CitaDEl-204)
r/r mantle cell lymphoma: phase ii (CitaDEl-205)
mSi-high endometrial cancer: phase ii (poD1um-101, poD1um-204)
merkel cell carcinoma: phase ii (poD1um-201)
SCaC: phase ii (poD1um-202); phase iii (poDium-303)
nSClC: phase iii (poD1um-304)
1. Clinical development of ruxolitinib in GvhD conducted in collaboration with novartis.
2. Development collaboration with Cellenkos, inc.
3. tafasitamab development in collaboration with morphoSys.
4. Clinical collaboration with morphoSys and xencor, inc. to investigate the combination of tafasitamab plus lenalidomide in
combination with xencor’s CD20xCD3 xmab bispecific antibody, plamotamab.
5. retifanlimab licensed from macroGenics.
Earlier-Stage Development Programs in Hematology and Oncology
We also have a number of other earlier-stage clinical programs in hematology and oncology, as detailed in the table
below. We intend to describe these programs more fully if we obtain clinical proof-of-concept and establish that a program
warrants further development in a specific indication or group of indications.
Modality
Small molecules
Candidates
inCB01158 (arG)1, inCB81776 (axl/mEr), epacadostat (iDo1),
inCB86550 (pD-l1), inCB106385 (a2a/a2B)
Monoclonal antibodies2
inCaGn1876 (Gitr), inCaGn2385 (laG-3), inCaGn1949 (ox40), inCaGn2390
(tim-3)
Bispecific antibodies
mCla-145 (pD-l1xCD137)3
1. inCB01158 licensed from Calithera Biosciences, inc.
2. Discovery collaboration with agenus inc.
3. mCla-145 development in collaboration with merus n.v.
Inflammation and AutoImmunity (IAI)
We do not yet have any approved products in iai. in anticipation of the potential FDa approval of our most advanced
program, ruxolitinib cream for use in mild-to-moderate atopic dermatitis (aD), we recently established incyte Dermatology as a
new commercial franchise in the united States.
Clinical Programs in Dermatology
ruxolitinib cream is a potent, selective inhibitor of JaK1 and JaK2 that provides the opportunity to directly target
diverse pathogenic pathways that underlie certain dermatologic conditions, including atopic dermatitis and vitiligo.
in april 2020, safety and efficacy data from the two phase iii trials in the truE-aD program evaluating ruxolitinib
cream in mild-to-moderate atopic dermatitis (aD) were presented at the revolutionizing atopic Dermatitis (raD) virtual
symposium; both trials met their primary endpoints. the 44-week long-term safety and efficacy portion of both the truE-aD1
and truE-aD2 trials have been completed.
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in September 2020, we purchased a priority review voucher (prv) from a third party, with the intent to use it in
connection with our submission seeking FDa approval of ruxolitinib cream for the treatment of aD. in December 2020, we
submitted an nDa along with the prv, seeking approval for ruxolitinib cream as a treatment for patients with aD.
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.
in June 2019, primary endpoint data after 6 months of therapy from the phase ii trial of ruxolitinib cream in patients
with vitiligo showed a significant benefit over vehicle control, and a global, pivotal phase iii program was initiated in September
2019. in october 2019, updated data from the phase ii trial showed, after 12 months of therapy, additional improvement in the
repigmentation of vitiligo lesions.
vitiligo is a long-term skin condition characterized by patches of the skin losing their pigment. it is estimated that
vitiligo affects 0.5-2% of the uS population and, therefore, there are at least 1.5 million patients in the united States with this
disorder. there are no FDa approved treatments for repigmentation of vitiligo lesions.
We are also developing inCB54707, which is an oral small molecule selective JaK1 inhibitor. inCB54707 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 inCB54707 is underway in patients with hS.
Clinical Programs in Other IAI
a phase ii trial of parsaclisib in patients with autoimmune hemolytic anemia (aiha), a rare red blood cell disorder, is
also ongoing. the FDa has granted orphan drug designation to parsaclisib as a treatment for patients with aiha.
a phase ii trial of inCB00928 is in preparation for 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
ruxolitinib cream1
(JAK1/JAK2)
atopic dermatitis: phase iii (truE-aD1, truE-aD2; primary endpoint met); nDa submitted
vitiligo: phase iii (truE-v1, truE-v2; recruitment complete in both trials)
INCB54707 (JAK1)
hidradenitis suppurativa: phase ii
parsaclisib (PI3Kδ)
autoimmune hemolytic anemia: phase ii
INCB00928 (ALK2)
Fibrodysplasia ossificans progressiva: phase ii 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.
Collaborative Partnered Programs
as described below under “—license agreements and Business relationships,” we are eligible for milestone payments
and royalties on certain products that we licensed to third parties. these include olumiant (baricitinib), which is licensed to
our collaborative partner Eli lilly and Company, and JaKavi (ruxolitinib) and taBrECta (capmatinib), which are licensed to
novartis.
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Baricitinib
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 Japanese ministry of
health, labour and Welfare (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. an snDa for baricitinib has been submitted by lilly for the treatment of patients with aD.
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.
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
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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. the potential impact of baricitinib on the iFn pathway is highly
relevant to SlE, as clinical and preclinical studies have established that this pathway is involved in the pathogenesis of SlE. lilly
is currently running two phase iii trials of baricitinib in patients with SlE, BravE i and BravE ii.
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. the phase
iii portion of BravE-aa1 is ongoing, as is a second phase iii study, BravE-aa2, in adults with severe or very severe
alopecia areata.
Capmatinib
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.
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.
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Indication and status
baricitinib
(JAK1/JAK2)1
atopic dermatitis: phase iii (BrEEZE-aD); approved in European union and Japan; snDa
submitted
Systemic lupus erythematosus: phase iii (BravE i, BravE ii)
Severe alopecia areata: phase iii (BravE-aa1, BravE-aa2)
capmatinib (MET)2
nSClC (with mEt exon 14 skipping mutations): approved in united States and Japan
1. baricitinib licensed to lilly.
2. capmatinib licensed to novartis.
License Agreements and Business Relationships
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 6 of notes to our consolidated financial statements included in item 8 of this report.
Out-License Agreements
Novartis
in november 2009, we entered into a Collaboration and license agreement with novartis. under the terms of the
agreement, novartis received exclusive development and commercialization rights outside of the united States to ruxolitinib and
certain back 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.
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Innovent
in December 2018, we entered into a research collaboration and licensing agreement with innovent Biologics, inc.
under the terms of this agreement, innovent received exclusive development and commercialization rights to pemigatinib and our
clinical-stage product candidates itacitinib and parsaclisib in hematology and oncology indications in mainland China, hong
Kong, macau and taiwan.
Zai Lab
in July 2019, we entered into a collaboration and license agreement with a subsidiary of Zai lab limited. under the
terms of this agreement, Zai lab received development and exclusive commercialization rights to inCmGa0012 in hematology
and oncology in mainland China, hong Kong, macau and taiwan. We retained an option to assist in the promotion of
inCmGa0012 in Zai lab’s licensed territories.
In-License Agreements
Agenus
in January 2015, we entered into a license, Development and Commercialization agreement with agenus inc. and its
wholly-owned subsidiary, 4-antibody aG (now known as agenus Switzerland inc.), which we collectively refer to as agenus.
under this agreement, the parties have agreed to collaborate on the discovery of novel immuno-therapeutics using agenus’
antibody discovery platforms. under the terms of this agreement, as amended in February 2017, we received exclusive worldwide
development and commercialization rights to four checkpoint modulators directed against Gitr, ox40, laG-3 and tim-3. in
addition to the initial four program targets, we and agenus have the option to jointly nominate and pursue additional targets
within the framework of the collaboration, and in november 2015, three more targets were added, two of which were removed
from the collaboration under the February 2017 amendments.
Takeda (ARIAD)
in June 2016, we acquired from ariaD pharmaceuticals, inc. all of the outstanding shares of ariaD pharmaceuticals
(luxembourg) S.à.r.l., the parent company of ariaD’s European subsidiaries responsible for the development and
commercialization of iCluSiG in the European union and other countries. We obtained an exclusive license to develop and
commercialize iCluSiG in Europe and other select countries. ariaD was subsequently acquired by takeda pharmaceutical
Company limited in 2017.
Merus
in December 2016, we entered into a Collaboration and license agreement with merus n.v. under this agreement,
which became effective in January 2017, the parties have agreed to collaborate with respect to the research, discovery and
development of bispecific antibodies utilizing merus’ technology platform. the collaboration encompasses up to eleven
independent programs. the most advanced collaboration program is mCla-145, a bispecific antibody targeting pD-l1 and
CD137, for which we received exclusive development and commercialization rights outside of the united States. merus retained
exclusive development and commercialization rights in the united States to mCla-145.
Calithera
in January 2017, we entered into a Collaboration and license agreement with Calithera Biosciences, inc. under this
agreement, we received an exclusive, worldwide license to develop and commercialize small molecule arginase inhibitors,
including inCB01158 (CB-1158), which is currently in phase ii clinical trials, for multiple myeloma.
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,
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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 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.
COVID-19
in December 2019, coronavirus disease of 2019, or CoviD-19, was first reported in Wuhan, China. in march 2020, the
World health organization declared CoviD-19 a pandemic (“the CoviD-19 pandemic”). We and our collaboration partners
lilly and novartis initiated a number of clinical trials to address CoviD-19.
in april 2020, we announced the initiation of a phase iii clinical trial (ruxCoviD) to evaluate the efficacy and safety
of ruxolitinib plus standard-of-care (SoC), compared to SoC therapy alone, in patients not on mechanical ventilation and who
have CoviD-19 associated cytokine storm. We sponsored this collaborative study in the united States and our collaboration
partner novartis international pharmaceutical ltd. sponsored the study outside of the united States.
in December 2020, we announced initial results from ruxCoviD, where treatment with ruxolitinib plus SoC did not
prevent complications compared to SoC treatment alone in patients with CoviD-19 associated cytokine storm. the ruxCoviD
study has been completed and the data will be further analyzed to determine any potential impact on other studies of ruxolitinib in
patients with CoviD-19, including our Expanded access program in the united States, which allows eligible patients with severe
CoviD-19 associated cytokine storm to receive ruxolitinib.
a second phase iii clinical trial remains ongoing in multiple geographies, including the united States, to evaluate the
efficacy and safety of ruxolitinib plus SoC, compared to SoC therapy alone, in CoviD-19 patients on mechanical ventilation and
who have acute respiratory distress syndrome (arDS), a type of respiratory failure characterized by rapid onset of widespread
inflammation in the lungs. the SoC therapy is currently evolving and could be subject to change.
in april 2020, lilly announced that it has entered into an agreement with the national institute of allergy and infectious
Diseases (niaiD), part of the national institutes of health, to study baricitinib as an arm in niaiD's adaptive CoviD-19
treatment trial (aCtt-2). the study is investigating the efficacy and safety of baricitinib as a potential treatment for
hospitalized patients diagnosed with CoviD-19 in the united States, and lilly is also planning an expansion to include Europe
and asia.
in September 2020, we and lilly announced initial results from aCtt-2, where baricitinib in combination with
remdesivir reduced the time to recovery in comparison with remdesivir alone. additional data announced in october 2020
showed that baricitinib plus remdesivir resulted in a numerical decrease in mortality through Day 29 compared to remdesivir
alone, with a more pronounced reduction seen in more severely ill patients.
in november 2020, we and lilly announced that the FDa issued an Emergency use authorization (Eua) for the
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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 addition, in June 2020, lilly announced that the first patient had been enrolled in a phase iii randomized, double-
blind, placebo–controlled study (Cov-BarriEr) to evaluate the efficacy and safety of baricitinib in hospitalized adults not on
mechanical ventilation and who have CoviD-19.
Incyte’s Approach to Drug Discovery and Development
our productivity in drug discovery is primarily a result of our core competency in medicinal chemistry which is tightly
integrated with, and supported by, an experienced team of biologists and pharmaceutical scientists with expertise in multiple
therapeutic areas. this discovery team operates in concert with an equally experienced drug development organization with
expertise in clinical sciences, statistics, and regulatory affairs. our drug development organization manages our clinical programs
and utilizes clinical research organizations (Cros), expert scientific advisory boards, and leading consultants and suppliers as
appropriate to ensure our clinical trials are conducted efficiently, effectively, and in accordance with regulatory and compliance
guidelines.
to succeed in our objective to discover and advance novel therapeutics that address serious unmet medical needs, we
have established a broad range of discovery capabilities in-house, including target validation, high-throughput screening,
medicinal chemistry, computational chemistry, pharmacological and translational sciences and aDmE (absorption, distribution,
metabolism and excretion) assessment. We augment these capabilities through collaborations with academic and contract
laboratory resources with relevant expertise.
in addition to our small molecule expertise, we have added biotherapeutic antibody discovery capabilities. the
collaboration with agenus has provided us with access to their antibody discovery platform and provided us with both clinical
antibodies and pre-clinical candidates. We have expanded our discovery scope to include bispecific antibodies through a
collaboration with merus. We are complementing these collaborations by building in-house antibody discovery, pharmacology,
aDmE and CmC capabilities and will partner these efforts with our small molecule portfolio.
Driven by a target- and pathway-centric discovery process, our pipeline has grown and is currently focused primarily in
the area of oncology. We conduct a limited number of discovery programs in parallel at any one time. this focus allows us to
allocate resources to our selected programs at a level that we believe is competitive with larger pharmaceutical companies. We
continually modify the resourcing of our discovery efforts with the goals of maximizing information content when and where we
need it and ensuring that each program, regardless of stage, is executed in the most efficient and data-rich manner possible. We
believe this approach has played a critical role in the development of our product portfolio.
once our compounds reach clinical development, our objective is to rapidly progress the lead candidate into a proof-of-
concept clinical trial to quickly assess the therapeutic potential of the clinical candidate itself as well as its underlying mechanism
of action. this information is then used to evaluate the compound’s development opportunities, identify the most appropriate
indication or indications to pursue, and develop a clinical and regulatory plan to advance the molecule forward.
our development teams are responsible for ensuring that our clinical candidates are expeditiously progressed through
clinical safety, proof-of-concept, and formal efficacy/pivotal trials. our development teams include employees with expertise in
drug development, including clinical trial design, statistics, regulatory affairs, medical affairs, pharmacovigilance and project
management. We have also built internal process chemistry and formulation teams that work closely with external Gmp contract
manufacturers to support our drug development efforts.
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Incyte’s Commercial Strategy
our strategy is to develop and commercialize compounds that we have internally discovered or have acquired rights to in
the markets where we believe that a company of our size can successfully compete. We currently commercialize three compounds
in the united States and one in Europe.
in november 2011, we received regulatory approval of JaKaFi (ruxolitinib) in the united States for the treatment of
intermediate or high-risk myelofibrosis. Since that time, we have focused on increasing utilization of JaKaFi in this patient
population. in December 2014, JaKaFi was approved for the treatment of patients with polycythemia vera who have had an
inadequate response to or are intolerant of hydroxyurea. in may 2019, JaKaFi was approved for the treatment of steroid‐
refractory acute GvhD in adult and pediatric patients 12 years and older.
in april 2020, we received regulatory approval of pEmaZYrE (pemigatinib) in the united States for the treatment of
adults with previously treated, unresectable locally advanced or metastatic cholangiocarcinoma (CCa) with an FGFr2 fusion or
other rearrangement. We are focused on increasing the utilization of molecular profiling in CCa to support identification of
appropriate patients for pEmaZYrE.
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 globally. in July of 2020, monJuvi (tafasitamab-cxix),
in combination with lenalidomide, was FDa approved 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. monJuvi is being co-commercialized by us and morphoSys in the united States.
We have expanded the marketing, medical, sales and operational infrastructure to support the commercialization of
JaKaFi, pEmaZYrE and monJuvi in the united States.
iCluSiG is approved in the European union for the treatment of adult patients with 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. iCluSiG is also indicated in adult patients with philadelphia positive aml 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. We are focused on increasing the utilization of iCluSiG in this patient population
within our territory as appropriate.
We are continuing to expand our marketing, medical and operational infrastructure within the united States and outside
of the united States to prepare for potential approval of other products.
For certain other compounds, including rights to ruxolitinib outside the united States and global rights to capmatinib,
which have both been licensed to novartis, and global rights to baricitinib, which have been licensed to lilly, we have established
and may in the future establish collaborations or strategic relationships to support development and commercialization in certain
territories or therapeutic areas where we do not have or do not want to build expertise. We believe the key benefits to entering
into such strategic relationships include the potential to expedite the development and commercialization of certain of our
compounds, as well as the opportunity to receive upfront payments and future milestones and royalties in exchange for certain
rights to those compounds.
Patents and Other Intellectual Property
We regard the protection of patents and other enforceable intellectual property rights that we own or license as critical to
our business and competitive position. accordingly, we rely on patent, trademark, trade secret and copyright law, as well as
nondisclosure and other contractual arrangements, to protect our intellectual property. We have established a patent portfolio of
patents and patent applications owned or licensed by us that cover aspects of all our drug products and drug candidates. the
patents and patent applications relating to our drug products and drug candidates generally include claims directed to the
compounds, methods of using the compounds, formulations of the compounds, pharmaceutical salt forms of the compounds, and
methods of manufacturing the compounds. our policy is to pursue patent applications on
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inventions and discoveries that we believe are commercially important to the development and growth of our business. the
following table sets forth the status of the patents and patent applications in the united States, the European union, and Japan for
our approved medicines and for those compounds in our portfolio that have been submitted to regulatory authorities seeking
approval or are in registration-directed clinical trials:
Drug/Drug Candidate (Target)
ruxolitinib (JaK)1,2
baricitinib (JaK)
itacitinib (JaK)
capmatinib (mEt)
parsaclisib (pi3Kδ)
pemigatinib (FGFr)
ponatinib (BCraBl)
retifanlimab (pD-1)6
tafasitamab (CD19)
Status of U.S. Composition of
Matter Patent Estate
(Earliest Anticipated Expiration
Including PTE Extensions where
granted)3
Granted and pending (2027)
Granted and pending (2030)5
Granted and pending (2032)4
Granted and pending (2027)5
Granted and pending (2033)4
Granted and pending (2035)5
Granted and pending (2036)4
Granted and pending (2029)5
Status of EU Composition of
Matter Patent Estate (Earliest
Anticipated Expiration
Including SPC Extensions where
granted)3
Granted and pending (2027)
Granted and pending (2032)
Granted and pending (2031)4
Granted and pending (2027)4
Granted and pending (2032)4
Granted and pending (2033)4
Granted and pending (2026)
pending (2036)4
Granted (2027)4
Status of Japan Composition of
Matter Patent Estate (Earliest
Anticipated Expiration
Including SPC Extensions
where granted)3
Granted and pending (2028)
Granted and pending (2033)
Granted and pending (2031)4
Granted and pending (2027)4
Granted and pending (2032)4
Granted and pending (2033)4
pending (2036)4
Granted (2027)4
1. ruxolitinib cream formulation patents are issued in the united States, European union and Japan with anticipated expiration
dates of 2031 respectively, not including patent term extensions that will be sought upon regulatory approval.
2. once-a-day (qD) ruxolitinib formulation patents are issued in the united States, but pending in the European union and Japan
with anticipated expiration dates of 2033 respectively, not including patent term extensions that will be sought upon regulatory
approval.
3. Subject to the payment of maintenance fees.
4. respective patent term extension/supplementary protection certificate (SpC) will be sought upon approval by the respective
regulatory agency.
5. patent term extension has been applied for and being sought.
6. retifanlimab licensed from macroGenics.
patents extend for varying periods according to the date of patent filing or grant and the legal term of patents in the
various countries where patent protection is obtained. the actual protection afforded by a patent, which can vary from country to
country, depends on the type of patent, the scope of its coverage and the availability of legal remedies in the country.
We may seek to license rights relating to technologies, drug candidates or drug products in connection with our drug
discovery and development programs and commercialization activities. under these licenses, such as our licenses from agenus,
ariaD/takeda, Calithera, macroGenics, morphoSys, and merus, we may be required to pay up-front fees, license fees,
milestone payments and royalties on sales of future products.
although we believe our rights under patents and patent applications provide a competitive advantage, the patent
positions of pharmaceutical and biotechnology companies are highly uncertain and involve complex legal and factual questions.
We may not be able to develop patentable products or processes, and may not be able to obtain patents in the united States or
elsewhere from pending applications. Even if patent claims are allowed, the claims may not issue, or in the event of issuance, may
not be valid or enforceable or may not be sufficient to protect the technology owned by or licensed to us or provide us with a
competitive advantage. any patent or other intellectual property rights that we own or obtain may be circumvented, challenged or
invalidated by our competitors. others may have patents that relate to our business or technology and that may prevent us from
marketing our drug candidates unless we are able to obtain a license to those patents. in addition, litigation or other proceedings
may be necessary to defend against claims of infringement, to enforce patents, to protect our other intellectual property rights, to
determine the scope and validity of the proprietary rights of third parties or to defend ourselves in patent or other intellectual
property right suits brought by third parties. We could incur substantial costs in such litigation or other proceedings. an adverse
outcome in any such litigation or proceeding could subject us to significant liability.
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With respect to proprietary information that is not patentable, and for inventions for which patents are difficult to
enforce, we rely on trade secret protection and confidentiality agreements to protect our interests. While we require all employees,
consultants and potential business partners to enter into confidentiality agreements, we may not be able to adequately protect our
trade secrets or other proprietary information. others may independently develop substantially equivalent proprietary information
and techniques or otherwise gain access to our trade secrets.
Competition
our drug discovery, development and commercialization activities face, and will continue to face, intense competition
from organizations such as pharmaceutical and biotechnology companies, as well as academic and research institutions and
government agencies. We face significant competition from organizations, particularly fully integrated pharmaceutical
companies, that are pursuing pharmaceuticals that are competitive with JaKaFi, iCluSiG, pEmaZYrE, monJuvi, and our
drug candidates.
many companies and institutions, either alone or together with their collaborative partners, have substantially greater
financial resources, larger drug discovery, development and commercial staffs and significantly greater experience than we do in:
●
●
●
●
drug discovery;
developing products;
undertaking preclinical testing and clinical trials;
obtaining FDa and other regulatory approvals of products; and
● manufacturing, marketing, distributing and selling products.
accordingly, our competitors may succeed in obtaining patent protection, receiving FDa and other regulatory approval
or commercializing products that compete with JaKaFi, iCluSiG, pEmaZYrE, monJuvi or our drug candidates.
in addition, any drug candidate that we successfully develop may compete with existing therapies that have long
histories of safe and effective use. Competition may also arise from:
●
●
●
other drug development technologies and methods of preventing or reducing the incidence of disease;
new compounds; or
other classes of therapeutic agents.
We face and will continue to face intense competition from other companies for collaborative arrangements with
pharmaceutical and biotechnology companies, for establishing relationships with academic and research institutions and for
licenses to drug candidates or proprietary technology. these competitors, either alone or with their collaborative partners, may
succeed in developing products that are more effective or commercially successful than ours.
our ability to compete successfully will depend, in part, on our ability to:
●
●
develop proprietary products;
develop and maintain products that reach the market first, are technologically superior to and/or are of lower cost
than other products in the market;
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●
●
●
attract and retain scientific, product development and sales and marketing personnel;
obtain patent or other proprietary protection for our products and technologies;
obtain required regulatory approvals; and
● manufacture, market, distribute and sell any products that we develop.
in a number of countries, including in particular, developing countries, government officials and other groups have
suggested that pharmaceutical companies should make drugs available at a low cost. in some cases, governmental authorities
have indicated that where pharmaceutical companies do not do so, their patents might not be enforceable to prevent generic
competition. Some major pharmaceutical companies have greatly reduced prices for their drugs in certain developing countries. if
certain countries do not permit enforcement of any of our patents, sales of our products in those countries, and in other countries
by importation from low-price countries, could be reduced by generic competition or by parallel importation of our product.
alternatively, governments in those countries could require that we grant compulsory licenses to allow competitors to
manufacture and sell their own versions of our products in those countries, thereby reducing our product sales, or we could
respond to governmental concerns by reducing prices for our products. in all of these situations, our results of operations could be
adversely affected.
Government Regulation
our ongoing research and development activities and any manufacturing and marketing of our approved drug products
and our drug candidates are subject to extensive regulation by numerous governmental authorities in the united States and other
countries. Before marketing in the united States, any drug developed by us must undergo rigorous preclinical testing, clinical
trials, and an extensive regulatory clearance process implemented by the FDa under the united States Food, Drug and Cosmetic
act and its implementing regulations and, in the case of biologics, the public health Service act. the FDa regulates, among
other things, the research, development, testing, manufacture, safety, efficacy, record-keeping, labeling, storage, approval,
advertising, promotion, sale and distribution and import and export, of these products.
FDA Review and Approval Process
the regulatory review and approval process is lengthy, expensive and uncertain. the steps generally required before a
drug may be marketed in the united States include:
●
●
●
●
●
●
preclinical laboratory tests, animal studies and formulation studies in compliance with the FDa’s Good laboratory
practice and Good manufacturing practice regulations;
submission to the FDa of an investigational new Drug application (inD) for human clinical testing, which must
become effective before human clinical trials may commence;
performance of adequate and well-controlled clinical trials in three phases, as described below, to establish the
safety and efficacy of the drug for each indication;
submission of an nDa or Biologics license application (Bla) to the FDa for review;
random inspections of clinical sites to ensure validity of clinical safety and efficacy data;
satisfactory completion of an FDa inspection of the manufacturing facility or facilities at which the drug is
produced to assess compliance with current good manufacturing practices;
●
FDa approval of the nDa or Bla; and
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●
payment of user and establishment fees, if applicable.
Similar requirements exist within foreign agencies as well. the time required to satisfy FDa requirements or similar
requirements of foreign regulatory agencies may vary substantially based on the type, complexity and novelty of the product or
the targeted disease.
preclinical testing includes laboratory evaluation of product pharmacology, drug metabolism, and toxicity which
includes animal studies, to assess potential safety and efficacy as well as product chemistry, stability, formulation, development,
and testing. the results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the
FDa as part of an inD. an inD will automatically become effective 30 days after receipt by the FDa, unless before that time,
the FDa raises safety concerns or questions about the conduct of the clinical trial(s) included in the inD. in the latter case, the
inD sponsor and the FDa must resolve any outstanding FDa concerns or questions before clinical trials can proceed. We cannot
be sure that submission of an inD will result in the FDa allowing clinical trials to commence.
Clinical trials involve the administration of the investigational drug to human subjects under the supervision of qualified
investigators and in accordance with good clinical practices regulations covering the protection of human subjects. these
regulations require all research subjects to provide informed consent. Clinical trials are conducted under protocols detailing the
objectives of the study, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each
protocol must be submitted to the FDa as part of the inD and each trial must be reviewed and approved by an institutional review
board (irB) before it can begin.
Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. phase i
usually involves the initial introduction of the investigational drug into healthy volunteers to evaluate its safety, dosage tolerance,
absorption, metabolism, distribution and excretion. phase ii usually involves clinical trials in a limited patient population to
evaluate dosage tolerance and optimal dosage, identify possible adverse effects and safety risks, and evaluate and gain
preliminary evidence of the efficacy of the drug for specific indications. phase iii clinical trials usually further evaluate clinical
efficacy and safety by testing the drug in its final form in an expanded patient population, providing statistical evidence of
efficacy and safety, and providing an adequate basis for labeling. We cannot guarantee that phase i, phase ii or phase iii testing
will be completed successfully within any specified period of time, if at all. Furthermore, we, the irB, or the FDa may suspend
clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an
unacceptable health risk.
as a separate amendment to an inD, a clinical trial sponsor may submit to the FDa a request for a Special protocol
assessment (Spa). under the Spa procedure, a sponsor may seek the FDa’s agreement on the design and size of a clinical trial
intended to form the primary basis of an effectiveness claim. if the FDa agrees in writing, its agreement may not be changed after
the trial begins, except when agreed by FDa or in limited circumstances, such as when a substantial scientific issue essential to
determining the safety and effectiveness of a drug candidate is identified after a phase iii clinical trial is commenced and
agreement is obtained with the FDa. if the outcome of the trial is successful, the sponsor will ordinarily be able to rely on it as
the primary basis for approval with respect to effectiveness. however, additional trials could also be requested by the FDa to
support approval, and the FDa may make an approval decision based on a number of factors, including the degree of clinical
benefit as well as safety. the FDa is not obligated to approve an nDa or Bla as a result of an Spa agreement, even if the
clinical outcome is positive.
Even after initial FDa approval has been obtained, post-approval trials, or phase iv studies, may be required to provide
additional data, and will be required to obtain approval for the sale of a product as a treatment for a clinical indication other than
that for which the product was initially tested and approved. also, the FDa will require post-approval safety reporting to monitor
the side effects of the drug. results of post-approval programs may limit or expand the indication or indications for which the
drug product may be marketed. Further, if there are any requests for modifications to the initial FDa approval for the drug,
including changes in indication, manufacturing process, manufacturing facilities, or labeling, a supplemental nDa or Bla may
be required to be submitted to the FDa.
the length of time and related costs necessary to complete clinical trials varies significantly and may be difficult to
predict. Clinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory
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approvals. additional factors that can cause delay or termination of our clinical trials, or cause the costs of these clinical trials to
increase, include:
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slow patient enrollment due to the nature of the protocol, the proximity of patients to clinical sites, the eligibility
criteria for the study, competition with clinical trials for other drug candidates or other factors;
inadequately trained or insufficient personnel at the study site to assist in overseeing and monitoring clinical trials;
delays in approvals from a study site’s irB;
longer than anticipated treatment time required to demonstrate effectiveness or determine the appropriate product
dose;
lack of sufficient supplies of the drug candidate for use in clinical trials;
adverse medical events or side effects in treated patients; and
lack of effectiveness of the drug candidate being tested.
any drug is likely to produce some toxicities or undesirable side effects in animals and in humans when administered at
sufficiently high doses and/or for sufficiently long periods of time. unacceptable toxicities or side effects may occur at any dose
level, and at any time in the course of animal studies designed to identify unacceptable effects of a drug candidate, known as
toxicological studies, or in clinical trials of our drug candidates. the appearance of any unacceptable toxicity or side effect could
cause us or regulatory authorities to interrupt, limit, delay or abort the development of any of our drug candidates, and could
ultimately prevent their marketing approval by the FDa or foreign regulatory authorities for any or all targeted indications.
the FDa’s fast track, breakthrough therapy, accelerated approval, and priority review designation programs are
intended to facilitate the development and expedite the review and approval of drug candidates intended for the treatment of
serious or life-threatening conditions and that demonstrate the potential to address unmet medical needs for these conditions.
under these programs, FDa can, for example, review portions of an nDa or Bla for a drug candidate before the entire
application is complete, thus potentially beginning the review process at an earlier time.
We cannot guarantee that the FDa will grant any of our requests for any of these expedited program designations, that
any such designations would affect the time of review or that the FDa will approve the nDa or Bla submitted for any of our
drug candidates, whether or not these designations are granted. additionally, FDa approval of a product can include restrictions
on the product’s use or distribution (such as permitting use only for specified medical conditions or limiting distribution to
physicians or facilities with special training or experience). approval of such designated products can be conditioned on
additional clinical trials after approval.
Sponsors submit the results of preclinical studies and clinical trials to the FDa as part of an nDa or Bla. nDas and
Blas must also contain extensive product manufacturing information and proposed labeling. upon receipt, the FDa initially
reviews the nDa or Bla to determine whether it is sufficiently complete to initiate a substantive review. if the FDa identifies
deficiencies that would preclude substantive review, the FDa will refuse to accept the nDa or Bla and will inform the sponsor
of the deficiencies that must be corrected prior to resubmission. if the FDa accepts the submission for review (then deemed a
“filing”), the FDa typically completes the nDa or Bla review within a pre-determined time frame. under the prescription Drug
user Fee act, the FDa agrees to review nDas and Blas under either a standard review or priority review. FDa procedures
provide for priority review of nDas and Blas submitted for drugs that, compared to currently marketed products, if any, offer a
significant improvement in the treatment, diagnosis or prevention of a disease. the FDa seeks to review nDas and Blas that
are granted priority status more quickly than nDas and Blas given standard review status. the FDa’s stated policy is to act on
90% of priority nDas and Blas within eight months of receipt (or six months after filing, which occurs within 60 days after
nDa or Bla submission). although the FDa
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historically has not met these goals, the agency has made significant improvements in the timeliness of the review process. nDa
and Bla review often extends beyond anticipated completion dates due to FDa requests for additional data or clarification, the
FDa’s decision to have an advisory committee review, and difficulties in scheduling an advisory committee meeting. the
recommendations of an advisory committee are not binding on the FDa.
to obtain FDa approval to market a product, we must demonstrate that the product is safe and effective for the patient
population that will be treated. if regulatory approval of a product is granted, the approval will be limited to those disease states
and conditions for which the product is safe and effective, as demonstrated through clinical trials. marketing or promoting a drug
for an unapproved indication is prohibited. Furthermore, approval may entail requirements for post-marketing studies or risk
evaluation and mitigation strategies, including the need for patient and/or physician education, patient registries, medication or
similar guides, or other restrictions on the distribution of the product. if an nDa or Bla does not satisfy applicable regulatory
criteria, the FDa may deny approval of an nDa or Bla or may issue a complete response, and require, among other things,
additional clinical data or analyses.
the orphan Drug act provides incentives to manufacturers to develop and market drugs for rare diseases and conditions
affecting fewer than 200,000 persons in the united States at the time of application for orphan drug designation. the first
developer to receive FDa marketing approval for an orphan drug is entitled to a seven year exclusive marketing period in the
united States for the orphan drug indication. however, a drug that the FDa considers to be clinically superior to, or different
from, another approved orphan drug, even though for the same indication, may also obtain approval in the united States during
the seven year exclusive marketing period.
Regulation of Manufacturing Process
Even when nDa or Bla approval is obtained, a marketed product, such as JaKaFi, its manufacturer and its
manufacturing facilities are subject to continual review and periodic inspections by the FDa. the manufacturing process for
pharmaceutical products is highly regulated and regulators may shut down manufacturing facilities that they believe do not
comply with regulations. Discovery of previously unknown problems with a product, manufacturer or facility may result in
restrictions on the product, manufacturer or facility, including costly recalls or withdrawal of the product from the market.
manufacturing facilities are always subject to inspection by the applicable regulatory authorities.
We and our third-party manufacturers are subject to current Good manufacturing practices, which are extensive
regulations governing manufacturing processes, including but not limited to stability testing, record keeping and quality standards
as defined by the international Council for harmonisation of technical requirements for pharmaceuticals for human use, or
iCh, FDa and the European medicines agency. Similar regulations are in effect in other countries. manufacturing facilities are
subject to inspection by the applicable regulatory authorities and are subject to manufacturing licenses where applicable. these
facilities, whether our own or our contract manufacturers, must be inspected before we can use them in commercial
manufacturing of our related products. We or our contract manufacturers may not be able to comply with applicable Good
manufacturing practices and FDa or other regulatory requirements. if we or our contract manufacturers fail to comply, we or our
contract manufacturers may be subject to legal or regulatory action, such as suspension of manufacturing license, seizure of
product, or voluntary recall of product. Furthermore, continued compliance with applicable Good manufacturing practices will
require continual expenditure of time, money and effort on the part of us or our contract manufacturers in the areas of production
and quality control and record keeping and reporting, in order to ensure full compliance.
Post-Approval Regulation
any products manufactured or distributed by us pursuant to FDa approvals are subject to pervasive and continuing
regulation by the FDa, including record-keeping requirements, reporting of adverse experiences with the drug and other
reporting, advertising and promotion restrictions. the FDa’s rules for advertising and promotion require, among other things, that
our promotion be fairly balanced and adequately substantiated by clinical studies, and that we not promote our products for
unapproved uses. We must also submit appropriate new and supplemental applications and obtain FDa approval for certain
changes to the approved product, product labeling or manufacturing process. on its own initiative, the FDa may require changes
to the labeling of an approved drug if it becomes aware of new safety information that the agency believes should be included in
the approved drug’s labeling. the FDa also enforces the requirements of the
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prescription Drug marketing act, or pDma, which, among other things, imposes various requirements in connection with the
distribution of product samples to physicians.
in addition to inspections related to manufacturing, we are subject to periodic unannounced inspections by the FDa and
other regulatory bodies related to the other regulatory requirements that apply to marketed drugs manufactured or distributed by
us. the FDa also may conduct periodic inspections regarding our review and reporting of adverse events, or related to
compliance with the requirements of the pDma concerning the handling of drug samples. When the FDa conducts an inspection,
the inspectors will identify any deficiencies they believe exist in the form of a notice of inspectional observations. the
observations may be more or less significant. if we receive a notice of inspectional observations, we likely will be required to
respond in writing, and may be required to undertake corrective and preventive actions in order to address the FDa’s concerns.
there are a variety of state laws and regulations that apply in the states or localities where JaKaFi and our drug
candidates are or may be marketed. For example, we must comply with state laws that require the registration of manufacturers
and wholesale distributors of pharmaceutical products in that state, including, in certain states, manufacturers and distributors
who ship products into the state even if such manufacturers or distributors have no place of business within the state. Some states
also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution,
including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product as it
moves through the distribution chain. any applicable state or local regulations may hinder our ability to market, or increase the
cost of marketing, our products in those states or localities.
the FDa’s policies may change and additional government regulations may be enacted which could impose additional
burdens or limitations on our ability to market products after approval. moreover, increased attention to the containment of health
care costs in the united States and in foreign markets could result in new government regulations which could have a material
adverse effect on our business. We cannot predict the likelihood, nature or extent of adverse governmental regulation which might
arise from future legislative or administrative action, either in the united States or abroad.
Marketing Exclusivity
the FDa may grant five years of exclusivity in the united States for the approval of nDas for new chemical entities,
and three years of exclusivity for supplemental nDas, for among other things, new indications, dosages or dosage forms of an
existing drug if new clinical investigations that were conducted or sponsored by the applicant are essential to the approval of the
supplemental application. additionally, six months of marketing exclusivity in the united States is available if, in response to a
written request from the FDa, a sponsor submits and the agency accepts requested information relating to the use of the approved
drug in the pediatric population. the six month pediatric exclusivity is added to any existing patent or non-patent exclusivity
period for which the drug is eligible. orphan drug products are also eligible for pediatric exclusivity if the FDa requests and the
company completes pediatric clinical trials. under the Biologics price Competition and innovation act, the FDa may grant
12 years of data exclusivity for innovative biological products.
Foreign Regulation
outside the united States, our ability to market a product is contingent upon receiving a marketing authorization from
the appropriate regulatory authorities. the requirements governing the conduct of clinical trials, marketing authorization, pricing
and reimbursement vary widely from country to country. at present, foreign marketing authorizations are applied for at a national
level, although within the European union (Eu) registration procedures are available to companies wishing to market a product in
more than one Eu member state. if the competent regulatory authority is satisfied that adequate evidence of safety, quality and
efficacy has been presented, a marketing authorization may be granted. this foreign regulatory approval process involves all of
the risks associated with FDa approval discussed above and may also include additional risks.
Whether or not we obtain FDa approval for a product, we must obtain the requisite approvals from regulatory
authorities in non-uS countries prior to the commencement of clinical trials or marketing of the product in those countries.
Certain countries outside of the united States have a process that requires the submission of a clinical trial application, or
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Cta, much like an inD prior to the commencement of human clinical trials. in Europe, a Cta must be submitted to the
competent national health authority and to independent ethics committees in each country in which a company plans to conduct
clinical trials. once the Cta is approved in accordance with a country’s requirements, clinical trial development may proceed in
that country and are conducted in accordance with GCp and other applicable regulatory requirements.
to obtain regulatory approval of an investigational drug under Eu regulatory systems, we must submit a marketing
authorization application (maa). this application is similar to the nDa in the united States, with the exception of, among other
things, regional and/or country-specific document requirements. Drugs can be authorized in the Eu by using (i) the centralized
authorization procedure, (ii) the mutual recognition procedure, (iii) the decentralized procedure or (iv) national authorization
procedures.
the European medicines agency implemented the centralized procedure for the approval of human drugs to facilitate
marketing authorizations that are valid throughout the Eu. this procedure results in a single marketing authorization granted by
the European Commission that is valid across the Eu. under the centralized procedure, the maximum timeframe for the
evaluation of a marketing authorization application by the Ema is 210 days (excluding clock stops, when additional written or
oral information is to be provided by the applicant in response to questions asked by the Committee for medicinal products for
human use). a positive opinion on the maa by the Chmp then needs to be endorsed by the European Commission. accelerated
assessment might be granted by the Chmp in exceptional cases, in which case the Ema ensures that the evaluation for the
opinion of the Chmp is completed within 150 days (excluding clock stops) and the opinion issued thereafter.
the mutual recognition procedure (mrp) for the approval of human drugs is an alternative approach to facilitate
individual national marketing authorizations within the Eu. the mrp may be applied for all human drugs for which the
centralized procedure is not obligatory. the mrp is based on the principle of the mutual recognition by Eu member states of
their respective national marketing authorizations. Based on a marketing authorization in the reference member state, the
applicant may apply for marketing authorizations in other member states. in such case, the reference member state shall update its
existing assessment report about the drug. after the assessment is completed, copies of the report are sent to all member states,
together with the approved summary of product characteristics, labeling and package leaflet. the concerned member states then
recognize the decision of the reference member state and the summary of product characteristics, labeling and package leaflet.
national marketing authorizations shall be granted within 30 days after acknowledgement of the agreement.
Should any member State refuse to recognize the marketing authorization by the reference member state, the member
states shall make all efforts to reach a consensus. if this fails, the procedure is submitted to an Ema scientific committee for
arbitration. the opinion of this Ema Committee is then forwarded to the Commission, for the start of the decision making
process. as in the centralized procedure, this process entails consulting various European Commission Directorates General and
the Standing Committee on human medicinal products or veterinary medicinal products, as appropriate.
legislation similar to the orphan Drug act has been enacted in other countries outside of the united States, including
the Eu. the orphan legislation in the Eu is available for therapies addressing conditions that affect five or fewer out of 10,000
persons, are life-threatening or chronically debilitating conditions and for which no satisfactory treatment is authorized. the
market exclusivity period is for ten years, although that period can be reduced to six years if, at the end of the fifth year, available
evidence establishes that the product does not justify maintenance of market exclusivity.
For other countries outside of the Eu, such as non-Eu countries in Eastern Europe, middle-East, latin america, Japan
or other countries in asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement
vary. in all cases, again, the clinical trials are conducted in accordance with GCp and the other applicable regulatory
requirements.
if we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines,
suspension of clinical trials, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating
restrictions and criminal prosecution.
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Manufacturing
our manufacturing strategy is to contract with third parties to manufacture the raw materials, our active pharmaceutical
ingredients, or api, and finished dosage form for clinical and commercial uses. We currently do not operate manufacturing
facilities for clinical or commercial production of JaKaFi, iCluSiG, pEmaZYrE or our drug candidates. in addition, we
expect for the foreseeable future to continue to rely on third parties for the manufacture of commercial supplies of the raw
materials, api and finished drug product for any drugs that we successfully develop and are approved for commercial sale. in this
manner, we continue to build and maintain our supply chain and quality assurance resources.
Manufacturing of our Products
our supply chain for manufacturing raw materials, api and drug product ready for distribution and commercialization is
a multi-step international process. Establishing and managing the supply chain requires a significant financial commitment and
the creation and maintenance of numerous third-party contractual relationships.
We contract with third parties to manufacture JaKaFi, iCluSiG, pEmaZYrE and our drug candidates for clinical and
commercial purposes. our collaborator morphoSys is currently responsible for sourcing manufacturing of monJuvi. third-
party manufacturers supply raw materials, and other third-party manufacturers convert these raw materials into api or convert the
api into final dosage form. For most of our drug candidates, once our raw materials are produced, we rely on one third-party to
manufacture the api, another to make finished drug product and a third to package and label the finished product. For ruxolitinib
phosphate, the api for JaKaFi, we have two qualified third-party contract manufacturers from which we can source drug
substance. the manufacturing of ponatinib, the api for iCluSiG, is the sole responsibility of takeda, the intellectual property
holder. We procure api from takeda, which outsources the api manufacturing to a third party. For pemigatinib, the api for
pEmaZYrE, we have one qualified third-party contract manufacturer from which we can source drug substance.
We also rely on third-party contract manufacturers to tablet or capsulate all of our active pharmaceutical ingredients for
clinical and commercial uses. For JaKaFi and iCluSiG, we have two qualified third-party manufacturers from which we can
source commercial drug product. Secondary packaging of iCluSiG is performed by a qualified third-party manufacturer.
primary packaged product for iCluSiG can be used for clinical and commercial purposes. For pEmaZYrE, we have one
qualified third-party manufacturer from which we can source commercial drug product.
We may not be able to obtain sufficient quantities of any of our raw materials, drug candidates, api, or finished goods if
our designated manufacturers do not have the capacity or capability to manufacture our products according to our schedule and
specifications. if any of these single source suppliers were to become unable or unwilling to supply us with api or finished
product that complies with applicable regulatory requirements, we could incur significant delays in our clinical trials or
interruption of commercial supply which could have a material adverse effect on our business. Similar risks apply to our supply
of monJuvi under our collaboration with morphoSys.
We have established a quality assurance program intended to ensure that our third-party manufacturers and service
providers produce materials and provide services, as applicable, in accordance with the FDa and Ema’s current Good
manufacturing practices and other applicable regulations. our quality assurance program extends to our licensed facilities that
oversee the manufacturing and distribution activities.
For our future products, we intend to continue to establish third-party suppliers to manufacture sufficient quantities of
our drug candidates to undertake clinical trials and to manufacture sufficient quantities of any product that is approved for
commercial sale. if we are unable to contract for large scale manufacturing with third parties on acceptable terms for our future
products or develop manufacturing capabilities internally, our ability to conduct large scale clinical trials and meet customer
demand for commercial products will be adversely affected.
in July 2018, we purchased land located in Yverdon, Switzerland for construction of a large molecule production facility
to manufacture biologic drug substances for our drug candidates. Construction activity commenced in July 2018 and we currently
expect the facility will be operational in the second half of 2021.
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Third-party Manufacturers
our third-party manufacturers are independent entities, under contract with us, who are subject to their own unique
operational and financial risks which are out of our control. if we or any of our third-party manufacturers fail to perform as
required, this could impair our ability to deliver our products on a timely basis or cause delays in our clinical trials and
applications for regulatory approval. to the extent these risks materialize and affect their performance obligations to us, our
financial results may be adversely affected.
For products manufactured by our third-party manufacturers, we have licensed the necessary aspects of this
manufacturing technology that we believe is proprietary to us to enable them to manufacture the products for us. We have
agreements with these third-party manufacturers that are intended to restrict these manufacturers from using or revealing our
technology, but we cannot be certain that these third-party manufacturers will comply with these restrictions.
While we believe there are multiple third parties capable of providing most of the materials and services we need in
order to manufacture api and distribute finished goods, and that supply of materials that cannot be second sourced can be
managed with inventory planning, there is always a risk that we may underestimate demand, and that our manufacturing capacity
through third-party manufacturers may not be sufficient. in addition, because of the significant lead times involved in our supply
chain for ruxolitinib phosphate, we may have less flexibility to adjust our supply in response to changes in demand than if we had
shorter lead times. our strategy is to maintain 24 months of safety stock of api to be able to respond to changes in demand to
provide on-time supply of drug product as well as at least 6 months of semi-finished goods inventory.
Access to Supplies and Materials
our third-party manufacturers need access to certain supplies and products to manufacture JaKaFi, iCluSiG,
pEmaZYrE and our drug candidates. if delivery of material from their suppliers were interrupted for any reason or if they are
unable to purchase sufficient quantities of raw materials used to manufacture JaKaFi, iCluSiG, pEmaZYrE and our drug
candidates, they may be unable to ship JaKaFi, iCluSiG and pEmaZYrE for commercial supply or to supply our drug
candidates in development for clinical trials. For example, currently raw materials used to manufacture ruxolitinib phosphate, the
api in JaKaFi, are supplied by Chinese-based companies. as a result, an international trade dispute between China and the
united States or any other actions by the Chinese government that would limit or prevent Chinese companies from supplying
these materials would adversely affect our ability to manufacture and supply our products to meet market needs and have a
material and adverse effect on our operating results.
Human Capital
our human capital management philosophy is committed to promoting an environment where our colleagues are
fulfilled and valued. We promote a company culture based on scientific excellence as we seek to create new treatments; we are
creative in our development strategies; and we seek positive collaboration with each other. Working collaboratively is of the
utmost importance as we aim to change the treatment landscape for patients with cancer and inflammatory and autoimmune
diseases. it is our goal to conduct business in a manner that does not compromise the health of people nor the state of the
environment. it is our policy to comply with all applicable environmental health and safety (EhS) regulatory requirements and
seek to continually improve our EhS management systems. a strong safety culture is a fundamental part of how we work, and
our philosophy is that everyone at incyte has a responsibility to create and maintain a safe and healthy workplace with a goal to
reduce risk and prevent injuries.
We appreciate one another’s differences and strengths and are proud to be an Equal opportunity Employer. We value
diversity of backgrounds and perspectives and our policy is that we do not discriminate based on race, religious creed, color,
national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender,
gender identity, gender expression, age, military and veteran status, sexual orientation or any other protected characteristic as
established by federal, state or local laws. Further, we have policies in place that prohibit harassment of all kinds. at incyte, we
prohibit retaliation in all forms and are committed to encouraging a culture where employees can freely ask questions and raise
concerns. our management team makes themselves available to all employees and quarterly global town hall events allow for
open question and answer dialogue.
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We believe that creative solutions are best achieved by diverse teams working together, and inclusion is therefore
essential to incyte. Diversity of thoughts, backgrounds, perceptions and ideas help us create the medical solutions that patients
require, and represent the lifeblood of organizations such as ours. We have recently formed an inclusion Committee, which is co-
chaired by our Chief Executive officer and our head of human resources, to bring forth actionable plans across multiple focus
areas. We have expanded our recruitment searches to include organizations and websites dedicated to Black candidates. We have
also partnered with Jopwell, to aid connections with Black and other underrepresented candidates for non-science jobs and we are
participating in the reputable Scientific mentoring & Diversity program (SmDp) mentoring program that pairs primarily Black
and Brown students, who are post baccalaureate and graduate students with mentors who work at biopharmaceutical companies.
We additionally post all of our open positions on the historically Black Colleges and universities career pages.
We offer what we believe is a competitive compensation package, which allows 100% of global incyte employees to
participate in our annual incentive compensation plan as well as annual equity-based grants. We seek to ensure our compensation
package remains competitive by benchmarking against our peers several times annually as well as conducting twice per year
compensation reviews to confirm that our employees are being compensated fairly, equitably and in accordance with our pay
structures and job levels. in addition, we offer what we believe is a competitive benefits package, which includes an option to
participate in our Employee Stock purchase plan for both full-time and part-time employees working at least 20 hours per week.
We believe that our health insurance coverage is industry-leading, as it provides 100% coverage for full-time employees and is
95% subsidized for part-time employees working at least 20 hours per week in the united States. Beyond compensation and
benefits, we are committed to supporting our colleagues in their professional development. opportunities for growth are provided
through challenging job assignments, performance management and training opportunities. Globally, all full-time employees are
eligible for tuition reimbursement. We believe these professional opportunities enhance our colleagues’ skills, career aspirations
and job satisfaction as well as provide personal enrichment.
as of December 31, 2020, we had 1,773 employees, including 930 in research and development, 161 in medical affairs,
438 in sales and marketing and 244 in operations support, finance and administrative positions. Geographically, 1,381 employees
were based in the united States and Canada, 356 employees were based in Europe and 36 employees were based in asia. none of
our employees are covered by collective bargaining agreements, and management considers relations with our employees to be
good.
Available Information
We were incorporated in Delaware in 1991 and our website is located at www.incyte.com. We make available free of
charge on our website our annual reports on Form 10-K, quarterly reports on Form 10-q, current reports on Form 8-K and
amendments to those reports, as soon as reasonably practicable after we electronically file or furnish such materials to the
Securities and Exchange Commission. our website and the information contained therein or connected thereto are not intended to
be incorporated into this annual report on Form 10-K.
Item 1A. Risk Factors
RISKS RELATING TO COMMERCIALIZATION OF OUR PRODUCTS
We depend heavily on our lead product, JAKAFI (ruxolitinib), which is marketed as JAKAVI outside the United States. If we
are unable to maintain revenues from JAKAFI or those revenues decrease, our business may be materially harmed.
JaKaFi is our first product marketed by us that is approved for sale in the united States. JaKaFi was approved by the
u.S. Food and Drug administration, or FDa, in november 2011 for the treatment of patients with intermediate or high-risk
myelofibrosis, in December 2014 for the treatment of patients with polycythemia vera who have had an inadequate response to or
are intolerant of hydroxyurea, which we refer to as uncontrolled polycythemia vera, and in may 2019 for the treatment of steroid-
refractory acute graft-versus-host disease in adult and pediatric patients 12 years and older. although we have received regulatory
approval for these indications, such approval does not guarantee future revenues. While we also sell iCluSiG in the European
union, or Eu, and other countries for the treatment of certain types
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of leukemia, pEmaZYrE in the united States for the treatment of specified cholangiocarcinoma indications, and monJuvi in
the united States for the treatment of certain lymphoma indications and our exclusive licensees sell olumiant (baricitinib) for
the treatment of specified rheumatoid arthritis and atopic dermatitis indications and taBrECta for the treatment of a certain
type of non small-cell lung cancer, we anticipate that JaKaFi product sales will continue to contribute a significant percentage of
our total revenues over the next several years.
the commercial success of JaKaFi and our ability to maintain and continue to increase revenues from the sale of
JaKaFi will depend on a number of factors, including:
●
the number of patients with intermediate or high-risk myelofibrosis, uncontrolled polycythemia vera or steroid-
refractory acute graft-versus-host disease who are diagnosed with the diseases and the number of such patients that
may be treated with JaKaFi;
●
the acceptance of JaKaFi by patients and the healthcare community;
● whether physicians, patients and healthcare payors view JaKaFi as therapeutically effective and safe relative to
cost and any alternative therapies;
●
●
●
●
●
●
●
the ability to obtain and maintain sufficient coverage or reimbursement by third-party payors and pricing;
the ability of our third-party manufacturers to manufacture JaKaFi in sufficient quantities that meet all applicable
quality standards;
the ability of our company and our third-party providers to provide marketing and distribution support for JaKaFi;
the effects of the CoviD-19 pandemic, any associated quarantine, travel restriction, stay-at-home or shutdown
orders, guidelines or practices, and any disruption in our supply chain for JaKaFi on our ability to provide
marketing and distribution support for JaKaFi, our ability to produce sufficient quantities of JaKaFi that meet all
applicable quality standards, patient demand (including new patient prescriptions) and other risks detailed further
below under “—other risks relating to our Business—public health epidemics, such as the CoviD-19 pandemic,
could adversely affect our business, results of operations, and financial condition”;
the label and promotional claims allowed by the FDa;
the maintenance of regulatory approval for the approved indications in the united States; and
our ability to develop, obtain regulatory approval for and commercialize ruxolitinib in the united States for
additional indications.
if we are not able to maintain revenues from JaKaFi in the united States, or our revenues from JaKaFi decrease, our
business may be materially harmed and we may need to delay other drug discovery, development and commercialization
initiatives or even significantly curtail operations, and our ability to license or acquire new products to diversify our revenue base
could be limited.
in addition, our receipt of royalties under our collaboration agreements with novartis for sales of JaKavi outside the
united States and taBrECta globally and with Eli lilly and Company for worldwide sales of olumiant will depend on
factors similar to those listed above, with similar regulatory, pricing and reimbursement issues driven by applicable regulatory
authorities and governmental and third-party payors affecting jurisdictions outside the united States.
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If we are unable to obtain, or maintain at anticipated levels, reimbursement for our products from government health
administration authorities, private health insurers and other organizations, our pricing may be affected or our product sales,
results of operations or financial condition could be harmed.
We may not be able to sell our products on a profitable basis or our profitability may be reduced if we are required to
sell our products at lower than anticipated prices or reimbursement is unavailable or limited in scope or amount. the costs of
JaKaFi, iCluSiG, pEmaZYrE and monJuvi are not insignificant and almost all patients will require some form of third-
party coverage to afford their cost. our future revenues and profitability will be adversely affected if we cannot depend on
government and other third-party payors to defray the cost of our products to the patient. reimbursement systems in international
markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country
basis. reimbursement in the Eu must be negotiated on a country-by-country basis and in many countries the product cannot be
commercially launched until reimbursement is approved. the timing to complete the negotiation process in each country is highly
uncertain, and in some countries, we expect that it may exceed 12 months. risks related to pricing and reimbursement are
described below under “—other risks relating to our Business—health care reform measures could impact the pricing and
profitability of pharmaceuticals, and adversely affect the commercial viability of our or our collaborators’ products and drug
candidates. our ability to generate revenues will be diminished if we or our collaborators are unable to obtain an adequate level of
reimbursement from private insurers, government insurance programs or other third party payors of health care costs, which could
be affected by current and potential healthcare reform legislation, and diminished revenues will harm our operating results and
financial condition and could adversely affect our ability to conduct our research and development operations.” if government and
other third-party payors refuse to provide coverage and reimbursement with respect to our products, determine to provide a lower
level of coverage and reimbursement than anticipated, reduce previously approved levels of coverage and reimbursement, or
delay reimbursement payments due to budgetary constraints relating to the CoviD-19 pandemic, then our pricing or
reimbursement for our products may be affected and our product sales, results of operations or financial condition could be
harmed.
We depend upon a limited number of specialty pharmacies and wholesalers for a significant portion of any revenues from
JAKAFI, and the loss of, or significant reduction in sales to, any one of these specialty pharmacies or wholesalers could
adversely affect our operations and financial condition.
We sell JaKaFi primarily to specialty pharmacies and wholesalers. Specialty pharmacies dispense JaKaFi to patients
in fulfillment of prescriptions and wholesalers sell JaKaFi to hospitals and physician offices. We do not promote JaKaFi to
specialty pharmacies or wholesalers, and they do not set or determine demand for JaKaFi. our ability to successfully
commercialize JaKaFi will depend, in part, on the extent to which we are able to provide adequate distribution of JaKaFi to
patients. although we have contracted with a number of specialty pharmacies and wholesalers, they are expected generally to
carry a very limited inventory and may be reluctant to be part of our distribution network in the future if demand for the product
does not increase. Further, it is possible that these specialty pharmacies and wholesalers could decide to change their policies or
fees, or both, at some time in the future. this could result in their refusal to carry smaller volume products such as JaKaFi, or
lower margins or the need to find alternative methods of distributing our product. although we believe we can find alternative
channels to distribute JaKaFi on relatively short notice, our revenue during that period of time may suffer and we may incur
additional costs to replace any such specialty pharmacy or wholesaler. the loss of any large specialty pharmacy or wholesaler as
part of our distribution network, a significant reduction in sales we make to specialty pharmacies or wholesalers, or any failure to
pay for the products we have shipped to them could materially and adversely affect our results of operations and financial
condition.
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.
We have established commercial capabilities in the united States and outside of the united States, but cannot guarantee
that we will be able to enter into and maintain any marketing, distribution or third-party logistics agreements with third-party
providers on acceptable terms, if at all. We may not be able to correctly judge the size and experience of the sales and marketing
force and the scale of distribution capabilities necessary to successfully market and sell any new products. Establishing and
maintaining sales, marketing and distribution capabilities are expensive and time-consuming. Competition for personnel with
experience in sales and marketing can be high. our expenses associated with building and
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maintaining the sales force and distribution capabilities may be disproportional compared to the revenues we may be able to
generate on sales of our products.
to the extent that we are able to obtain marketing approval for ruxolitinib cream for dermatology indications such as
atopic dermatitis and vitiligo, we will have to establish and maintain sales, marketing and distribution capabilities that will
generally be separate from our existing capabilities for oncology indications, and we have no prior experience in commercializing
products for dermatology indications. Successful commercialization of our drug candidates for dermatology indications, if
approved, will require us to establish new physician and payor relationships, reimbursement strategies and governmental
interactions. our inability to commercialize successfully products in indications outside of oncology could harm our business and
operating results.
If we fail to comply with applicable laws and regulations, we could lose our approval to market our products or be subject to
other governmental enforcement activity.
We cannot guarantee that we will be able to maintain regulatory approval to market our products in the jurisdictions in
which they are currently marketed. if we do not maintain our regulatory approval to market our products, in particular JaKaFi,
our results of operations will be materially harmed. We and our collaborators, third-party manufacturers and suppliers are subject
to rigorous and extensive regulation by the FDa and other federal and state agencies as well as foreign governmental agencies.
these regulations continue to apply after product marketing approval, and cover, among other things, testing, manufacturing,
quality control and assurance, labeling, advertising, promotion, risk mitigation, and adverse event reporting requirements.
the commercialization of our products is subject to post-regulatory approval product surveillance, and our products may
have to be withdrawn from the market or subject to restrictions if previously unknown problems occur. regulatory agencies may
also require additional clinical trials or testing for our products, and our products may be recalled or may be subject to
reformulation, additional studies, changes in labeling, warnings to the public and negative publicity. For example, from late 2013
through 2014, iCluSiG was subject to review by the European medicines agency, or Ema, of the benefits and risks of
iCluSiG to better understand the nature, frequency and severity of events obstructing the arteries or veins, the potential
mechanism that leads to these side effects and whether there needed to be a revision in the dosing recommendation, patient
monitoring and a risk management plan for iCluSiG. this review was completed in January 2015, with additional warnings in
the product information but without any change in the approved indications. the Ema could take additional actions in the future
that reduce the commercial potential of iCluSiG.
Failure to comply with the laws and regulations administered by the FDa or other agencies could result in:
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administrative and judicial sanctions, including warning letters;
fines and other civil penalties;
suspension or withdrawal of regulatory approval to market or manufacture our products;
interruption of production;
operating restrictions;
product recall or seizure;
injunctions; and
criminal prosecution.
the occurrence of any such event may have a material adverse effect on our business.
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If the use of our products harms patients, or is perceived to harm patients even when such harm is unrelated to our products,
our regulatory approvals could be revoked or otherwise negatively impacted or we could be subject to costly and damaging
product liability claims.
the testing of JaKaFi, iCluSiG, pEmaZYrE and monJuvi, the manufacturing, marketing and sale of JaKaFi and
pEmaZYrE and the marketing and sale of iCluSiG and monJuvi expose us to product liability and other risks. Side effects
and other problems experienced by patients from the use of our products could:
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lessen the frequency with which physicians decide to prescribe our products;
encourage physicians to stop prescribing our products to their patients who previously had been prescribed our
products;
cause serious harm to patients that may give rise to product liability claims against us; and
result in our need to withdraw or recall our products from the marketplace.
if our products are used by a wide patient population, new risks and side effects may be discovered, the rate of known
risks or side effects may increase, and risks previously viewed as less significant could be determined to be significant.
previously unknown risks and adverse effects of our products may also be discovered in connection with unapproved, or
off-label, uses of our products. We are prohibited by law from promoting or in any way supporting or encouraging the promotion
of our products for off-label uses, but physicians are permitted to use products for off-label purposes. in addition, we are studying
and expect to continue to study JaKaFi in diseases for potential additional indications in controlled clinical settings, and
independent investigators are doing so as well. in the event of any new risks or adverse effects discovered as new patients are
treated for intermediate or high-risk myelofibrosis, uncontrolled polycythemia vera or acute graft-versus-host disease and as
JaKaFi is studied in or used by patients for off-label indications, regulatory authorities may delay or revoke their approvals, we
may be required to conduct additional clinical trials, make changes in labeling of JaKaFi, reformulate JaKaFi or make changes
and obtain new approvals. We may also experience a significant drop in the sales of JaKaFi, experience harm to our reputation
and the reputation of JaKaFi in the marketplace or become subject to lawsuits, including class actions. any of these results
could decrease or prevent sales of JaKaFi or substantially increase the costs and expenses of commercializing JaKaFi. Similar
results could occur with respect to our commercialization of iCluSiG, pEmaZYrE and monJuvi.
patients who have been enrolled in our clinical trials or who may use our products in the future often have severe and
advanced stages of disease and known as well as unknown significant pre-existing and potentially life-threatening health risks.
During the course of treatment, patients may suffer adverse events, including death, for reasons that may or may not be related to
our products. Such events could subject us to costly litigation, require us to pay substantial amounts of money to injured patients,
delay, negatively impact or end our opportunity to receive or maintain regulatory approval to market our products, or require us to
suspend or abandon our commercialization efforts. Even in a circumstance in which we do not believe that an adverse event is
related to our products, the investigation into the circumstance may be time consuming or inconclusive. these investigations may
interrupt our sales efforts, impact and limit the type of regulatory approvals our products receive or maintain, or delay the
regulatory approval process in other countries.
Factors similar to those listed above also apply to our collaborator novartis for jurisdictions in which it has development
and commercialization rights, to iCluSiG for jurisdictions outside the united States, to our collaborator lilly for all jurisdictions
and to our collaborator innovent for pEmaZYrE in the jurisdictions in which it has development and commercialization rights.
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If we market our products in a manner that violates various laws and regulations, we may be subject to civil or criminal
penalties.
in addition to FDa and related regulatory requirements, we are subject to health care “fraud and abuse” laws, such as the
federal False Claims act, the anti-kickback provisions of the federal Social Security act, and other state and federal laws and
regulations. Federal and state anti-kickback laws prohibit, among other things, knowingly and willfully offering, paying,
soliciting or receiving remuneration to induce, or in return for purchasing, leasing, ordering or arranging for the purchase, lease or
order of any health care item or service reimbursable under medicare, medicaid, or other federally- or state-financed health care
programs. Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for
payment to the federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid.
pharmaceutical companies have been prosecuted under these laws for a variety of alleged promotional and marketing activities.
although physicians are permitted, based on their medical judgment, to prescribe products for indications other than
those approved by the FDa, manufacturers are prohibited from promoting their products for such off-label uses. We market
JaKaFi for intermediate or high-risk myelofibrosis, uncontrolled polycythemia vera and acute graft-versus-host disease and
provide promotional materials to physicians regarding the use of JaKaFi for these indications. although we believe that our
promotional materials for physicians do not constitute improper promotion of JaKaFi, the FDa or other agencies may disagree.
if the FDa or another agency determines that our promotional materials or other activities constitute improper promotion of
JaKaFi, it could request that we modify our promotional materials or other activities or subject us to regulatory enforcement
actions, including the issuance of a warning letter, injunction, seizure, civil fine and criminal penalties. it is also possible that
other federal, state or foreign enforcement authorities might take action if they believe that the alleged improper promotion led to
the submission and payment of claims for an unapproved use, which could result in significant fines or penalties under other
statutory authorities, such as laws prohibiting false claims for reimbursement. Even if it is later determined we are not in violation
of these laws, we may be faced with negative publicity, incur significant expenses defending our position and have to divert
significant management resources from other matters. Similar risks exist for our marketing of pEmaZYrE and our and our
collaborator morphoSys’s marketing of monJuvi.
the European union and member countries, as well as governmental authorities in other countries, impose similar strict
restrictions on the promotion and marketing of drug products. the off-label promotion of medicinal products is prohibited in the
Eu and in other territories, and the Eu also maintains strict controls on advertising and promotional materials. the promotion of
medicinal products that are not subject to a marketing authorization is also prohibited in the Eu. violations of the rules governing
the promotion of medicinal products in the Eu and in other territories could be penalized by administrative measures, fines and
imprisonment.
the majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws,
which apply to items and services reimbursed under medicaid and other state programs, or, in several states, apply regardless of
the payor. numerous states and localities have enacted or are considering enacting legislation requiring pharmaceutical
companies to establish marketing compliance programs, file periodic reports or make periodic public disclosures on sales,
marketing, pricing, clinical trials, and other activities. additionally, as part of the patient protection and affordable Care act, the
federal government has enacted the physician payment Sunshine provisions. the Sunshine provisions and similar laws and
regulations in other jurisdictions where we do business require manufacturers to publicly report certain payments or other
transfers of value made to physicians and teaching hospitals. many of these requirements are new and uncertain, and the penalties
for failure to comply with these requirements are unclear. nonetheless, if we are found not to be in full compliance with these
laws, we could face enforcement action and fines and other penalties, which could be significant in amount or result in exclusion
from federal healthcare programs such as medicare and medicaid. any action initiated against us for violation of these laws,
even if we successfully defend against it, could require the expenditure of significant resources and generate negative publicity,
which could harm our business and operating results. See also “—other risks relating to our Business—if we fail to comply
with the extensive legal and regulatory requirements affecting the health care industry, we could face increased costs, penalties
and a loss of business” below.
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Competition for our products could harm our business and result in a decrease in our revenue.
present and potential competitors for JaKaFi could include major pharmaceutical and biotechnology companies, as
well as specialty pharmaceutical firms. For example, in august 2019, Celgene Corporation, now a subsidiary of Bristol-myers
Squibb Company, announced that the FDa had approved inrEBiC (fedratinib) for the treatment of myelofibrosis. See “—other
risks relating to our Business— We face significant competition for our drug discovery and development efforts, and if we do
not compete effectively, our commercial opportunities will be reduced or eliminated” for a description of risks relating to this
type of competition. in addition, JaKaFi could face competition from generic products. as a result of the Drug price
Competition and patent term restoration act of 1984, commonly known as the hatch-Waxman act, in the united States, generic
manufacturers may seek approval of a generic version of an innovative pharmaceutical by filing with the FDa an abbreviated
new Drug application, or anDa. the hatch-Waxman act provides significant incentives to generic manufacturers to challenge
u.S. patents on successful innovative pharmaceutical products. in February 2016, we received a notice letter regarding an anDa
that requested approval to market a generic version of JaKaFi and purported to challenge patents covering ruxolitinib phosphate
and its use that expire in 2028. the notice letter does not challenge the ruxolitinib composition of matter patent, which expires in
December 2027. to date, to our knowledge, the FDa has taken no action with respect to this anDa. Separately, in January 2018
the patent trial and appeal Board (ptaB) of united States patent and trademark office denied a petition challenging our patent
covering deuterated ruxolitinib analogs and the ptaB subsequently denied the petitioner’s request for rehearing in may 2018.
nevertheless, the petitioner still has the right separately to challenge the validity of our patent in federal court. there can be no
assurance that our patents will be upheld or that any litigation in which we might engage with any such generic manufacturer
would be successful in protecting JaKaFi’s exclusivity. the entry of a generic version of JaKaFi could result in a decrease in
JaKaFi sales and materially harm our business, operating results and financial condition.
iCluSiG currently competes with existing therapies that are approved for the treatment of patients with chronic
myeloid leukemia, or Cml, who are resistant or intolerant to prior tyrosine kinase inhibitor, or tKi, therapies, on the basis of,
among other things, efficacy, cost, breadth of approved use and the safety and side-effect profile. in addition, generic versions of
imatinib are available and, while we currently believe that generic versions of imatinib will not materially impact our
commercialization of iCluSiG, given iCluSiG’s various indication statements globally that are currently focused on resistant or
intolerant Cml, we cannot be certain how physicians, payors, patients, regulatory authorities and other market participants will
respond to the availability of generic versions of imatinib.
monJuvi currently competes with existing therapies that are approved for the treatment of patients with diffuse large
B-cell lymphoma on the basis of, among other things, efficacy, cost, breadth of approved use and the safety and side-effect
profile. these existing therapies are offered by major pharmaceutical and biotechnology companies, as well as specialty
pharmaceutical firms. potential competitors for pEmaZYrE could include major pharmaceutical and biotechnology companies,
as well as specialty pharmaceutical firms.
OTHER RISKS RELATING TO OUR BUSINESS
Public health epidemics, such as the COVID-19 Pandemic, could adversely affect our business, results of operations, and
financial condition.
our global operations expose us to risks associated with public health epidemics, such as the CoviD-19 pandemic that
has spread globally. the extent to which the CoviD-19 pandemic and the measures taken to limit CoviD-19’s spread impact
our operations and those of our suppliers, collaborators, service providers and healthcare organizations serving patients, as well as
demand for our drug products, will depend on future developments, which are highly uncertain and cannot be predicted with
confidence, including the duration of the outbreak and any future resurgence of the outbreak, additional or modified government
actions, including any further restrictions or reopening of local, state or national social or economic activity, new information that
may emerge concerning the severity of CoviD-19 and the actions taken to contain CoviD-19 or treat its impact, among others.
as a result of the CoviD-19 pandemic, we may experience disruptions that could severely impact our business, results
of operations and financial condition, including the following:
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to protect the health of our employees and their families, and our communities, in accordance with – and in some cases
in advance or - direction from state and local government authorities, we currently have limited access to certain of our
facilities and instituted additional precautions in our facilities that have reopened, and a significant percentage of our
personnel continue to work remotely a significant portion of their time. in the event that governmental authorities were
to modify current restrictions or re-establish greater restrictions, our employees conducting research and development
activities may not be able to access our laboratory space, and our research and development activities may be
significantly limited or curtailed, possibly for an extended period of time. these research and development activities
could include completing investigational new Drug (inD)/Clinical trial application (Cta)-enabling studies, our ability
to select future development candidates, and initiation of additional clinical trials for our development programs. having
a significant portion of our employees work from home can strain our information technology infrastructure, which may
affect our ability to operate effectively, may make us more susceptible to communications disruptions, and expose us to
greater cybersecurity risks.
● our sales and marketing activities, including our interactions with healthcare professionals, have been limited and made
more difficult by the work from home orders and travel restrictions. in addition, demand for our products has been
affected by decreases in new patients, which we believe resulted in large part from decreases in patient visits to
healthcare professionals and prioritization of hospital resources for the CoviD-19 pandemic, resulting in decreases in
disease screening and diagnosis. We cannot predict the effects on patient demand or future sales if there are prolonged
quarantines, work from home orders or travel restrictions.
● our clinical trials have been and may in the future be affected by delays in site initiation, patient screening, patient
enrollment, and monitoring and data collection as a result of prioritization of hospital resources for the CoviD-19
pandemic, travel restrictions, and the inability to access sites for initiation and monitoring. in addition, some patients
may be unable to comply with clinical trial protocols if quarantines or stay at home orders impede patient movement or
interrupt health services, we may be unable to obtain blood samples for testing, and we may not be able to provide the
trial drug candidate to patients.
● health regulatory agencies globally have experienced disruptions in their operations as a result of the coronavirus
pandemic. the FDa and comparable foreign regulatory agencies may have slower response times or be under-resourced
to continue to monitor our clinical trials and, as a result, review, inspection, and other timelines may be materially
delayed. if any of these disruptions occur or continue to occur, we cannot predict how long they may last. our drug
candidate application reviews and potential approvals could be impacted or delayed by these disruptions, if they occur or
continue to occur.
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the outbreak and measures taken to limit the spread of the outbreak, especially if prolonged, could also disrupt our
supply chain or limit our ability to obtain sufficient materials for our drug products and product candidates, which could
adversely affect our revenues and clinical trial timelines. Currently, our supply chain for our drug products and product
candidates depends on operations by us and by other companies in multiple countries around the world, and the effects
of the CoviD-19 pandemic on any or all of these countries is uncertain and unpredictable and potential disruption is
possible. in addition, our third-party manufacturers might experience capacity constraints and delays in producing
materials for our drug products and product candidates if they are required, under the u.S. Defense production act or
similar governmental mandates, to prioritize production of raw materials, supplies, drugs or vaccines to address CoviD-
19. and, for JaKaFi, while our strategy is to maintain a 24 month stock of active pharmaceutical ingredient, or api,
inclusive of finished product, ruxolitinib phosphate might be used by us either to make JaKaFi or for ruxolitinib drug
candidates in clinical trials.
● any deterioration of worldwide credit and financial markets could result in losses on our holdings of cash and
investments due to failures of financial institutions and other parties, and interruptions and delays in our ability to
collect, or potential losses on, our accounts receivable.
our collaborators could be affected by similar factors as those that have or could affect our business. the ultimate
impact of the CoviD-19 pandemic or a similar health epidemic is highly uncertain and subject to change. We do not yet know
the full extent of potential impacts or delays on our or our collaborators’ businesses, our revenues, including milestone and
royalty revenues from our collaborators, our and our collaborators’ clinical trials, healthcare systems or the
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global economy as a whole. however, these effects could have a material adverse impact on our business, results of operations,
and financial condition.
We may be unsuccessful in our efforts to discover and develop drug candidates and commercialize drug products.
our long-term success, revenue growth and diversification of revenues depends on our ability to obtain regulatory
approval for new drug products and new indications for our existing drug products. our ability to discover and develop drug
candidates and to commercialize additional drug products and indications will depend on our ability to:
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hire and retain key employees;
identify high quality therapeutic targets;
identify potential drug candidates;
develop products internally or license drug candidates from others;
identify and enroll suitable human subjects, either in the united States or abroad, for our clinical trials;
complete laboratory testing;
commence, conduct and complete safe and effective clinical trials on humans;
obtain and maintain necessary intellectual property rights to our products;
obtain and maintain necessary regulatory approvals for our products, both in the united States and abroad;
enter into arrangements with third parties to provide services or to manufacture our products on our behalf;
deploy sales, marketing, distribution and manufacturing resources effectively or enter into arrangements with third
parties to provide these functions in compliance with all applicable laws;
obtain appropriate coverage and reimbursement levels for the cost of our products from governmental authorities,
private health insurers and other third-party payors;
lease facilities at reasonable rates to support our growth; and
enter into arrangements with third parties to license and commercialize our products.
We may not be successful in discovering, developing, or commercializing additional drug products or our existing drug
products in new indications. Discovery and development of drug candidates are expensive, uncertain and time-consuming, and we
do not know if our efforts will lead to discovery of any drug candidates that can be successfully developed and marketed. of the
compounds or biologics that we identify as potential drug products or that we may in-license from other companies, including
potential products for which we are conducting clinical trials, only a few, if any, are likely to lead to successful drug development
programs and commercialized drug products.
We depend heavily on the success of our most advanced drug candidates. We and our collaborators might not be able to
commercialize any of our or their drug candidates successfully, and we may spend significant time and money attempting to
do so.
We have invested significant resources in the development of our most advanced drug candidates. We and our
collaborator morphoSys have submitted a European marketing authorization application with the Ema for tafasitamab in
combination with lenalidomide for the treatment of patients with a specified type of lymphoma. ruxolitinib is in phase
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iii clinical trials for the treatment of patients with steroid-refractory graft-versus-host disease and patients with CoviD-19 and is
in other clinical trials. ruxolitinib cream is in phase iii clinical trials for the treatment of patients with atopic dermatitis and
vitiligo. itacitinib is in phase iii clinical trials for the treatment of patients with chronic graft-versus-host disease. Further, we
have a number of drug candidates in phase i and phase ii clinical trials. our ability to generate product revenues will depend on
the successful development and eventual commercialization of our most advanced drug candidates. We, or our collaborators or
licensees, may decide to discontinue development of any or all of our drug candidates at any time for commercial, scientific or
other reasons. For example: in early 2016, we decided to discontinue the clinical trials of ruxolitinib in pancreatic cancer and
solid tumors and itacitinib in pancreatic cancer; and, in april 2018, we along with merck stopped the ECho-301 study with
epacadostat, and we also significantly downsized the epacadostat development program. in addition, in January 2020 we
announced that itacitinib did not meet the primary endpoint in the phase iii clinical trial for the treatment of patients with acute
graft-versus-host disease. if a product is developed but not approved or marketed, we may have spent significant amounts of time
and money on it, which could adversely affect our operating results and financial condition as well as our business plans.
If we or our collaborators are unable to obtain regulatory approval for our drug candidates in the United States and foreign
jurisdictions, we or our collaborators will not be permitted to commercialize products resulting from our research.
in order to commercialize drug products in the united States, drug candidates will have to obtain regulatory approval
from the FDa. Satisfaction of regulatory requirements typically takes many years. to obtain regulatory approval, we or our
collaborators, as the case may be, must first show that our or our collaborators’ drug candidates are safe and effective for target
indications through preclinical testing (animal testing) and clinical trials (human testing). preclinical testing and clinical
development are long, expensive and uncertain processes, and we do not know whether the FDa will allow us or our
collaborators to undertake clinical trials of any drug candidates in addition to our or our collaborators’ compounds currently in
clinical trials. if regulatory approval of a product is granted, this approval will be limited to those disease states and conditions for
which the product is demonstrated through clinical trials to be safe and effective.
Completion of clinical trials may take several years and failure may occur at any stage of testing. the length of time
required varies substantially according to the type, complexity, novelty and intended use of the drug candidate. interim results of
a preclinical test or clinical trial do not necessarily predict final results, and acceptable results in early clinical trials may not be
repeated in later clinical trials. For example, a drug candidate that is successful at the preclinical level may cause harmful or
dangerous side effects when tested at the clinical level. our rate of commencement and completion of clinical trials may be
delayed, and existing clinical trials with our or our collaborators’ drug candidates may be stopped, due to many potential factors,
including:
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the high degree of risk and uncertainty associated with drug development;
our inability to formulate or manufacture sufficient quantities of materials for use in clinical trials;
variability in the number and types of patients available for each study;
difficulty in maintaining contact with patients after treatment, resulting in incomplete data;
unforeseen safety issues or side effects;
poor or unanticipated effectiveness of drug candidates during the clinical trials; or
government or regulatory delays.
Data obtained from clinical trials are susceptible to varying interpretation, which may delay, limit or prevent regulatory
approval. many companies in the pharmaceutical and biopharmaceutical industry, including our company, have suffered
significant setbacks in advanced clinical trials, even after achieving promising results in earlier clinical trials. in addition,
regulatory authorities may refuse or delay approval as a result of other factors, such as changes in regulatory
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policy during the period of product development and regulatory agency review. For example, the FDa has in the past required,
and could in the future require, that we or our collaborators conduct additional trials of any of our drug candidates, which would
result in delays. in april 2017, we and our collaborator lilly announced that the FDa had issued a complete response letter for
the new Drug application, or nDa, of olumiant as a once-daily oral medication for the treatment of moderate-to-severe
rheumatoid arthritis. the letter indicated that additional clinical data were needed to determine the most appropriate doses and to
further characterize safety concerns across treatment arms. in June 2018, after a resubmission of the nDa, the FDa approved the
2mg dose of olumiant for the treatment of adults with moderately-to-severely active rheumatoid arthritis who have had an
inadequate response to one or more tumor necrosis factor inhibitor therapies. the FDa did not at that time approve any higher
dose of olumiant and required a warning label in connection with its approval.
Compounds or biologics developed by us or with or by our collaborators and licensees may not prove to be safe and
effective in clinical trials and may not meet all of the applicable regulatory requirements needed to receive marketing approval.
For example, in January 2016, a phase ii trial that was evaluating ruxolitinib in combination with regorafenib in patients with
relapsed or refractory metastatic colorectal cancer and high C-reactive protein was stopped early after a planned analysis of
interim efficacy data determined that the likelihood of the trial meeting its efficacy endpoint was insufficient. in addition, in
February 2016, we made a decision to discontinue our JanuS 1 study, our JanuS 2 study, our other studies of ruxolitinib in
colorectal, breast and lung cancer, and our study of inCB39110 in pancreatic cancer after a planned analysis of interim efficacy
data of JanuS 1 demonstrated that ruxolitinib plus capecitabine did not show a sufficient level of efficacy to warrant
continuation. also, in april 2018, we along with merck announced that the ECho-301 study had been stopped and we also
significantly downsized the epacadostat development program and in January 2020 we stopped our phase iii trial of itacitinib for
the treatment of acute graft-versus-host-disease. if clinical trials of any of our or our collaborators’ compounds or biologics are
stopped for safety, efficacy or other reasons or fail to meet their respective endpoints, our overall development plans, business,
prospects, expected operating results and financial condition could be materially harmed and the value of our company could be
negatively affected.
Even if any of our applications receives an FDa priority review designation (including based on a priority review
voucher, one of which we recently acquired and used in connection with our submission seeking FDa approval of ruxolitinib
cream for atopic dermatitis), this designation may not result in faster review or approval for our product candidate compared to
product candidates considered for approval under conventional FDa procedures and, in any event, does not assure ultimate
approval of our product candidate by FDa.
outside the united States, our and our collaborators’ ability to market a product is contingent upon receiving a
marketing authorization from the appropriate regulatory authorities. this foreign regulatory approval process typically includes
all of the risks associated with the FDa approval process described above and may also include additional risks. the requirements
governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country and
may require us to perform additional testing and expend additional resources. approval by the FDa does not ensure approval by
regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory
authorities in other countries or by the FDa.
Health care reform measures could impact the pricing and profitability of pharmaceuticals, and adversely affect the
commercial viability of our or our collaborators’ products and drug candidates. Our ability to generate revenues will be
diminished if we or our collaborators are unable to obtain an adequate level of reimbursement from private insurers,
government insurance programs or other third-party payors of health care costs, which could be affected by current and
potential healthcare reform legislation, and diminished revenues will harm our operating results and financial condition and
could adversely affect our ability to conduct our research and development operations.
our ability to commercialize our current and any future approved products successfully will depend in part on the prices
we are able to charge for our approved products and the extent to which adequate reimbursement levels for the cost of our
products and related treatment are obtained from third-party payors, such as private insurers, government insurance programs,
including medicare and medicaid, health maintenance organizations (hmos) and other health care related organizations in the
united States and abroad.
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in recent years, through legislative and regulatory actions and executive orders, the u.S. federal government has made
substantial changes to various payment systems under the medicare and other federal health care programs. Comprehensive
reforms to the u.S. healthcare system were enacted, including changes to the methods for, and amounts of, medicare
reimbursement. While there is currently significant uncertainty regarding the implementation of some of these reforms or the
scope of amended or additional reforms, the implementation of reforms could significantly reduce payments from medicare and
medicaid. reforms or other changes to these payment systems may change the availability, methods and rates of reimbursements
from medicare, private insurers and other third-party payors for our current and any future approved products. Some of these
changes and proposed changes could result in reduced reimbursement rates or in eliminating dual sources of payment, which
could reduce the price that we or any of our collaborators or licensees receive for any products in the future, and which would
adversely affect our business strategy, operations and financial results.
in addition, there has been an increasing legislative and enforcement interest in the united States with respect to drug
pricing practices. this has resulted in several recent federal and state proposals, including executive orders issued by the trump
administration in July 2020, to regulate prices of pharmaceutical products and other health care reforms, any of which could limit
the prices that we can charge for our products and may further limit the commercial viability of our products and drug candidates.
Specifically, there have been several federal congressional inquiries and proposed and enacted federal and state legislation and the
July 2020 executive orders designed to, among other things, bring more transparency to drug pricing, reduce the cost of
prescription drugs under medicare, reform government program reimbursement methodologies for prescription drugs, allow
importation of drugs into the united States from other countries and limit allowable prices for drugs to a function of an average
international reference price that may be substantially lower than what we currently or would otherwise charge. in certain foreign
markets, pricing or profitability of prescription pharmaceuticals is subject to government control. We expect that the health care
reform measures that have been adopted in the united States and in foreign markets, and further reforms that may be adopted in
the future, could result in more rigorous coverage criteria and additional downward pressure on the prices that we may receive for
our approved products. if reimbursement for our products is unavailable or limited in scope or amount, or if pricing is set at
unsatisfactory levels, our business could be materially harmed, including by our revenue potentially being materially adversely
affected and our research and development efforts potentially being materially curtailed or, in some cases, ceasing. there may be
future changes that result in reductions in current prices, coverage and reimbursement levels for our current or any future
approved products, and we cannot predict the scope of any future changes or the impact that those changes would have on our
operations.
the consequences of the CoviD-19 pandemic, including the economic effect on government budgets in the united
States and elsewhere, may accelerate any of the healthcare reform efforts described above or result in future reform efforts, any of
which could have adverse effects on our business, including higher costs for us, lower reimbursement rates for our products and
lower demand for our products.
if third parties institute high co-payment amounts or other benefit limits for our products, the demand for our products
and, accordingly, our revenues and results of operations, could be adversely affected. our patient assistance programs have
provided support for non-profit organizations that provide financial assistance to eligible patients or in some cases have provided
our products without charge to patients who have no or limited insurance coverage through these charitable organizations.
Substantial support in this manner could harm our profitability in the future. Further, those organizations’ ability to provide
assistance to patients is dependent on funding from external sources, and we cannot guarantee that such funding will be provided
at adequate levels, or at all.
Further, if we become the subject of any governmental or other regulatory hearing or investigation with respect to the
pricing of our products or other business practices, we could incur significant expenses and could be distracted from the operation
of our business and execution of our business strategy. any such hearing or investigation could also result in significant negative
publicity and harm to our reputation, reduced market acceptance and demand, which could adversely affect our financial results
and growth prospects.
third-party payors are increasingly challenging the prices charged for medical products and services. also, the trend
toward managed health care in the united States, the organizations for which could control or significantly influence the purchase
of health care services and products, as well as legislative and regulatory proposals to reform health care or reduce government
insurance programs, may all result in lower prices for or rejection of our products. adoption of our
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products by the medical community may be limited without adequate reimbursement for those products. Cost control initiatives
may decrease coverage and payment levels for our products and, in turn, the price that we will be able to charge for any product.
our products may not be considered cost-effective, and coverage and reimbursement may not be available or sufficient to allow
us to sell our products on a profitable basis. We are unable to predict all changes to the coverage or reimbursement methodologies
that will be applied by private or government payors to our current and any future approved products.
the continuing efforts of legislatures, health agencies and third-party payors to contain or reduce the costs of health
care, any denial of private or government payor coverage or inadequate reimbursement for our drug candidates could materially
and adversely affect our business strategy, operations, future revenues and profitability, and the future revenues and profitability
of our potential customers, suppliers, collaborators and licensees and the availability of capital. the same risks apply to our
compounds developed and marketed by our collaborators, and our future potential milestone and royalty revenues could be
affected in a similar manner.
We depend on our collaborators and licensees for the future development and commercialization of some of our drug
candidates. Conflicts may arise between our collaborators and licensees and us, or our collaborators and licensees may choose
to terminate their agreements with us, which may adversely affect our business.
We have licensed to novartis rights to ruxolitinib outside of the united States and worldwide rights to our mEt
inhibitor compounds, including taBrECta, and licensed to lilly worldwide rights to baricitinib. in addition, we have licensed
to innovent and to Zai lab certain asian rights to some of our clinical stage compounds. under the terms of our agreements with
these collaborators, we have no or limited control over the further clinical development of these drug candidates in the relevant
territories and any revenues we may receive if these drug candidates receive regulatory approval and are commercialized in the
relevant territories will depend primarily on the development and commercialization efforts of others. While olumiant was
approved by the European Commission in February 2017 for the treatment of moderate-to-severe rheumatoid arthritis in adult
patients and by Japan’s ministry of health, labor and Welfare in July 2017 for the treatment of rheumatoid arthritis in patients
with inadequate response to standard-of-care therapies, the nDa for olumiant for the treatment of moderate-to-severe
rheumatoid arthritis was approved in June 2018, and only in the lower dosage tablet and with a warning label. Delays in any
marketing approval by the FDa, European or other regulatory authorities, or any label modifications or restrictions in connection
with any such approval, or the existence of other risks relating to approved drug products, including those described under “risks
relating to Commercialization of our products,” could delay the receipt of and reduce resulting potential royalty and milestone
revenue from baricitinib or any of our other out-licensed drug candidates.
Conflicts may arise with our collaborators and licensees if they pursue alternative technologies or develop alternative
products either on their own or in collaboration with others as a means for developing treatments for the diseases that we have
targeted. Competing products and product opportunities may lead our collaborators and licensees to withdraw their support for
our drug candidates. any failure of our collaborators and licensees to perform their obligations under our agreements with them
or otherwise to support our drug candidates could negatively impact the development of our drug candidates, lead to our loss of
potential revenues from product sales and milestones and delay our achievement, if any, of profitability. additionally, conflicts
have from time to time occurred, and may in the future arise, relating to, among other things, disputes about the achievement and
payment of milestone amounts, the ownership of intellectual property that is developed during the course of a collaborative
relationship or the operation or interpretation of other provisions in our collaboration agreements. these disputes could lead to
litigation or arbitration, which could be costly and divert the efforts of our management and scientific staff, and could diminish
the expected effectiveness of the collaboration.
our existing collaborative and license agreements can be terminated by our collaborators and licensees for convenience,
among other circumstances. if any of our collaborators or licensees terminates its agreement with us, or terminates its rights with
respect to certain indications or drug candidates, we may not be able to find a new collaborator for them, and our business could
be adversely affected. Should an agreement be terminated before we have realized the benefits of the collaboration or license, our
reputation could be harmed, we may not obtain revenues that we anticipated receiving, and our business could be adversely
affected.
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The success of our drug discovery and development efforts may depend on our ability to find suitable collaborators to fully
exploit our capabilities. If we are unable to establish collaborations or if these future collaborations are unsuccessful in the
development and commercialization of our drug candidates, our research, development and commercialization efforts may be
unsuccessful, which could adversely affect our results of operations, financial condition and future revenue prospects.
an element of our business strategy is to enter into collaborative or license arrangements with other parties, under which
we license our drug candidates to those parties for development and commercialization or under which we study our drug
candidates in combination with other parties’ compounds or biologics. For example, in addition to our novartis, lilly, innovent
and Zai lab collaborations, we have entered into clinical study relationships with respect to several of our programs, including
epacadostat, and are evaluating strategic relationships with respect to several of our other programs. however, because
collaboration and license arrangements are complex to negotiate, we may not be successful in our attempts to establish these
arrangements. also, we may not have drug candidates that are desirable to other parties, or we may be unwilling to license a drug
candidate to a particular party because such party interested in it is a competitor or for other reasons. the terms of any such
arrangements that we establish may not be favorable to us. alternatively, potential collaborators may decide against entering into
an agreement with us because of our financial, regulatory or intellectual property position or for scientific, commercial or other
reasons. if we are not able to establish collaboration or license arrangements, we may not be able to develop and commercialize a
drug product, which could adversely affect our business, our revenues and our future revenue prospects.
We will likely not be able to control the amount and timing of resources that our collaborators or licensees devote to our
programs or drug candidates. if our collaborators or licensees prove difficult to work with, are less skilled than we originally
expected, do not devote adequate resources to the program, are unable to obtain regulatory approval of our drug candidates,
pursue alternative technologies or develop alternative products, or do not agree with our approach to development or
manufacturing of the drug candidate, the relationship could be unsuccessful. our collaborations with respect to epacadostat
involved the study of our collaborators’ drugs used in combination with epacadostat on a number of indications or tumor types,
many of which were the same across multiple collaborations. We cannot assure you that potential conflicts will not arise or be
alleged among these collaborations. if a business combination involving a collaborator or licensee and a third-party were to occur,
the effect could be to terminate or cause delays in development of a drug candidate.
If we fail to enter into additional licensing agreements or if these arrangements are unsuccessful, our business and operations
might be adversely affected.
in addition to establishing collaborative or license arrangements under which other parties license our drug candidates
for development and commercialization or under which we study our drug candidates in combination with such parties’
compounds or biologics, we may explore opportunities to develop our clinical pipeline by in-licensing drug candidates or
therapeutics targets that fit within our focus on oncology, such as our collaborations with agenus inc., Calithera Biosciences, inc.,
macroGenics, inc., merus n.v., morphoSys, and Syros pharmaceuticals, inc., or explore additional opportunities to further
develop and commercialize existing drug candidates in specific jurisdictions, such as our June 2016 acquisition of the
development and commercialization rights to iCluSiG in certain countries. We may be unable to enter into any additional in-
licensing agreements because suitable drug candidates that are within our expertise may not be available to us on terms that are
acceptable to us or because competitors with greater resources seek to in-license the same drug candidates. Drug candidates that
we would like to develop or commercialize may not be available to us because they are controlled by competitors who are
unwilling to license the rights to the drug candidate to us. in addition, we may enter into license agreements that are unsuccessful
and our business and operations might be adversely affected if we are unable to realize the expected economic benefits of a
collaboration or other licensing arrangement, by the termination of a drug candidate and termination and winding down of the
related license agreement, or due to other business or regulatory issues, including financial difficulties, that may adversely affect a
licensor’s ability to continue to perform its obligations under an in-license agreement. For example, we may make or incur
contractual obligations to make significant upfront payments in connection with licenses for late-stage drug candidates, as we did
in march 2020 in connection with the effectiveness of our collaboration agreement with morphoSys, and if any of those drug
candidates do not receive marketing approval or commercial sales as anticipated or we have to fund additional clinical trials
before marketing approval can be obtained, we will have expended significant funds that might otherwise be applied for other
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uses or have to expend funds that were not otherwise budgeted or anticipated in connection with the collaboration, and such
developments could have a material adverse effect on our stock price and our ability to pursue other transactions. as discussed
above under “We depend on our collaborators and licensees for the future development and commercialization of some of our
drug candidates. Conflicts may arise between our collaborators and licensees and us, or our collaborators and licensees may
choose to terminate their agreements with us, which may adversely affect our business,” conflicts or other issues may arise with
our licensors. those conflicts could result in delays in our plans to develop drug candidates or result in the expenditure of
additional funds to resolve those conflicts that could have an adverse effect on our results of operations. We may also need to
license drug delivery or other technology in order to continue to develop our drug candidates. if we are unable to enter into
additional agreements to license drug candidates, drug delivery technology or other technology or if these arrangements are
unsuccessful, our research and development efforts could be adversely affected, and we may be unable to increase our number of
successfully marketed products and our revenues.
Even if a drug candidate that we develop receives regulatory approval, we may decide not to commercialize it if we determine
that commercialization of that product would require more money and time than we are willing to invest.
Even if any of our drug candidates receives regulatory approval, it could be subject to post-regulatory surveillance, and
may have to be withdrawn from the market or subject to restrictions if previously unknown problems occur. regulatory agencies
may also require additional clinical trials or testing, and the drug product may be recalled or may be subject to reformulation,
additional studies, changes in labeling, warnings to the public and negative publicity. as a result, we may not continue to
commercialize a product even though it has obtained regulatory approval. Further, we may decide not to continue to
commercialize a product if the market does not accept the product because it is too expensive or because third parties such as
insurance companies or medicare, have not approved it for substantial reimbursement. in addition, we may decide not to continue
to commercialize a product if competitors develop and commercialize similar or superior products or have proprietary rights that
preclude us from ultimately marketing our products.
Any approved drug product that we bring to the market may not gain market acceptance by physicians, patients, healthcare
payors and others in the medical community.
Even if we or our collaborators are successful in gaining regulatory approval of any of our or our collaborators’ drug
candidates in addition to JaKaFi, olumiant, pEmaZYrE and monJuvi or acquire rights to approved drug products in
addition to iCluSiG, we may not generate significant product revenues if these drug products do not achieve an adequate level of
acceptance. physicians may not recommend our or our collaborators’ drug products until longer-term clinical data or other factors
demonstrate the safety and efficacy of our or our collaborators’ drug products as compared to other alternative treatments. Even if
the clinical safety and efficacy of our or our collaborators’ drug products is established, physicians may elect not to prescribe
these drug products for a variety of reasons, including the reimbursement policies of government and other third-party payors and
the effectiveness of our or our collaborators’ competitors in marketing their products.
market acceptance of our drug products, if approved for commercial sale, will depend on a number of factors, including
the following, and market acceptance of our collaborators’ drug products will depend on similar factors:
●
●
●
●
●
the willingness and ability of patients and the healthcare community to use our drug products;
the ability to manufacture our drug products in sufficient quantities that meet all applicable quality standards and to
offer our drug products for sale at competitive prices;
the perception of patients and the healthcare community, including third-party payors, regarding the safety, efficacy
and benefits of our drug products compared to those of competing products or therapies;
the label and promotional claims allowed by the FDa;
the pricing and reimbursement of our drug products relative to existing treatments; and
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● marketing and distribution support for our drug products.
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 have limited internal resources and capacity to perform preclinical testing and clinical trials. as part of our
development strategy, we often hire clinical research organizations, or Cros, to perform preclinical testing and clinical trials for
drug candidates. if the Cros that we hire to perform our preclinical testing and clinical trials do not meet deadlines, do not follow
proper procedures, or a conflict arises between us and our Cros, our preclinical testing and clinical trials may take longer than
expected, may cost more, may be delayed or may be terminated. if we were forced to find a replacement entity to perform any of
our preclinical testing or clinical trials, we may not be able to find a suitable entity on favorable terms, or at all. Even if we were
able to find another company to perform a preclinical test or clinical trial, the delay in the test or trial may result in significant
additional expenditures. Events such as these may result in delays in our obtaining regulatory approval for our drug candidates or
our ability to commercialize our products and could result in increased expenditures that would adversely affect our operating
results.
We face significant competition for our drug discovery and development efforts, and if we do not compete effectively, our
commercial opportunities will be reduced or eliminated.
the biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant
technological change. our drug discovery and development efforts may target diseases and conditions that are already subject to
existing therapies or that are being developed by our competitors, many of which have substantially greater resources, larger
research and development staffs and facilities, more experience in completing preclinical testing and clinical trials, and
formulation, marketing and manufacturing capabilities. as a result of these resources, our competitors may develop drug products
that render our products obsolete or noncompetitive by developing more effective drugs, developing their products more
efficiently or pricing their products more competitively. our ability to develop competitive products would be limited if our
competitors succeeded in obtaining regulatory approvals for drug candidates more rapidly than we were able to or in obtaining
patent protection or other intellectual property rights that limited our drug development efforts. any drug products resulting from
our research and development efforts, or from our joint efforts with collaborators or licensees, might not be able to compete
successfully with our competitors’ existing and future products, or obtain regulatory approval in the united States or elsewhere.
the development of products or processes by our competitors with significant advantages over those that we are developing could
harm our future revenues and profitability.
Our reliance on other parties to manufacture our drug products and drug candidates could result in a short supply of the
drugs, delays in clinical trials or drug development, increased costs, and withdrawal or denial of a regulatory authority’s
approval.
We do not currently operate manufacturing facilities for clinical or commercial production of JaKaFi, pEmaZYrE
and our other drug candidates or for iCluSiG or monJuvi. We currently hire third parties to manufacture the raw materials,
api and finished drug product of JaKaFi, iCluSiG, pEmaZYrE and our other drug candidates for clinical trials and our
collaborator morphoSys is currently responsible for sourcing manufacturing of monJuvi. in addition, we expect to continue to
rely on third parties for the manufacture of commercial supplies of raw materials, api and finished drug product for any drugs
that we successfully develop. We also hire third parties to package and label the finished product. the FDa requires that the raw
materials, api and finished product for drug products such as JaKaFi and pEmaZYrE and our other drug candidates be
manufactured according to its current Good manufacturing practices regulations and regulatory authorities in other countries have
similar requirements. there are only a limited number of manufacturers that comply with these requirements. Failure to comply
with current Good manufacturing practices and the applicable regulatory requirements of other countries in the manufacture of
our drug candidates and products could result in the FDa or a foreign regulatory authority halting our clinical trials, withdrawing
or denying regulatory approval of our drug product, enforcing product recalls or other enforcement actions, which could have a
material adverse effect on our business.
We may not be able to obtain sufficient quantities of our drug candidates or any drug products we may develop if our
designated manufacturers do not have the capacity or capability to manufacture them according to our schedule and
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specifications. manufacturers of pharmaceutical products often encounter difficulties in production, especially in scaling up initial
production. these problems include difficulties with production costs and yields, quality control and assurance and shortages of
qualified personnel. to the extent our supply chain involves parties in China or materials originating in areas of China that are or
could be affected by disease outbreaks such as the CoviD-19 pandemic in 2020, we could see disruptions to our supply chain.
Currently, our supply chain for our drug products and product candidates depends on operations by us and by other companies in
multiple countries around the world, and the effects of the CoviD-19 pandemic and measures to address the CoviD-19
pandemic on any or all of these countries is uncertain and unpredictable and potential disruption is possible. and, for JaKaFi,
while our strategy is to maintain a 24 months stock of api, inclusive of finished product, ruxolitinib phosphate might be used by
us either to make JaKaFi or for ruxolitinib drug candidates in clinical trials. in addition, we may not be able to arrange for our
drug candidates or any drug products that we may develop to be manufactured by one of these parties on reasonable terms, if at
all. We generally have a single source or a limited number of suppliers that are qualified to supply each of the api and finished
product of our drug products and our other drug candidates and, in the case of JaKaFi, we only have a single source for its raw
materials. if any of these suppliers were to become unable or unwilling to supply us with raw materials, api or finished product
that complies with applicable regulatory requirements, we could incur significant delays in our clinical trials or interruption of
commercial supply that could have a material adverse effect on our business. if we have promised delivery of a drug candidate or
drug product and are unable to meet the delivery requirement due to manufacturing difficulties, our development programs could
be delayed, we may have to expend additional sums in order to ensure that manufacturing capacity is available when we need it
even if we do not use all of the manufacturing capacity, and our business and operating results could be harmed.
We may not be able to adequately manage and oversee the manufacturers we choose, they may not perform as agreed or
they may terminate their agreements with us. Foreign manufacturing approval processes typically include all of the risks
associated with the FDa approval process for manufacturing and may also include additional risks.
a number of our collaborations involve the manufacture of antibodies. Either we or our collaborators have primary
responsibility for manufacturing activities, and we are currently using third-party contract manufacturing organizations.
manufacturing antibodies and products containing antibodies is a more complex process than manufacturing small molecule
drugs and subject to additional risks. the process of manufacturing antibodies and products containing antibodies is highly
susceptible to product loss due to contamination, equipment failure or improper installation or operation of equipment, vendor or
operator error, inconsistency in yields, variability in product characteristics, and difficulties in scaling up the production process.
Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other
supply disruptions. if microbial, viral or other contaminations are discovered in our product candidates or in the manufacturing
facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of
time to investigate and remedy the contamination.
If we fail to comply with the extensive legal and regulatory requirements affecting the health care industry, we could face
increased costs, penalties and a loss of business.
our activities, and the activities of our collaborators, partners and third-party providers, are subject to extensive
government regulation and oversight both in the united States and in foreign jurisdictions. the FDa and comparable agencies in
other jurisdictions directly regulate many of our most critical business activities, including the conduct of preclinical and clinical
studies, product manufacturing, advertising and promotion, product distribution, adverse event reporting and product risk
management. States increasingly have been placing greater restrictions on the marketing practices of healthcare companies and
have instituted pricing disclosure and other requirements for companies selling pharmaceuticals. in addition, pharmaceutical and
biotechnology companies have been the target of lawsuits and investigations alleging violations of government regulations,
including claims asserting submission of incorrect pricing information, improper promotion of pharmaceutical products,
payments intended to influence the referral of federal or state healthcare business, submission of false claims for government
reimbursement, antitrust violations, violations of the u.S. Foreign Corrupt practices act, the u.K. Bribery act and similar anti-
bribery or anti-corruption laws, or violations related to environmental matters. there is also enhanced scrutiny of company-
sponsored patient assistance programs, including insurance premium and co-pay assistance programs and donations to third-party
charities that provide such assistance. in December 2018, we received a civil investigative demand from the u.S. Department of
Justice for documents and information relating to our speaker programs and patient assistance programs, including our support of
non-profit organizations that provide financial assistance to eligible patients. violations of governmental regulation by us, our
vendors
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or donation recipients may be punishable by criminal and civil sanctions, including damages, fines and penalties and exclusion
from participation in government programs, including medicare and medicaid. in addition to damages, fines and penalties for
violation of laws and regulations, we could be required to repay amounts we received from government payors, or pay additional
rebates and interest if we are found to have miscalculated the pricing information we have submitted to the government. actions
taken by federal or local governments, legislative bodies and enforcement agencies with respect to these legal and regulatory
compliance matters could also result in reduced demand for our products, reduced coverage of our products by health care payors,
or both. We cannot ensure that our compliance controls, policies, and procedures will in every instance protect us from acts
committed by our employees, collaborators, partners or third-party providers that would violate the laws or regulations of the
jurisdictions in which we operate. Whether or not we have complied with the law, an investigation into alleged unlawful conduct
could increase our expenses, damage our reputation, divert management time and attention and adversely affect our business.
risks relating to compliance with laws and regulations may be heightened as we continue to expand our global operations and
enter new therapeutic areas with different patient populations, which due to different product distribution methods, marketing
programs or patient assistance programs may result in additional regulatory burdens and obligations.
The illegal distribution and sale by third parties of counterfeit or unfit versions of our or our collaborators’ products or stolen
products could harm our business and reputation.
We are aware that counterfeit versions of our products have been distributed or sold by entities not authorized by us
using product packaging suggesting that the product was provided by us. if unauthorized third parties illegally distribute and sell
counterfeit versions of our or our collaborators’ products, those products may not meet our or our collaborators’ rigorous
manufacturing, distribution and handling standards. in addition, inventory that is stolen from warehouses, plants or while in-
transit, and that is subsequently improperly stored and sold through unauthorized channels, may not meet our or our collaborators’
distribution and handling standards. a patient who receives a counterfeit or unfit drug may suffer dangerous health consequences.
our reputation and business could suffer harm as a result of counterfeit or unfit drugs sold under our brand name and could result
in lost sales for us and decreased revenues. if counterfeit or unfit drugs are sold under our or our collaborators’ brand names, our
reputation and business could suffer harm and we could experience decreased royalty revenues.
As most of our drug discovery and development operations are conducted at our headquarters in Wilmington, Delaware, the
loss of access to this facility would negatively impact our business.
our facility in Wilmington, Delaware is our headquarters and is also where we conduct most of our drug discovery,
research, development and marketing activities. in addition, natural disasters, the effects of or measures taken to limit the effects
of health epidemics such as the CoviD-19 pandemic, or actions of activists opposed to aspects of pharmaceutical research may
disrupt our experiments or our ability to access or use our facility. the loss of access to or use of our Wilmington, Delaware
facility, either on a temporary or permanent basis, would result in an interruption of our business and, consequently, would
adversely affect our overall business.
We depend on key employees in a competitive market for skilled personnel, and the loss of the services of any of our key
employees or our inability to attract and retain additional personnel would affect our ability to expand our drug discovery and
development programs and achieve our objectives.
We are highly dependent on the members of our executive management team and principal members of our commercial,
development, medical, operations and scientific staff. We experience intense competition for qualified personnel. our future
success also depends in part on the continued service of our executive management team and key personnel and our ability to
recruit, train and retain essential personnel for our drug discovery and development programs, and for our medical affairs and
commercialization activities. if we lose the services of any of these people or if we are unable to recruit sufficient qualified
personnel, our research and product development goals, and our commercialization efforts could be delayed or curtailed. We do
not maintain “key person” insurance on any of our employees.
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If we fail to manage our growth effectively, our ability to develop and commercialize products could suffer.
We expect that if our drug discovery efforts continue to generate drug candidates, our clinical drug candidates continue
to progress in development, and we continue to build our development, medical and commercial organizations, we will require
significant additional investment in personnel, management and resources. our ability to achieve our research, development and
commercialization objectives depends on our ability to respond effectively to these demands and expand our internal
organization, systems, controls and facilities to accommodate additional anticipated growth. if we are unable to manage our
growth effectively, our business could be harmed and our ability to execute our business strategy 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.
as part of our business strategy, we may pursue additional acquisitions of what we believe to be complementary
businesses or assets or seek to enter into joint ventures. We also may pursue strategic alliances in an effort to leverage our
existing infrastructure and industry experience to expand our product offerings or distribution, or make investments in other
companies. For example, in June 2016, we completed the acquisition of the European operations of ariaD. the success of our
acquisitions, joint ventures, strategic alliances and investments will depend on our ability to identify, negotiate, complete and, in
the case of acquisitions, integrate those transactions and, if necessary, obtain satisfactory debt or equity financing to fund those
transactions. We may not realize the anticipated benefits of any acquisition, joint venture, strategic alliance or investment. We
may not be able to integrate acquisitions successfully into our existing business, achieve planned synergies or cost savings,
maintain the key business relationships of businesses we acquire, or retain key personnel of an acquired business, and we could
assume unknown or contingent liabilities or incur unanticipated expenses. integration of acquired companies or businesses also
may require management resources that otherwise would be available for ongoing development of our existing business. any
acquisitions or investments made by us also could result in significant write-offs or the incurrence of debt and contingent
liabilities, any of which could harm our operating results. For example, in the three month periods ended march 31, 2020 and
September 30, 2020, we recorded unrealized losses related to all of our investments in our collaboration partners, and we may in
experience additional losses related to our investments in future period. in addition, if we choose to issue shares of our stock as
consideration for any acquisition, dilution to our stockholders could result.
Risks associated with our operations outside of the United States could adversely affect our business.
our acquisition of ariaD’s European operations significantly expanded our operations in Europe, and we plan to
continue to expand our operations and conduct certain development activities outside of the united States. For example, as part
of our plans to expand our activities outside of the united States, we now conduct some of our operations in Canada, drug
development activities in Japan and are in the process of opening an office in China. international operations and business
expansion plans are subject to numerous additional risks, including:
● multiple, conflicting and changing laws and regulations such as tax laws, privacy regulations, tariffs, export and
import restrictions, employment, immigration and labor laws, regulatory requirements, and other governmental
approvals, permits and licenses, compliance with which can increase in complexity as we enter into additional
jurisdictions;
●
●
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difficulties in staffing and managing operations in diverse countries and difficulties in connection with assimilating
and integrating any operations and personnel we might acquire into our company;
risks associated with obtaining and maintaining, or the failure to obtain or maintain, regulatory approvals for the
sale or use of our products in various countries;
complexities associated with managing government payor systems, multiple payor-reimbursement regimes or
patient self-pay systems;
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financial risks, such as longer payment cycles, difficulty obtaining financing in foreign markets, difficulty enforcing
contracts and intellectual property rights, difficulty collecting accounts receivable and exposure to foreign currency
exchange rate fluctuations;
general political and economic conditions in the countries in which we operate, including terrorism and political
unrest, curtailment of trade and other business restrictions, and uncertainties associated with the implementation of
the relationship between the united Kingdom and the European union;
public health risks, such as the spread globally of CoviD-19 in 2020, and related effects on supply chain, travel and
employee health and availability; and
regulatory and compliance risks that relate to maintaining accurate information and control over activities that may
fall within the purview of the u.S. Foreign Corrupt practices act, its books and records provisions or its anti-bribery
provisions, or similar anti-bribery or anti-corruption laws and regulations in other countries, such as the u.K. anti-
Bribery act and the u.K. Criminal Finances act, which may have similarly broad extraterritorial reach.
in addition, our revenues are subject to foreign currency exchange rate fluctuations due to the global nature of our
operations. to the extent that our non-u.S. source revenues represent a more significant portion of our total revenues, these
fluctuations could materially affect our operating results. any of the risks described above, if encountered, could significantly
increase our costs of operating internationally, prevent us from operating in certain jurisdictions, or otherwise significantly harm
our future international expansion and operations, which could have a material adverse effect on our business, financial condition
and results of operations.
If product liability lawsuits are brought against us, we could face substantial liabilities and may be required to limit
commercialization of our products and our results of operations could be harmed.
in addition to the risks described above under “—risks relating to Commercialization of our products—if the use of
our products harms patients, or is perceived to harm patients even when such harm is unrelated to our products, our regulatory
approvals could be revoked or otherwise negatively impacted or we could be subject to costly and damaging product liability
claims,” the conduct of clinical trials of medical products that are intended for human use entails an inherent risk of product
liability. if any product that we or any of our collaborators or licensees develops causes or is alleged to cause injury during
clinical trials or commercialization, we may be held liable. if we cannot successfully defend ourselves against product liability
claims, we may incur substantial liabilities, including substantial damages to be paid to the plaintiffs and legal costs, or we may
be required to limit further development and commercialization of our products. additionally, any product liability lawsuit could
cause injury to our reputation, participants and investigators to withdraw from clinical trials, and potential collaborators or
licensees to seek other partners, any of which could impact our results of operations.
our product liability insurance policy may not fully cover our potential liabilities. in addition, we may determine that we
should increase our coverage, and this insurance may be prohibitively expensive to us or our collaborators or licensees and may
not fully cover our potential liabilities. Since December 30, 2017, we elected to self-insure a portion of our exposure to product
liability risks through our wholly-owned captive insurance subsidiary, in tandem with third-party insurance policies. our inability
to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could
prevent or inhibit the development or commercialization of our drug candidates and products, and if our liabilities from any such
claims exceed our third-party insurance limits and self-insurance reserves, our results of operations, cash flows and financial
condition could be adversely impacted.
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 are subject to various environmental, health and safety laws and regulations governing, among other things, the use,
handling, storage and disposal of regulated substances and the health and safety of our employees. our research and development
processes involve the controlled use of hazardous and radioactive materials and biological waste resulting
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in the production of hazardous waste products. We cannot completely eliminate the risk of accidental contamination or discharge
and any resultant injury from these materials. if any injury or contamination results from our use or the use by our collaborators
or licensees of these materials, we may be sued and our liability may exceed our insurance coverage and our total assets. Further,
we may be required to indemnify our collaborators or licensees against all damages and other liabilities arising out of our
development activities or products produced in connection with these collaborations or licenses. Compliance with the applicable
environmental and workplace laws and regulations is expensive. Future changes to environmental, health, workplace and safety
laws could cause us to incur additional expense or may restrict our operations or impair our research, development and production
efforts.
RISKS RELATING TO OUR FINANCIAL RESULTS
We may incur losses in the future, and we expect to continue to incur significant expenses to discover and develop drugs,
which may make it difficult for us to achieve sustained profitability on a quarterly or annual basis in the future.
Due to historical net losses, we had an accumulated deficit of $1.7 billion as of December 31, 2020. We intend to
continue to spend significant amounts on our efforts to discover and develop drugs. as a result, we may incur losses in future
periods as well. our revenues, expenses and net income (loss) may fluctuate, even significantly, due to the risks described in these
“risk Factors” and factors discussed in “management’s Discussion and analysis of Financial Condition and results of
operations” as well as the timing of charges and expenses that we may take, including those relating to transactions such as
acquisitions and the entry into collaborative agreements.
We anticipate that our drug discovery and development efforts and related expenditures will increase as we focus on the
studies, including preclinical tests and clinical trials prior to seeking regulatory approval, that are required before we can sell a
drug product.
the development of drug products will require us to spend significant funds on research, development, testing, obtaining
regulatory approvals, manufacturing and marketing. to date, we do not have any drug products that have generated significant
revenues other than from sales of JaKaFi and we cannot assure you that we will generate substantial revenues from the drug
candidates that we license or develop, including iCluSiG, pEmaZYrE and monJuvi, for several years, if ever.
We cannot be certain whether or when we will achieve sustained or increased profitability on a quarterly or annual basis
because of the factors discussed above and the significant uncertainties relating to our ability to generate commercially successful
drug products. Even if we are successful in obtaining regulatory approvals for manufacturing and commercializing drug products
in addition to JaKaFi, iCluSiG, pEmaZYrE and monJuvi, we may incur losses if our drug products do not generate
significant revenues.
We may need additional capital in the future. If we are unable to generate sufficient funds from operations, the capital
markets may not permit us to raise additional capital at the time that we require it, which could result in limitations on our
research and development or commercialization efforts or the loss of certain of our rights in our technologies or drug
candidates.
our future funding requirements will depend on many factors and we anticipate that we may need to raise additional
capital to fund our business plan and research and development efforts going-forward.
additional factors that may affect our future funding requirements include:
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the acquisition of businesses, technologies, or drug candidates, or the licensing of technologies or drug candidates,
if any;
the amount of revenues generated from our business activities;
any changes in the breadth of our research and development programs;
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the results of research and development, preclinical testing and clinical trials conducted by us or our current or
future collaborators or licensees, if any;
our exercise of any co-development options with collaborators that may require us to fund future development;
costs for future facility requirements;
our ability to maintain and establish new corporate relationships and research collaborations;
competing technological and market developments;
the time and costs involved in filing, prosecuting, defending and enforcing patent and intellectual property claims;
the receipt or payment of contingent licensing or milestone fees or royalties on product sales from our current or
future collaborative and license arrangements, if established; and
●
the timing of regulatory approvals, if any.
if we require additional capital at a time when investment in companies such as ours, or in the marketplace generally, is
limited due to the then prevailing market or other conditions, we may have to scale back our operations, eliminate one or more of
our research or development programs, or attempt to obtain funds by entering into an agreement with a collaborator or licensee
that would result in terms that are not favorable to us or relinquishing our rights in certain of our proprietary technologies or drug
candidates. if we are unable to raise funds at the time that we desire or at any time thereafter on acceptable terms, we may not be
able to continue to develop our drug candidates. the sale of equity or equity-linked securities in the future may be dilutive to our
stockholders and may provide for rights, preferences or privileges senior to those of our holders of common stock, and debt
financing arrangements may require us to pledge certain assets or enter into covenants that could restrict our operations or our
ability to pay dividends or other distributions on our common stock or incur further indebtedness.
Our marketable securities and long term investments are subject to risks that could adversely affect our overall financial
position.
We invest our cash in accordance with an established internal policy and customarily in instruments, money market
funds, u.S. government backed-funds and treasury assets, which historically have been highly liquid and carried relatively low
risk. in recent periods, similar types of investments and money market funds have experienced losses in value or liquidity issues
that differ from their historical pattern.
Should a portion of our cash or marketable securities lose value or have their liquidity impaired, it could adversely affect
our overall financial position by imperiling our ability to fund our operations and forcing us to seek additional financing sooner
than we would otherwise. Such financing, if available, may not be available on commercially attractive terms.
as discussed under “other risks relating to our Business— We may acquire businesses or assets, form joint ventures
or make investments in other companies that may be unsuccessful, divert our management’s attention and harm our operating
results and prospects,” any investments that we may make in companies with which we have strategic alliances, such as agenus
and merus, could result in our recognition of losses on those investments. in addition, to the extent we may seek to sell or
otherwise monetize those investments, we may not be able to do so at our desired price or valuation levels, or at all, due to the
limited liquidity of some or all of those investments.
any loss in value of our long term investments could adversely affect our financial position on the consolidated balance
sheets and consolidated statements of operations.
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We derive a substantial portion of our revenues from royalties, milestone payments and other payments under our
collaboration agreements. If we are unable to achieve milestones, develop product candidates to license or renew or enter into
new collaborations, our revenues may decrease, and future milestone and royalty payments may not contribute significantly to
revenues for several years, and may never result in revenues.
We derived a substantial portion of our revenues for the year ended December 31, 2020 from JaKavi and olumiant
product royalties and from milestone payments under our collaboration agreements. Future revenues from research and
development collaborations depend upon continuation of the collaborations, the achievement of milestones and royalties we earn
from any future products developed from our research. if we are unable to successfully achieve milestones or our collaborators
fail to develop successful products, we will not earn the future revenues contemplated under our collaborative agreements. For
example, delays in or other limitations with respect to the approval of baricitinib in the united States for the treatment of
moderate-to-severe rheumatoid arthritis, or the failure to obtain such approval, as discussed under “—We depend on our
collaborators and licensees for the future development and commercialization of some of our drug candidates. Conflicts may arise
between our collaborators and licensees and us, or our collaborators and licensees may choose to terminate their agreements with
us, which may adversely affect our business.” would affect potential future royalty and milestone and contract revenue.
RISKS RELATING TO INTELLECTUAL PROPERTY AND LEGAL MATTERS
If we are subject to arbitration, litigation and infringement claims, they could be costly and disrupt our drug discovery and
development efforts.
the technology that we use to make and develop our drug products, the technology that we incorporate in our products,
and the products we are developing may be subject to claims that they infringe the patents or proprietary rights of others. the
success of our drug discovery and development efforts will also depend on our ability to develop new compounds, drugs and
technologies without infringing or misappropriating the proprietary rights of others. We are aware of patents and patent
applications filed in certain countries claiming intellectual property relating to some of our drug discovery targets and drug
candidates. While the validity of issued patents, patentability of pending patent applications and applicability of any of them to
our programs are uncertain, if any of these patents are asserted against us or if we choose to license any of these patents, our
ability to commercialize our products could be harmed or the potential return to us from any product that may be successfully
commercialized could be diminished.
From time to time we have received, and we may in the future receive, notices from third parties offering licenses to
technology or alleging patent, trademark, or copyright infringement, claims regarding trade secrets or other contract claims.
receipt of these notices could result in significant costs as a result of the diversion of the attention of management from our drug
discovery and development efforts. parties sending these notices may have brought and in the future may bring litigation against
us or seek arbitration relating to contract claims.
We may be involved in future lawsuits or other legal proceedings alleging patent infringement or other intellectual
property rights or contract violations. in addition, litigation or other legal proceedings may be necessary to:
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assert claims of infringement;
enforce our patents or trademarks;
protect our trade secrets or know-how; or
determine the enforceability, scope and validity of the proprietary rights of others.
We may be unsuccessful in defending or pursuing these lawsuits, claims or other legal proceedings. regardless of the
outcome, litigation or other legal proceedings can be very costly and can divert management’s efforts. an adverse determination
may subject us to significant liabilities or require us or our collaborators or licensees to seek licenses to other parties’ patents or
proprietary rights. We or our collaborators or licensees may also be restricted or prevented from manufacturing or selling a drug
or other product that we or they develop. Further, we or our future collaborators or licensees
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may not be able to obtain any necessary licenses on acceptable terms, if at all. if we are unable to develop non-infringing
technology or license technology on a timely basis or on reasonable terms, our business could be harmed.
We may be unable to adequately protect or enforce our proprietary information, which may result in its unauthorized use, a
loss of revenue under a collaboration agreement or loss of sales to generic versions of our products or otherwise reduce our
ability to compete in developing and commercializing products.
our business and competitive position depends in significant part upon our ability to protect our proprietary technology,
including any drug products that we create. Despite our efforts to protect this information, unauthorized parties may attempt to
obtain and use information that we regard as proprietary. For example, one of our collaborators may disclose proprietary
information pertaining to our drug discovery efforts. in addition, while we have filed numerous patent applications with respect to
ruxolitinib and our drug candidates in the united States and in foreign countries, our patent applications may fail to result in
issued patents. in addition, because patent applications can take several years to issue as patents, there may be pending patent
applications of others that may later issue as patents that cover some aspect of ruxolitinib and our drug candidates. our existing
patents and any future patents we may obtain may not be broad enough to protect our products or all of the potential uses of our
products, or otherwise prevent others from developing competing products or technologies. in addition, our patents may be
challenged and invalidated or may fail to provide us with any competitive advantages if, for example, others were first to invent
or first to file a patent application for the technologies and products covered by our patents. as noted above under “—risks
relating to Commercialization of our products—Competition for our products could potentially harm our business and result in a
decrease in our revenue,” a potential generic drug company competitor has challenged certain patents relating to JaKaFi.
additionally, when we do not control the prosecution, maintenance and enforcement of certain important intellectual
property, such as a drug candidate in-licensed to us or subject to a collaboration with a third-party, the protection of the
intellectual property rights may not be in our hands. if we do not control the intellectual property rights in-licensed to us with
respect to a drug candidate and the entity that controls the intellectual property rights does not adequately protect those rights, our
rights may be impaired, which may impact our ability to develop, market and commercialize the in-licensed drug candidate.
our means of protecting our proprietary rights may not be adequate, and our competitors may:
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independently develop substantially equivalent proprietary information, products and techniques;
otherwise gain access to our proprietary information; or
design around patents issued to us or our other intellectual property.
We pursue a policy of having our employees, consultants and advisors execute proprietary information and invention
agreements when they begin working for us. however, these agreements may not provide meaningful protection for our trade
secrets or other proprietary information in the event of unauthorized use or disclosure. if we fail to maintain trade secret and
patent protection, our potential future revenues may be decreased.
If the effective term of our patents is decreased due to changes in the United States patent laws or if we need to refile some of
our patent applications, the value of our patent portfolio and the revenues we derive from it may be decreased.
the value of our patents depends, in part, on their duration. a shorter period of patent protection could lessen the value
of our rights under any patents that we obtain and may decrease the revenues we derive from our patents. the united States patent
laws provide a term of patent protection of 20 years from the earliest effective filing date of the patent application. Because the
time from filing to issuance of biotechnology applications may be more than three years depending on the subject matter, a 20-
year patent term from the filing date may result in substantially shorter patent protection.
additionally, united States patent laws were amended in 2011 with the enactment of the america invents act and third
parties are now able to challenge the validity of issued u.S. patents through various review proceedings; thus rendering the
validity of u.S. patents more uncertain. We may be obligated to participate in review proceedings to
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determine the validity of our u.S. patents. We cannot predict the ultimate outcome of these proceedings, the conduct of which
could result in substantial costs and diversion of our efforts and resources. if we are unsuccessful in these proceedings some or all
of our claims in the patents may be narrowed or invalidated and the patent protection for our products and drug candidates in the
united States could be substantially shortened. Further, if all of the patents covering one of our products are invalidated, the FDa
could approve requests to manufacture a generic version of that product prior to the expiration date of those patents.
other changes in the united States patent laws or changes in the interpretation of patent laws could diminish the value of
our patents or narrow the scope of our patent protection. For example, the Supreme Court of the united States resolved a split
among the circuit courts of appeals regarding antitrust challenges to settlements of patent infringement lawsuits under the hatch-
Waxman act between brand-name drug companies and generic drug companies. the Court rejected the “scope of the patent” test
and ruled that settlements involving “reverse payments” from brand-name drug companies to generic drug companies should be
analyzed under the rule of reason. this ruling may create uncertainty and make it more difficult to settle patent litigation if a
company seeking to manufacture a generic version of one of our products challenges the patents covering that product prior to the
expiration date of those patents.
International patent protection is particularly uncertain and costly, and our involvement in opposition proceedings in foreign
countries may result in the expenditure of substantial sums and management resources.
Biotechnology and pharmaceutical patent law outside the united States is even more uncertain and costly than in the
united States and is currently undergoing review and revision in many countries. Further, the laws of some foreign countries may
not protect our intellectual property rights to the same extent as united States laws. For example, certain countries do not grant
patent claims that are directed to the treatment of humans. We have participated, and may in the future participate, in opposition
proceedings to determine the validity of our foreign patents or our competitors’ foreign patents, which could result in substantial
costs and diversion of our efforts. Successful challenges to our patent or other intellectual property rights through these
proceedings could result in a loss of rights in the relevant jurisdiction and allow third parties to use our proprietary technologies
without a license from us or our collaborators, which may also result in loss of future royalty payments. in addition, successful
challenges may jeopardize or delay our ability to enter into new collaborations or commercialize potential products, which could
harm our business and results of operations.
RISKS RELATING TO INFORMATION TECHNOLOGY AND DATA PRIVACY
Significant disruptions of information technology systems, breaches of data security, or unauthorized disclosures of sensitive
data or personally identifiable information or individually identifiable health information could adversely affect our business,
and could subject us to liability or reputational damage.
our business is increasingly dependent on critical, complex, and interdependent information technology (it) systems,
including internet-based systems, some of which are managed or hosted by third parties, to support business processes as well as
internal and external communications. the size and complexity of our it systems make us potentially vulnerable to it system
breakdowns, malicious intrusion, and computer viruses, which may result in the impairment of our ability to operate our business
effectively. in addition, having a significant portion of our employees work remotely due to the CoviD-19 pandemic can strain
our information technology infrastructure, which may affect our ability to operate effectively, may make us more susceptible to
communications disruptions, and expose us to greater cybersecurity risks.
We are continuously evaluating and, where appropriate, enhancing our it systems to address our planned growth,
including to support our planned manufacturing operations. there are inherent costs and risks associated with implementing the
enhancements to our it systems, including potential delays in access to, or errors in, critical business and financial information,
substantial capital expenditures, additional administrative time and operating expenses, retention of sufficiently skilled personnel
to implement and operate the enhanced systems, demands on management time, and costs of delays or difficulties in transitioning
to the enhanced systems, any of which could harm our business and results of operations. in addition, the implementation of
enhancements to our it systems may not result in productivity improvements at a level that outweighs the costs of
implementation, or at all. in addition, our systems and the systems of our third-party providers and collaborators are potentially
vulnerable to data security breaches which may expose sensitive
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data to unauthorized persons or to the public. Such data security breaches could lead to the loss of confidential information, trade
secrets or other intellectual property, could lead to the public exposure of personal information (including personally identifiable
information or individually identifiable health information) of our employees, clinical trial patients, customers, business partners,
and others, could lead to potential identity theft, or could lead to reputational harm. Data security breaches could also result in
loss of clinical trial data or damage to the integrity of that data. in addition, the increased use of social media by our employees
and contractors could result in inadvertent disclosure of sensitive data or personal information, including but not limited to,
confidential information, trade secrets and other intellectual property.
any such disruption or security breach, as well as any action by us or our employees or contractors that might be
inconsistent with the rapidly evolving data privacy and security laws and regulations applicable within the united States and
elsewhere where we conduct business, could result in enforcement actions by u.S. states, the u.S. Federal government or foreign
governments, liability or sanctions under data privacy laws, including healthcare laws such as hipaa, that protect certain types
of sensitive information, regulatory penalties, other legal proceedings such as but not limited to private litigation, the incurrence
of significant remediation costs, disruptions to our development programs, business operations and collaborations, diversion of
management efforts and damage to our reputation, which could harm our business and operations. Because of the rapidly moving
nature of technology and the increasing sophistication of cybersecurity threats, our measures to prevent, respond to and minimize
such risks may be unsuccessful.
in addition, the European parliament and the Council of the European union has adopted a comprehensive general data
privacy regulation, known as the GDpr, which governs the collection and use of personal data in the European union. the
GDpr, which is wide-ranging in scope, imposes several requirements relating to the consent of the individuals to whom the
personal data relates, the information provided to the individuals, the security and confidentiality of the personal data, data breach
notification and the use of third party processors in connection with the processing of the personal data. the GDpr also imposes
strict rules on the transfer of personal data out of the European union to the united States, provides an enforcement authority and
imposes large penalties for noncompliance, including the potential for fines of up to €20 million or 4% of the annual global
revenues of the infringer, whichever is greater. moreover, the European Court of Justice in July 2020 invalidated the privacy
Shield framework that had been in place between the European union and the united States, which invalidation has created
uncertainty about how data can now be shared in a compliant manner. additionally, the California Consumer privacy act
(CCpa) affords a private right of action to such consumers if certain data breaches result in the loss or theft of their personal
information. the GDpr, CCpa and other similar laws or regulations enacted in the united States or other jurisdictions associated
with the enhanced protection of certain types of sensitive data, including healthcare data or other personal information, may
increase our costs of doing business, and the differing requirements of these laws and regulations can complicate our compliance
efforts.
Increasing use of social media could give rise to liability, breaches of data security, or reputational damage.
We and our employees are increasingly utilizing social media tools as a means of communication both internally and
externally. Despite our efforts to monitor evolving social media communication guidelines and comply with applicable rules,
there is risk that the use of social media by us or our employees to communicate about our products or business may cause us to
be found in violation of applicable requirements. in addition, our employees may knowingly or inadvertently make use of social
media in ways that may not comply with our social media policy or other legal or contractual requirements, which may give rise
to liability, lead to the loss of trade secrets or other intellectual property, or result in public exposure of personal information of
our employees, clinical trial patients, customers, and others. Furthermore, negative posts or comments about us or our products in
social media could seriously damage our reputation, brand image, and goodwill.
Item 1B. Unresolved Staff Comments
none.
Item 2. Properties
our global headquarters is in Wilmington, Delaware, which is where our principal drug discovery and development
operations are also located. We own two buildings comprising approximately 344,000 square feet of
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laboratory and office space at this site. in march 2017, we acquired additional adjacent buildings and in 2019, began demolition
of these buildings and construction of a new laboratory and office building totaling approximately 200,000 square feet. the
construction of this building is currently expected to be completed in the second half of 2021. also in october 2019, we entered
into an agreement to purchase additional adjacent property for $50.0 million to expand our global headquarters. under that
agreement, closing of the purchase is subject to certain standard closing conditions, including an initial diligence period and a
subsequent approval period.
We lease approximately 112,000 square feet of office space in Chadds Ford, pennsylvania and approximately 84,000
square feet of additional laboratory and office space in Wilmington, Delaware.
We conduct our international clinical development and commercial operations from our European office in morges,
Switzerland, our Japanese office in tokyo and our Canadian office in montreal. in July 2018, we purchased a parcel of land in
Yverdon-les-Bains, Switzerland upon which we are building a large molecule production facility. Construction commenced in
July 2018 and we currently expect the facility will be operational in the second half of 2021.
Item 3. Legal Proceedings
From time to time, we are party to legal proceedings in the course of our business. the outcome of any such
proceedings, regardless of the merits, is inherently uncertain. legal proceedings, including litigation, government investigations
and enforcement actions, can result in significant costs and occupy significant management resources. We do not expect any such
current legal proceedings to have a material adverse impact on our business or financial condition. additional information
regarding our current legal proceedings can be found in note 16 of notes to our consolidated financial statements included in item
8 of this report.
Item 4. Mine Safety Disclosures
not applicable.
Information about our Executive Officers
our executive officers are as follows:
Hervé Hoppenot, age 61, joined incyte as president and Chief Executive officer and a Director, in January 2014 and was
appointed Chairman of the Board in may 2015. mr. hoppenot served as the president of novartis oncology, novartis
pharmaceuticals Corporation, the u.S. subsidiary of novartis aG, a pharmaceutical company, from January 2010 to January
2014. prior to that, mr. hoppenot served in other executive positions at novartis pharmaceuticals Corporation, serving from
September 2006 to January 2010 as Executive vice president, Chief Commercial officer of novartis oncology and head of
Global product Strategy & Scientific Development of novartis pharmaceuticals Corporation and from 2003 to September 2006 as
Senior vice president, head of Global marketing of novartis oncology. prior to joining novartis, mr. hoppenot served in
various increasingly senior roles at aventis S.a. (formerly rhône-poulenc S.a.), a pharmaceutical company, including as vice
president oncology uS of aventis pharmaceuticals, inc. from 2000 to 2003 and vice president uS oncology operations of
rhone-poulenc rorer pharmaceuticals, inc. from 1998 to 2000. mr. hoppenot holds a Diploma from ESSEC international
Business School. mr. hoppenot is also a director of Cellectis S.a.
Dashyant Dhanak, age 60, joined incyte in December 2018 as Executive vice president, Chief Scientific officer. prior
to joining incyte, Dr. Dhanak served as vice president and head of Discovery Sciences of Janssen research & Development,
llC, a wholly-owned subsidiary of Johnson & Johnson, a pharmaceutical company, from 2013 until november 2018. prior to
his tenure at Janssen, Dr. Dhanak spent 25 years at GlaxoSmithKline, a pharmaceutical company, in positions of increased
responsibility across multiple disease areas, including his last position as vice president and head of the Cancer Epigenetics
Discovery performance unit. Dr. Dhanak received a B.S. in Chemistry from the university of manchester institute of Science
and technology and his ph.D. from the university of london. he completed his postdoctoral research in natural product
synthesis at northwestern university.
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Jonathan E. Dickinson, age 53, has served as Executive vice president and General manager, Europe since June 2019
and joined incyte as Senior vice president and General manager, Europe in June 2016. mr. Dickinson joined incyte from ariaD
pharmaceuticals (luxembourg) S.à.r.l, the parent company of ariaD pharmaceuticals, inc.’s European subsidiaries responsible
for the development and commercialization of iclusig in the European union and other countries, where he most recently held the
position of Senior vice president and General manager, Europe. prior to joining ariaD in February 2013, mr. Dickinson served
as European oncology brand lead at Bristol-myers Squibb, a pharmaceutical company, and before that, he held several key
leadership positions, including lifecycle leader, during his 13-year tenure at hoffmann-la roche, a pharmaceutical company. at
roche, he had assignments both in the united States and Switzerland that included leadership roles for roche’s three leading
oncology medicines. mr. Dickinson began his career at novartis, where he held commercial roles in its oncology and
endocrinology businesses, including medical sales, product manager and business director in the united Kingdom. mr. Dickinson
received a B.S. in Genetics and an m.B.a. from the university of nottingham.
Barry P. Flannelly, age 63, has served as Executive vice president and General manager, na since June 2015 and
joined incyte as Executive vice president, Business Development and Strategic planning in august 2014. prior to joining incyte,
he served as Chief Executive officer of oSS healthcare inc., a biotechnology start-up company, from august 2013 to July 2014.
he served as vice president, Global product Strategy and Commercial planning of nektar therapeutics, a biopharmaceutical
company, from april 2011 until april 2013, and as Senior vice president, Commercial, of onyx pharmaceuticals, inc., a
biopharmaceutical company, from august 2008 until January 2011. prior thereto, Dr. Flannelly held key positions at
biopharmaceutical and pharmaceutical companies such as abraxis BioScience, inc. and novartis. Dr. Flannelly earned his
doctorate in pharmacy from the university of maryland, School of pharmacy, his master’s degree in business administration from
the university of Baltimore, and his B.S. degree in pharmacy from massachusetts College of pharmacy.
Vijay Iyengar, age 48, joined incyte in may 2016 as Executive vice president, Global Strategy and Corporate
Development. prior to joining incyte, from april 2014 to april 2016, he was the president of Genoptix Corporation, a novartis
Company. From December 2011 to march 2014, he was the vice president and rare Diseases Franchise head at novartis
oncology and from July 2009 to December 2011, he was the vice president and oncology General manager of novartis Greece.
From october 2007 to June 2009, he was the Global Brand Executive Director at novartis pharmaceuticals, and from January
2006 to october 2007, he was the Global Brand Director, oncology at novartis pharmaceuticals. Dr. iyengar received his B.S.
degree in Biology from Stanford university and earned his m.D. from harvard medical School.
Michael Morrissey, age 57, has served as Executive vice president and head of Global technical operations since June
2019 and joined incyte in January 2016 as Corporate Senior vice president and head of Global technical operations. he has
more than 30 years of global pharmaceutical industry experience through his prior positions in research and Development,
quality assurance, and manufacturing. From February 2005 until joining incyte, mr. morrissey worked at Celgene international,
a subsidiary of Celgene Corporation, a biopharmaceutical company, where he last served as Corporate vice president, head of
international technical operations. prior to Celgene, he worked for roche for 15 years in various positions. mr. morrissey
received a B.Sc. in physics and applied mathematics from the university of london, united Kingdom.
Maria E. Pasquale, age 55, joined incyte in april 2018 as Executive vice president and General Counsel. prior to
joining incyte, ms. pasquale joined incyte from Celgene Corporation, a biopharmaceutical company, where for 17 years she held
positions of increasing levels of responsibility, including Chief Counsel; Senior vice president, legal and Deputy General
Counsel and assistant Corporate Secretary, and, most recently, Executive vice president and Global Chief Compliance officer.
prior to her tenure at Celgene, ms. pasquale spent a decade supporting pharmaceutical clients as a global patent and litigation
attorney at pennie & Edmonds llp in new York (now part of Jones Day). Before her career in law, ms. pasquale was an
assistant research Scientist at the institute for Basic research and the Cold Spring harbor laboratory. ms. pasquale holds a J.D.
from Brooklyn law School and a B.S. in biochemistry from the State university of new York at Stony Brook.
Christiana Stamoulis, age 50, joined incyte in February 2019 as Executive vice president and Chief Financial officer.
prior to joining incyte, she served as president from February 2018 until January 2019 and Chief Financial officer
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from January 2015 to January 2019 of unum therapeutics inc., a biopharmaceutical company. From January 2014 until she
joined unum, ms. Stamoulis was an independent advisor to biopharmaceutical companies. From 2009 until December 2013, ms.
Stamoulis was a Senior vice president of Corporate Strategy and Business Development at vertex pharmaceuticals, inc., a
biopharmaceutical company. prior to joining vertex, ms. Stamoulis spent nearly 15 years in the investment banking and
management consulting industries. She was a managing Director in the investment Banking division of Citigroup and, prior to
that, she was a senior investment banker in the healthcare investment Banking Group of Goldman, Sachs & Co., where she spent
the majority of her investment banking career. ms. Stamoulis started her career as a strategy consultant at the Boston Consulting
Group. ms. Stamoulis holds two B.S. degrees from the massachusetts institute of technology (mit) and an m.B.a. from the
mit Sloan School of management.
Steven Stein, age 54, has served as Executive vice president and Chief medical officer since may 2016 and joined
incyte as Senior vice president and Chief medical officer in march 2015. prior to joining incyte, from may 2011 to February
2015, he was the Senior vice president, uS Clinical Development & medical affairs at novartis pharmaceuticals. From
February 2004 to april 2011, Dr. Stein was the vice president, Global oncology, Clinical Development and the head of
medicines Development for hematology and Supportive Care for GlaxoSmithKline. Dr. Stein held a post-doctoral fellowship in
hematology/oncology at the university of pennsylvania from 1998 to 2001, and earned his m.D. from the university of
Witwatersrand in Johannesburg, South africa in 1990.
Paula J. Swain, age 63, has served as Executive vice president, human resources since august 2002 and joined incyte
as Senior vice president of human resources in January 2002. ms. Swain served as Senior vice president of human resources
at Bristol-myers Squibb Company from october 2001 to January 2002, after it acquired Dupont pharmaceuticals Company. From
July 1998 to october 2001, ms. Swain was Senior vice president of human resources at Dupont pharmaceuticals. From october
1992 to July 1998, ms. Swain held a variety of human resources positions of increasing responsibility at Dupont pharmaceuticals.
ms. Swain received her B.a. in psychology and industrial relations from rockhurst university.
Wenqing Yao, age 58, has served as Executive vice president, head of Discovery Chemistry since october 2014. Dr.
Yao joined incyte as Director, Chemistry in February 2002 and held roles of increasing responsibility at incyte. prior to joining
incyte, Dr. Yao held scientific research positions with Dupont pharmaceuticals and Bristol-myers Squibb Company from 1996 to
2002. Dr. Yao received his B.S. in chemistry from xuzhou normal university, his m.S. in organic chemistry from nanKai
university and his ph.D. in organic/medicinal chemistry from the university of pennsylvania.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
our common stock, $.001 par value per share, is traded on the nasdaq Global Select market under the symbol “inCY.”
as of December 31, 2020, our common stock was held by 122 stockholders of record. We have never declared or paid dividends
on our capital stock and do not anticipate paying any dividends in the foreseeable future.
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Item 6. Selected Financial Data
Selected Consolidated Financial Data
(in thousands, except per share data)
the data set forth below should be read in conjunction with “management’s Discussion and analysis of Financial
Condition and results of operations” included in item 7 and the Consolidated Financial Statements and related notes included in
item 8 of this report.
Consolidated Statements of Operations Data:
revenues:
2020
2019
2018
2017
2016
Year Ended December 31,
product revenues, net(1)
product royalty revenues(2)
milestone and contract revenues(3)
other revenues
total revenues
Costs and expenses:
Cost of product revenues (including
definite-lived intangible amortization)
research and development(4)
Selling, general and administrative(4)
Change in fair value of acquisition-
related contingent consideration
Collaboration loss sharing
total costs and expenses
income (loss) from operations
other income (expense), net(4)
interest expense
unrealized gain (loss) on long term
investment
Expense related to senior note conversions
income (loss) before provision for income
taxes
provision for income taxes
net income (loss)
net income (loss) per share:
Basic
Diluted
Shares used in computing net income (loss)
per share:
Basic
Diluted
$ 2,068,736
392,966
205,000
—
2,666,702
$ 1,774,922
306,337
77,500
—
2,158,759
$ 1,466,900
234,780
180,000
203
1,881,883
$
1,200,312
160,791
175,000
113
1,536,216
$
882,404
110,711
112,512
92
1,105,719
131,328
2,215,942
516,922
114,249
1,154,111
468,711
94,123
1,197,957
434,407
23,385
42,801
2,930,378
(263,676)
23,206
(2,174)
19,682
—
1,756,753
402,006
52,182
(1,855)
26,173
—
1,752,660
129,223
31,760
(1,543)
10,426
—
(232,218)
63,479
(295,697)
(1.36)
(1.36)
$
$
$
$
$
$
34,458
—
486,791
39,885
446,906
2.08
2.05
$
$
$
(44,093)
—
115,347
5,854
109,493
0.52
0.51
$
$
$
79,479
1,326,134
366,286
7,704
—
1,779,603
(243,387)
17,153
(6,900)
(24,275)
(54,881)
(312,290)
852
(313,142)
(1.53)
(1.53)
$
$
$
58,187
581,861
303,251
17,422
—
960,721
144,998
4,412
(38,745)
(3,261)
—
107,404
3,182
104,222
0.55
0.54
218,073
218,073
214,913
217,657
212,383
215,635
204,580
204,580
187,873
194,125
(1) 2020 product revenues, net, include our product sales of JaKaFi, iCluSiG and pEmaZYrE. 2019, 2018, 2017 and 2016
product revenues, net, relate to our product sales of JaKaFi and iCluSiG from the date of acquisition on June 1, 2016.
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(2) 2020 product royalty revenues relate to novartis net sales of taBrECta worldwide, novartis net sales of JaKavi outside
of the united States and lilly net sales of olumiant outside of the united States. 2019, 2018 and 2017 product royalty
revenues relate to novartis net sales of JaKavi outside of the united States and lilly net sales of olumiant outside of
the united States. 2016 product royalty revenues relate to novartis net sales of JaKavi outside the united States.
(3) 2020 milestone and contract revenues relate to our collaborative research and license agreements with novartis, lilly and
innovent. 2019 milestone and contract revenues relate to our collaborative research and license agreements with innovent
and Zai lab. 2018, 2017 and 2016 milestone and contract revenues relate to our collaborative research and license
agreements with novartis and lilly.
(4) upon the retrospective adoption of aSu no. 2017-07 on January 1, 2018, the presentation of other components of net
periodic benefit cost were reclassed out of operating income and into other income (expense), net for the periods presented,
as applicable.
2020
2019
2018
2017
2016
December 31,
Consolidated Balance Sheets Data:
Cash, cash equivalents, and marketable
securities
Working capital
total assets(1)
Convertible senior notes
Stockholders’ equity
$ 1,801,377
1,728,699
3,560,918
—
2,611,268
$ 2,117,554
1,968,148
3,426,750
18,300
2,598,406
$ 1,438,323
1,406,977
2,645,762
17,434
1,925,967
$ 1,169,645
1,129,458
2,302,582
24,001
1,630,629
$
808,546
720,677
1,638,597
651,481
419,467
(1) on January 1, 2019, we adopted aSu no. 2016-02 which required us to recognize lease right-of-use assets and
corresponding lease liabilities on the consolidated balance sheet. no prior periods were restated as further discussed in note
1 of notes to the Consolidated Financial Statements.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
the following discussion and analysis of our financial condition and results of operations should be read in conjunction
with “Selected Consolidated Financial Data” and the Consolidated Financial Statements and related notes included elsewhere in
this report.
a discussion of our financial performance for the year ended December 31, 2020 as compared to the year ended
December 31, 2019 appears below under the captions “results of operations” and “liquidity and Capital resources.” a
discussion of our financial performance for the year ended December 31, 2019 compared to the year ended December 31, 2018
can be found under the same captions in item 7 of our annual report on Form 10-K for the year ended December 31, 2019, filed
with the SEC on February 13, 2020, which is available free of charge on the SEC’s website at www.sec.gov and our investor
relations website at investor.incyte.com/financial-information/annual-reports. these website addresses are intended to be
inactive, textual references only. none of the materials on, or accessible through, these websites are part of this report or are
incorporated by reference herein.
Overview
incyte is a biopharmaceutical company focused on the discovery, development and commercialization of proprietary
therapeutics. our global headquarters is located in Wilmington, Delaware. We conduct our international clinical development and
commercial operations from our European office in morges, Switzerland, our Japanese office in tokyo and our Canadian office
in montreal. our portfolio includes compounds in various stages, ranging from preclinical to late stage development, and
commercialized products JaKaFi (ruxolitinib), iCluSiG (ponatinib), pEmaZYrE (pemigatinib) and monJuvi (tafasitamab-
cxix) which is co-commercialized with morphoSys.
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Effects of the COVID-19 Pandemic on Our Business
in December 2019, coronavirus disease of 2019, or CoviD-19, was first reported in Wuhan, China. in march 2020, the
World health organization declared CoviD-19 a pandemic (“the CoviD-19 pandemic”) and certain governments, including the
State of Delaware where our primary offices and laboratory spaces are located, enacted stay-at-home orders and sweeping
restrictions to travel and business activity were initiated by corporations and governments.
We took aggressive, proactive actions early on to protect the health of our employees, and their families, including
voluntarily requiring almost all personnel across our global enterprise to work remotely and restricting access to our sites to
personnel who were required to perform critical business continuity activities. in may 2020, we initiated a return to full
laboratory work at our facilities in Wilmington, Delaware, as well as a gradual return to office-based working, where allowed
under local guidelines, at our offices in north america, Europe and asia.
While we currently believe we are well-positioned to function in a hybrid on-site and virtual or remote fashion, the
extent of the CoviD-19 pandemic’s effect on our operational and financial performance will depend on future developments,
including the duration, spread and intensity of the pandemic, protective measures, and the reimposition of protective measures,
implemented by governmental authorities or by us to protect our employees, and effects of the pandemic and such protective
measures on our suppliers, collaborators, services providers and healthcare organizations serving patients, all of which are
uncertain and difficult to predict considering the rapidly evolving landscape. as a result, it is not currently possible to ascertain or
predict the overall long-term impact of the CoviD-19 pandemic on our business.
to date, we have not experienced a material effect on the results of our commercial operations, or our manufacturing
supply chain, and we have increased manufacturing efforts of ruxolitinib to respond to the CoviD-19 pandemic and to pre-
clinical and clinical study requests. new patient starts for JaKaFi treatment decreased as a result of shelter in place and other
protective measures, and if decreases in new patient starts occur in future periods, our revenues in future periods could be
adversely affected. We continue to anticipate that short-term effects may continue to emerge across different aspects of our global
clinical trial programs. For example, while we expect ongoing monitoring of already-enrolled patients to continue, difficulties in
monitoring may result as a consequence of shelter in place orders and other protective measures implemented by governmental
authorities or clinical trial sites. in addition, new patient recruitment in certain clinical trials has been and may in the future be
impacted, in particular with respect to our earlier stage clinical trials. We also expect the conduct of clinical trials may continue to
vary by disease state and by severity of disease, as well as by geography, as some regions are more adversely impacted. until our
return to full laboratory work, our discovery laboratories were staffed by essential personnel, and hence certain discovery
programs experienced delays. Still, we caution that the duration and severity of the continuing CoviD-19 pandemic remains
uncertain and we may not yet be able to assess its consequences accurately or fully at this time.
Regulatory Achievements
in april 2020, pEmaZYrE (pemigatinib), a selective fibroblast growth factor receptor (FGFr) inhibitor, was approved
by the u.S. Food and Drug administration (FDa) 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 and only FDa-approved treatment for this indication, which was approved under accelerated approval
based on overall response rate and duration of response. We have retained all rights to pEmaZYrE globally, other than those
granted to innovent Biologics, inc. to develop and commercialize pemigatinib in hematology and oncology in mainland China,
hong Kong, macau and taiwan.
in may 2020, under our collaboration agreement with novartis international pharmaceutical ltd., the FDa approved
taBrECta (capmatinib) for the treatment of adult patients with metastatic non-small cell lung cancer (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. in June 2020, the Japanese ministry of health, labour and Welfare granted
marketing approval for taBrECta for mEtex14 mutation-positive advanced and/or recurrent unresectable nSClC.
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in July 2020, under our collaboration and license agreement with morphoSys aG, we received FDa approval of
monJuvi (tafasitamab-cxix), 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. 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 october 2020, under our collaboration agreement with Eli lilly and Company, the European Commission approved
olumiant (baricitinib) for the treatment of moderate-to-severe atopic dermatitis in adult patients who are candidates for
systemic therapy and in December 2020, Japan’s ministry of health, labor and Welfare (mhlW) approved olumiant for the
treatment of moderate-to-severe atopic dermatitis in adult patients who are candidates for systemic therapy.
License Agreements and Business Relationships
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 establish business relationships with other companies and medical research
institutions to acquire products or rights to products and technologies that are complementary to our business. Below summarizes
the significant achievements under our existing collaboration and license agreements and additional agreements we entered into
during the year ended December 31, 2020.
Novartis
in may 2020, we recognized a $25.0 million development milestone and a $45.0 million regulatory milestone for the
FDa approval of capmatinib as taBrECta. in June 2020, we recognized a $20.0 million regulatory milestone for the mhlW
approval of taBrECta. in December 2020, we recognized a $80.0 million sales milestone for novartis achieving annual net
sales of a JaK licensed product of $1.2 billion. Exclusive of the upfront payment of $150.0 million received in 2009 and the
immediate milestone of $60.0 million earned in 2010, we have recognized and received, in the aggregate, $157.0 million for the
achievement of development milestones, $280.0 million for the achievement of regulatory milestones and $200.0 million for the
achievement of sales milestones through December 31, 2020.
Lilly
in october 2020, we recognized a $20.0 million regulatory milestone for the European Commission approval of
olumiant and in December 2020, we recognized a $10.0 million regulatory milestone for the mhlW approval of
olumiant for the treatment of moderate-to-severe atopic dermatitis in adult patients who are candidates for systemic therapy.
Exclusive of the upfront payment of $90.0 million received in 2009, we have recognized and received, in the aggregate, $149.0
million for the achievement of development milestones and $265.0 million for the achievement of regulatory milestones through
December 31, 2020.
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 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. 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. in march 2020, we paid morphoSys an upfront non-
refundable payment of $750.0 million and, under a related agreement, purchased american Depositary Shares (aDSs) of
morphoSys for an aggregate purchase price of $150.0 million. of the $150.0 million aggregate purchase price paid for the aDSs,
$95.5 million was allocated to our stock purchase in morphoSys and was recorded within long term investments and $54.5
million, representing the premium paid on the purchase, was
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allocated to research and development expense. morphoSys is eligible to receive up to $740.0 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.
Nimble
in September 2020, we entered into a collaboration and license agreement with nimble therapeutics, inc. under the
terms of this agreement, nimble will utilize their peptide synthesis, screening and optimization platform for discovery and
validation of peptides against specified targets. under the agreement, nimble is eligible to receive up to $8.0 million in future
contingent discovery milestones and up to $127.0 million in future contingent development and regulatory milestones.
additionally, in the event of successful commercialization, nimble is eligible to receive up to $130.0 million in future contingent
sales milestones and tiered royalty payments in the low single digits.
additional information regarding our collaboration agreements, including their financial and accounting impact on our
business and results of operations, can be found in note 6 of notes to the Consolidated Financial Statements.
Critical Accounting Policies and Significant Estimates
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. We believe the following critical accounting policies reflect the more significant
judgments and estimates used in the preparation of our consolidated financial statements. See note 1 of notes to the Consolidated
Financial Statements for a complete list of our significant accounting policies.
Revenue Recognition. We recognize revenue only when we have satisfied a performance obligation through transferring
control of the promised good or service to a customer in an amount that reflects the consideration we expect to receive in
exchange for those goods or services. We apply the following five-step model in order to determine this amount: (i) identification
of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance
obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including
the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition
of revenue when (or as) the Company satisfies each performance obligation, which for the Company is generally at a point in
time. We also assess collectability based primarily on the customer’s payment history and on the creditworthiness of the
customer.
Product Revenues
our product revenues consist of u.S. sales of JaKaFi and pEmaZYrE and European sales of iCluSiG. product
revenues are recognized once we satisfy the performance obligation at a point in time under the revenue recognition criteria as
described above. We recognize revenues for product received by our customers net of allowances for customer credits, including
estimated rebates, chargebacks, discounts, returns, distribution service fees, patient assistance programs, and government rebates,
such as medicare part D coverage gap reimbursements in the united States. these sales allowances and accruals are recorded
based on estimates which are described in detail below. Estimates are assessed as of the end of each reporting period and are
updated to reflect current information. We believe that our sales allowances and accruals are reasonable and appropriate based on
current facts and circumstances. Changes in estimates for sales allowances and accruals for product shipped in prior periods have
resulted in immaterial adjustments to product revenues.
Customer Credits: our customers are offered various forms of consideration, including allowances, service fees and
prompt payment discounts. We expect our customers will earn prompt payment discounts and, therefore, we deduct the full
amount of these discounts from total product sales when revenues are recognized. Service fees are also deducted
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from total product sales as they are earned.
Rebates and Discounts: We accrue rebates for mandated discounts under the medicaid Drug rebate program in the
united States and mandated discounts in Europe in markets where government-sponsored healthcare systems are the primary
payers for healthcare. these accruals are based on statutory discount rates and expected utilization as well as historical data we
have accumulated since product launch. our estimates for expected utilization of rebates are based on data received from our
customers. rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount
expected to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarters’ unpaid rebates. if
actual future rebates vary from estimates, we may need to adjust prior period accruals, which would affect revenue in the period
of adjustment.
Chargebacks: Chargebacks are discounts that occur when certain contracted customers purchase directly from our
wholesalers at a discounted price. the wholesalers, in turn, charges back to us the difference between the price initially paid by
the wholesalers and the discounted price paid by the contracted customers. in addition to actual chargebacks received, we
maintain an accrual for chargebacks based on the estimated contractual discounts on the inventory levels on hand in our
distribution channel. if actual future chargebacks vary from these estimates, we may need to adjust prior period accruals, which
would affect revenue in the period of adjustment.
Medicare Part D Coverage Gap: medicare part D prescription drug benefit mandates manufacturers to fund 70% of the
medicare part D insurance coverage gap for prescription drugs sold to eligible patients. our estimates for the expected medicare
part D coverage gap are based on historical invoices received and in part from data received from our customers. Funding of the
coverage gap is generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected
to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarters. if actual future funding varies
from estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment.
additionally, beginning in January 2020, the amount of spending required by eligible patients in the medicare part D insurance
coverage gap increased 30% due to the expiration of a provision in the patient protection and affordable Care act, which now
results in a change in the true out of pocket (troop) calculation methodology. the methodological change has resulted in an
increase in required spending by patients and, in turn, an increase in manufacturers’ contributions on behalf of patients in the
medicare part D insurance coverage gap.
Co-payment Assistance: patients who have commercial insurance and meet certain eligibility requirements may receive
co-payment assistance. We accrue a liability for co-payment assistance based on actual program participation and estimates of
program redemption using data provided by third-party administrators.
Product Royalty Revenues
royalty revenues on commercial sales for JaKavi and taBrECta by novartis are estimated based on information
provided by novartis. royalty revenues on commercial sales for olumiant by lilly are estimated based on information
provided by lilly. We exercise judgment in determining whether the information provided is sufficiently reliable for us to base
our royalty revenue recognition thereon. if actual royalties vary from estimates, we may need to adjust the prior period, which
would affect royalty revenue and receivable in the period of adjustment.
Milestone and Contract Revenues
at the inception of a contract, we determine the transaction price, in addition to any upfront payment, by estimating the
amount of variable consideration, including milestone payments, at the outset of the contract utilizing the most likely amount
method. our contractual milestones typically relate to the achievement of pre-specified development, regulatory and
commercialization events outside of our control, such as regulatory approval of a compound, first patient dosing or achievement
of sales-based thresholds. We include milestones in the transaction price only to the extent that it is probable that a significant
reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the milestone is
subsequently resolved. Given the high level of uncertainty of achievement, variable consideration associated with milestones are
fully constrained until confirmation of the satisfaction or completion of the milestone by the third-party. We review our estimate
of the transaction price each period, and make revisions to such estimates as necessary.
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Stock Compensation. Share-based payment transactions with employees, which include stock options, restricted stock
units (rSus) and performance shares (pSus), are recognized as compensation expense over the requisite service period based on
their estimated fair values at the date of grant as well as expected forfeiture rates based on actual experience. the stock
compensation process requires significant judgment and the use of estimates, particularly surrounding Black-Scholes assumptions
such as stock price volatility over the option term and expected option lives, as well as expected forfeiture rates and the
probability of pSus vesting. the fair value of stock options, which are subject to graded vesting, are recognized as compensation
expense over the requisite service period using the accelerated attribution method. the fair value of rSus that are subject to cliff
vesting are recognized as compensation expense over the requisite service period using the straight-line attribution method, and
the fair value of rSus that are subject to graded vesting are recognized as compensation expense over the requisite service period
using the accelerated attribution method. the fair value of pSus are recognized as compensation expense beginning at the time
in which the performance conditions are deemed probable of achievement. We assess the probability of achievement of
performance conditions, including projected product revenues and clinical development milestones, as of the end of each
reporting period. once a performance condition is considered probable, we record compensation expense based on the portion of
the service period elapsed to date with respect to that award, with a cumulative catch-up, net of estimated forfeitures, and
recognize any remaining compensation expense, if any, over the remaining requisite service period using the straight-line
attribution method for pSus that are subject to cliff vesting and using the accelerated attribution method for pSus that are subject
to graded vesting.
Income Taxes. We account for income taxes using an asset and liability approach to financial accounting for income
taxes. under this method, deferred tax assets and liabilities are determined based on the difference between the financial
statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for years in which the basis
differences are expected to reverse. We periodically assess the likelihood of the realization of deferred tax assets, and reduce the
carrying amount of these deferred tax assets to an amount that is considered to be more-likely-than-not to be realizable. our
assessment considers recent cumulative earnings experience, projections of future taxable income (losses) and ongoing prudent
and feasible tax planning strategies. When performing our assessment on projections of future taxable income (losses), we
consider factors such as the likelihood of regulatory approval and commercial success of products currently under development,
among other factors. Significant judgment is required in making this assessment and, to the extent that a reversal of any portion
of our valuation allowance against our deferred tax assets is deemed appropriate, a tax benefit will be recognized against our
income tax provision in the period of such reversal.
We recognize the tax benefit from an uncertain tax position only if it is more-likely-than-not that the position will be
sustained upon examination by the taxing authorities, including resolutions of any related appeals or litigation processes, based on
the technical merits of the position. the tax benefit that is recorded for these positions is measured at the largest amount of benefit
that is greater than 50 percent likely of being realized upon ultimate settlement. We adjust the level of the liability to reflect any
subsequent changes in the relevant facts surrounding the uncertain positions. any interest and penalties on uncertain tax positions
are included within the tax provision.
We record estimates and prepare and file tax returns in various jurisdictions across the united States, Canada, Europe,
and asia based upon our interpretation of local tax laws and regulations. While we exercise significant judgment when applying
complex tax laws and regulations in these various taxing jurisdictions, many of our tax returns are open to audit, and may be
subject to future tax, interest, and penalty assessments.
We believe our estimates for the valuation allowances against certain deferred tax assets and the amount of benefits
associated with uncertain tax positions recognized in our financial statements are appropriate based upon our assessment of the
factors mentioned above.
Acquisition-related contingent consideration. acquisition-related contingent consideration, which consists of our
future royalty obligations to ariaD/takeda, was recorded on the acquisition date at the estimated fair value of the obligation, in
accordance with the acquisition method of accounting. the fair value of the contingent consideration was determined using an
income approach based on estimated iCluSiG revenues in the European union and other countries. as the fair value
measurement is based on significant inputs that are unobservable in the market, this represents a level 3 measurement.
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the fair value of the acquisition-related contingent consideration is remeasured each reporting period, with changes in
fair value recorded in the consolidated statements of operations. the assumptions used to determine the fair value of the
acquisition-related contingent consideration include projected iCluSiG revenues and a discount rate which, require significant
judgement and are analyzed on a quarterly basis. While we use the best available information to prepare our projected iCluSiG
revenues and discount rate assumptions, actual iCluSiG revenues and/or market conditions could differ significantly. Changes
to one or multiple inputs could have a material impact on the amount of acquisition-related contingent consideration expense
recorded during the reporting period.
Results of Operations
Years Ended December 31, 2020 and 2019
We recorded net loss for the year ended December 31, 2020 of $295.7 million and net income for the year ended
December 31, 2019 of $446.9 million. on a per share basis, basic and diluted net loss was $1.36 for the year ended December 31,
2020. on a per share basis, basic net income was $2.08 and diluted net income was $2.05 for the year ended December 31, 2019.
Revenues
JaKaFi revenues, net
iCluSiG revenues, net
pEmaZYrE revenues, net
total product revenues, net
JaKavi product royalty revenues
olumiant product royalty revenues
taBrECta product royalty revenues
total product royalty revenues
milestone and contract revenues
total revenues
For the Year Ended,
December 31,
2020
2019
(in millions)
1,937.9
105.0
25.9
2,068.8
277.9
110.9
4.1
392.9
205.0
2,666.7
$
$
1,685.0
90.0
—
1,775.0
225.9
80.4
—
306.3
77.5
2,158.8
$
$
the increase in JaKaFi product revenues from 2019 to 2020 was comprised of a volume increase of $220.4 million and
a price increase of $32.5 million. our product revenues may fluctuate from period to period due to our customers’ purchasing
patterns over the course of a 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.
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the following table provides a summary of activity with respect to our sales allowances and accruals (in thousands):
Year Ended December 31, 2020
Balance at January 1, 2020
allowances for current period sales
allowances for prior period sales
Credits/payments for current period sales
Credits/payments for prior period sales
Balance at December 31, 2020
Discounts and Government
Distribution
Rebates and
Fees
Co-Pay
Assistance
and Other
Chargebacks Discounts
$
$
6,530
58,921
(160)
(51,002)
(5,753)
8,536
$
$
54,762
332,656
431
(280,867)
(39,991)
66,991
$
$
703
14,790
—
(13,957)
(252)
1,284
$
$
Product
Returns
$
1,660
861
(589)
—
(364)
1,568
$
Total
63,655
407,228
(318)
(345,826)
(46,360)
78,379
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. 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.
our milestone and contract revenues were $205.0 million and $77.5 million for the years ended December 31, 2020 and
2019, respectively. During the year ended December 31, 2020, our milestone and contract revenues were derived from a $5.0
million milestone under the innovent agreement, $170.0 million in milestones under the novartis agreement and $30.0 million in
milestones under the lilly agreement. During the year ended December 31, 2019, our milestone and contract revenues were
derived from a $40.0 million upfront payment and a $20.0 million milestone under the innovent agreement and a $17.5 million
upfront payment under the Zai lab agreement.
Cost of Product Revenues
product costs
Salary and benefits related
Stock compensation
royalty expense
amortization of definite-lived intangible assets
total cost of product revenues
For the Year Ended,
December 31,
2020
2019
(in millions)
15.3
3.6
1.0
89.9
21.5
131.3
$
$
11.8
2.6
0.7
77.6
21.5
114.2
$
$
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Cost of product revenues includes all JaKaFi, iCluSiG and pEmaZYrE related product costs, employee personnel
costs, including stock compensation, for those employees dedicated to the production of our commercial products, low single-
digit royalties to novartis on all sales of JaKaFi in the united States and amortization of our licensed intellectual property rights
for iCluSiG using the straight-line method over the estimated useful life of 12.5 years. Cost of product revenues increased from
2019 to 2020 due primarily to increased royalties to novartis on all JaKaFi sales in the united States.
Operating Expenses
Research and development expenses
Salary and benefits related
Stock compensation
Clinical research and outside services
occupancy and all other costs
total research and development expenses
For the Years Ended,
December 31,
2020
2019
(in millions)
$
$
285.8 $
120.4
1,701.3
108.4
2,215.9
$
252.2
114.0
677.2
110.7
1,154.1
We account for research and development costs by natural expense line and not costs by project. Salary and benefits
related expense increased from 2019 to 2020 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 from 2019 to 2020 was primarily due to upfront
consideration of $804.5 million related to our collaborative agreement with morphoSys, the cost of purchasing an FDa priority
review voucher for $120.0 million, which we used in connection with our submission seeking FDa approval of ruxolitinib cream
for the treatment of atopic dermatitis, and milestones achieved under our collaboration and license agreement with macroGenics
of $40.0 million. research and development expenses include upfront and milestone expenses related to our collaborative
agreements of $976.1 million and $27.8 million for the years ended December 31, 2020 and 2019, respectively. research and
development expenses for the years ended December 31, 2020 and 2019 were net of $8.5 million and $15.1 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 pre-clinical and clinical trial related activities.
many factors can affect the cost and timing of our clinical trials, including requests by regulatory agencies for more information,
inconclusive results requiring additional clinical trials, slow patient enrollment, adverse side effects among patients, insufficient
supplies for our clinical trials, timing of drug supply, including api, and real or perceived lack of effectiveness or safety of our
investigational drugs in our clinical trials. in addition, the development of all of our products will be subject to extensive
governmental regulation. these factors make it difficult for us to predict the timing and costs of the further development and
approval of our products.
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Selling, general and administrative expenses
Salary and benefits related
Stock compensation
other contract services and outside costs
total selling, general and administrative expenses
For the Years Ended,
December 31,
2020
2019
(in millions)
$
$
158.2 $
56.6
302.1
516.9
$
130.2
51.9
286.6
468.7
Salary and benefits related expense increased from 2019 to 2020 due primarily to increased headcount. this increased
headcount was due primarily to the ongoing commercialization efforts related to JaKaFi for intermediate or high-risk
myelofibrosis, uncontrolled polycythemia vera and GvhD as well as increased headcount related to our European operations.
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 was primarily due to an increase in sales and marketing spend to support the
commercialization of pemazyre in the united States and to prepare for the potential launch of ruxolitinib cream in the united
States and pemigatinib and tafasitamab in the European union.
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 change in
fair value of the acquisition-related contingent consideration for the years ended December 31, 2020 and 2019 was expense of
$23.4 million and $19.7 million, respectively, which is recorded in change in fair value of acquisition-related contingent
consideration on the consolidated statements of operations. the change in fair value of the contingent consideration for the years
ended December 31, 2020 and 2019 was due primarily to the passage of time as there were no other significant changes in the key
assumptions during the periods.
Collaboration loss sharing
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. For the year ended December 31, 2020, our 50% share of the costs for
tafasitamab was $42.8 million, as recorded in collaboration loss sharing on the consolidated statement of operations.
Other income (expense)
Other income (expense), net. other income (expense), net, for the years ended December 31, 2020 and 2019 was
$23.2 million and $52.2 million, respectively. the decrease in other income (expense), net primarily relates to a decrease in
interest income earned from our investments in marketable securities and money market accounts.
Interest expense. interest expense for the years ended December 31, 2020 and 2019, was $2.2 million and $1.9 million,
respectively. included in interest expense for the years ended December 31, 2020 and 2019 was $0.7 million and $0.9 million,
respectively, of non-cash charges to amortize the discounts on our convertible senior notes that matured in november 2020 and
approximately $1.2 million and $0.6 million, respectively, of interest expense on our finance lease liabilities.
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Unrealized gain (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 gains and (losses):
agenus
Calithera
merus
morphoSys
Syros
total unrealized gain on long term investments
For the Years Ended,
December 31,
2020
2019
(in millions)
$
$
(10.3) $
(1.4)
11.0
7.4
3.7
10.4
$
30.0
2.9
0.3
—
1.3
34.5
Provision for income taxes. the provision for income taxes for the years ended December 31, 2020 and 2019 was $63.5
million and $39.9 million, respectively. the increase in provision for income taxes primarily relates to increased federal and state
tax liabilities that are not fully sheltered by net operating losses or research and development tax credit carryforwards.
Liquidity and Capital Resources
December 31:
Cash, cash equivalents, and marketable securities
Working capital
Year ended December 31:
Cash provided by (used in):
operating activities
investing activities
Financing activities
Capital expenditures (included in investing activities above)
Sources and Uses of Cash.
2020
2019
(in millions)
$ 1,801.4
$ 1,728.7
$ 2,117.6
$ 1,968.1
$ (124.6)
$ (269.0)
71.7
$
$ (187.4)
$
$
$
$
710.7
(87.5)
45.7
(78.1)
Due to historical net losses, we had an accumulated deficit of $1.7 billion as of December 31, 2020. We have funded our
research and development operations through sales of equity securities, the issuance of convertible notes, cash received from
customers for the sale of our commercialized products, and collaborative arrangements. at December 31, 2020, we had available
cash, cash equivalents and marketable securities of $1.8 billion. our cash and marketable securities balances are held in a variety
of interest-bearing instruments, including money market accounts, and u.S. government debt securities. available cash is
invested in accordance with our investment policy’s primary objectives of liquidity, safety of principal and diversity of
investments.
Cash (used in) provided by operating activities. the $835.3 million decrease in cash provided by operating activities
from 2019 to 2020 was due primarily to cash outflows related to our collaboration and license agreements, in particular, the
$804.5 million upfront consideration paid to morphoSys, and, to a lesser extent, changes in working capital.
Cash used in investing activities. our investing activities, other than purchases, sales and maturities of marketable
securities, have consisted predominantly of capital expenditures and purchases of long term investments. During 2020, net cash
used in investing activities was $269.0 million, which represents purchase of long term equity investments of $95.5 million,
purchases of marketable securities of $516.9 million and capital expenditures of $187.4 million, offset in part by the sale and
maturity of marketable securities of $513.5 million and the sale of long term investment of $17.3 million. During 2019, net cash
used in investing activities was $87.5 million, which represents purchases of marketable securities
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of $374.8 million and capital expenditures of $78.1 million, offset in part by the sale and maturity of marketable securities of
$365.4 million.
Cash provided by financing activities. During 2020 and 2019, net cash provided by financing activities was
$71.7 million and $45.7 million, respectively, consisting primarily of proceeds from the issuance of common stock under our
stock plans, offset in part by cash paid to ariaD/takeda for contingent consideration.
the following summarizes our significant contractual obligations as of December 31, 2020 and the effect those
obligations are expected to have on our liquidity and cash flow in future periods (in millions):
Contractual Obligations:
Finance lease liabilities
operating lease liabilities
other non-cancelable obligations
total contractual obligations
Total
Less Than Years
2 - 3
1 Year
Years
4 - 5
Over
5 Years
$
$
45.3
30.6
2.9
78.8
$
$
3.7
14.1
1.9
19.7
$
$
6.8
10.7
0.9
18.4
$
$
5.5
1.7
0.1
7.3
$
$
29.3
4.1
—
33.4
in october 2019, we entered into an agreement with Wilmington Friends School inc., to purchase property for $50.0
million to expand our global headquarters. under that agreement, closing of the purchase is subject to certain standard closing
conditions, including an initial diligence period and a subsequent approval period.
We believe that our cash flow from operations, together with our cash, cash equivalents and marketable securities, will
be adequate to satisfy our capital needs for the foreseeable future. our cash requirements depend on numerous factors, including
our expenditures in connection with our drug discovery and development programs and commercialization operations;
expenditures in connection with litigation or other legal proceedings; costs for future facility requirements; and expenditures for
future strategic equity investments or potential acquisitions. We have entered into and may in the future seek to license additional
rights relating to technologies or drug development candidates in connection with our drug discovery and development programs.
under these licenses, we may be required to pay upfront fees, milestone payments, and royalties on sales of future products. Due
to the contingent nature of these future payments, they are not included in the contractual obligations table above; however, are
discussed in detail in note 6 of notes to our consolidated financial statements included in item 8 of this report.
to the extent we seek to augment our existing cash resources and cash flow from operations to satisfy our cash
requirements for future acquisitions or other strategic purposes, we expect that additional funding can be obtained through equity
or debt financings or from other sources. the sale of equity or additional convertible debt securities in the future may be dilutive
to our stockholders, and may provide for rights, preferences or privileges senior to those of our holders of common stock. Debt
financing arrangements may require us to pledge certain assets or enter into covenants that could restrict our operations or our
ability to incur further indebtedness.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements other than those that are discussed above.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
our investments in marketable securities, which are composed primarily of u.S. government securities, are subject to
default, changes in credit rating and changes in market value. these investments are also subject to interest rate risk and will
decrease in value if market interest rates increase. as of December 31, 2020, marketable securities were $288.4 million. Due to
the nature of these investments, if market interest rates were to increase immediately and uniformly by 10% from levels as of
December 31, 2020, the decline in fair value would not be material.
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Item 8. Financial Statements and Supplementary Data
INDEX
Consolidated Financial Statements of Incyte Corporation
report of Ernst & Young llp, independent registered public accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of operations for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive income (loss) for the years ended December 31, 2020, 2019 and 2018
Consolidated Statement of Stockholders’ Equity for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
notes to the Consolidated Financial Statements
interim Consolidated Financial information (unaudited)
Page
76
78
79
80
81
82
83
119
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Report of Independent Registered Public Accounting Firm
to the Stockholders and the Board of Directors of incyte Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of incyte Corporation (the Company) as of December 31, 2020
and 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for
each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated
financial statements”). in our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2020, in conformity with u.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the public Company accounting oversight Board (united States)
(pCaoB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in
internal Control-integrated Framework issued by the Committee of Sponsoring organizations of the treadway Commission
(2013 framework) and our report dated February 9, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
these financial statements are the responsibility of the Company’s management. our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the pCaoB and are
required to be independent with respect to the Company in accordance with the u.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the pCaoB.
We conducted our audits in accordance with the standards of the pCaoB. those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
the critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. the
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.
Allowances for rebates, discounts and chargebacks owed to governmental entities
Description of the
Matter
as discussed in note 1 to the consolidated financial statements, the Company recognizes revenues for
product received by its customers net of allowances for customer credits, including estimated rebates,
chargebacks, discounts, returns, distribution service fees, patient assistance programs, and government
rebates. liabilities related to sales allowances are presented within accrued and other current liabilities on
the consolidated balance sheet and totaled $73.2 million as of December 31, 2020.
auditing the allowances for rebates, discounts and chargebacks owed to governmental entities was
complex and highly judgmental due to the significant estimation uncertainty involved in management’s
assumptions, including the levels of expected utilization of these rebates, discounts
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and chargebacks based on the amount of drugs sold to eligible patients, as well as the complexity of the
government mandated calculations. the allowances for rebates, discounts and chargebacks owed to
governmental entities are sensitive to these significant assumptions and calculations.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over
management’s review of the allowances for rebates, discounts and chargebacks owed to governmental
entities. For example, we tested controls over management’s review of the significant assumptions, such
as the utilization of these rebates, discounts and chargebacks as well as controls over management’s
review of the application of the government mandated calculations.
to test the allowances for rebates, discounts, and chargebacks owed to governmental entities, we
performed audit procedures that included, among others, evaluating the methodologies used and testing
the significant assumptions discussed above. We compared the significant assumptions used by
management to historical trends, evaluated the change in the accruals from prior periods, and assessed the
historical accuracy of management’s estimates against actual results. We also tested the completeness and
accuracy of the underlying data used in the Company’s calculations through reconciliation to third-party
invoices, claims data and actual cash payments. in addition, we involved our governmental pricing
specialists to assist in evaluating management’s methodology and calculations used to measure certain
estimated rebates, discounts and chargebacks.
Valuation of acquisition-related contingent consideration liability
Description of the
Matter
as discussed in note 3 to the consolidated financial statements, the Company’s acquisition-related
contingent consideration liability, which consists of certain future royalty obligations on future net sales of
iCluSiG, is remeasured to its estimated fair value each reporting period, with changes in fair value
recorded in the consolidated statements of operations. as of December 31, 2020, the acquisition-related
contingent consideration liability was $266.0 million.
auditing the valuation of the acquisition-related contingent consideration liability was complex and highly
judgmental due to the significant estimation required in determining the fair value. in particular, the fair
value estimate was sensitive to significant assumptions such as the weighted average cost of capital and
projected future iCluSiG revenues, which are affected by expectations about future industry, market or
economic conditions, and are forward-looking and inherently uncertain.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over
the Company’s valuation of the acquisition-related contingent consideration liability. For example, we
tested the Company's controls over management’s review of the valuation model, including controls over
the significant assumptions utilized in the calculation, such as the weighted average cost of capital and the
projected future iCluSiG revenues.
to test the estimated fair value of the acquisition-related contingent consideration liability, we performed
audit procedures that included, among others, assessing the terms of the arrangement, evaluating the
methodology used, and testing the significant assumptions discussed above used by the Company in its
analysis. We involved our valuation specialists to assist in the evaluation of the significant assumptions
and methodology used by the Company. We also compared the significant assumptions to current
industry, market and economic trends and to the Company's budgets and forecasts. in addition, we
assessed the historical accuracy of management’s estimates against actual performance.
/s/ Ernst & Young llp
We have served as the Company's auditor since 1991.
philadelphia, pennsylvania
February 9, 2021
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INCYTE CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares and par value)
ASSETS
Current assets:
Cash and cash equivalents
marketable securities—available-for-sale (amortized cost $288,199; allowance
for credit losses $0)
accounts receivable
inventory
prepaid expenses and other current assets
total current assets
restricted cash and investments
long term investments
inventory
property and equipment, net
Finance lease right-of-use assets, net
other intangible assets, net
Goodwill
other assets, net
total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
accounts payable
accrued compensation
accrued and other current liabilities
Finance lease liabilities
Convertible senior notes
acquisition-related contingent consideration
total current liabilities
acquisition-related contingent consideration
Finance lease liabilities
other liabilities
total liabilities
Commitments and contingencies (note 16)
Stockholders’ equity:
December 31,
2020
2019
$ 1,513,008
$ 1,832,684
288,369
481,994
16,425
60,098
2,359,894
284,870
308,809
11,400
43,725
2,481,488
1,757
222,301
19,548
559,625
28,451
172,291
155,593
41,458
$ 3,560,918
1,023
133,657
5,105
377,567
29,058
193,828
155,593
49,431
$ 3,426,750
$
$
98,767
113,340
378,404
2,284
—
38,400
631,195
227,600
32,573
58,282
949,650
83,647
90,706
285,979
664
18,300
34,044
513,340
242,956
31,918
40,130
828,344
preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued or
outstanding as of December 31, 2020 and December 31, 2019
Common stock, $0.001 par value; 400,000,000 shares authorized; 219,489,329
and 216,177,830 shares issued and outstanding as of December 31, 2020 and
December 31, 2019, respectively
additional paid-in capital
accumulated other comprehensive loss
accumulated deficit
total stockholders’ equity
total liabilities and stockholders’ equity
—
—
219
4,352,864
(15,360)
(1,726,455)
2,611,268
$ 3,560,918
216
4,044,490
(15,542)
(1,430,758)
2,598,406
$ 3,426,750
See accompanying notes.
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INCYTE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year Ended December 31,
2019
2018
2020
revenues:
product revenues, net
product royalty revenues
milestone and contract revenues
other revenues
total revenues
Costs and expenses:
$ 2,068,736
392,966
205,000
$ 1,774,922
306,337
77,500
—
—
$ 1,466,900
234,780
180,000
203
2,666,702
2,158,759
1,881,883
Cost of product revenues (including definite-lived intangible
amortization)
research and development
Selling, general and administrative
Change in fair value of acquisition-related contingent
consideration
Collaboration loss sharing
131,328
2,215,942
516,922
114,249
1,154,111
468,711
94,123
1,197,957
434,407
23,385
42,801
19,682
—
26,173
—
total costs and expenses
2,930,378
1,756,753
1,752,660
income (loss) from operations
other income (expense), net
interest expense
unrealized gain (loss) on long term investments
(263,676)
23,206
(2,174)
10,426
402,006
52,182
(1,855)
34,458
129,223
31,760
(1,543)
(44,093)
income (loss) before provision for income taxes
(232,218)
486,791
115,347
provision for income taxes
63,479
39,885
5,854
net income (loss)
net income (loss) per share:
Basic
Diluted
Shares used in computing net income (loss) per share:
Basic
Diluted
$ (295,697)
$ 446,906
$ 109,493
$
$
(1.36)
(1.36)
$
$
2.08
2.05
$
$
0.52
0.51
218,073
218,073
214,913
217,657
212,383
215,635
See accompanying notes.
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INCYTE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
net income (loss)
other comprehensive income (loss):
Foreign currency translation
unrealized gain on marketable securities, net of tax
Defined benefit pension obligations, net of tax
other comprehensive income (loss)
Year Ended December 31,
2019
$ 446,906
2018
$ 109,493
2020
$ (295,697)
8,450
95
(8,363)
182
(192)
1,137
(6,322)
(5,377)
91
203
(696)
(402)
Comprehensive income (loss)
$ (295,515)
$ 441,529
$ 109,091
See accompanying notes.
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INCYTE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except number of shares)
Balances at December 31, 2017
issuance of 1,624,376 shares of Common Stock
upon exercise of stock options and settlement of
employee restricted stock units and 233,712
shares of Common Stock under the ESpp
issuance of 148,761 shares of Common Stock
upon conversion of Convertible Senior notes due
2018
issuance of 4,905 shares of Common Stock for
services rendered
Stock compensation
other comprehensive loss
adoption of aSu no. 2016-01
net income
Balances at December 31, 2018
issuance of 2,657,892 shares of Common Stock
upon exercise of stock options and settlement of
employee restricted stock units and 239,590
shares of Common Stock under the ESpp
issuance of 5,688 shares of Common Stock for
services rendered
Stock compensation
other comprehensive loss
adoption of aSu no. 2016-02 (note 1)
net income
Balances at December 31, 2019
issuance of 2,677,810 shares of Common Stock
upon exercise of stock options and settlement of
employee restricted stock units and 258,453
shares of Common Stock under the ESpp
issuance of 6,350 shares of Common Stock for
services rendered
issuance of 368,886 shares of Common Stock
upon conversion of Convertible Senior notes due
2020
Stock compensation
other comprehensive income
net loss
Balances at December 31, 2020
Common
Stock
$
211
Additional
Paid-in
Capital
$3,627,433
Accumulated
Other
Comprehensive Accumulated
Loss
Deficit
Total
Stockholders’
Equity
$
(7,010) $(1,990,005) $ 1,630,629
2
29,940
—
7,695
—
—
—
29,942
—
7,695
344
—
— 148,266
—
—
—
213
$3,813,678
—
—
—
$
—
—
344
—
— 148,266
(402)
—
2,753
—
109,493
109,493
(10,165) $(1,877,759) $ 1,925,967
(402)
(2,753)
—
3
63,296
—
—
63,299
—
—
—
—
—
216
487
167,029
—
—
—
$
$4,044,490
—
—
(5,377)
—
—
487
—
167,029
—
(5,377)
—
95
95
446,906
446,906
(15,542) $(1,430,758) $ 2,598,406
3
—
110,302
546
—
—
—
—
110,305
546
—
—
—
—
219
18,999
178,527
—
—
$
$4,352,864
—
—
182
18,999
178,527
182
(295,697)
(295,697)
(15,360) $(1,726,455) $ 2,611,268
—
—
—
—
$
$
$
See accompanying notes.
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INCYTE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
net income (loss)
adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Stock-based compensation
Deferred income taxes
other, net
unrealized (gain) loss on long term investments
Change in fair value of acquisition-related contingent consideration
Changes in operating assets and liabilities:
accounts receivable
prepaid expenses and other assets
inventory
accounts payable
accrued and other liabilities
net cash (used in) provided by operating activities
Cash flows from investing activities:
purchase of long term investments
Sale of long term investment
Capital expenditures
purchases of marketable securities
Sale and maturities of marketable securities
net cash used in investing activities
Cash flows from financing activities:
proceeds from issuance of common stock under stock plans
payment of finance lease liabilities
payment of contingent consideration
net cash provided by financing activities
Effect of exchange rates on cash, cash equivalents, restricted cash and
investments
net (decrease) increase in cash, cash equivalents, restricted cash and
investments
Cash, cash equivalents, restricted cash and investments at beginning of
period
Cash, cash equivalents, restricted cash and investments at end of period
Supplemental Schedule of Cash Flow Information
interest paid
income taxes paid
reclassification to common stock and additional paid in capital in
connection with conversions of 0.375% convertible senior notes due 2018 $
reclassification to common stock and additional paid in capital in
connection with conversions of 1.25% convertible senior notes due 2020 $
$
unpaid purchases of property and equipment
$
leased assets obtained in exchange for new operating lease liabilities
$
leased assets obtained in exchange for new finance lease liabilities
$
$
Year Ended December 31,
2019
2018
2020
$ (295,697) $ 446,906
$ 109,493
51,807
177,877
(350)
546
(10,426)
23,385
(173,185)
(8,050)
(19,468)
15,120
113,842
(124,599)
(95,468)
17,250
(187,379)
(516,874)
513,470
(269,001)
54,533
166,589
(377)
486
(34,458)
19,682
(1,211)
5,744
(6,100)
(20,180)
79,042
710,656
54,969
148,153
(459)
344
44,093
26,173
(41,299)
(33,412)
4,043
36,156
(12,027)
336,227
—
—
(78,064)
(374,809)
365,419
(87,454)
(8,936)
—
(73,483)
(159,932)
155,928
(86,423)
110,305
(836)
(37,760)
71,709
63,299
(822)
(16,766)
45,711
29,942
—
(15,285)
14,657
2,949
(192)
91
(318,942)
668,721
264,552
1,833,707
$1,514,765
1,164,986
$1,833,707
900,434
$1,164,986
194
70,712
$
$
239
33,553
$
$
268
5,417
— $
— $
7,695
18,999
22,807
19,908
2,160
$
$
$
$
— $
$
$
$
12,732
7,607
29,889
—
7,673
—
—
See accompanying notes.
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INCYTE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Summary of Significant Accounting Policies
Organization and Business. incyte Corporation (including its subsidiaries, “incyte,” “we,” “us,” or “our”) is a
biopharmaceutical company focused on developing and commercializing proprietary therapeutics. our portfolio includes
compounds in various stages, ranging from preclinical to late stage development, and commercialized products JaKaFi®
(ruxolitinib),
pEmaZYrE® (pemigatinib) and monJuvi® (tafasitamab-cxix) which is co-
commercialized. our operations are treated as one operating segment.
iCluSiG® (ponatinib),
Principles of Consolidation. the consolidated financial statements include the accounts of incyte Corporation and our
wholly owned subsidiaries. all inter-company accounts, transactions, and profits have been eliminated in consolidation.
Foreign Currency Translation. operations in non-u.S. entities are recorded in the functional currency of each entity. For
financial reporting purposes, the functional currency of an entity is determined by a review of the source of an entity's most
predominant cash flows. the results of operations for any non-u.S. dollar functional currency entities are translated from
functional currencies into u.S. dollars using the average currency rate during each month. assets and liabilities are translated
using currency rates at the end of the period. adjustments resulting from translating the financial statements of our foreign entities
that use their local currency as the functional currency into u.S. dollars are reflected as a component of other comprehensive
income (loss). transaction gains and losses are recorded in other income (expense), net, in the consolidated statements of
operations.
Use of Estimates. the preparation of financial statements in conformity with accounting principles generally accepted in
the united States requires management to make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. actual results could differ from those estimates.
Concentrations of Credit Risk. Cash, cash equivalents, marketable securities, and trade receivables are financial
instruments which potentially subject us to concentrations of credit risk. the estimated fair value of financial instruments
approximates the carrying value based on available market information. By policy, we invest our excess available funds primarily
in u.S. government debt securities which are securities issued or guaranteed by the u.S. government and money market funds that
meet certain guidelines, which limits exposure to potential credit losses. our receivables mainly relate to our product sales and
collaborative agreements with pharmaceutical companies. We have not experienced any significant credit losses on cash, cash
equivalents, marketable securities, or trade receivables to date and do not require collateral on receivables.
Current Expected Credit Losses. Effective January 1, 2020, financial assets measured at amortized cost are assessed for
future expected credit losses under guidance within aSC 326, Financial instruments – Credit losses, to determine if application
of an expected credit losses reserve is necessary. on a quarterly basis, receivables that resulted from revenue transactions within
the scope of aSC 606 and recognized on an amortized cost basis are reviewed on a customer-level basis to analyze expectations
of future collections based upon past history of collections, payment, aging of receivables and viability of the customer to
continue payment, as well as estimates of future economic conditions. receivables generally consist of two types: receivables
from collaborative agreements, including milestones, reimbursements for agreed-upon activities and sales royalties; and
receivables from customer product sales. Collaborative agreement receivables are closely monitored relationships with select,
reputable industry peers. Collection of receivables is assessed within each collaborative partnership on a quarterly basis, including
evaluation of each entity’s credit quality, financial health and past history of payment. Customer product sales receivables are
independently evaluated on a monthly basis, on which unusual items or aged receivables are closely monitored for signs of credit
deterioration, or indications of payment refusal. Customer product sales are with specialty pharmaceutical distributors,
wholesalers, and certain public and private institutions, some of which whose financial obligations are funded by various
government agencies.
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Cash and Cash Equivalents. Cash and cash equivalents are held in banks or in custodial accounts with banks. Cash
equivalents are defined as all liquid investments and money market funds with maturity from date of purchase of 90 days or less
that are readily convertible into cash.
Marketable Securities—Available-for-Sale. our marketable securities consist of investments in u.S. government debt
securities that are classified as available-for-sale. available-for-sale securities are carried at fair value, based on quoted market
prices and observable inputs, with unrealized gains and losses, net of tax, reported as a separate component of stockholders’
equity. We classify marketable securities that are available for use in current operations as current assets on the consolidated
balance sheets. realized gains and losses and declines in value judged to be other than temporary for available-for-sale securities
are included in other income (expense), net on the consolidated statements of operations. the cost of securities sold is based on
the specific identification method.
Accounts Receivable. as of December 31, 2020 and 2019, we had no allowance for doubtful accounts. We provide an
allowance for doubtful accounts based on management’s assessment of the collectability of specific customer accounts and
includes consideration of the credit worthiness and financial condition of those customers, aging of such receivables, history of
collectability with the customer and the general economic environment. We record an allowance to reduce the receivables to the
amount that is reasonably believed to be collectible.
Inventory. inventories are determined at the lower of cost and net realizable value with cost determined under the
specific identification method and may consist of raw materials, work in process and finished goods.
We began capitalizing pEmaZYrE inventory after FDa approval in april 2020 as the related costs were expected to be
recoverable through the commercialization of the product. Costs incurred prior to FDa approval have been recorded as research
and development expense in our statements of operations. as a result, cost of product revenues for the next 48 months will reflect
a lower average per unit cost of materials.
JaKaFi, iCluSiG and pEmaZYrE raw materials and work-in-process inventory are not subject to expiration and the
shelf life of finished goods inventory is 36 months from the start of manufacturing of the finished goods. We evaluate for
potential excess inventory by analyzing current and future product demand relative to the remaining product shelf life. We build
demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance and
patient usage. We classify inventory as current on the consolidated balance sheets when we expect inventory to be consumed for
commercial use within the next twelve months.
Variable Interest Entities. We perform an initial and ongoing evaluation of the entities with which we have variable
interests, such as equity ownership, in order to identify entities (i) that do not have sufficient equity investment at risk to permit
the entity to finance its activities without additional subordinated financial support or (ii) in which the equity investors lack an
essential characteristic of a controlling financial interest as variable interest entities (“viE” or “viEs”). if an entity is identified as
a viE, we perform an assessment to determine whether we have both (i) the power to direct activities that most significantly
impact the viE’s economic performance and (ii) have the obligation to absorb losses from or the right to receive benefits of the
viE that could potentially be significant to the viE. if both of these criteria are satisfied, we are identified as the primary
beneficiary of the viE. as of December 31, 2020, there were no entities in which we held a variable interest which we determined
to be viEs.
Long Term Investments. our long term investments consist of equity investments in common stock of publicly-held
companies with whom we have entered into collaboration and license agreements. We classify all of our equity investments in
common stock of publicly-held companies as long term investments on our consolidated balance sheets. our equity investments
are accounted for at fair value using readily determinable pricing available on a securities exchange on our consolidated balance
sheets. all changes in fair value are reported in the consolidated statements of operations as an unrealized gain (loss) on long term
investments.
in assessing whether we exercise significant influence over any of the companies in which we hold equity investments,
we consider the nature and magnitude of our investment, any voting and protective rights we hold, any participation in the
governance of the other company, and other relevant factors such as the presence of a collaboration or other business relationship.
Currently, none of our equity investments in publicly-held companies are considered
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relationships in which we are able to assert control.
Property and Equipment, net. property and equipment, net is stated at cost, less accumulated depreciation and
amortization. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets.
leasehold improvements are amortized over the shorter of the estimated useful life of the assets or lease term.
Lease Accounting. accounting Standard Codification (“aSC”) 842, leases, was adopted for the fiscal year beginning
on January 1, 2019 using the modified retrospective method. all leases with a lease term greater than 12 months, regardless of
lease type classification, are recorded as an obligation on the balance sheet with a corresponding right-of-use asset. Both finance
and operating leases are reflected as liabilities on the commencement date of the lease based on the present value of the lease
payments to be made over the lease term. Current operating lease liabilities are reflected in accrued and other current liabilities
and noncurrent operating lease liabilities are reflected in other liabilities on the consolidated balance sheet. right-of-use assets are
valued at the initial measurement of the lease liability, plus any initial direct costs or rent prepayments, minus lease incentives and
any deferred lease payments. operating lease right-of-use assets are recorded in property and equipment, net on the consolidated
balance sheet and lease cost is recognized on a straight-line basis. For finance leases, expense is recognized as separate
amortization and interest expense, with higher interest expense in the earlier periods of a lease. leases with an initial term of 12
months or less are not recorded on the balance sheet and we recognize lease expense for these leases on a straight-line basis over
the term of the lease. in determining whether a contract contains a lease, asset and service agreements are assessed at onset and
upon modification for criteria of specifically identified assets, control and economic benefit.
Other Intangible Assets, net. other intangible assets, net consist of licensed intellectual property rights acquired in
business combinations, which are reported at acquisition date fair value, less accumulated amortization. intangible assets with
finite lives are amortized over their estimated useful lives using the straight-line method.
Impairment of Long-Lived Assets. long-lived assets with finite lives are tested for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be recoverable. if indicators of impairment are
present, the asset is tested for recoverability by comparing the carrying value of the asset to the related estimated undiscounted
future cash flows expected to be derived from the asset. if the expected cash flows are less than the carrying value of the asset,
then the asset is considered to be impaired and its carrying value is written down to fair value, based on the related estimated
discounted future cash flows.
Goodwill. Goodwill is calculated as the difference between the acquisition date fair value of the consideration
transferred and the values assigned to the assets acquired and liabilities assumed. Goodwill is not amortized but is tested for
impairment at the reporting unit level at least annually as of october 1 or when a triggering event occurs that could indicate a
potential impairment by assessing qualitative factors or performing a quantitative analysis in determining whether it is more-
likely-than-not that the fair value of net assets are below their carrying amounts. a reporting unit is the same as, or one level
below, an operating segment. our operations are currently comprised of a single, entity wide reporting unit. We completed our
most recent annual impairment assessment as of october 1, 2020 and determined that the carrying value of our goodwill was not
impaired.
Income Taxes. We account for income taxes using the asset and liability approach which requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amount
of assets and liabilities for financial reporting purposes and amounts reportable for income tax purposes. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that some portion or all of the
deferred tax assets will not be realized. the primary factors used to assess the likelihood of realization are our recent history of
cumulative earnings or losses, expected reversals of taxable temporary timing differences, forecasts of future taxable income and
available tax planning strategies that could be implemented to realize the deferred tax assets. upon evaluating and weighting both
positive and negative evidence, we concluded that we should continue to maintain the valuation allowance on the majority of our
deferred tax assets as of December 31, 2020.
We recognize the tax benefit from an uncertain tax position only if it is more-likely-than-not that the position will be
sustained upon examination by the taxing authorities, including resolutions of any related appeals or litigation processes, based on
the technical merits of the position. the tax benefit that is recorded for these positions is measured at the largest
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amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. We adjust the level of the
liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions. any interest and penalties on
uncertain tax positions are included within the tax provision.
the Coronavirus aid, relief, and Economic Security (CarES) act was signed into law in march 2020 to provide an
estimated $2.2 trillion designed to stimulate the u.S. economy during the CoviD-19 pandemic. the act includes tax relief,
government loans, grants and investments for entities in affected industries, which has related accounting and financial reporting
impacts. Disclosure for certain income tax accounting measures are required in the period of enactment and disclosure for
government loans, investments, grants, and revenue recognition are required in future periods as federal agencies establish rules
and procedures to implement the CarES act. During the year ended December 31, 2020, we have delayed the payment of certain
employer payroll tax amounts to future periods as allowed under the act. however, we do not expect the CarES act to have a
material impact on our overall financial results, our income tax provision or our liquidity. We have further described the expected
impact and risks of CoviD-19 on our business in item 1. Business and in item 1a. risk Factors.
Net Income (Loss) Per Share. our basic and diluted net income (loss) per share is calculated by dividing the net income
(loss) by the weighted average number of shares of common stock outstanding during all periods presented. options to purchase
stock, restricted stock units, performance stock units and shares issuable upon the conversion of convertible debt are included in
diluted earnings per share calculations, unless the effects are anti-dilutive.
Accumulated Other Comprehensive Income (Loss). accumulated other comprehensive income (loss) consists of
unrealized gains or losses on marketable securities that are classified as available-for-sale, foreign currency translation gains or
losses and defined benefit pension obligations.
Revenue Recognition. revenue-generating contracts are assessed under aSC 606, revenue from contracts with
customers, to identify distinct performance obligations, determine the transaction price of the contract and allocate the transaction
price to each of the distinct performance obligations. revenue is recognized when we have satisfied a performance obligation
through transferring control of the promised good or service to a customer. Control, in this instance, may mean the ability to
prevent other entities from directing the use of, and receiving benefit from, a good or service. We apply the following five-step
model in order to determine this amount: (i) identification of the promised goods or services in the contract; (ii) determination of
whether the promised goods or services are performance obligations, including whether they are distinct in the context of the
contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the
transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each
performance obligation, which for the Company is generally at a point in time. We also assess collectability based primarily on
the customer’s payment history and on the creditworthiness of the customer.
Product Revenues
our product revenues consist of u.S. sales of JaKaFi and pEmaZYrE and European sales of iCluSiG. product
revenues are recognized once we satisfy the performance obligation at a point in time under the revenue recognition criteria as
described above. We sell JaKaFi and pEmaZYrE to our customers in the u.S., which include specialty pharmacies and
wholesalers. We sell iCluSiG to our customers in the European union and certain other jurisdictions, which include retail
pharmacies, hospital pharmacies and distributors.
We recognize revenues for product received by our customers net of allowances for customer credits, including
estimated rebates, chargebacks, discounts, returns, distribution service fees, patient assistance programs, and government rebates,
such as medicare part D coverage gap reimbursements in the u.S. product shipping and handling costs are included in cost of
product revenues.
Customer Credits: our customers are offered various forms of consideration, including allowances, service fees and
prompt payment discounts. We expect our customers will earn prompt payment discounts and, therefore, we deduct the full
amount of these discounts from total product sales when revenues are recognized. Service fees are also deducted from total
product sales as they are earned.
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Rebates and Discounts: allowances for rebates include mandated discounts under the medicaid Drug rebate program
in the u.S. and mandated discounts in Europe in markets where government-sponsored healthcare systems are the primary payers
for healthcare. rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon
contractual agreements or legal requirements with public sector benefit providers. the accrual for rebates is based on statutory
discount rates and expected utilization as well as historical data we have accumulated since product launches. our estimates for
expected utilization of rebates are based on data received from our customers. rebates are generally invoiced and paid in arrears
so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an
accrual balance for known prior quarters’ unpaid rebates. if actual future rebates vary from estimates, we may need to adjust prior
period accruals, which would affect revenue in the period of adjustment.
Chargebacks: Chargebacks are discounts that occur when certain contracted customers, which currently consist
primarily of group purchasing organizations, public health Service institutions, non-profit clinics, and Federal government
entities purchasing via the Federal Supply Schedule, purchase directly from our wholesalers. Contracted customers generally
purchase the product at a discounted price. the wholesalers, in turn, charges back to us the difference between the price initially
paid by the wholesalers and the discounted price paid by the contracted customers. in addition to actual chargebacks received we
maintain an accrual for chargebacks based on the estimated contractual discounts on the inventory levels on hand in our
distribution channel. if actual future chargebacks vary from these estimates, we may need to adjust prior period accruals, which
would affect revenue in the period of adjustment.
Medicare Part D Coverage Gap: medicare part D prescription drug benefit mandates manufacturers to fund 70% of the
medicare part D insurance coverage gap for prescription drugs sold to eligible patients. our estimates for the expected medicare
part D coverage gap are based on historical invoices received and in part from data received from our customers. Funding of the
coverage gap is generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected
to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarters. if actual future funding varies
from estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment.
additionally, beginning in January 2020, the amount of spending required by eligible patients in the medicare part D insurance
coverage gap increased 30% due to the expiration of a provision in the patient protection and affordable Care act, which now
results in a change in the true out of pocket (troop) calculation methodology. the methodological change has resulted in an
increase in required spending by patients and, in turn, an increase in manufacturers’ contributions on behalf of patients in the
medicare part D insurance coverage gap.
Co-payment Assistance: patients who have commercial insurance and meet certain eligibility requirements may receive
co-payment assistance. We accrue a liability for co-payment assistance based on actual program participation and estimates of
program redemption using data provided by third-party administrators.
Product Royalty Revenues
royalty revenues on commercial sales for ruxolitinib (marketed as JaKavi® outside the united States) by novartis
pharmaceutical international ltd. (“novartis”) are based on net sales of licensed products in licensed territories as provided by
novartis. royalty revenues on commercial sales for baricitinib (marketed as olumiant) by Eli lilly and Company (“lilly”)
are based on net sales of licensed products in licensed territories as provided by lilly. royalty revenues on commercial sales for
capmatinib (marketed as taBrECta®) by novartis are based on net sales of licensed products in the licensed territories as
provided by novartis. We recognize royalty revenues in the period the sales occur.
Milestone and Contract Revenues
For each collaborative research, development and/or commercialization agreement that results in revenue under the
guidance of aSC 606, revenue from Contracts with Customers, we identify all material performance obligations, which may
include the license to intellectual property and know-how, research and development activities and/or other activities. in order to
determine the transaction price, in addition to any upfront payment, we estimate the amount of variable consideration, including
milestone payments, at the outset of the contract utilizing the most likely amount method. the most likely amount method is used
since the milestone payments have a binary outcome (i.e., we receive all or none of the milestone payment). We constrain the
estimate of variable consideration such that it is probable that a significant
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reversal of previously recognized revenue will not occur. When determining if variable consideration should be constrained,
management considers whether there are factors outside the Company’s control that could result in a significant reversal of
revenue. in making these assessments, management considers the likelihood and magnitude of a potential reversal of revenue.
these estimates are re-assessed each reporting period as required. once the estimated transaction price is established, amounts are
allocated to the performance obligations that have been identified. the transaction price is generally allocated to each separate
performance obligation on a relative standalone selling price basis.
out-licensing arrangements contain the right to use functional intellectual property, which is the underlying performance
obligation of these collaborative arrangements. if the license of our intellectual property is determined to be distinct from other
performance obligations in the arrangement, the functional intellectual property that is transferred to the collaborative partner at
the onset of the arrangement is concluded to have significant standalone functionality and value at the point in time at which the
intellectual property is made available to the collaborative partner. For licenses that are not distinct from other obligations
identified in the arrangement, we utilize judgment to assess the nature of the combined performance obligation to determine
whether the combined performance obligation is satisfied over time or at a point in time. if the combined performance obligation
is satisfied over time, we apply an appropriate method of measuring progress for purposes of recognizing revenue from
nonrefundable, upfront license fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the
measure of performance and related revenue recognition. For each of the three years ended December 31, 2020, we had no
revenues from intellectual licenses recognized over time.
For milestone revenues related to sales-based achievements, we recognize the milestone revenues in the corresponding
period of the product sale, in accordance with the guidance of aSC 606-10-55-65 for contracts that include a license to
intellectual property and the license is the predominant item to which the product sale relates.
Subsequent to the transfer of the intellectual property, we may earn milestones through achievement of pre-specified
developmental or regulatory events and, as such, milestones are accounted for as variable consideration. We include
developmental or regulatory milestones in the transaction price only to the extent that it is probable that a significant reversal in
the amount of cumulative revenue recognized will not occur when the uncertainty associated with the milestone is subsequently
resolved. under the agreements currently in place, we do not consider these events to be within our control, but rather dependent
upon the development activities of our collaborative partners and the decisions made by regulatory agencies. accordingly, these
milestones are not included in the transaction price until the counterparty, or third-party in the event of a regulatory submission,
confirms the satisfaction or completion of the milestone triggering event. Given the high level of uncertainty of achievement,
variable consideration associated with milestones are fully constrained until confirmation of the satisfaction or completion of the
milestone by the third-party.
Generally, the milestone events contained in our collaboration agreements coincide with the progression of our drugs
from development, to regulatory approval and then to commercialization. the value of these milestones is dictated within the
contract and is fixed upon achievement and reflects the amount of consideration which we expect to be entitled to in exchange for
the satisfaction of that milestone. the process of successfully discovering a new development candidate, having it approved and
successfully commercialized is highly uncertain. as such, the milestone payments we may earn from our partners involve a
significant degree of risk to achieve and therefore, subsequent milestone payments due to incyte are recognized as revenue at the
point in time when such milestones are achieved.
our collaboration agreements may also include an option for the collaborative partner to elect to participate in research
and development activities, such as shared participation in additional clinical trials using the compound. the presence of
additional options for future participatory activities are assessed to determine if they represent material rights offered by us to the
collaborative partner. We also determine whether the reimbursement of research and development expenses should be accounted
for as collaborative revenues or an offset to research and development expenses in accordance with the provisions of gross or net
revenue presentation and recognize the corresponding revenues or records the corresponding offset to research and development
expenses as incurred.
our collaborative agreements may also include provisions for additional future collaborative efforts, such as options for
shared commercialization staffing or licensing of additional molecules, involvement in joint committees, or options for inclusion
in negotiations of future supply rights, which at the time of each collaborative agreement’s inception, are assessed to determine if
these meet the definition of a performance obligation under aSC 606.
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Cost of Product Revenues
Cost of product revenues includes all JaKaFi, iCluSiG and pEmaZYrE related product costs. in addition, cost of
product revenues include low single-digit royalties under our collaboration and license agreement to novartis on all future sales
of JaKaFi in the united States and the amortization of our licensed intellectual property for iCluSiG using the straight-line
method over the estimated useful life of 12.5 years from the date of acquisition on June 1, 2016 of all of the outstanding shares of
ariaD pharmaceuticals (luxembourg) S.à.r.l. (since renamed incyte Biosciences luxembourg S.à.r.l.) from ariaD
pharmaceuticals, inc. (“ariaD”). Cost of product revenues also includes employee personnel costs, including stock
compensation, for those employees dedicated to the production of our commercial products.
Research and Development Costs. our policy is to expense research and development costs as incurred, including
amounts funded by research and development collaborations. research and development expenses are comprised of costs we
incur in performing research and development activities, including salary and benefits; stock-based compensation expense;
outsourced services and other direct expenses, including clinical trial and pharmaceutical development costs; collaboration
payments; expenses associated with drug supplies that are not being capitalized; and infrastructure costs, including facilities costs
and depreciation expense. if a collaboration is a cost-sharing arrangement in which both we and our collaborator perform
development work and share costs, we also recognize, as research and development expense in the period when our collaborator
incurs development expenses, our portion of the co-development expenses that we are obligated to reimburse.
We often contract with clinical research organizations (“Cros”) to facilitate, coordinate and perform agreed upon
research and development of a new drug. to ensure that research and development costs are expensed as incurred, we record
monthly accruals for clinical trials and preclinical testing costs based on the work performed under the contract. these Cro
contracts typically call for the payment of fees for services at the initiation of the contract and/or upon the achievement of certain
clinical trial milestones. in the event that we prepay Cro fees, we record the prepayment as a prepaid asset and amortize the asset
into research and development expense over the period of time the contracted research and development services are performed.
most professional fees, including project and clinical management, data management, monitoring, and medical writing fees are
incurred throughout the contract period. these professional fees are expensed based on their percentage of completion at a
particular date. our Cro contracts generally include pass through fees. pass through fees include, but are not limited to,
regulatory expenses, investigator fees, travel costs, and other miscellaneous costs, including shipping and printing fees. We
expense the costs of pass through fees under our Cro contracts as they are incurred, based on the best information available to us
at the time. the estimates of the pass through fees incurred are based on the amount of work completed for the clinical trial and
are monitored through correspondence with the Cros, internal reviews and a review of contractual terms. the factors utilized to
derive the estimates include the number of patients enrolled, duration of the clinical trial, estimated patient attrition, screening rate
and length of the dosing regimen. Cro fees incurred to set up the clinical trial are expensed during the setup period. under our
clinical trial collaboration agreements we may be reimbursed for certain development costs incurred. Such costs are recorded as a
reduction of research and development expense in the period in which the related expense is incurred.
Stock Compensation. Share-based payment transactions with employees, which include stock options, restricted stock
units (“rSus”) and performance shares (“pSus”), are recognized as compensation expense over the requisite service period based
on their estimated fair values as well as expected forfeiture rates. the stock compensation process requires significant judgment
and the use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility over the option term
and expected option lives, as well as expected forfeiture rates and the probability of pSus vesting. the fair value of stock
options, which are subject to graded vesting, are recognized as compensation expense over the requisite service period using the
accelerated attribution method. the fair value of rSus that are subject to cliff vesting are recognized as compensation expense
over the requisite service period using the straight-line attribution method, and the fair value of rSus that are subject to graded
vesting are recognized as compensation expense over the requisite service period using the accelerated attribution method. the
fair value of pSus are recognized as compensation expense beginning at the time in which the performance conditions are
deemed probable of achievement, which we assess as of the end of each reporting period. once a performance condition is
considered probable, we record compensation expense based on the portion of the service period elapsed to date with respect to
that award, with a cumulative catch-up, net of estimated forfeitures, and recognize any remaining compensation expense, if any,
over the remaining requisite service period using
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the straight-line attribution method for pSus that are subject to cliff vesting and using the accelerated attribution method for pSus
that are subject to graded vesting.
Advertising Expenses. advertising expenses, comprised primarily of television, radio, print media and internet
advertising, are expensed as incurred and are included in selling, general, and administrative expenses. For the years ended
December 31, 2020, 2019, and 2018, advertising expenses were approximately $28.9 million, $15.3 million, and $10.6 million,
respectively.
Long Term Incentive Plans. We have long term incentive plans which provide eligible employees with the opportunity to
receive performance and service-based incentive compensation, which may be comprised of cash, stock options, restricted stock
units and/or performance shares. the payment of cash and the grant or vesting of equity may be contingent upon the achievement
of pre-determined regulatory, sales and internal performance milestones.
Acquisition-Related Contingent Consideration. acquisition-related contingent consideration consists of our future
royalty obligations on future net sales of iCluSiG to takeda pharmaceutical Company limited, which acquired ariaD
(“takeda”). acquisition-related contingent consideration was recorded on the acquisition date of June 1, 2016 at the estimated
fair value of the obligation, in accordance with the acquisition method of accounting. the fair value measurement is based on
significant inputs that are unobservable in the market and thus represents a level 3 measurement. the fair value of the
acquisition-related contingent consideration is remeasured each reporting period, with changes in fair value recorded in the
consolidated statements of operations.
Collaboration loss sharing. under collaboration and license agreements with shared commercialization efforts, we
record our share of the losses from the co-commercialization efforts in collaboration loss sharing on the consolidated statement of
operations. For the year ended December 31, 2020, collaboration loss sharing represents our 50% share of the united States loss
for commercialization of monJuvi (tafasitamab) under our agreement with morphoSys, which is described in note 6 below.
Recent Accounting Pronouncements
in June 2016, the Financial accounting Standards Board (“FaSB”) issued aSu no. 2016-13, “Financial instruments –
Credit losses (topic 326): measurement of Credit losses on Financial instruments.” this guidance applies to all entities and
impacts how entities account for credit losses for financial assets measured at amortized cost and available for sale debt securities.
aSu 2016-13 requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. the
measurement of expected credit losses is based on relevant information about past events, including historical experience, current
conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. an entity must use
judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. For trade
receivables, loans and held-to-maturity debt securities, entities are required to estimate expected credit losses over the lifetime of
the asset. For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than an
other-than-temporary impairment that reduces the cost basis of the investment. Further, an entity recognizes any improvements in
estimated credit losses on its available-for-sale debt securities immediately in earnings.
upon adoption, we assessed each financial asset measured at amortized cost and each available-for-sale debt security
held for the impact of the guidance as of January 1, 2020 and noted an insignificant impact due to the minimal credit risk
associated with our financial assets subject to aSC 326. as such, it was concluded that a reserve for credit losses was de minimis
on the adoption date. Financial assets will continue to be assessed on a quarterly basis in future periods.
in august 2018, the FaSB issued aSu no. 2018-13, “Fair value measurement (topic 820): Disclosure Framework –
Changes to the Disclosure requirements for Fair value measurement,” which eliminates the required disclosure of the amount of
and reason for transfers between level 1 and level 2 of the fair value hierarchy. the guidance also eliminates the required
disclosure of the entity’s valuation process for level 3 fair value measurements, however public entities are required to disclose
the range and weighted average used to develop significant unobservable inputs for level 3 fair value measurements. this
guidance is effective for fiscal years beginning after December 15, 2019. We adopted this guidance for the period beginning
January 1, 2020 and enhanced our disclosures in note 3 to the consolidated
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financial statements to comply with the standard.
in august 2018, the FaSB issued aSu no. 2018-14, “Compensation – retirement Benefits – Defined Benefit plans –
General,” an update to Subtopic aSC 715-20. the guidance amended year-end disclosure requirements related to defined benefit
pension plans, and does not affect interim disclosures. the guidance is effective for fiscal years ending after December 15, 2020
and is permitted for early adoption. the standard is to be applied on a retrospective basis. incyte sponsors defined benefit plans
for employees located in Europe and have adopted this guidance for the period ending December 31, 2020 as reflected in our
disclosures in note 15.
in august 2018, the FaSB issued aSu no. 2018-15, “intangibles – Goodwill and other – internal-use Software,” an
update to Subtopic aSC 350-40. the guidance directs accounting for service contracts for cloud computing arrangements to
follow guidance within aSC 350-40 to determine capitalization of implementation costs. the guidance is effective for fiscal years
beginning after December 15, 2019 and may be applied on either a retrospective or prospective basis. We adopted this guidance
for the period beginning January 1, 2020 on a prospective basis. new contracts for development of internal-use software were
assessed and no qualifying contracts were identified during the period. We will continue to assess contracts and will disclose
material, qualifying contracts if identified in future periods.
in november 2018, the FaSB issued aSu no. 2018-18, “Collaborative arrangements (topic 808): Clarifying the
interaction Between topic 808 and topic 606.” the guidance clarifies the interactions between topic 808 and topic 606,
including clarifications on revenue recognition, unit of account, and reporting disclosure requirements. the guidance is effective
for fiscal years beginning after December 15, 2019. We adopted this guidance for the period beginning January 1, 2020
retrospectively to the date of our initial application of aSC 606, and noted that in assessment of our collaborative agreements,
there was no material financial statement impact. our collaborative arrangements and their associated accounting conclusions are
described in detail within note 6 to the consolidated financial statements.
in December 2019, the FaSB issued aSu no. 2019-12, “income taxes (topic 740): Simplifying the accounting for
income taxes.” this guidance applies to all entities and aims to reduce the complexity of tax accounting standards while
enhancing reporting disclosures. this guidance is effective for fiscal years beginning after December 15, 2020 and interim
periods therein. Early adoption is permitted for any annual periods for which financial statements have not been issued and
interim periods therein. We are currently analyzing the impact of aSu no. 2019-12 on the consolidated financial statements.
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Note 2. Revenues
as discussed in note 1, revenues are recognized under guidance within aSC 606 and aSC 808. the following table
presents our disaggregated revenue for the periods presented (in thousands):
JaKaFi revenues, net
iCluSiG revenues, net
pEmaZYrE revenues, net
total product revenues, net
JaKavi product royalty revenues
olumiant product royalty revenues
taBrECta product royalty revenues
total product royalty revenues
milestone and contract revenues
other revenues
total revenues
For the Years Ended,
December 31,
2020
1,937,850
105,002
25,884
2,068,736
277,902
110,920
4,144
392,966
205,000
—
2,666,702
$
$
2019
1,684,968
89,954
—
1,774,922
225,913
80,424
—
306,337
77,500
—
2,158,759
$
$
$
$
2018
1,386,964
79,936
—
1,466,900
194,694
40,086
—
234,780
180,000
203
1,881,883
For further information on our revenue-generating contracts, refer to note 6.
Note 3. Fair Value of Financial Instruments
the following is a summary of our marketable security portfolio for the periods presented (in thousands):
December 31, 2020
Debt securities (government)
December 31, 2019
Debt securities (government)
Net
Amortized Unrealized
Cost
Gains
Estimated
Fair Value
$288,199
$
170
$288,369
$284,795
$
75
$284,870
our debt securities generally have contractual maturity dates of between 12 to 18 months. Debt security assets were
assessed for risk of expected credit losses per our accounting policy as described in note 1. as of December 31, 2020 and 2019,
the available-for-sale debt securities were held in u.S. government debt securities and treasury assets and were assessed on an
individual security basis to have a de minimis risk of credit loss.
Fair Value Measurements
FaSB accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a
liability (“the exit price”) in an orderly transaction between market participants at the measurement date. the standard outlines a
valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value
measurements and the related disclosures. in determining fair value we use quoted prices and observable inputs. observable
inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources
independent of us. the fair value hierarchy is broken down into three levels based on the source of inputs as follows:
level 1—valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.
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level 2—valuations based on observable inputs and quoted prices in active markets for similar assets and liabilities.
level 3—valuations based on inputs that are unobservable and models that are significant to the overall fair value
measurement.
Recurring Fair Value Measurements
our marketable securities consist of investments in u.S. government debt securities that are classified as available-for-
sale.
at December 31, 2020 and 2019, 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 years ended December 31, 2020 and 2019.
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):
Cash and cash equivalents
Debt securities (government)
long term investments (note 6)
total assets
Cash and cash equivalents
Debt securities (government)
long term investments (note 6)
total assets
Fair Value Measurement at Reporting Date Using:
Significant
Significant Other
Unobservable
Observable
Inputs
Inputs
(Level 3)
(Level 2)
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Balance as of
December 31, 2020
$
$
1,513,008
$
—
222,301
1,735,309
$
— $
288,369
—
$
288,369
— $
—
—
— $
1,513,008
288,369
222,301
2,023,678
Fair Value Measurement at Reporting Date Using:
Significant
Significant Other
Unobservable
Observable
Inputs
Inputs
(Level 3)
(Level 2)
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Balance as of
December 31, 2019
$
$
1,832,684
$
—
133,657
1,966,341
$
— $
284,870
—
$
284,870
— $
—
—
— $
1,832,684
284,870
133,657
2,251,211
the following fair value hierarchy table presents information about each major category of our financial liabilities
measured at fair value on a recurring basis (in thousands):
acquisition-related contingent consideration
total liabilities
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)
$
$
— $
— $
— $
— $
266,000
266,000
Balance as of
December 31, 2020
266,000
266,000
$
$
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acquisition-related contingent
consideration
total liabilities
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, 2019
$
$
— $
— $
— $ 277,000
— $ 277,000
$
$
277,000
277,000
the following is a roll forward of our level 3 liabilities (in thousands):
Balance at January 1,
Contingent consideration earned during the period but not yet paid
payments made during the period
Change in fair value of contingent consideration
Balance at December 31,
2020
2019
277,000
(9,595)
(24,790)
23,385
266,000
$
$
287,001
(23,012)
(6,671)
19,682
277,000
$
$
the fair value of the contingent consideration was determined on the date of acquisition, June 1, 2016, using an income
approach based on estimated iCluSiG revenues in the European union and other countries for the approved third line treatment
over 18 years, and discounted to present value at a rate of 10%. the fair value of the contingent consideration is remeasured each
reporting period, with changes in fair value recorded in the consolidated statements of operations. the valuation inputs utilized to
estimate the fair value of the contingent consideration as of December 31, 2020 included a weighted average cost of capital of
10% and updated projections of future iCluSiG revenues in the European union and other countries for the approved third line
treatment. the change in fair value of the contingent consideration during the years ended December 31, 2020 and 2019 was due
primarily to the passage of time as there were no other significant changes in the key assumptions.
We make payments to takeda quarterly based on the royalties or any additional milestone payments earned in the
previous quarter. as of December 31, 2020 and 2019, contingent consideration earned but not yet paid was $9.6 million and $23.0
million, respectively, and was included in accrued and other current liabilities.
Non-Recurring Fair Value Measurements
During the years ended December 31, 2020 and 2019, there were no measurements required for any assets or liabilities
at fair value on a non-recurring basis.
Note 4. Concentrations of Credit Risk and Current Expected Credit Losses
in november 2009, we entered into a collaboration and license agreement with novartis. in December 2009, we entered
into a license, development and commercialization agreement with lilly. in December 2018, we entered into a research
collaboration and licensing agreement with innovent Biologics, inc. (“innovent”). in July 2019, we entered into a collaboration
and license agreement with Zai lab (Shanghai) Co., ltd., a subsidiary of Zai lab limited (collectively, “Zai lab”). the above
collaboration partners comprised, in aggregate, 42% and 30% of the accounts receivable balance as of December 31, 2020 and
2019, respectively. For further information relating to these collaboration and license agreements, refer to note 6.
in november 2011, we began commercialization and distribution of JaKaFi and in april 2020, we began
commercialization and distribution of pEmaZYrE to a number of customers. our product revenues are concentrated in a number
of these customers. the concentration of credit risk related to our JaKaFi and pEmaZYrE product revenues is as follows:
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Customer a
Customer B
Customer C
Customer D
Percentage of Total Net
Product Revenues for the
Years Ended,
December 31,
2019
2018
2020
20 %
13 %
17 %
11 %
20 %
13 %
16 %
11 %
20 %
14 %
15 %
11 %
We are exposed to risks associated with extending credit to customers related to the sale of products. Customers a, B, C
and D comprised, in the aggregate, 29% and 39% of the accounts receivable balance as of December 31, 2020 and 2019,
respectively. the concentration of credit risk relating to iCluSiG product revenues or accounts receivable is not significant.
We assessed our collaborative and customer receivable assets as of December 31, 2020 according to our accounting
policy for applying reserves for expected credit losses, noting minimal history of uncollectible receivables and the continued
perceived creditworthiness of our third party sales relationships, upon which the expected credit losses were considered de
minimis.
Note 5. Inventory
our inventory balance consists of the following (in thousands):
raw materials
Work-in-process
Finished goods
inventories-current
inventories-noncurrent
December 31,
$
2020
1,275
21,242
13,456
35,973
16,425
$ 19,548
$
2019
1,275
8,634
6,596
16,505
11,400
5,105
$
inventories, stated at the lower of cost and net realizable value, consist of raw materials, work-in-process and finished
goods. at December 31, 2020, $16.4 million of inventory was classified as current on the consolidated balance sheet as we expect
this inventory to be consumed for commercial use within the next twelve months. at December 31, 2020, $19.5 million of
inventory was classified as non-current on the consolidated balance sheet as we did not expect this inventory to be consumed for
commercial use within the next twelve months. We obtain some inventory components from a limited number of suppliers due to
technology, availability, price, quality or other considerations. the loss of a supplier, the deterioration of our relationship with a
supplier, or any unilateral violation of the contractual terms under which we are supplied components by a supplier could
adversely affect our total revenues and gross margins.
Note 6. License Agreements
Novartis
in november 2009, we entered into a Collaboration and license agreement with novartis. under the terms of the
agreement, novartis received exclusive development and commercialization rights outside of the united States to our JaK
inhibitor ruxolitinib and certain back-up compounds for hematologic and oncology indications, including all hematological
malignancies, solid tumors and myeloproliferative diseases. We retained exclusive development and commercialization rights to
JaKaFi (ruxolitinib) in the united States and in certain other indications. novartis also received worldwide exclusive
development and commercialization rights to our mEt inhibitor compound capmatinib and certain back-up compounds in all
indications.
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under this agreement, we received an upfront payment and immediate milestone payment totaling $210.0 million and
were initially eligible to receive up to $1.2 billion in milestone payments across multiple indications upon the achievement of pre-
specified events, including up to $174.0 million for the achievement of development milestones, up to $495.0 million for the
achievement of regulatory milestones and up to $500.0 million for the achievement of sales milestones. 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 graft-versus-host-disease (“GvhD”) field. We became eligible
to receive up to $75.0 million of additional potential development and regulatory milestones relating to GvhD.
Exclusive of the upfront payment of $150.0 million received in 2009 and the immediate milestone of $60.0 million
earned in 2010, we have recognized and received, in the aggregate, $157.0 million for the achievement of development
milestones, $280.0 million for the achievement of regulatory milestones and $200.0 million for the achievement of sales
milestones through December 31, 2020.
We recognize development and regulatory milestones upon confirmation of achievement of the event, as development
and regulatory approvals are events not controllable by us but rather development activities of novartis and decisions made by
regulatory agencies. We recognize sales milestones in the corresponding period of the product sale upon confirmation of net sales
milestone threshold achievement by novartis.
in 2020, we recognized a $25.0 million development milestone and a $45.0 million regulatory milestone for the FDa
approval of capmatinib as taBrECta for the treatment of adult patients with metastatic non-small cell lung cancer (nSClC)
whose tumors have a mutation that leads to mEt exon 14 skipping (mEtex14) as detected by an FDa-approved test, a $20.0
million regulatory milestone for the Japanese ministry of health, labour and Welfare approval of taBrECta for mEtex14
mutation-positive advanced and/or recurrent unresectable non-small cell lung cancer and a $80.0 million sales milestone for
novartis achieving annual net sales of a JaK licensed product of $1.2 billion. in 2018, we recognized a $60.0 million sales
milestone for novartis achieving annual net sales of a JaK licensed product of $900.0 million.
We also are eligible to receive tiered, double-digit royalties ranging from the upper-teens to the mid-twenties on future
JaKavi net sales outside of the united States, and tiered, worldwide royalties on future taBrECta net sales that range from
12% to 14%. Since the achievement of the $60.0 million regulatory milestone related to reimbursement of JaKavi in Europe in
September 2014, we are obligated to pay to novartis tiered royalties in the low single-digits on future JaKaFi net sales within
the united States. During the years ended December 31, 2020, 2019 and 2018, such royalties payable to novartis on net sales
within the united States totaled $89.9 million, $77.6 million and $63.0 million, respectively, and were reflected in cost of product
revenues on the consolidated statements of operations. at December 31, 2020 and 2019, $96.4 million and $50.2 million,
respectively, of accrued royalties payable to novartis were included in accrued and other current liabilities on the consolidated
balance sheets. Each company is responsible for costs relating to the development and commercialization of ruxolitinib in its
respective territories, with costs of collaborative studies shared equally. novartis is also responsible for all costs relating to the
development and commercialization of capmatinib.
the novartis agreement will continue on a program-by-program basis until novartis has no royalty payment obligations
with respect to such program or, if earlier, the termination of the agreement or any program in accordance with the terms of the
agreement. royalties are payable by novartis on a product-by-product and country-by-country basis until the latest to occur of
(i) the expiration of the last valid claim of the licensed patent rights covering the licensed product in the relevant country, (ii) the
expiration of regulatory exclusivity for the licensed product in such country and (iii) a specified period from first commercial sale
in such country of the licensed product by novartis or its affiliates or sublicensees. the agreement may be terminated in its
entirety or on a program-by-program basis by novartis for convenience. the agreement may also be terminated by either party
under certain other circumstances, including material breach.
reimbursable costs incurred after the effective date of the agreement with novartis are recorded net against the related
research and development expenses. research and development expenses for the years ended December 31, 2020, 2019 and 2018
were net of $0.3 million, $1.5 million, and $3.2 million, respectively, of costs reimbursed by novartis. at December 31, 2020 and
2019, $0.2 million and $0.4 million, respectively, of reimbursable costs were included in accounts receivable on the consolidated
balance sheets.
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milestone and contract revenue under the novartis agreement was $170.0 million, $0.0 million and $60.0 million for the
years ended December 31, 2020, 2019 and 2018, respectively. in addition, for the years ended December 31, 2020, 2019 and
2018, we recorded $277.9 million, $225.9 million and $194.7 million, respectively, of product royalty revenues related to
novartis net sales of JaKavi outside the united States. For the year ended December 31, 2020 we recorded $4.1 million of
product royalty revenues related to novartis net sales of taBrECta worldwide.
Lilly - Baricitinib
in December 2009, we entered into a license, Development and Commercialization agreement with lilly. under the
terms of the agreement, lilly received exclusive worldwide development and commercialization rights to our JaK inhibitor
baricitinib, and certain back-up compounds for inflammatory and autoimmune diseases. We received an upfront payment of
$90.0 million, and were initially eligible to receive up to $665.0 million in substantive milestone payments across multiple
indications upon the achievement of pre-specified events, including 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. Exclusive of the upfront payment of $90.0 million received in 2009, we have recognized and received, in
aggregate, $149.0 million for the achievement of development milestones and $265.0 million for the achievement of regulatory
milestones through December 31, 2020.
We recognize development and regulatory milestones upon confirmation of achievement of the event, as development
and regulatory approvals are events not controllable by us but rather development activities of lilly and decisions made by
regulatory agencies. We recognize sales milestones in the corresponding period of the product sale upon confirmation of net sales
milestone threshold achievement by lilly.
in January 2016, lilly submitted an nDa to the FDa and a marketing authorization application (maa) to the
European medicines agency 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.
in July 2017, Japan's ministry of health, labor and Welfare granted marketing approval for olumiant for the treatment of
rheumatoid arthritis 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 who have had an
inadequate response to one or more tumor necrosis factor inhibitor therapies. in october 2020, lilly announced that the European
Commission approved baricitinib as olumiant for the treatment of moderate-to-severe atopic dermatitis in adult patients who
are candidates for systemic therapy.
in 2020, we recognized a $20.0 million regulatory milestone for the European Commission approval of olumiant
and a $10.0 million regulatory milestone for the mhlW approval of olumiant for the treatment of moderate-to-severe atopic
dermatitis in adult patients who are candidates for systemic therapy. in 2018, we recognized a $20.0 million development
milestone for the first patient treated in the systemic lupus erythematosus phase iii program for baricitinib and a $100.0 million
regulatory milestone for the FDa approval of the 2mg dose of olumiant for the treatment of adults with moderately-to-
severely active rheumatoid arthritis.
We retained options to co-develop our JaK1/JaK2 inhibitors with lilly on a compound-by-compound and indication-
by-indication basis. lilly is responsible for all costs relating to the development and commercialization of the compounds unless
we elect to co-develop any compounds or indications. if we elect to co-develop any compounds and/or indications, we would be
responsible for funding 30% of the associated future global development costs from the initiation of a phase iib trial through
regulatory approval, including post-launch studies required by a regulatory authority. We would receive an incremental royalty
rate increase across all tiers resulting in effective royalty rates ranging up to the high twenties on potential future global net sales
for compounds and/or indications that we elect to co-develop. For indications that we elect not to co-develop, we would receive
tiered, double-digit royalty payments on future global net sales with rates ranging up to 20% if the product is successfully
commercialized. if we have started co-development funding for any indication, we can at any time opt out and stop future co-
development cost sharing. if we elect to do this we would still be eligible for our base royalties plus an incremental pro-rated
royalty commensurate with our contribution to the total co-development cost for those indications for which we co-funded. We
previously had retained an option to co-promote products in the united States but, in march 2016, we waived our co-promotion
option as part of an amendment to the agreement.
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in July 2010, we elected to co-develop baricitinib with lilly in rheumatoid arthritis and became responsible for funding
30% of the associated future global development costs for this indication from the initiation of the phase iib trial through
regulatory approval, including post-launch studies required by a regulatory authority. We subsequently elected to co-develop
baricitinib with lilly in psoriatic arthritis, atopic dermatitis, alopecia areata, systemic lupus erythematosus and axial
spondyloarthritis and were responsible for funding 30% of future global development costs for those indications through
regulatory approval, including post-launch studies required by a regulatory authority. in april 2019, we elected to end additional
co-funding of the development of baricitinib effective as of January 1, 2019. We will continue to receive royalties on global net
sales of olumiant, pursuant to the terms in the lilly agreement, as described above.
We recorded no research and development expense under the lilly agreement for co-funding the development of
baricitinib for the years ended December 31, 2020 and 2019. research and development expenses recorded under the lilly
agreement representing 30% of the global development costs for baricitinib for the treatment of rheumatoid arthritis, psoriatic
arthritis, atopic dermatitis, alopecia areata, systemic lupus erythematosus and axial spondyloarthritis for the year ended December
31, 2018 was $68.6 million.
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.
the lilly agreement will continue until lilly no longer has any royalty payment obligations or, if earlier, the termination
of the agreement in accordance with its terms. royalties are payable by lilly on a product-by-product and country-by-country
basis until the latest to occur of (i) the expiration of the last valid claim of the licensed patent rights covering the licensed product
in the relevant country, (ii) the expiration of regulatory exclusivity for the licensed product in such country and (iii) a specified
period from first commercial sale in such country of the licensed product by lilly or its affiliates or sublicensees. the agreement
may be terminated by lilly for convenience, and may also be terminated under certain other circumstances, including material
breach.
milestone and contract revenue under the lilly agreement was $30.0 million, $0.0 million and $120.0 million,
respectively, for the years ended December 31, 2020, 2019 and 2018. in addition, for the years ended December 31, 2020, 2019
and 2018, we recorded $110.9 million, $80.4 million and $40.1 million, respectively, of product royalty revenues related to lilly
net sales of olumiant outside the united States.
Lilly – Ruxolitinib
in march 2016, we entered into an amendment to the agreement with lilly that amended the non-compete provision of
the agreement to allow us to engage in the development and commercialization of ruxolitinib in the GvhD field. upon execution
of the amendment, we paid lilly an upfront payment of $35.0 million and lilly is 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.
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. the agreement became effective on February 18, 2015, upon the expiration of the waiting period
under the hart-Scott-rodino antitrust improvements act of 1976. upon closing of the agreement, we paid agenus total
consideration of $60.0 million.
in February 2017, we and agenus amended this agreement (the “amended agreement”). 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. in addition to the initial four program targets, we and agenus have the option
to jointly nominate and pursue additional targets within the framework of the collaboration, and in
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november 2015, three more targets were added. targets may be designated profit-share programs, where all costs and profits are
shared equally by us and agenus, or royalty-bearing programs, where we are responsible for all costs associated with discovery,
preclinical, clinical development and commercialization activities. the programs relating to Gitr and ox40 and two of the
undisclosed targets were profit-share programs until February 2017, while the other targets currently under collaboration are
royalty-bearing programs. the amended agreement converted the programs relating to Gitr and ox40 to royalty-bearing
programs and removed from the collaboration the profit-share programs relating to the two undisclosed targets, with one reverting
to us and one reverting to agenus. Should any of those removed programs be successfully developed by a party, the other party
will be eligible to receive the same milestone payments as the royalty-bearing programs and royalties at a 15% rate on global net
sales. there are currently no profit-share programs. For each royalty-bearing product other than Gitr and ox40, agenus will
be eligible to receive tiered royalties on global net sales ranging from 6% to 12%. For Gitr and ox40, agenus will be eligible
to receive 15% royalties on global net sales.
in 2017 under the amended agreement, we paid agenus $20.0 million in accelerated milestones relating to the clinical
development of the Gitr and ox40 programs, which was recorded in research and development expense. agenus was initially
eligible to receive up to an additional $510.0 million in future contingent development, regulatory and commercialization
milestones across all programs in the collaboration. the agreement may be terminated by us for convenience upon 12 months’
notice and may also be terminated under certain other circumstances, including material breach. in 2018, we paid agenus a $5.0
million development milestone for the laG-3 program and a $5.0 million development milestone for the tim-3 program, which
were recorded in research and development expense on the consolidated statement of operations for the year ended December 31,
2018.
in connection with the amended agreement, we also agreed to purchase 10.0 million shares of agenus inc. common
stock for an aggregate purchase price of $60.0 million in cash, or $6.00 per share. We completed the purchase of the shares on
February 14, 2017, when the closing price on the nasdaq Stock market for agenus inc. shares was $4.40 per share. the shares
we acquired were not registered under the Securities act of 1933 on the purchase date and were subject to certain security
specific restrictions for a period of time, and accordingly, we estimated a discount for lack of marketability on the shares on the
issuance date of $4.5 million, which resulted in a net fair value of the shares on the issuance date of $39.5 million. therefore, of
the total consideration paid of $60.0 million, $39.5 million was allocated to our stock purchase in agenus inc. and was recorded
within long term investments and $20.5 million was allocated to research and development expense.
We concluded agenus inc. is not a viE because it has sufficient equity to finance its activities without additional
subordinated financial support and its at-risk equity holders have the characteristics of a controlling financial interest. after
completion of our stock purchases from agenus inc., we held an approximate ownership interest of 18% and, under
circumstances present at that time, concluded that we had the ability to exercise significant influence, but not control, over
agenus inc., primarily due to the level of intra-entity transactions between us and agenus related to development expenses, as
well as other qualitative factors. in the second quarter of 2020, we sold an aggregate of approximately 1.2 million shares of
agenus inc. common stock, reducing our ownership interest to approximately 9.8% as of June 30, 2020. the sales transactions
were priced at market, with per share pricing ranging from $3.57 to $4.21, resulting in gross proceeds of approximately $4.5
million. in the third quarter of 2020, we sold an aggregate of approximately 2.5 million shares of agenus inc. common stock,
reducing our ownership interest to approximately 7% as of December 31, 2020. the sales transactions were priced at market, with
per share pricing ranging from $4.28 to $5.25, resulting in gross proceeds of approximately $12.7 million. as a result of having a
less than 10% ownership interest and the recent diversification of agenus inc.’s development pipeline with other collaboration
partners, we concluded that we no longer have significant influence over agenus inc. as such, we no longer account for our
equity investment in agenus inc. as an equity method investment previously accounted for under the fair value option. We
account for our investment in agenus inc. at fair value, whereby the investment is marked to market through earnings in each
reporting period. For the years ended December 31, 2020, 2019 and 2018, we recorded an unrealized loss of $10.3 million, an
unrealized gain of $30.0 million and an unrealized loss of $15.6 million, respectively, based on the change in fair market value of
agenus inc.’s common stock during these periods. the fair market value of our long term investment in agenus inc. as of
December 31, 2020 and 2019 was $44.7 million and $72.3 million, respectively.
research and development expenses for the years ended December 31, 2020, 2019 and 2018, also included $0.0 million,
$1.5 million and $4.6 million, respectively, of development costs incurred pursuant to the agenus arrangement.
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at December 31, 2020 and 2019, a total of $0.5 million and $1.6 million, respectively, of such costs were included in accrued and
other liabilities on the consolidated balance sheets.
Merus
in December 2016, we entered into a Collaboration and license agreement with merus n.v. (“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.
the most advanced collaboration program is mCla-145, a bispecific antibody targeting pD-l1 and CD137, for which
we received exclusive development and commercialization rights outside of the united States. merus retained exclusive
development and commercialization rights in the united States to mCla-145. Each party will share equally the costs of
mutually agreed global development activities for mCla-145, and fund itself any independent development activities in its
territory. merus will be responsible for commercializing mCla-145 in the united States and we will be responsible for
commercializing it outside of the united States.
in addition to receiving rights to mCla-145 outside of the united States, we received 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.
in February 2017, we paid merus an upfront non-refundable payment of $120.0 million. For each program as to which
merus does not have commercialization or development co-funding rights, merus will be eligible to receive up to $100.0 million
in future contingent development and regulatory milestones, and up to $250.0 million in commercialization milestones as well as
tiered royalties ranging from 6% to 10% of global net sales. For each program as to which merus exercises its option to co-fund
development, merus will be eligible to receive a 50% share of profits (or sustain 50% of any losses) in the united States and be
eligible to receive tiered royalties ranging from 6% to 10% of net sales of products outside of the united States. if merus opts to
cease co-funding a program as to which it exercised its co-development option, then merus will no longer receive a share of
profits in the united States but will be eligible to receive the same milestones from the co-funding termination date and the same
tiered royalties described above with respect to 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. For mCla-145, we and merus will each be eligible to receive tiered
royalties on net sales in the other party’s territory at rates ranging from 6% to 10%.
the merus agreement will continue on a program-by-program basis until we have no royalty payment obligations with
respect to such program or, if earlier, the termination of the agreement or any program in accordance with the terms of the
agreement. the agreement may be terminated in its entirety or on a program-by-program basis by us for convenience. the
agreement may also be terminated by either party under certain other circumstances, including material breach, as set forth in the
agreement. if the agreement is terminated with respect to one or more programs, all rights in the terminated programs revert to
merus, subject to payment to us of a reverse royalty of up to 4% on sales of future products, if merus elects to pursue
development and commercialization of products arising from the terminated programs.
in addition, in December 2016, we entered into a Share Subscription agreement with merus, pursuant to which we
agreed to purchase 3.2 million common shares of merus for an aggregate purchase price of $80.0 million in cash, or $25.00 per
share. We completed the purchase of the shares on January 23, 2017 when the closing price on the nasdaq Stock market for
merus shares was $24.50 per share. the shares we acquired were not registered under the Securities act
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of 1933 on the purchase date and were subject to certain security specific restrictions for a period of time, and accordingly, we
estimated a discount for lack of marketability on the shares on the issuance date of $5.6 million, which resulted in a net fair value
of the shares on the issuance date of $72.8 million. of the total consideration paid of $80.0 million, $72.8 million was allocated
to our stock purchase in merus and was recorded as a long term investment and $7.2 million was allocated to research and
development expense. the fair market value of our total long term investment in merus as of December 31, 2020 and 2019 was
$56.1 million and $45.1 million, respectively. in January 2021, we purchased 350,000 common shares in merus’ underwritten
public offering of 4,848,485 common shares at the public offering price of $24.75 per share, or an aggregate purchase price of
$8.7 million.
We concluded merus is not a viE because it has sufficient equity to finance its activities without additional subordinated
financial support and its at-risk equity holders have the characteristics of a controlling financial interest. as of December 31,
2020, we owned approximately 11% of the outstanding common shares of merus and conclude that we have the ability to
exercise significant influence, but not control, over merus based primarily on our ownership interest, the level of intra-entity
transactions between us and merus related to development expenses, as well as other qualitative factors. We have elected the fair
value option to account for our long term investment in merus whereby the investment is marked to market through earnings in
each reporting period. We believe the fair value option to be the most appropriate accounting method to account for securities in
publicly held collaborators for which we have significant influence. For the years ended December 31, 2020, 2019 and 2018, we
recorded an unrealized gain of $11.0 million, an unrealized gain of $0.3 million, and an unrealized loss of $17.3 million,
respectively, based on the change in fair market value of merus’ common shares during these periods.
research and development expenses for the years ended December 31, 2020, 2019 and 2018 included $8.9 million, $7.2
million and $10.3 million, respectively, of additional development costs incurred pursuant to the merus agreement. at December
31, 2020 and 2019, a total of $1.6 million and $1.6 million, respectively, of such costs were included in accrued and other
liabilities on the consolidated balance sheets.
Calithera
in January 2017, we entered into a Collaboration and license agreement with Calithera Biosciences, inc. (“Calithera”).
under this agreement, we received an exclusive, worldwide license to develop and commercialize small molecule arginase
inhibitors, including inCB01158. We have agreed to co-fund 70% of the global development costs for the development of the
licensed products for hematology and oncology indications. Calithera will have the right to conduct certain clinical development
under the collaboration, including combination studies of a licensed product with a proprietary compound of Calithera. We will
be entitled to 60% of the profits and losses from net sales of licensed product in the united States, and Calithera will have the
right to co-detail licensed products in the united States, and we have agreed to pay Calithera tiered royalties ranging from the low
to mid-double digits on net sales of licensed products outside the united States.
in January 2017, we paid Calithera an upfront license fee of $45.0 million and have agreed to pay potential development,
regulatory and sales milestone payments of over $430.0 million if the profit share is in effect, or $750.0 million if the profit share
terminates. in 2017, Calithera earned a $12.0 million milestone payment from us for the achievement of pharmacokinetic and
pharmacodynamics goals for CB-1158 which was recorded in research and development expense.
in august 2020, Calithera delivered notice of its decision to opt out of its co-funding obligation, effective on September 30,
2020. as a result, the u.S. profit sharing will no longer be in effect, we will be responsible for funding all of the development
costs of inCB01158 and any other licensed products, and the agreement provides that we will pay Calithera tiered royalties
ranging from the low to mid-double digits on net sales of licensed products both in the united States and outside the united States
and additional royalties to reimburse Calithera for previously incurred development costs. in addition, the total remaining
potential development, regulatory and sales milestone payments will be $738.0 million and Calithera will have no further rights to
research, develop or co-detail inCB001158 and we will have the right to take over the conduct of all activities related to the
research, development and commercialization of inCB001158 for all indications in the hematology/oncology field.
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the Calithera agreement will continue on a product-by-product and country-by-country basis for so long as we are
developing or commercializing products in the united States (if the parties are sharing profits in the united States) and until we
have no further royalty payment obligations, unless earlier terminated according to the terms of the agreement. the agreement
may be terminated in its entirety or on a product-by-product and/or a country-by-country basis by us for convenience. the
agreement may also be terminated by us for Calithera’s uncured material breach, by Calithera for our uncured material breach and
by either party for bankruptcy or patent challenge. if the agreement is terminated early with respect to one or more products or
countries, all rights in the terminated products and countries revert to Calithera.
in addition, in January 2017, we entered into a Stock purchase agreement with Calithera for the purchase of 1.7 million
common shares of Calithera for an aggregate purchase price of $8.0 million in cash, or $4.65 per share. We completed the
purchase of the shares on January 30, 2017 when the closing price on the nasdaq Stock market was $6.75 per share. the shares
we acquired were registered under the Securities act of 1933 on the purchase date and there were no security specific restrictions
for these shares, and therefore the value of the 1.7 million shares acquired by us was $11.6 million. We paid total consideration
of $53.0 million to Calithera, composed of the $45.0 million upfront license fee and the $8.0 million stock purchase price. of the
$53.0 million, $11.6 million was allocated to our stock purchase in Calithera and was recorded within long term investments and
$41.4 million was allocated to research and development expense. the fair market value of our long term investment in Calithera
as of December 31, 2020 and 2019 was $8.4 million and $9.8 million, respectively.
We concluded Calithera is not a viE because it has sufficient equity to finance its activities without additional
subordinated financial support and its at-risk equity holders have the characteristics of a controlling financial interest. as of
December 31, 2020, we owned approximately 2% of the outstanding shares of Calithera common stock and there are several other
stockholders who hold larger positions of Calithera. as we do not hold a significant position of the voting shares of Calithera and
lack the qualitative characteristics associated with the ability to exercise significant influence, our ownership interest does not
meet the criteria to be accounted for as an equity method investment. We intend to hold the investment in Calithera for the
foreseeable future and therefore, are accounting for our shares held in Calithera at fair value, and the investment is marked to
market through earnings in each reporting period. Given our intent to hold the investment for the foreseeable future, we have
classified the investment within long term investments on the accompanying consolidated balance sheets. For the years ended
December 31, 2020, 2019 and 2018, we recorded an unrealized loss of $1.4 million, an unrealized gain of $2.9 million, and an
unrealized loss of $7.5 million, respectively, based on the change in fair market value of Calithera’s common stock during these
periods.
research and development expenses for the years ended December 31, 2020, 2019 and 2018 also included $8.9 million,
$17.9 million and $12.0 million, respectively, of additional development costs incurred pursuant to the Calithera agreement. at
December 31, 2020 and 2019, a total of $0.6 million and $1.1 million, respectively, of such costs were included in accrued and
other liabilities on the consolidated balance sheets.
MacroGenics
in october 2017, we entered into a Global Collaboration and license agreement with macroGenics, inc.
(“macroGenics”). under this agreement, we received exclusive development and commercialization rights worldwide to
macroGenics’ inCmGa0012 (formerly mGa012), an investigational monoclonal antibody that inhibits pD-1. Except as set forth
in the succeeding sentence, we will 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 2017, we paid macroGenics an upfront payment of $150.0 million,
which was recorded in research and development expense. macroGenics was initially eligible to receive up to $420.0 million in
future contingent development and regulatory milestones and up to $330.0 million in commercial milestones as well as tiered
royalties ranging from 15% to 24% of global net sales.
in 2020, we paid macroGenics $40.0 million in milestones for the achievement of certain clinical milestones as part of
our collaboration and license agreement, which were recorded in research and development expense on our consolidated
statement of operations for the year ended December 31, 2020. in 2018, we paid macroGenics a $10.0 million
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and a $5.0 million milestone for the achievement of certain clinical milestones as part of our collaboration and license agreement,
which were recorded in research and development expense on our consolidated statement of operations for the year ended
December 31, 2018.
the macroGenics agreement will continue until we are no longer commercializing, developing or manufacturing
inCmGa0012 or, if earlier, the termination of the agreement in accordance with its terms. the agreement may be terminated in
its entirety or on a licensed product by licensed product basis by us for convenience. the agreement may also be terminated by
either party under certain other circumstances, including material breach, as set forth in the agreement.
research and development expenses for the years ended December 31, 2020, 2019 and 2018, also included $59.0
million, $51.1 million and $35.4 million, respectively, of additional development costs incurred pursuant to the macroGenics
agreement. at December 31, 2020 and 2019, a total of $0.1 million and $1.0 million, respectively, of such costs were included in
accrued and other liabilities on the consolidated balance sheets.
Syros
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. in
January 2018, we paid Syros an upfront non-refundable (except in the event of a material breach of the agreement by Syros)
payment of $10.0 million, which was recorded in research and development expense on our consolidated statement of operations
for the year ended December 31, 2018.
in addition, in January 2018, we entered into a Stock purchase agreement with Syros for the purchase of 0.8 million
common shares of Syros for an aggregate purchase price of $10.0 million in cash, or $12.61 per share. We agreed to not sell or
otherwise transfer any of our Syros shares for a period, referred to as the lock-up period, of 12 months after the closing date of
the sale. We completed the purchase of the shares on January 8, 2018 when the closing price on the nasdaq Stock market was
$9.77 per share. the shares we acquired were not registered on the purchase date, and accordingly, we estimated a discount for
lack of marketability on the shares of $0.1 million, which resulted in a net fair value of the shares on the issuance date of $7.6
million. of the $10.0 million aggregate purchase price paid, $7.6 million was allocated to our stock purchase in Syros and was
recorded within long term investments and $2.4 million, representing premium paid on the purchase, was allocated to research
and development expense on the consolidated statement of operations for the year ended December 31, 2018. also in January
2018, we entered into an amended Stock purchase agreement with Syros for the purchase of an additional 0.1 million common
shares of Syros for an aggregate purchase price of $1.4 million in cash, or $9.55 per share. the shares were acquired in February
2018 and the $1.4 million aggregate purchase price was recorded within long term investments on the consolidated balance
sheets. all acquired shares were subsequently registered under the Securities act of 1933 in February 2018. the fair market value
of our long term investment in Syros as of December 31, 2020 and 2019 was $10.2 million and $6.5 million, respectively.
We concluded Syros is not a viE because it has sufficient equity to finance its activities without additional subordinated
financial support and its at-risk equity holders have the characteristics of a controlling financial interest. as of December 31,
2020, we owned approximately 2% of the outstanding shares of Syros common stock and there are several other stockholders
who hold larger positions of Syros. as we do not hold a significant position of the voting shares of Syros and lack the qualitative
characteristics associated with the ability to exercise significant influence, our ownership interest does not meet the criteria to be
accounted for as an equity method investment. We intend to hold the investment in Syros for the foreseeable future and therefore,
are accounting for our shares held in Syros at fair value, and the investment is marked to market through earnings in each
reporting period. Given our intent to hold the investment for the foreseeable
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future, we have classified the investment within long term investments on the accompanying consolidated balance sheets. For the
years ended December 31, 2020, 2019 and 2018, we recorded an unrealized gain of $3.7 million, an unrealized gain of $1.3
million and an unrealized loss of $3.7 million, respectively, based on the change in fair market value of Syros’ common stock
during these periods.
Innovent
in December 2018, we entered into a research collaboration and licensing agreement with innovent. under the terms of
this agreement, innovent received exclusive development and commercialization rights to our clinical-stage product candidates
pemigatinib, itacitinib and parsaclisib in hematology and oncology in mainland China, hong Kong, macau and taiwan. in
January 2019, we recognized an upfront payment under this agreement of $40.0 million upon our transfer of the functional
intellectual property related to the clinical-stage product candidates to innovent, which was recorded in milestone and contract
revenues on the consolidated statement of operations for the year ended December 31, 2019. the upfront milestone was
recognized as revenue at a point in time upon our transfer of the licenses to innovent for the right to use the functional intellectual
property. in addition, we were initially eligible to receive up to an additional $129.0 million in potential development and
regulatory milestones.
We recognize development and regulatory milestones upon confirmation of achievement of the event, as development
and regulatory approvals are events not controllable by us but rather development activities of innovent and decisions made by
regulatory agencies. in 2020, we recognized a $5.0 million milestone for the FDa approval of pemigatinib as pEmaZYrE. in
2019, we recognized the $20.0 million milestone for the first related inD filing in China.
in the event of commercialization of the licensed molecule, we are eligible to receive up to $202.5 million in potential
sales milestones from innovent. We will recognize sales milestones in the corresponding period of the product sale upon
confirmation of net sales milestone threshold achievement by innovent. We are also eligible to receive tiered royalties from the
high-teens to the low-twenties on future sales of products resulting from the collaboration. We retain an option to assist in the
promotion of the three product candidates in the innovent territories.
research and development expenses for the years ended December 31, 2020 and 2019 were net of $5.4 million and $6.2
million, respectively, of costs reimbursed by innovent. at December 31, 2020 and 2019, $1.2 million and $3.0 million,
respectively, of reimbursable costs were included in accounts receivable on the consolidated balance sheets.
Zai Lab
in July 2019, we entered into a collaboration and license agreement with Zai lab. under the terms of this agreement, Zai
lab received development and exclusive commercialization rights to inCmGa0012 in hematology and oncology in mainland
China, hong Kong, macau and taiwan. in august 2019, we recognized an upfront payment under this agreement of $17.5
million upon our transfer of the functional intellectual property related to the licensed product candidate to Zai lab, which was
recorded in milestone and contract revenues on the consolidated statement of operations for the year ended December 31, 2019.
the upfront milestone was recognized as revenue at a point in time upon our transfer of the license to Zai lab for the right to use
the functional intellectual property.
the agreement allows for Zai lab to continue development of the licensed molecule and to submit the licensed molecule
to authorities for regulatory approval within the agreement territory, upon which we are eligible for up to $22.5 million in
potential development and regulatory milestones. We recognize development and regulatory milestones upon confirmation of
achievement of the event, as development and regulatory approvals are events not controllable by us but rather development
activities of Zai lab and decisions made by regulatory agencies.
in the event of commercialization of the licensed molecule, we are eligible to receive up to $37.5 million in potential
sales milestones from Zai lab. We will recognize sales milestones in the corresponding period of the product sale upon
confirmation of net sales milestone threshold achievement by Zai lab. We are also eligible to receive tiered royalties from the
low to mid-twenties on future product sales resulting from the collaboration. We also retain an option to assist in the promotion of
inCmGa0012 in Zai lab’s licensed territories.
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research and development expenses for the year ended December 31, 2020 were net of $0.2 million of costs reimbursed
by Zai lab. at December 31, 2020 and 2019, $0.6 million and $0.5 million, respectively, of reimbursable costs were included in
accounts receivable on the condensed consolidated balance sheets.
MorphoSys
in January 2020, we entered into a Collaboration and license agreement with morphoSys aG and morphoSys uS inc.,
a wholly-owned subsidiary of morphoSys aG (together with morphoSys aG, “morphoSys”), covering the worldwide
development and commercialization of mor208 (tafasitamab), an investigational Fc engineered monoclonal antibody directed
against the target molecule CD19 that is currently in clinical development by morphoSys. morphoSys has exclusive worldwide
development and commercialization rights to tafasitamab under a June 2010 collaboration and license agreement with xencor,
inc. in December 2019, morphoSys submitted a Biologics license application to the FDa for tafasitamab for the treatment of
relapsed or refractory diffuse large B cell lymphoma. the agreement became effective in march 2020 after clearance by the
German and austrian antitrust authorities and expiration of the waiting period under the hart-Scott rodino antitrust
improvements act of 1976.
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.
in march 2020, we paid morphoSys an upfront non-refundable payment of $750.0 million which was recorded in
research and development expense on the consolidated statement of operations for the year ended December 31, 2020.
morphoSys is eligible to receive up to $740.0 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.
in July 2020, we and morphoSys announced that the FDa approved monJuvi® (tafasitamab-cxix) 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. monJuvi was approved under accelerated approval based on overall response rate.
in addition, under the collaboration agreement and pursuant to a related purchase agreement, we agreed to purchase
american Depositary Shares (“aDSs”), each representing 0.25 of an ordinary share of morphoSys aG, for an aggregate purchase
price of $150.0 million or $41.33 per aDS (such aDSs to be purchased, the “new aDSs”). We agreed, subject to limited
exceptions, not to sell or otherwise transfer any of the new aDSs for an 18-month period after the closing date of the sale. We
completed the purchase of the aDSs on march 3, 2020 when the closing price on the nasdaq Stock market was $27.65 per aDS.
the new aDSs were not registered under the Securities act of 1933 on the purchase date, and accordingly, we estimated a
discount for lack of marketability on the shares of $4.9 million, which resulted in a net fair value of the shares on the issuance
date of $95.5 million. of the $150.0 million aggregate purchase price paid, $95.5 million was allocated to our stock purchase in
morphoSys and was recorded within long term investments and $54.5 million, representing the premium paid on the purchase,
was allocated to research and development expense. the fair market value of our long term investment in morphoSys as of
December 31, 2020 was $102.9 million.
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We concluded morphoSys is not a viE because it has sufficient equity to finance its activities without additional
subordinated financial support and its at-risk equity holders have the characteristics of a controlling financial interest. as of
December 31, 2020, we owned approximately 3% of the outstanding shares of morphoSys common stock and there are several
other stockholders who hold larger positions of morphoSys. as we do not hold a significant position of the voting shares of
morphoSys and lack the qualitative characteristics associated with the ability to exercise significant influence, our ownership
interest does not meet the criteria to be accounted for as an equity method investment. We intend to hold the investment in
morphoSys for the foreseeable future and therefore, are accounting for our shares held in morphoSys at fair value, and the
investment is marked to market through earnings in each reporting period. Given our intent to hold the investment for the
foreseeable future, we have classified the investment within long term investments on the accompanying consolidated balance
sheets. For the year ended December 31, 2020, we recorded an unrealized gain of $7.4 million based on the change in fair market
value of morphoSys’ common stock during the period.
our 50% share of the united States loss for the commercialization of tafasitamab was $42.8 million for the year ended
December 31, 2020 and is recorded as collaboration loss sharing on the consolidated statement of operations. research and
development expenses for the year ended December 31, 2020, included $88.2 million related to our 55% share of the co-
development costs for tafasitamab. at December 31, 2020, $54.2 million was included in accrued and other liabilities on the
consolidated balance sheet for amounts due to morphoSys under the agreement.
Nimble
in September 2020, we entered into a collaboration and license agreement with nimble therapeutics, inc. (“nimble”).
under the terms of this agreement, nimble will utilize their peptide synthesis, screening and optimization platform for discovery
and validation of peptides against specified targets. under the agreement, nimble is eligible to receive up to $8.0 million in future
contingent discovery milestones and up to $127.0 million in future contingent development and regulatory milestones.
additionally, in the event of successful commercialization, nimble is eligible to receive up to $130.0 million in future contingent
sales milestones and tiered royalties on net sales in the low single digits.
Note 7. Property and Equipment, net
property and equipment, net consists of the following (in thousands):
office equipment
laboratory equipment
Computer equipment
land
Building and leasehold improvements
operating lease right-of-use assets
Construction in progress
less accumulated depreciation and amortization
property and equipment, net
December 31,
2020
17,880
$
86,021
66,640
10,671
238,042
26,816
257,929
703,999
(144,374)
559,625
$
2019
15,303
70,510
59,069
10,203
208,293
19,672
116,387
499,437
(121,870)
377,567
$
$
Depreciation expense, including amortization expense of leasehold improvements, was $29.6 million, $32.1 million and
$32.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.
in march 2017, we acquired additional adjacent buildings to our global headquarters in Wilmington, Delaware and in
2019, began demolition of these buildings and construction of a new laboratory and office building totaling approximately
200,000 square feet. as of December 31, 2020, we have capitalized approximately $79.5 million in on site preparation, design
and construction costs and currently expect the building to be completed in the second half of 2021.
in February 2018, we signed an agreement to rent a building in morges, Switzerland for an initial term of 15 years plus
one year of free rent, with multiple options to extend for an additional 20 years. the building serves as our new
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European headquarters and consists of approximately 100,000 square feet of office space. this building allowed for consolidation
of our European operations that were located in Geneva and lausanne, Switzerland. in June 2019, we obtained control of the
morges building to begin our construction activity, which was completed in 2020. at that time, we determined the lease to be a
finance lease and recorded a lease liability of $31.1 million and a finance lease right-of-use asset of $29.1 million, net of a lease
incentive from our landlord of $2.0 million. as of December 31, 2020, we have capitalized approximately $17.9 million in
leasehold improvements.
in July 2018, we signed an agreement to purchase land located in Yverdon, Switzerland. the land was purchased, in
cash, for approximately $4.8 million. upon this parcel, we are constructing a large molecule production facility. Construction
activity commenced in July 2018, and as of December 31, 2020, we have capitalized approximately $167.4 million in costs for
construction, ground preparation and architectural and engineering studies. We currently expect the facility will be operational in
the second half of 2021.
We are the lessee of several contracts, including those to secure fleet vehicles, buildings and equipment. our lease
agreements do not contain any material residual value guarantees or restrictive covenants. Some of our building leases include
options to renew and the exercise of these options is at our discretion. our current operating lease liabilities are reflected in
accrued and other current liabilities and our noncurrent operating lease liabilities are reflected in other liabilities on the
consolidated balance sheets and are as follows (in thousands):
Current
operating lease liabilities
Finance lease liabilities
noncurrent
operating lease liabilities
Finance lease liabilities
total lease liabilities
the maturity of our lease liabilities are as follows (in thousands):
2021
2022
2023
2024
2025
after 2025
total lease cash payments
less: discount
present value of lease liabilities
December 31,
2020
December 31,
2019
12,674
2,284
14,188
32,573
61,719
$
$
9,343
664
11,854
31,918
53,779
Operating
Finance
14,091
6,948
3,714
906
761
4,118
30,538
3,676
26,862
$
$
$
3,652
3,448
3,341
2,756
2,772
29,292
45,261
10,404
34,857
$
$
$
$
$
the cash paid for amounts included in the measurement of our operating lease liabilities for the years ended December
31, 2020 and 2019 was $12.1 million and $11.9 million, respectively, in operating cash flows. the cash paid for amounts included
in the measurement of our finance lease liabilities for the years ended December 31, 2020 and 2019 was $0.8 million in financing
cash flows.
as of December 31, 2020, our finance and operating leases had a weighted average lease term of approximately 14.2 and
4.7 years, respectively. the discount rate of our leases is an approximation of an estimated incremental borrowing rate and is
dependent upon the term and economics of each agreement. the weighted average discount rate of our finance and operating
leases is approximately 3.7% and 4.7%, respectively. as of December 31, 2019, our finance and operating leases had a weighted
average lease term of approximately 15.8 and 3.0 years, respectively, and the weighted average discount rate of our finance and
operating leases was approximately 3.6% and 4.5%, respectively.
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For the year ended December 31, 2020, we incurred approximately $12.5 million of expense related to our operating
leases, approximately $2.6 million of amortization on our finance lease right-of-use assets and approximately $1.2 million of
interest expense on our finance lease liabilities. For the year ended December 31, 2019, we incurred approximately $12.7 million
of expense related to our operating leases, approximately $1.7 million of amortization on our finance lease right-of-use assets and
approximately $0.6 million of interest expense on our finance lease liabilities. For the years ended December 31, 2020 and 2019,
the cost of our short term leases with a term less than 12 months was approximately $1.9 million and $1.1 million, respectively.
Note 8. Intangible Assets and Goodwill
Intangible Assets, Net
the components of intangible assets were as follows (in thousands, except for useful life):
Balance at December 31, 2020
Balance at December 31, 2019
Weighted-
Average Useful
Gross
Carrying
Lives (Years) Amount
Net
Carrying
Amortization Amount
Accumulated
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Finite-lived intangible assets:
licensed ip
12.5
$ 271,000
$
98,709
$ 172,291
$ 271,000
$
77,172
$ 193,828
amortization expense was $21.5 million for the years ended December 31, 2020, 2019 and 2018 and is recorded in cost
of product revenues on the consolidated statement of operations. Estimated aggregate amortization expense based on the current
carrying value of amortizable intangible assets will be as follows for the years ending December 31 (in thousands):
amortization expense
$
2021
21,536
$
2022
21,536
$
2023
21,536
$
2024
21,536
$
2025
21,536
Thereafter
64,611
$
Goodwill
there were no changes to the carrying amount of goodwill for the years ended December 31, 2020 and 2019.
Note 9. Accrued and Other Current Liabilities
accrued and other current liabilities consisted of the following (in thousands):
royalties
Clinical related costs
Sales allowances
Construction in progress
operating lease liabilities
other current liabilities
total accrued and other current liabilities
Note 10. Convertible Notes
December 31,
2020
2019
$
$
106,011
115,897
73,204
22,807
12,674
47,811
378,404
$
$
73,221
88,710
59,924
12,732
9,343
42,049
285,979
the carrying amount and fair value of our convertible notes were as follows (in thousands):
1.25% Convertible Senior notes due 2020
108
December 31,
2020
2019
Carrying
Amount
Fair Value
Carrying
Amount
$
— $
— $
18,300
Fair Value
32,511
$
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the fair value as of December 31, 2019 of the 1.25% Convertible Senior notes that matured on november 15, 2020 (the
“2020 notes”) was based on data from readily available pricing sources which utilize market observable inputs and other
characteristics for similar types of instruments, and, therefore, is classified within level 2 in the fair value hierarchy.
prior to may 14, 2014, the 2020 notes were not convertible except in connection with a make-whole fundamental
change, as defined in the indenture. Beginning on, and including, may 15, 2014, the 2020 notes were convertible prior to the
close of business on the business day immediately preceding may 15, 2020 only under the following circumstances: (i) during
any calendar quarter commencing after the calendar quarter ending on march 31, 2014 (and only during such calendar quarter), if
the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30
consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to
130% of the conversion price for the 2020 notes on each applicable trading day; (ii) during the five business day period after any
five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of the
2020 notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our
common stock and the conversion rate for the 2020 notes on each such trading day; or (iii) upon the occurrence of specified
corporate events. on or after may 15, 2020 until the close of business on the second scheduled trading day immediately preceding
the maturity date, the 2020 notes were convertible at any time, regardless of the foregoing circumstances. upon conversion we
had the option to pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of
common stock.
the initial conversion rate for the 2020 notes was 19.3207 shares of common stock per $1,000 principal amount,
equivalent to an initial conversion price of approximately $51.76 per share.
prior to maturity on november 15, 2020, we settled, upon conversion, the remaining 2020 notes principal balance in
shares of common stock.
Note 11. Stockholders’ Equity
Preferred Stock. We are authorized to issue 5,000,000 shares of preferred stock, none of which was outstanding as of
December 31, 2020 and 2019. the Board of Directors may determine the rights, preferences and privileges of any preferred stock
issued in the future.
Common Stock. We are authorized to issue 400,000,000 shares of common stock.
Stock Compensation Plans. as of December 31, 2020, we had a total of 6,460,660 shares of our common stock
available for future issuance related to our stock plans as described below.
2010 Stock Incentive Plan. in may 2010 the Board of Directors adopted the 2010 Stock incentive plan (the “2010 Stock
plan”), which was most recently amended and restated in march 2019, for issuance of common stock to employees, non-
employee directors, consultants, and scientific advisors. options are granted to employees, consultants, and scientific advisors
under the 2010 Stock plan, pursuant to a formula determined by our Board of Directors. all options are exercisable at the fair
market value of the stock on the date of grant. non-employee director options expire after ten years.
in april 2019, our stockholders approved an increase in the number of shares of common stock reserved for issuance
under the 2010 Stock plan from 36,753,475 to 44,453,475.
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option activity under the 2010 Stock plan was as follows:
Shares Subject to
Outstanding Options
Weighted Average
Balance at December 31, 2019
options granted
options exercised
options cancelled
Balance at December 31, 2020
Exercise Price
Shares
$
12,632,657
2,256,146
$
(2,230,588) $
(542,927) $
$
12,115,288
81.42
92.82
52.78
92.66
88.31
in July 2016, we revised the terms of our annual stock option grants to provide that new option grants would 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. previously, our option grants generally had 7-year terms and vested over three years, with 33% vesting after one
year and the remainder vesting in 24 equal monthly installments.
options to purchase a total of 6,732,942, 6,896,492 and 7,194,171 shares as of December 31, 2020, 2019 and 2018,
respectively, were exercisable. the aggregate intrinsic value of options exercised for the years ended December 31, 2020, 2019
and 2018 were $87.5 million, $113.8 million and $73.9 million, respectively. at December 31, 2020, the aggregate intrinsic value
of options outstanding and vested options are $86.3 million and $84.3 million, respectively.
the following table summarizes information about stock options outstanding as of December 31, 2020 under the 2010
Stock plan:
Range of Exercise Prices
$18.97 - $68.62
$68.82 - $68.97
$72.27 - $72.27
$72.58 - $80.50
$80.56 - $85.01
$85.34 - $95.34
$95.54 - $106.47
$107.69 - $124.00
$124.03 - $134.38
$138.52 - $138.52
Options Outstanding
Weighted Average
Remaining
Contractual Life
(in years)
Weighted
Average
Exercise
Price
$
5.97
7.78
7.96
6.34
7.21
7.24
6.48
5.68
6.13
6.25
63.57
68.95
72.27
77.24
84.35
93.20
101.14
113.55
129.23
138.52
Number
Outstanding
1,659,221
48,657
1,714,370
1,745,853
1,586,213
1,376,900
1,985,715
1,219,175
753,912
25,272
12,115,288
Options Exercisable
Weighted
Average
Exercise
Price
61.34
68.95
72.27
75.79
84.15
92.96
96.69
113.45
129.35
138.52
$
Number
Exercisable
1,106,486
21,816
597,888
1,041,346
951,572
597,552
926,623
801,950
664,552
23,157
6,732,942
Restricted Stock Units and Performance Shares
in January 2014, we began granting restricted stock units (“rSus”) and performance shares (“pSus”) 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 prior to July 2016 was subject to cliff vesting after three years. in July 2016, we revised the terms of our rSu grants to
provide that the awards will vest 25% annually over four years.
in June 2018, we granted 190,000 rSus and 446,500 pSus under long term incentive plans with performance and/or
service-based milestones with graded and/or cliff vesting over three to four years. in april 2019, we granted an additional
100,000 pSus under one of the existing long term incentive plans with performance based milestones and cliff vesting. For one of
the existing long term incentive plans, under which 106,500 pSus were granted, the actual number of shares of our common stock
into which each pSu may convert was subject to a multiplier of up to 267% based on the level at which the performance
conditions were achieved. the actual number of shares of our common stock into which each pSu will convert is at a multiplier
of 142% based on the performance conditions being achieved as of march 31, 2019 and
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will continue to vest through June 2022. For an existing long term incentive plan, under which 150,000 pSus were granted, the
actual number of shares of our common stock into which each pSu may convert was subject to a multiplier of up to 100% if all
performance conditions were achieved or 0% if no performance conditions were achieved. the actual number of shares of our
common stock into which each pSu will convert is at a multiplier of 100% based on the performance conditions being achieved
as of December 31, 2019 and will cliff vest in June 2021. Compensation expense for the performance-based awards is recorded
over the estimated service period for each milestone when the performance conditions are deemed probable of achievement. For
the period ended December 31, 2020, the stock compensation expense recorded during the period was for service-based awards
and performance conditions deemed probable of achievement and/or achieved. For pSus containing performance conditions
which were not deemed probable of achievement at December 31, 2020, no stock compensation expense was recognized.
in July 2018, we granted 77,243 pSus to executives with performance milestones and graded vesting over four years.
the shares of our common stock into which each pSu may convert is subject to a multiplier up to 150% based on the level at
which the performance condition is achieved. Compensation expense for the performance-based awards is recorded over the
estimated service period when the performance condition is deemed probable of achievement. the actual number of shares of our
common stock into which each pSu converted was at a multiplier of 83% based on the performance condition being achieved as
of December 31, 2018. these pSus will continue to vest through July 2022.
in July 2019, we granted 86,975 pSus to executives with a performance milestone and graded vesting over four years.
the shares of our common stock into which each pSu may convert is subject to a multiplier up to 125% based on the level at
which the performance condition is achieved. Compensation expense for the performance-based awards is recorded over the
estimated service period when the performance condition is deemed probable of achievement. the actual number of shares of our
common stock into which each pSu will convert is at a multiplier of 101.8% based on the performance condition being achieved
as of December 31, 2019. these pSus will continue to vest through July 2023.
in July 2020, we granted 92,347 pSus to executives with performance milestones and cliff vesting on the third
anniversary from date of grant. the shares of our common stock into which each pSu may convert is subject to a multiplier up to
200% based on the level at which the financial and developmental performance conditions are achieved over the service period
which ends December 31, 2022. Compensation expense for the performance-based awards is recorded over the estimated service
period for each milestone when the performance conditions are deemed probable of achievement. For the period ended December
31, 2020, the stock compensation expense recorded during the period was for service-based awards and performance conditions
deemed probable of achievement and/or achieved. For pSus containing performance conditions which were not deemed probable
of achievement at December 31, 2020, no stock compensation expense was recognized.
rSu and pSu award activity under the 2010 Stock plan was as follows:
Shares Subject to
Outstanding Awards
Balance at December 31, 2019
rSus granted
pSus granted
rSus released
pSus released
rSus cancelled
pSus cancelled
Balance at December 31, 2020
111
Grant Date Value
Shares
$
2,602,376
$
1,356,377
92,347
$
(572,810) $
(35,455) $
(141,002) $
(17,250) $
$
3,284,583
79.69
98.11
106.47
86.21
78.85
86.03
68.79
87.42
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the following table summarizes our shares available for grant under the 2010 plan. Each rSu and pSu grant reduces
the available share pool by 2 shares.
Balance at December 31, 2019
options, rSus and pSus granted
options, rSus and pSus cancelled
Balance at December 31, 2020
Shares Available
for Grant
9,882,122
(5,153,982)
787,042
5,515,182
Employee Stock Purchase Plan. on may 21, 1997, our stockholders adopted the 1997 Employee Stock purchase plan,
which was most recently amended in april 2020 (the “ESpp”). Each regular full-time and part-time employee working 20 hours
or more per week is eligible to participate after one month of employment. We issued 258,453, 239,590 and 233,712 shares under
the ESpp in 2020, 2019 and 2018, respectively. For the years ended December 31, 2020, 2019 and 2018, we recorded stock
compensation expense of $4.6 million, $3.4 million and $3.7 million, respectively, as the ESpp is considered compensatory under
the FaSB stock compensation rules. as of December 31, 2020, 945,478 shares remain available for issuance under the ESpp.
Note 12. Stock Compensation
We recorded $177.9 million, $166.6 million and $148.2 million, respectively, of stock compensation expense for the
years ended December 31, 2020, 2019 and 2018. Stock compensation expense within our consolidated statements of operations
included research and development expense for the years ended December 31, 2020, 2019 and 2018 of $120.4 million, $114.0
million and $101.1 million, respectively. Stock compensation expense within our consolidated statements of operations also
included selling, general and administrative expense for the years ended December 31, 2020, 2019 and 2018 of $56.6 million,
$51.9 million and $47.1 million, respectively. Stock compensation expense within our consolidated statements of operations also
included cost of product revenues for the years ended December 31, 2020 and 2019 of $1.0 million and $0.7 million respectively.
For the years ended December 31, 2020, 2019 and 2018, we capitalized $0.6 million, $0.4 million and $0.1 million, respectively,
of stock compensation expense as part of the cost of an asset.
We utilized the Black-Scholes valuation model for estimating the fair value of the stock options granted, with the
following weighted-average assumptions:
average risk-free interest rates
average expected life (in years)
volatility
Weighted-average fair value (in dollars)
Employee Stock Options
For the year ended December 31,
2019
2020
2018
2.27 %
0.80 %
5.27
4.98
2.61 %
5.26
Employee Stock Purchase Plan
For the year ended December 31,
2018
2019
2020
2.62 %
1.82 %
0.17 %
0.50
0.50
0.50
40 %
45 %
45 %
45 %
31 %
46 %
32.65
32.38
34.20
19.13
14.04
15.80
the risk-free interest rate is derived from the u.S. Federal reserve rate in effect at the time of grant. the expected life
calculation is based on the observed and expected time to the exercise of options by our employees based on historical exercise
patterns for similar type options. Expected volatility is based on the historical volatility of our common stock over the period
commensurate with the expected life of the options. a dividend yield of zero is assumed based on the fact that we have never paid
cash dividends and have no present intention to pay cash dividends. nonemployee awards are measured on the grant date by
estimating the fair value of the equity instruments to be issued using the expected term, similar to our employee awards.
Based on our historical experience of employee turnover, we have assumed an annualized forfeiture rate of 5% for our
options, pSus and rSus. under the true-up provisions of the stock compensation guidance, we will record additional expense as
the awards vest if the actual forfeiture rate is lower than we estimated, and will record a recovery of prior expense if the actual
forfeiture is higher than we estimated.
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total compensation cost of options granted but not yet vested as of December 31, 2020, was $75.0 million, which is
expected to be recognized over the weighted average period of 1.2 years. total compensation cost of rSus granted but not yet
vested, as of December 31, 2020, was $119.0 million, which is expected to be recognized over the weighted average period of 1.7
years. total compensation cost of pSus granted but not yet vested, as of December 31, 2020, was $25.7 million, which is
expected to be recognized over the weighted average period of 1.3 years, should the underlying performance conditions be
deemed probable of achievement.
Note 13. Income Taxes
We are subject to u.S. federal, state and foreign corporate income taxes. the provision for income taxes is based on
income (loss) before provision for income taxes as follows (in thousands):
u.S.
non-u.S.
income (loss) before provision for income taxes
2020
(16,609)
(215,609)
(232,218)
Year Ended December 31,
2019
$
$
712,486
(225,695)
486,791
$
$
$
$
2018
478,050
(362,703)
115,347
our provision for income taxes consists of the following (in thousands):
Current:
Federal
State
Foreign
Deferred:
State
Foreign
total provision for income taxes
2020
Year Ended December 31,
2019
2018
$
$
43,595
18,881
1,353
63,829
—
(350)
(350)
63,479
$
$
23,526
11,553
5,183
40,262
(205)
(172)
(377)
39,885
$
$
—
5,010
1,303
6,313
111
(570)
(459)
5,854
a reconciliation of income taxes at the u.S. federal statutory rate to the provision for income taxes is as follows (in
thousands):
Year Ended December 31,
2019
2020
provision (benefit) at u.S. federal statutory rate
unbenefited future tax deductions and tax credits
Excess tax benefits related to share-based compensation
Foreign tax rate differential
non-deductible officer compensation
Foreign-derived intangible income
other
provision for income taxes
$ (48,766) $102,226
(73,666)
105,923
(13,418)
(9,750)
25,419
30,412
5,213
7,418
(9,153)
(22,830)
3,264
1,072
$ 39,885
$ 63,479
2018
$ 24,223
(51,861)
(8,233)
37,061
4,114
—
550
$ 5,854
the foreign tax rate differential in the table above reflects the impact of operations in jurisdictions with tax rates that
differ from the u.S. federal statutory rate.
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Significant components of our deferred tax assets and liabilities are as follows (in thousands):
Deferred tax assets:
net operating loss carry forwards
Federal and state research credits
Capitalized research and development
Deferred revenue and accruals
non-cash compensation
acquisition-related contingent consideration
intangibles, net
long term investments
other
total gross deferred tax assets
less valuation allowance for deferred tax assets
net deferred tax assets
Deferred tax liabilities:
property and equipment
total gross deferred tax liabilities
net deferred tax assets
December 31,
2020
2019
128,088
305,099
43,806
27,467
75,867
32,658
289,848
25,968
26,303
955,104
(930,209)
24,895
$
$
102,001
400,550
46,188
13,609
67,345
31,956
92,806
14,899
21,885
791,239
(770,497)
20,742
(22,841) $
(22,841)
2,054
$
(19,095)
(19,095)
1,647
$
$
$
$
the net deferred tax asset balance is reported in other assets, net on the consolidated balance sheets as of December 31,
2020 and 2019.
as of December 31, 2020, the Company has net operating loss (“nol”) carryforwards, research and development credit
carryforwards and orphan drug tax credit carryforwards as follows (in thousands):
net operating loss carryforwards
State
Foreign
research and development credit carryforwards
Federal
State
orphan drug tax credit carryforwards
Amount
Expiring if not utilized
$
361,890
1,250,048
2021 through 2039; indefinite
2021 through 2027
150,598
23,986
162,653
2036 through 2040
2021 through 2039; indefinite
2035 through 2040
the valuation allowance for deferred tax assets increased by approximately $159.7 million during the year ended
December 31, 2020, decreased by approximately $66.5 million during the year ended December 31, 2019 and increased by
approximately $2.2 million during the year ended December 31, 2018. the net valuation allowance increase during 2020 was
primarily due to the generation of future deductible temporary differences and foreign nols offset by a net utilization of research
and development (“r&D”) and orphan drug credits in the u.S.
valuation allowances require an assessment of both positive and negative evidence when determining whether it is more
likely than not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction-by-jurisdiction basis. the
ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which
those temporary differences become deductible.
Based upon our analysis of our historical operating results, as well as projections of our future taxable income (losses)
during the periods in which the temporary differences will be recoverable, management believes the uncertainty regarding the
realization of our u.S. and Swiss net deferred tax assets requires a full valuation allowance against such net assets as of December
31, 2020. When performing our assessment on projections of future taxable income (losses), we
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consider factors such as the likelihood of regulatory approval and commercial success of products currently under development,
among other factors.
the financial statement recognition of the benefit for a tax position is dependent upon the benefit being more likely than
not to be sustainable upon audit by the applicable taxing authority. if this threshold is met, the tax benefit is then measured and
recognized at the largest amount that is greater than 50% likely of being realized upon ultimate settlement. if such unrecognized
tax benefits were realized and not subject to valuation allowances, we would recognize a tax benefit of $31.6 million. the
following table summarizes the gross amounts of unrecognized tax benefits (in thousands):
Balance at beginning of year
additions related to prior periods tax positions
reductions related to prior periods tax positions
additions related to current period tax positions
Settlements
reductions due to lapse of applicable statute of limitations
Currency translation adjustment
Balance at end of year
Year Ended December 31,
2020
24,251
3,953
(216)
4,119
(201)
(397)
88
31,597
$
$
2019
22,395
726
(82)
1,835
—
(557)
(66)
24,251
$
$
our policy is to recognize interest and penalties related to uncertain tax positions, if any, as a component of income tax
expense. During the year ended December 31, 2020, we recorded a negligible reduction to interest and penalties as a component
of income tax expense. During the years ending December 31, 2019 and 2018, we recorded interest and penalties as a component
of income tax expense of $0.2 million and $0.1 million, respectively. We do not anticipate any significant changes to our
unrecognized tax benefits during the next twelve months.
the Company files u.S. federal, state and local income tax returns and income tax returns in various foreign
jurisdictions, with statutes of limitation generally ranging from three to five years during which such tax returns may be audited
by the relevant tax authorities. those statutes could be extended due to nol or tax credit carryforwards generated during these
periods that are subsequently utilized in open tax periods. in general, tax authorities have the ability to adjust the nol
carryforward or tax credits for three years after utilization of that year’s tax attribute carryforward.
Note 14. Net Income (Loss) Per Share
our basic net income (loss) per share is computed by dividing the net income (loss) by the number of weighted average
common shares outstanding during the period. our diluted net income (loss) per share is computed by dividing net income (loss)
by the weighted average common shares outstanding during the period assuming potentially dilutive common shares of stock
options, rSus, pSus and common shares issuable upon conversion of the 2020 notes using the if-converted method. Common
shares issuable upon conversion of the 2020 notes were excluded from the diluted net income (loss) per share computation for all
periods presented as their share effect was anti-dilutive.
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net income (loss) per share was calculated as follows for the periods indicated below:
(in thousands, except per share data)
Basic Net Income (Loss) Per Share
Basic net income (loss)
Weighted average common shares outstanding
Year Ended December 31,
2019
2020
2018
$ (295,697) $ 446,906
214,913
218,073
$ 109,493
212,383
Basic net income (loss) per share
$
(1.36) $
2.08
$
0.52
Diluted Net Income (Loss) Per Share
Diluted net income (loss)
Weighted average common shares outstanding
$ (295,697) $ 446,906
214,913
218,073
$ 109,493
212,383
Dilutive stock options and awards
—
2,744
3,252
Weighted average shares used to compute diluted net income (loss) per share
218,073
217,657
215,635
Diluted net income (loss) per share
$
(1.36) $
2.05
$
0.51
the following potential common shares were excluded from the calculation as their effect would be anti-dilutive:
outstanding stock options and awards
Common shares issuable upon conversion of the 2020 notes
total potential common shares excluded from diluted net income
(loss) per share computation
2020
15,274,871
—
2019
9,349,889
368,939
2018
8,255,992
368,939
15,274,871
9,718,828
8,624,931
Note 15. Employee Benefit Plans
Defined Contribution Plans
We have a defined contribution plan qualified under Section 401(k) of the internal revenue Code covering all u.S.
employees and defined contribution plans for other incyte employees in Europe and Japan. Employees may contribute a portion
of their compensation, which is then matched by us, subject to certain limitations. Defined contribution expense was
$13.4 million, $11.7 million and $10.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. included in
the 2020, 2019 and 2018 defined contribution expense was $1.7 million, $1.6 million and $1.4 million, respectively, of expense
related to matching contributions under the non-u.S. defined contribution plans.
Defined Benefit Pension Plans
We have defined benefit pension plans for our employees in Europe which provide benefits to employees upon
retirement, death or disability. the assets of the pension plans are held in collective investment accounts represented by the cash
surrender value of an insurance policy and are classified as level 2 within the fair value hierarchy.
the pension plans assumptions reflect the expected investment return and discount rate on plan assets and disability rate
probabilities. the benefit obligation at December 31, 2020 for the plans was determined using a discount rate of 0.10% and rate
of compensation increase of 2.00%. the 2020 net periodic benefit cost for the plans was determined using discount rates of
0.30%, rates of compensation increase of 2.25% and long-term expected return on plan assets of 0.30%. the benefit obligation at
December 31, 2019 for the plans was determined using a discount rate of 0.30% and rate of compensation increase of 2.25%. the
2019 net periodic benefit cost for the plans was determined using discount rates of 0.75%, rates of compensation increase of
2.25% and long-term expected return on plan assets of 0.75%.
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Summarized information regarding changes in the obligations and plan assets, the funded status and the amounts
recorded were as follows (in thousands):
Benefit obligation, beginning of year
Employer service cost
interest cost
plan participants' contributions
actuarial loss
transfer of benefits net of payments from fund
Expenses paid from assets
translation loss
Benefit obligation, end of year
Fair value of plan assets, beginning of year
actual return on plan assets
Employer contributions
plan participants' contributions
transfer of benefits net of payments from fund
Expenses paid from assets
translation gain
Fair value of plan assets, end of year
Year Ended December 31,
2020
2019
$
62,770 $
6,047
193
2,237
9,372
11,057
(88)
6,371
97,959
38,662
260
5,413
2,237
11,057
(88)
3,724
61,265
unfunded liability, end of year
$
36,694
$
46,038
5,195
345
1,613
6,672
2,184
(61)
784
62,770
30,368
132
3,910
1,613
2,184
(61)
516
38,662
24,108
the unfunded liability is reported in other liabilities on the consolidated balance sheets as of December 31, 2020 and
2019. the accumulated benefit obligation is $83.2 million and $52.9 million as of December 31, 2020 and 2019, respectively.
the net periodic benefit cost was as follows (in thousands):
Service cost
interest cost
Expected return on plan assets
amortization of prior service cost
amortization of actuarial losses
net periodic benefit cost
2020
Year Ended December 31,
2019
2018
$
$
6,047
193
(126)
216
667
6,997
$
$
5,195
345
(241)
214
247
5,760
$
$
4,450
278
(195)
179
265
4,977
the components of net periodic benefit cost other than the service cost component are included in other income
(expense), net on the consolidated statements of operations.
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other changes in the plans assets and the benefit obligation that is recognized in accumulated other comprehensive loss
were as follows, net of tax (in thousands):
pension liability, beginning of year
net prior service costs
net loss
pension liability, end of year
2020
Year Ended December 31,
2019
2018
$
$
15,468
(216)
8,579
23,831
$
$
9,146
(214)
6,536
15,468
$
$
8,450
(179)
875
9,146
We expect to contribute a total of $6.0 million to the pension plans in 2021. the following benefit payments, which
reflect expected future service, as appropriate, are expected to be paid (in thousands):
2021
2022
2023
2024
2025
2026-2030
total
$
$
3,315
3,413
3,474
3,506
3,972
22,498
40,178
Note 16. Commitments and Contingencies
in october 2019, we entered into an agreement with Wilmington Friends School inc., to purchase property for $50.0
million to expand our global headquarters. under that agreement, closing of the purchase is subject to certain standard closing
conditions, including an initial diligence period and a subsequent approval period. information on our future lease obligations are
described in note 7.
We have entered into the collaboration agreements described in note 6, 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 December 2018, we received a civil investigative demand from the u.S. Department of Justice (“DoJ”) for
documents and information relating to our speaker programs and patient assistance programs, including our support of non-profit
organizations that provide financial assistance to eligible patients. We have cooperated with this inquiry. in november 2019, the
qui tam complaint underlying the DoJ inquiry was unsealed (“Complaint”), at which time we learned that a former employee
whom we had terminated had made certain allegations relating to the programs described above (“relator”). the DoJ has not
intervened to date. We filed an answer to the Complaint on January 22, 2020 and on november 12, 2020, we filed a motion for
Summary Judgment (motion). all briefing on the motion was completed on December 22, 2020 and the Judge will rule on the
motion based on these filings in due course. a trial date has not been set. We intend to continue defending ourselves vigorously
against these allegations. We cannot predict the outcome or the timing of the ultimate resolution of the investigation or qui tam
action, or reasonably estimate the possible range of loss, if any, that may result from these matters. accordingly, no reserve has
been made with respect to these matters as of December 31, 2020.
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.
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Note 17. Segment Information
We currently operate in one operating business segment focused on the discovery, development and commercialization
of proprietary therapeutics. our chief operating decision-maker manages the operations of our company as a single operating
segment. We do not operate in any material separate lines of business or separate business entities with respect to our products or
product development.
During the year ended December 31, 2020, total revenues generated by subsidiaries in the united States was $2.6 billion
and total revenues generated from subsidiaries in Europe was $105.0 million. During the year ended December 31, 2019, total
revenues generated by subsidiaries in the united States was $2.1 billion and total revenues generated from subsidiaries in Europe
was $90.0 million. During the year ended December 31, 2018, total revenues generated by subsidiaries in the united States was
$1.8 billion and total revenues generated from subsidiaries in Europe was $79.9 million. as of December 31, 2020, property and
equipment, net was approximately $336.9 million in the united States, approximately $218.0 million in Europe and
approximately $4.7 million in Japan. as of December 31, 2019, property and equipment, net was approximately $261.7 million in
the united States and approximately $109.9 million in Europe.
Note 18. Interim Consolidated Financial Information (Unaudited)
(in thousands, except per share data)
revenues(1)
net income (loss)
Basic net income (loss) per share
Diluted net income (loss) per share
Shares used in computation of basic net income (loss) per
share
Shares used in computation of diluted net income (loss) per
share
March 31,
Fiscal 2020 Quarter Ended
June 30,
568,507
$
$ (720,642)
(3.33)
$
(3.33)
$
$
$
$
$
688,043
290,298
1.33
1.32
September 30, December 31,
789,509
149,850
0.68
0.68
620,643 $
(15,203) $
$
(0.07)
$
(0.07)
$
$
$
$
216,721
217,549
218,784
219,239
216,721
220,434
218,784
221,228
(in thousands, except per share data)
revenues(2)
net income
Basic net income per share
Diluted net income per share
Shares used in computation of basic net income per share
Shares used in computation of diluted net income per share
March 31,
$
$
$
$
497,857
102,312
0.48
0.47
214,065
217,061
Fiscal 2019 Quarter Ended
June 30,
$
$
$
$
529,932
105,318
0.49
0.48
214,620
217,483
$
$
$
$
September 30, December 31,
579,389
111,005
0.51
0.51
215,770
218,542
551,581 $
128,271 $
$
0.60
$
0.59
215,199
217,791
(1) the quarters ended march 31, 2020, June 30, 2020, September 30, 2020 and December 31, 2020 include $486.7 million,
$500.3 million, $522.3 million, and $559.5 million, respectively, of product revenues, net, relating to JaKaFi, iCluSiG and
pEmaZYrE. the quarters ended march 31, 2020, June 30, 2020, September 30, 2020 and December 31, 2020 include
$81.8 million, $92.8 million, $98.4 million and $119.9 million, respectively, of product royalty revenues related to the sale of
JaKavi and olumiant outside the united States and taBrECta worldwide. the quarters ended march 31, 2020,
June 30, 2020, September 30, 2020 and December 31, 2020 include $0.0 million, $95.0 million, $0.0 million and
$110.0 million, respectively, of milestone and contract revenues relating to the innovent, lilly and novartis agreements.
(2) the quarters ended march 31, 2019, June 30, 2019, September 30, 2019 and December 31, 2019 include $396.2 million,
$433.9 million, $454.0 million, and $490.8 million, respectively, of product revenues, net, relating to JaKaFi and iCluSiG.
the quarters ended march 31, 2019, June 30, 2019, September 30, 2019 and December 31, 2019 include $61.6 million,
$76.0 million, $80.1 million and $88.6 million, respectively, of product royalty revenues related to the sale of JaKavi and
olumiant outside the united States. in December 2018 and July 2019, we entered into collaborative research and license
agreements with innovent and Zai lab, respectively. the quarters ended march 31, 2019, June 30, 2019, September 30, 2019
and December 31, 2019 include $40.0 million,
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$20.0 million, $17.5 million and $0.0 million, respectively, of milestone and contract revenues relating to these agreements.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
not applicable.
Item 9A. Controls and Procedures
Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as such term is
defined in rule 13a-15(e) under the Securities Exchange act of 1934 (the “Exchange act”), that are designed to ensure that
information required to be disclosed by us in reports that we file or submit under the Exchange act is recorded, processed,
summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that
such information is accumulated and communicated to our management, including our Chief Executive officer and Chief
Financial officer, as appropriate, to allow timely decisions regarding required disclosure. in designing and evaluating our
disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and
procedures are met. our disclosure controls and procedures have been designed to meet reasonable assurance standards.
additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible disclosure controls and procedures. the design of any disclosure controls and
procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all potential future conditions.
Based on their evaluation as of the end of the period covered by this annual report on Form 10-K, our Chief Executive
officer and Chief Financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the
reasonable assurance level.
Changes in internal control over financial reporting. there were no changes in our internal control over financial
reporting (as defined in rules 13a-15(f) and 15d-15(f) under the Exchange act) for the quarter ended December 31, 2020, that
materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Management’s annual report on internal control over financial reporting. our management is responsible for
establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange act
rules 13a-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
our management, with the participation of our Chief Executive officer and Chief Financial officer, conducted an evaluation of
the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated
Framework issued by the Committee of Sponsoring organizations of the treadway Commission (2013 framework). Based on our
evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal control
over financial reporting was effective as of December 31, 2020. the effectiveness of our internal control over financial reporting
as of December 31, 2020 has been audited by Ernst & Young llp, an independent registered public accounting firm, as stated in
their report which is included herein.
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Report of Independent Registered Public Accounting Firm
to the Stockholders and the Board of Directors of incyte Corporation
Opinion on Internal Control over Financial Reporting
We have audited incyte Corporation’s internal control over financial reporting as of December 31, 2020, based on criteria
established in internal Control—integrated Framework issued by the Committee of Sponsoring organizations of the treadway
Commission (2013 framework) (the CoSo criteria). in our opinion, incyte Corporation (the Company) maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2020, based on the CoSo criteria.
We also have audited, in accordance with the standards of the public Company accounting oversight Board (united States)
(pCaoB), the consolidated balance sheets of incyte Corporation as of December 31, 2020 and 2019, the related consolidated
statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the
period ended December 31, 2020, and the related notes and our report dated February 9, 2021 expressed an unqualified opinion
thereon.
Basis for Opinion
the Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying management’s annual
report on internal Control over Financial reporting. our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the pCaoB and are required
to be independent with respect to the Company in accordance with the u.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the pCaoB.
We conducted our audit in accordance with the standards of the pCaoB. those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
a company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. a company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young llp
philadelphia, pennsylvania
February 9, 2021
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Item 9B. Other Information
none.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
the information required by this item (with respect to Directors) is incorporated by reference from the information under
the caption “Election of Directors” contained in our proxy Statement to be filed with the Securities and Exchange Commission in
connection with the solicitation of proxies for our 2021 annual meeting of Stockholders to be held on may 26, 2021 (the “proxy
Statement”). Certain information required by this item concerning executive officers is set forth in part i of this report under the
caption “information about our Executive officers” and is incorporated herein by reference.
item 405 of regulation S-K calls for disclosure of any known late filing or failure by an insider to file a report required
by Section 16(a) of the Exchange act. to the extent disclosure for delinquent reports is being made, it can be found under the
caption “Delinquent Section 16(a) reports” in the proxy Statement and is incorporated herein by reference.
We have adopted a Code of Business Conduct and Ethics that applies to all of our officers and employees, including our
Chief Executive officer, Chief Financial officer, principal accounting officer, Corporate Controller and other employees who
perform financial or accounting functions. the Code of Business Conduct and Ethics sets forth the basic principles that guide the
business conduct of our employees. We have also adopted a Senior Financial officers’ Code of Ethics that specifically applies to
our Chief Executive officer, Chief Financial officer, principal accounting officer, Corporate Controller, and others providing
similar functions. Stockholders may request a free copy of our Code of Business Conduct and Ethics and our Senior Financial
officers’ Code of Ethics by contacting incyte Corporation, attention: investor relations, 1801 augustine Cut-off, Wilmington,
DE 19803 or by visiting the Corporate Governance section of our website at investor.incyte.com/corporate-governance. our
website address listed in the prior sentence and below is intended to be an inactive, textual reference only. none of the materials
on, or accessible through, our website is part of this report or is incorporated by reference herein.
to date, there have been no waivers under our Code of Business Conduct and Ethics or Senior Financial officers’ Code
of Ethics. We intend to disclose future amendments to certain provisions of our Code of Business Conduct and Ethics or Senior
Financial officers’ Code of Ethics or any waivers, if and when granted, of our Code of Business Conduct and Ethics or Senior
Financial officers’ Code of Ethics on our website at www.incyte.com within four business days following the date of such
amendment or waiver.
our Board of Directors has appointed an audit and Finance Committee of three directors, currently comprised of
mr. paul J. Clancy, as Chairman, Dr. Wendy l. Dixon and Dr. Jacqualyn a. Fouse. the Board of Directors has also determined
that mr. Clancy and Dr. Fouse are each qualified as an audit Committee Financial Expert under the definition outlined by the
Securities and Exchange Commission. in addition, each of the members of the audit Committee qualifies as an “independent
director” under the applicable standards of the nasdaq Stock market.
Item 11. Executive Compensation
the information required by this item is incorporated by reference from the information under the captions
“Compensation of Directors” and “Executive Compensation” contained in the proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
the information required by this item is incorporated by reference from the information under the captions “Equity
Compensation plan information” and “Security ownership of Certain Beneficial owners and management” contained in the
proxy Statement.
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Item 13. Certain Relationships and Related Transactions, and Director Independence
the information required by this item is incorporated by reference from the information under the captions “Corporate
Governance—Certain relationships and related transactions” and “Corporate Governance—Director independence” contained
in the proxy Statement.
Item 14. Principal Accountant Fees and Services
the information required by this item is incorporated by reference from the information under the caption “ratification
of independent registered public accounting Firm” contained in the proxy Statement.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)
Documents filed as part of this report:
(1)
Financial Statements
reference is made to the index to Consolidated Financial Statements of incyte Corporation under item 8 of
part ii hereof.
(2)
Financial Statement Schedules
all financial statement schedules have been omitted because they are not applicable or not required or because
the information is included elsewhere in the Consolidated Financial Statements or the notes thereto.
(3)
Exhibits
See item 15(b) below. Each management contract or compensatory plan or arrangement required to be filed has
been identified.
(b)
Exhibits
Exhibit
Number
3(i)
3(ii)
4.1
4.2
10.1#
10.2#
Description of Document
integrated copy of the restated Certificate of incorporation, as amended, of the Company (incorporated by
reference to Exhibit 3(i) to the Company’s annual report on Form 10-K for the year ended December 31,
2009).
Bylaws of the Company, as amended as of november 15, 2017 (incorporated by reference to Exhibit 3.1 to the
Company’s Current report on Form 8-K filed november 17, 2017).
Form of Common Stock Certificate (incorporated by reference to the Exhibit 4.1 to the Company’s annual
report on Form 10-K for the year ended December 31, 2002).
Description of registrant’s Securities registered under Section 12 of the Securities Exchange act of 1934
(incorporated by reference to Exhibit 4.3 to the Company’s annual report on Form 10-K for the year ended
December 31, 2019).
incyte Corporation amended and restated 2010 Stock incentive plan (incorporated by reference to Exhibit 10.1
to the Company’s Current report on Form 8-K filed april 30, 2019).
Form of Global Stock option agreement for Executive officers under the incyte Corporation amended and
restated 2010 Stock incentive plan (incorporated by reference to Exhibit 10.1 to the Company's quarterly
report on Form 10-q for the quarter ended September 30, 2020).
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Exhibit
Number
10.3#
10.4#
10.5#
10.6#
10.7#
10.8#*
10.9#
10.10#
10.11#
10.12#
10.13†
10.13.1†
10.13.2††
10.14†
10.14.1†
10.14.2†
Description of Document
Form of Global restricted Stock unit award agreement under the incyte Corporation amended and restated
2010 Stock incentive plan (incorporated by reference to Exhibit 10.2 to the Company's quarterly report on
Form 10-q for the quarter ended September 30, 2020).
Form of performance Share award agreement under the incyte Corporation amended and restated 2010 Stock
incentive plan (incorporated by reference to Exhibit 10.3 to the Company's quarterly report on Form 10-q for
the quarter ended September 30, 2020).
Form of nonstatutory Stock option agreement for outside Directors under the incyte Corporation amended
and restated 2010 Stock incentive plan (incorporated by reference to Exhibit 10.24 to the Company’s annual
report on Form 10-K for the year ended December 31, 2013).
Form of restricted Stock unit award agreement for outside Directors under the incyte Corporation amended
and restated 2010 Stock incentive plan (incorporated by reference to Exhibit 10.1 to the Company’s quarterly
report on Form 10-q for the quarter ended June 30, 2019).
Form of indemnity agreement between the Company and its directors and officers (incorporated by reference to
Exhibit 10.5 to the Company’s registration Statement on Form S-1 (File no. 33 68138)).
1997 Employee Stock purchase plan of incyte Corporation, as amended.
Form of Employment agreement between the Company and Barry p. Flannelly (effective as of august 11,
2014), Christiana Stamoulis (effective as of February 11, 2019), Steven h. Stein (effective as of march 2, 2015),
vijay K. iyengar (effective as of may 9, 2016), maria E. pasquale (effective as of april 9, 2018) and Dashyant
Dhanak (effective as of December 10, 2018) (incorporated by reference to Exhibit 10.14 to the Company’s
annual report on Form 10-K for the year ended December 31, 2012).
Form of amended and restated Employment agreement, effective as of april 18, 2012, between the Company
and paula J. Swain and Wenqing Yao (incorporated by reference to Exhibit 10.14 to the Company’s quarterly
report on Form 10-q for the quarter ended march 31, 2012).
offer of Employment letter, dated December 14, 2018, from the Company to Christiana Stamoulis
(incorporated by reference to Exhibit 10.2 to the Company’s quarterly report on Form 10-q for the quarter
ended march 31, 2019).
amended and restated Employment agreement between the Company and hervé hoppenot, dated as of
october 25, 2019 (incorporated by reference to Exhibit 10.3 to the Company’s quarterly report on Form 10-q
for the quarter ended September 30, 2019).
Collaboration and license agreement entered into as of november 24, 2009, by and between the Company and
novartis international pharmaceutical ltd. (incorporated by reference to Exhibit 10.1 to the Company’s
quarterly report on Form 10-q for the quarter ended September 30, 2019).
amendment, dated as of april 5, 2016, to Collaboration and license agreement entered into as of november
24, 2009, by and between the Company and novartis international pharmaceutical ltd. (incorporated by
reference to Exhibit 10.1.1 to the Company’s quarterly report on Form 10-q for the quarter ended September
30, 2019).
amendment, dated as of march 20, 2020, to the Collaboration and license agreement entered into as of
november 24, 2009, by and between the Company and novartis international pharmaceutical ltd. (incorporated
by reference to Exhibit 10.2 to the Company’s quarterly report on Form 10-q for the quarter ended march 31,
2020).
license, Development and Commercialization agreement, entered into as of December 18, 2009, by and
between the Company and Eli lilly and Company (incorporated by reference to Exhibit 10.2 to the Company’s
quarterly report on Form 10-q for the quarter ended September 30, 2019).
amendment, dated June 22, 2010, to license, Development and Commercialization agreement entered into as
of December 18, 2009, by and between the Company and Eli lilly and Company (incorporated by reference to
Exhibit 10.2.1 to the Company’s quarterly report on Form 10-q for the quarter ended September 30, 2019).
third amendment, entered into effective march 31, 2016, to license, Development and Commercialization
agreement entered into as of December 18, 2009, by and between the Company and Eli lilly and Company
(incorporated by reference to Exhibit 10.2.2 to the Company’s quarterly report on Form 10-q for the quarter
ended September 30, 2019).
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Exhibit
Number
10.14.3†
10.14.4††
10.15†
10.15.1†
10.16†
10.17†
10.18†
10.18.1†
10.19††
10.19.1††*
10.20
21.1*
23.1*
24.1*
31.1*
31.2*
32.1**
32.2**
101
101.inS*
101.SCh*
Description of Document
Fourth amendment, entered into effective December 13, 2016, to license, Development and Commercialization
agreement entered into as of December 18, 2009, by and between the Company and Eli lilly and Company
(incorporated by reference to Exhibit 10.21.4 to amendment no. 2 on Form 10-K/a to the Company’s annual
report on Form 10-K for the year ended December 31, 2016).
letter agreement, dated may 13, 2020, between the Company and Eli lilly and Company, together with related
letter of understanding, dated march 5, 2020, between the Company and Eli lilly and Company, each relating
to license, Development and Commercialization agreement entered into as of December 18, 2009 by and
between the Company and Eli lilly and Company (incorporated by reference to Exhibit 10.1 to the Company’s
quarterly report on Form 10-q for the quarter ended June 30, 2020).
license, Development and Commercialization agreement, dated as of January 9, 2015, by and among the
Company, incyte Europe S.à.r.l. (a wholly owned subsidiary of the Company), agenus inc. and 4-antibody aG
(incorporated by reference to Exhibit 10.1 to the Company’s quarterly report on Form 10-q for the quarter
ended march 31, 2015).
First amendment, dated as of February 14, 2017, to license, Development and Commercialization agreement
entered into as of January 9, 2015, by and among the Company, incyte Europe S.à.r.l. (a wholly owned
subsidiary of the Company), agenus inc. and agenus Switzerland inc. (f/k/a 4-antibody aG) (incorporated by
reference to Exhibit 10.1 to the Company's quarterly report on Form 10-q for the quarter ended march 31,
2017).
amended and restated Buy-in license agreement, dated as of June 1, 2016, between ariaD pharmaceuticals,
inc., ariaD pharmaceuticals (Europe) S.à.r.l. and the Company, as guarantor (incorporated by reference to
Exhibit 10.3 to amendment no. 1 on Form 10-q/a to the Company’s quarterly report on Form 10-q for the
quarter ended June 30, 2016).
Collaboration and license agreement, dated December 20, 2016, by and between the Company and merus n.v.
(incorporated by reference to Exhibit 10.27 to amendment no. 2 on Form 10-K/a to the Company’s annual
report on Form 10-K for the year ended December 31, 2016).
Global Collaboration and license agreement, dated october 24, 2017, by and between the Company and
macroGenics, inc. (incorporated by reference to Exhibit 10.23 to the Company's annual report on Form 10-K
for the year ended December 31, 2017).
amendment no. 1, dated as of march 15, 2018, to Global Collaboration and license agreement, dated october
24, 2017, by and between the Company and macroGenics, inc. (incorporated by reference to Exhibit 10.1 to the
Company's quarterly report on Form 10-q for the quarter ended march 31, 2018).
Collaboration and license agreement entered into as of January 12, 2020 by and among the Company,
morphoSys aG and morphoSys uS inc. (incorporated by reference to Exhibit 10.1 to the Company’s quarterly
report on Form 10-q for the quarter ended march 31, 2020).
First amendment, dated as of July 17, 2020, to Collaboration and license agreement entered into as of January
12, 2020 by and among the Company, morphoSys aG and morphoSys uS inc.
registration rights agreement, dated as of February 12, 2016, between the Company and 667, l.p., Baker
Brothers life Sciences, l.p. and 14159, l.p. (incorporated by reference to Exhibit 10.28 to the Company’s
annual report on Form 10-K for the year ended December 31, 2015).
Subsidiaries of the Company.
Consent of Ernst & Young llp, independent registered public accounting Firm.
power of attorney.
rule 13a 14(a) Certification of the Chief Executive officer.
rule 13a 14(a) Certification of the Chief Financial officer.
Statement of the Chief Executive officer under Section 906 of the Sarbanes oxley act of 2002 (18 u.S.C
Section 1350).
Statement of the Chief Financial officer under Section 906 of the Sarbanes oxley act of 2002 (18 u.S.C
Section 1350).
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125
table of Contents
Exhibit
Number
101.Cal*
101.laB*
101.prE*
101.DEF*
104
Description of Document
xBrl taxonomy Extension Calculation linkbase Document
xBrl taxonomy Extension label linkbase Document
xBrl taxonomy presentation linkbase Document
xBrl taxonomy Definition linkbase Document
Cover page interactive Data File (embedded within the inline xBrl document).
*
**
†
††
#
Filed herewith.
in accordance with item 601(b)(32)(ii) of regulation S-K and SEC release nos. 33-8238 and 34-47986, Final rule:
management’s reports on internal Control over Financial reporting and Certification of Disclosure in Exchange act
periodic reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-K
and will not be deemed “filed” for purpose of Section 18 of the Exchange act. Such certifications will not be deemed to
be incorporated by reference into any filing under the Securities act or the Exchange act, except to the extent that the
registrant specifically incorporates it by reference.
Confidential treatment has been granted with respect to certain portions of these agreements.
portions of this exhibit have been omitted pursuant to item 601(b)(10)(iv) of regulation S-K.
indicates management contract or compensatory plan or arrangement.
Copies of above exhibits not contained herein are available to any stockholder upon written request to: investor
relations, incyte Corporation, 1801 augustine Cut-off, Wilmington, DE 19803.
(c)
Financial Statements and Schedules
reference is made to item 15(a)(2) above.
Item 16. Form 10-K Summary.
not applicable.
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pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
inCYtE Corporation
By:/s/ hErvé hoppEnot
hervé hoppenot
Chairman, President, and Chief Executive Officer
Date: February 9, 2021
127
table of Contents
POWER OF ATTORNEY
KnoW all pErSonS BY thESE prESEntS, that each person whose signature appears below constitutes and
appoints hervé hoppenot, Christiana Stamoulis, and maria E. pasquale, and each of them, his true and lawful attorneys-in-fact,
each with full power of substitution, for him or her in any and all capacities, to sign any amendments to this report on Form 10-K
and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or
cause to be done by virtue hereof.
pursuant to the requirements of the Securities Exchange act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ hErvé hoppEnot
hervé hoppenot
/s/ ChriStiana StamouliS
Christiana Stamoulis
/s/ paul troWEr
paul trower
/s/ Julian C. BaKEr
Julian C. Baker
/s/ JEan-JaCquES BiEnaimé
Jean-Jacques Bienaimé
/s/ paul J. ClanCY
paul J. Clancy
/s/ WEnDY l. Dixon
Wendy l. Dixon
/s/ JaCqualYn a. FouSE
Jacqualyn a. Fouse
/s/ paul a. FriEDman
paul a. Friedman
/s/ EDmunD p. harriGan
Edmund p. harrigan
/s/ KathErinE a. hiGh
Katherine a. high
Title
Chairman, president, and Chief Executive officer (principal
Executive officer) and Director
Date
February 9, 2021
Chief Financial officer (principal Financial officer)
February 9, 2021
vp, Finance (principal accounting officer)
February 9, 2021
February 9, 2021
February 9, 2021
February 9, 2021
February 9, 2021
February 9, 2021
February 9, 2021
February 9, 2021
February 9, 2021
Director
Director
Director
Director
Director
Director
Director
Director
128
Exhibit 10.8
1997 EMPLOYEE STOCK PURCHASE PLAN OF
INCYTE CORPORATION
(As amended on November 17, 2020)
the following constitute the provisions of the 1997 Employee Stock purchase plan of incyte Corporation, as
amended and restated effective november 17, 2020.
1.
purpose. the purpose of the plan is to provide employees of the Company and its Designated Subsidiaries
with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. the plan
includes two components: a 423 Component and a non-423 Component. it is the intention of the Company (but the
Company does not undertake) to have the 423 Component qualify as an “Employee Stock purchase plan” under Section
423 of the Code. the provisions of the plan, with respect to the 423 Component, shall accordingly be construed and
administered in a manner consistent with the requirements of that section of the Code. Except as otherwise provided in the
plan or determined by the administrator, the non-423 Component will operate and be administered in the same manner as
the 423 Component.
2.
Definitions.
(a)
“423 Component” shall mean the part of the plan, which excludes the non-423 Component,
pursuant to which options to purchase Common Stock that satisfy the requirements for an Employee Stock purchase plan
under Section 423 may be granted to eligible Employees.
the Board that has been appointed by the Board and authorized to administer the plan.
(b)
“administrator” shall mean the Board or a committee consisting exclusively of members of
(c)
(d)
(e)
(f)
(g)
“Board” shall mean the Board of Directors of the Company.
“Code” shall mean the u.S. internal revenue Code of 1986, as amended.
“Common Stock” shall mean the Common Stock, $.001 par value, of the Company.
“Company” shall mean incyte Corporation, a Delaware corporation.
“Compensation” shall mean all cash salary, wages, commissions and bonuses, but shall not
include any imputed income or income arising from the exercise or disposition of equity compensation. the
administrator shall have discretion to determine the application of this definition to eligible Employees outside the
united States, in accordance with the requirements of Section 423 for Employees participating in the 423 Component.
(h)
(i)
“Effective Date” shall mean november 17, 2020.
“Designated Subsidiary” shall mean any Subsidiary which has been designated by the
administrator or by an executive officer of the Company, from time to time in the administrator’s or such officer’s sole
discretion, as eligible to participate in the 423 Component or non-423 Component. a listing of Designated Subsidiaries
and whether they are designated as eligible to participate in the 423 Component or the non-423 Component shall be
maintained as appendix a to the plan.
(j)
“Employee” shall mean any individual who is an employee of the Company or its Designated
Subsidiaries for tax purposes whose customary employment is at least twenty (20) hours per week and more than five (5)
months in any calendar year, provided that “Employee” shall also mean an individual who is an employee of the
Company or its Designated Subsidiaries for tax purposes whose customary employment is less than twenty (20) hours per
week and less than five (5) months in any calendar year where required by applicable law and, with respect to the 423
Component, consistent with the requirements of Section 423 (in each case, as determined by the administrator in its
discretion). For purposes of the plan, the employment relationship shall be treated as continuing intact while the
individual is on sick leave or other leave of absence approved by the Company or its Designated Subsidiaries, as
applicable. Where the period of leave exceeds 90 days and the
individual’s right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be
deemed to have terminated on the 91st day of such leave.
(k)
“Enrollment Date” shall mean the first day of each offering period.
“Enrollment period” means the period during which an eligible Employee may elect to
participate in the plan, with such period occurring before the first day of each offering period, as prescribed by the
administrator.
(l)
(m)
(n)
as follows:
“Exercise Date” shall mean the last trading Day of each purchase period.
“Fair market value” shall mean, as of any date, the value of Common Stock determined
nasdaq Stock market, its Fair market value shall be the last reported sale price for the Common Stock reported for such
date by the applicable composite transactions report for such exchange; or
(1)
if the Common Stock is listed on any established stock exchange other than the
shall be the last reported sale price for the Common Stock reported for such date by the nasdaq Stock market;
(2)
if the Common Stock is listed on the nasdaq Stock market, its Fair market value
(3)
if the Common Stock is not listed on a stock exchange but is traded over-the-
counter on such date, its Fair market value shall be the closing price for such date or, if no closing price is reported,
shall be equal to the mean between the last reported representative bid and ask prices for such date, as reported by otC
markets Group inc. or similar organization;
be determined by the administrator in good faith on such basis as it deems appropriate.
(4)
if none of the foregoing provisions is applicable, then the Fair market value shall
For any date that is not a trading Day, the Fair market value of a share of Stock for such date shall be determined by
using the last reported, closing or bid and asked prices, as applicable, for the immediately preceding trading Day. in all
cases, the determination of Fair market value by the Committee shall be conclusive and binding on all persons.
“non-423 Component” shall mean the part of the plan, which excludes the 423 Component,
pursuant to which options to purchase Common Stock that are not intended to satisfy the requirements for an Employee
Stock purchase plan may be granted to eligible Employees.
(o)
(p)
“offering” shall mean an offering of an option to purchase shares of Common Stock during
an offering period, as further described in Section 4, under either the 423 Component or the non-423 Component. unless
otherwise determined by the administrator, each offering under the plan in which eligible Employees of one or more
Designated Subsidiaries may participate will be deemed a separate offering for purposes of Section 423, even if the dates
of the applicable offering periods of each such offering are identical, and the provisions of the plan will separately apply
to each offering. With respect to an offering under the 423 Component, the terms of separate offerings need not be
identical, provided that all eligible Employees granted options in a particular offering will have the same rights and
privileges, except as otherwise may be permitted by Section 423; an offering under the non-423 Component offering
need not satisfy such requirements.
(q)
“offering periods” shall mean the periods of approximately twenty-four (24) months during
which an option granted pursuant to the plan may be exercised, commencing on the first trading Day on or after may 1
and november 1 of each year and terminating on the last trading Day in the periods ending twenty-four months later. the
duration and timing of offering periods may be changed pursuant to Section 4 of this plan.
2
from time to time, including both the 423 Component and the non-423 Component.
(r)
“plan” shall mean this 1997 Employee Stock purchase plan of incyte Corporation, as amended
Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower.
(s)
“purchase price” shall mean an amount equal to 85% of the Fair market value of a share of
(t)
“purchase period” shall mean the approximately six-month period commencing after one
Exercise Date and ending with the next Exercise Date, except that the first purchase period of any offering period shall
commence on the Enrollment Date and end with the next Exercise Date. the duration and timing of purchase periods may
be changed pursuant to Section 4 of this plan.
(u)
“reserves” shall mean the number of shares of Common Stock covered by each option
under the plan which have not yet been exercised and the number of shares of Common Stock which have been
authorized for issuance under the plan but not yet placed under option.
thereunder.
(v)
“Section 423” shall mean Section 423 of the Code and the u.S. treasury regulations
(w)
“Subsidiary” shall mean a corporation (as defined in u.S. treasury regulation section 1.421-
1(i)), domestic or foreign, of which not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary.
(x)
“tax-related items” shall mean any income tax, social insurance, payroll tax, fringe
benefit tax, payment on account or other tax-related items arising out of or in relation to an eligible Employee’s
participation in the plan, including, but not limited to, the grant or exercise of an option to purchase shares of Common
Stock, the receipt of shares of Common Stock or the sale or other disposition of shares of Common Stock acquired
under the plan.
(y)
“trading Day” shall mean a day on which the national securities exchange or stock market
on which the Common Stock is principally traded, or, if the Common Stock is not listed or quoted on any securities
exchange or stock market, the new York Stock Exchange, is open for trading.
3.
Eligibility.
(a)
Except as otherwise required by applicable law and subject to Sections 3(b) and 3(c)
below, any Employee who has been employed for one month or more on a given Enrollment Date shall be eligible to
participate in the plan.
(b)
any provisions of the plan to the contrary notwithstanding, no Employee shall be
granted an option under the plan (i) to the extent that, immediately after the grant, such Employee (or any other
person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own stock
and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company, its parent or any Subsidiary, or (ii) to the extent that his
or her rights to purchase stock under all employee stock purchase plans of the Company, its parent and Subsidiaries
accrues at a rate which exceeds u.S. twenty-Five thousand Dollars (uS$25,000) worth of stock (determined at the
Fair market value of the shares at the time such option is granted) for each calendar year in which such option is
outstanding at any time.
(c)
any provisions of the plan to the contrary notwithstanding, an eligible Employee who
works for a Designated Subsidiary and is a citizen or resident of a jurisdiction other than the united States (without
regard to whether such individual also is a citizen or resident of the united States or is a resident alien (within the
meaning of Section 7701(b)(1)(a) of the Code)) may be excluded from participation in the plan or an offering if the
participation of such Employee is prohibited under the laws of the applicable jurisdiction or if complying with the
laws of the applicable jurisdiction would cause the plan or an offering under the 423 Component to violate Section
423. in the case of an offering under the non-
3
423 Component, an Employee (or group of Employees) may be excluded from participation in the plan or an
offering if the administrator has determined, in its sole discretion, that participation of such Employee(s) is not
advisable or practicable for any reason.
4.
offering periods. the plan shall be implemented by consecutive, overlapping offering periods with a new
offering period commencing on the first trading Day on or after may 1 and november 1 each year, or on such other dates
as the administrator shall determine, and continuing thereafter until terminated in accordance with Section 19 hereof. the
administrator or a committee thereof shall have the power to change the duration of offering periods (including the
commencement dates thereof) and purchase periods thereunder with respect to future offerings without stockholder
approval if such change is announced at least five (5) days prior to the scheduled beginning of the first offering period to
be affected thereafter.
5.
participation.
an eligible Employee may become a participant in the plan by completing a subscription
agreement authorizing payroll deductions and filing it with the Company’s stock administrator (or by completing the
electronic enrollment process through the Company’s designated plan broker) during the Enrollment period.
(a)
payroll deductions for a participant shall commence on the first payroll following the
Enrollment Date and shall end on the last payroll in the offering period to which such authorization is applicable,
unless sooner terminated by the participant as provided in Section 10 hereof.
(b)
6.
payroll Deductions.
(a)
at the time a participant files his or her subscription agreement (or completes the electronic
enrollment process), he or she shall elect to have payroll deductions made on each pay day during the offering period in
an amount not less than one percent (1%) and not more than ten percent (10%) of the participant’s Compensation, with
such amount designated in integral multiples of one percent (1%); provided, however, that the aggregate of such payroll
deductions during any offering period shall not exceed ten percent (10%) of the participant’s aggregate Compensation
during such offering period. if required under applicable law or if specifically provided in the offering or otherwise
permitted by the administrator (and, with respect to the 423 Component, to the extent permitted under Section 423), in
addition to or instead of making contributions to the plan by payroll deductions, a participant may make contributions
through the payment by cash, check or wire transfer, provided that the same requirements and limitations shall apply in
the case of such other contributions and provided further that the administrator may establish any procedures it considers
to be necessary or advisable for the administration of the plan and, with respect to the 423 Component, the requirements
of Section 423. For purposes of the plan, references to “payroll deductions” includes such other contributions, if
applicable.
(b)
all payroll deductions made for a participant shall be credited to his or her account under the
plan and shall be withheld in whole percentages only. a participant may not make any additional payments into such
account.
(c)
a participant may discontinue his or her participation in the plan as provided in Section 10,
or may increase or decrease the rate of his or her payroll deductions as provided in this Section 6(c). a participant may
increase the rate of his or her payroll deductions only as of the beginning of a purchase period. Such increase shall take
effect with the first payroll following the beginning of the new purchase period provided the participant has completed
and delivered to the Company’s stock administrator a new subscription agreement authorizing the increase in the payroll
deduction rate at least ten (10) business days prior to the beginning of the new purchase period (or indicated a change via
the Company's electronic process according to the time frame indicated by the Company). a participant may decrease
the rate of his or her payroll deductions each payroll period. any decrease shall become effective as of the first payroll
period following the date that the participant completes and delivers to the Company’s stock administrator a new
subscription agreement authorizing the decrease in the payroll deduction rate (or indicated a change via the Company's
electronic process). however, if the subscription agreement is not received (or the electronic change is not completed) at
least five (5) business days prior to such payroll period, the decrease shall become effective as of the second succeeding
payroll period. the administrator may, in its discretion, limit the number of participation rate
4
changes during any offering period. Subject to the foregoing, a participant’s subscription agreement (or electronic
enrollment election) shall remain in effect for successive offering periods unless terminated as provided in Section 10
hereof, provided that the participant will be deemed to have accepted the terms and conditions of the plan and the
offering in effect at the time each subsequent offering period begins.
(d)
notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b)(8) of the Code and Section 3(b) hereof, a participant’s payroll deductions may be decreased to zero percent
(0%) at any time during a purchase period. Such a decrease shall not be treated as a withdrawal from the plan subject to
Section 10, unless the participant elects to withdraw pursuant to Section 10. payroll deductions shall recommence at the rate
provided in such participant’s subscription agreement at the beginning of the first purchase period which is scheduled to
end in the following calendar year, unless the participant elects to withdraw from the plan as provided in Section 10 hereof.
(e)
at the time the option is exercised, in whole or in part, or at the time some or all of the
Common Stock issued under the plan is disposed of, the participant must make adequate provision for the tax-related
items, if any, which arise upon the exercise of the option or the disposition of the Common Stock. at any time, the
Company or a Designated Subsidiary, as applicable, may, but shall not be obligated to, withhold from the participant’s
compensation the amount necessary to meet applicable withholding obligations, including any withholding required to
make available any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Employee.
7.
Grant of option. on the Enrollment Date of each offering period, each eligible Employee participating in
such offering period shall be granted an option to purchase on each Exercise Date during such offering period (at the
applicable purchase price) up to a number of shares of Common Stock determined by dividing such Employee’s payroll
deductions accumulated prior to such Exercise Date and retained in the participant’s account as of the Exercise Date by
the applicable purchase price; provided that in no event shall an Employee be permitted to purchase during each purchase
period more than eight thousand (8,000) shares of Common Stock (subject to any adjustment pursuant to Section 18) on
the Enrollment Date, and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b)
and 13 hereof. Exercise of the option shall occur as provided in Section 8 hereof, unless the participant has withdrawn
pursuant to Section 10 hereof. the option shall expire on the last day of the offering period.
8.
Exercise of option. unless a participant withdraws from the plan as provided in Section 10 hereof, his or
her option for the purchase of shares of Common Stock shall be exercised automatically on the Exercise Date, and the
maximum number of full shares of Common Stock subject to option shall be purchased for such participant at the
applicable purchase price with the accumulated payroll deductions in his or her account. no fractional shares shall be
purchased; any payroll deductions accumulated in a participant’s account which are not sufficient to purchase a full share
shall be, in the discretion of the administrator, either refunded to the participant or retained in the participant’s account for
the subsequent purchase period or offering period, subject to earlier withdrawal by the participant as provided in Section
10 hereof. any other monies left over in a participant’s account after the Exercise Date shall be returned to the participant.
During a participant’s lifetime, a participant’s option to purchase shares hereunder is exercisable only by him or her. if, on
the Exercise Date, as delayed to the maximum extent permissible, the purchase of the shares of Common Stock would not
be in material compliance with all applicable laws and regulations, as determined by the Company in its sole discretion,
the option will not be exercised and any accumulated but unused payroll deductions will be refunded to the participant as
soon as practicable.
9.
Delivery. as promptly as practicable after each Exercise Date on which a purchase of shares occurs, a share
certificate or certificates representing the number of shares of Common Stock so purchased shall be delivered to a
brokerage account designated by the Company and kept in such account pursuant to a subscription agreement between
each participant and the Company and subject to the conditions described therein which may include a requirement that
shares be held and not sold for certain time periods or be held with a designated broker and/or in a designated account, or
the Company shall establish some other means for such participants to receive ownership of the shares.
10. Discontinuation; Withdrawal.
5
(a)
a participant may discontinue his or her participation in the plan only by withdrawing from
the plan as provided in this Section 10. a participant may withdraw all but not less than all the payroll deductions credited
to his or her account and not yet used to exercise his or her option under the plan by giving written notice to the Company
(or by withdrawing from the plan via the electronic process available through the Company’s designated plan broker).
Such notice must be received by the Company or the plan broker no later than 5:00 p.m. Eastern time on the second
trading Day preceding the Exercise Date, or such other time preceding the Exercise Date as may be specified by the
Company or the plan broker, as applicable). all of the participant’s payroll deductions credited to his or her account shall
be paid to such participant promptly after receipt of a timely notice of withdrawal and such participant’s option for the
offering period shall be automatically terminated, and no further payroll deductions for the purchase of shares shall be
made for such offering period. if a participant withdraws from an offering period, payroll deductions shall not resume at
the beginning of the succeeding offering period unless the participant is an eligible Employee and that time and delivers
to the Company a new subscription agreement (or completes the electronic enrollment process) in accordance with Section
5(a).
a participant’s withdrawal from an offering period shall not have any effect upon his or her
eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding offering
periods which commence after the participant withdraws from the plan, subject to compliance with Section 5(a).
(b)
11. termination or transfer of Employment.
(a)
upon a participant’s ceasing to be an Employee, for any reason, he or she shall be deemed to
have elected to withdraw from the plan and the payroll deductions credited to such participant’s account during the
offering period but not yet used to exercise the option shall be returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under Section 15 hereof, and such participant’s option shall be
automatically terminated, unless otherwise required by applicable law.
(b)
unless otherwise determined by the administrator, a participant whose employment transfers
or whose employment terminates with an immediate rehire (with no break in service) by or between the Company and a
Designated Subsidiary that has been designated for participation in the plan will not be treated as having terminated
employment for purposes of participating in the plan or an offering; however, if a participant transfers from an offering
under the 423 Component to an offering under the non-423 Component, the exercise of the participant’s option to
purchase Common Stock will be qualified under the 423 Component only to the extent such exercise complies with
Section 423. if a participant transfers from an offering under the non-423 Component to an offering under the 423
Component, the exercise of the option to purchase Common Stock will remain non-qualified under the non-423
Component. the administrator may establish different and additional rules governing transfers between separate
offerings within the 423 Component and between offerings under the 423 Component and offerings under the non-423
Component.
12.
interest. no interest shall accrue on the payroll deductions of a participant in the plan or be payable or
otherwise due to the participant or his or her beneficiary, unless otherwise required by applicable law.
13. Stock.
(a)
the maximum number of shares of Common Stock which shall be made available for sale
under the plan shall be nine million six hundred thousand (9,600,000) shares, subject to adjustment upon changes in
capitalization of the Company as provided in Section 18 hereof. if, on a given Exercise Date, the number of shares with
respect to which options are to be exercised exceeds the number of shares then available under the plan, the Company
shall make a pro rata allocation of the shares remaining available for purchase in as uniform a manner as shall be
practicable and as it shall determine to be equitable. For the avoidance of doubt, up to the maximum number of shares
of Common Stock reserved under this Section 13 may be used to satisfy purchases of shares under the 423 Component
and any remaining portion of such maximum number of shares of Common Stock may be used to satisfy purchases of
shares under the non-423 Component.
6
such option has been exercised.
(b)
the participant shall have no interest or voting right in shares covered by his option until
(c)
Shares purchased by a participant under the plan shall be registered in the name of the
participant (or, to the extent permitted under applicable law as determined by the administrator in its discretion, in the
name of the participant and his or her spouse).
14. administration.
(a)
the plan shall be administered by the administrator. the administrator shall have full and
exclusive discretionary authority to adopt such rules, guidelines and forms as it deems appropriate to implement the plan,
to construe, interpret and apply the terms of the plan, to determine eligibility and to adjudicate all disputed claims filed
under the plan. Every finding, decision and determination made by the administrator shall, to the full extent permitted by
law, be final and binding upon all parties.
(b)
Without limitation to Section 14(a) above, the administrator will have the power, subject to,
and within the limitations of, the express provisions of the plan to adopt such procedures and sub-plans as are necessary or
appropriate to permit participation in the plan by Employees who are foreign nationals or employed outside the united
States. Without limiting the generality of, and consistent with, the foregoing, the administrator specifically is authorized
to adopt rules, procedures, and sub-plans regarding, without limitation, eligibility to participate in the plan and the 423
Component or non-423 Component thereof, the definition of eligible “Compensation,” handling of payroll deductions,
establishment of bank or trust accounts to hold payroll deductions, payment of interest, conversion of local currency,
obligations to pay payroll tax, determination of beneficiary designation requirements, withholding procedures and
handling of share issuances, any of which may vary according to applicable requirements, and which, if applicable to a
Designated Subsidiary designated for participation in the non-423 Component, do not have to comply with the
requirements of Section 423.
15. Designation of Beneficiary.
(a)
the Company may, but is not obligated to, permit a participant to file a written designation of
a beneficiary who is to receive any shares and cash, if any, from the participant’s account under the plan in the event of
such participant’s death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash, in a form or manner that is deemed to be acceptable to the Company. in addition, the
Company may, but is not obligated to, permit a participant to file a written designation of a beneficiary who is to receive
any cash from the participant’s account under the plan in the event of such participant’s death prior to exercise of the
option, in a form or manner that is deemed to be acceptable to the Company. if a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such designation to be effective.
changed by the participant by written notice in a form or manner that is deemed to be acceptable to the Company.
(b)
the Company may, but is not obligated to, permit such designation of beneficiary to be
(c)
in the event of the death of a participant and in the absence of a beneficiary validly designated
under the plan and applicable law (such validity being determined by the Company in its sole discretion) who is living at
the time of such participant’s death, the Company shall deliver such shares and/or cash to the executor or administrator of
the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more
dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such
other person as the Company may designate.
16. transferability. neither payroll deductions credited to a participant’s account nor any rights with regard to
the exercise of an option or to receive shares under the plan may be assigned, transferred, pledged or otherwise disposed of
in any way by the participant (other than by will, the applicable laws of descent and distribution or as may be provided
pursuant to Section 15 hereof). any such attempt at assignment, transfer,
7
pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw
funds from an offering period in accordance with Section 10 hereof.
17. use of Funds. Except as otherwise required by applicable law (as determined by the administrator in its
sole discretion), all payroll deductions received or held by the Company under the plan may be used by the Company for
any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions.
18. adjustments upon Changes in Capitalization, Dissolution, liquidation, merger or asset Sale.
(a)
Changes in Capitalization. Subject to any required action by the stockholders of the Company,
the reserves, the maximum number of shares each participant may purchase each purchase period (pursuant to Section 7),
as well as the purchase price per share and the number of shares of Common Stock covered by each option under the plan
which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification
of the Common Stock, or any other increase or decrease in the number of outstanding shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been “effected without receipt of consideration”. Such adjustment shall be made by
the administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an option.
(b)
Dissolution or liquidation. in the event of the proposed dissolution or liquidation of the
Company, the offering periods shall terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the administrator.
(c)
merger or asset Sale. in the event of a proposed sale of all or substantially all of the assets of
the Company, or the merger of the Company with or into another corporation, limited liability company or other entity,
the plan shall terminate upon the date of the consummation of such transaction and any purchase periods then in progress
shall be shortened by setting a new Exercise Date (the “new Exercise Date”) and any offering periods then in progress
shall end on the new Exercise Date, unless the plan of merger, consolidation or reorganization provides otherwise. the
new Exercise Date shall be determined by the administrator in its sole discretion; provided, that the new Exercise Date
shall be before the date of the Company’s proposed sale or merger. the administrator shall notify each participant in
writing, at least ten (10) business days prior to the new Exercise Date, that the Exercise Date for the participant’s option
has been changed to the new Exercise Date and that the participant’s option shall be exercised automatically on the new
Exercise Date, unless prior to such date the participant has withdrawn from the offering period as provided in Section 10
hereof. the plan shall in no event be construed to restrict the Company’s right to undertake any liquidation, dissolution,
merger, consolidation or other reorganization.
19. amendment or termination.
(a)
the Board (or any committee thereof to which it delegates such authority) may at any time
and for any reason terminate or amend the plan. Except as provided in Section 18 hereof, no such termination can affect
options previously granted, provided that an offering period may be terminated by the Board (or any committee thereof
to which it delegates such authority) on any Exercise Date if the Board (or such committee) determines that the
termination of such offering period is in the best interests of the Company and its stockholders. For purposes of the 423
Component, to the extent necessary to comply with Section 423 (or any successor rule or provision or any other
applicable law, regulation or stock exchange rule), the Company shall obtain stockholder approval in such a manner and
to such a degree as required.
(b)
Without stockholder consent and without regard to whether any participant rights may be
considered to have been “adversely affected,” the administrator shall be entitled to change the offering periods or
purchase periods, limit the frequency and/or number of changes in the amount withheld during an offering period,
establish the exchange ratio applicable to amounts withheld in a currency other than u.S. dollars,
8
permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in
the Company’s processing of properly completed withholding elections, establish reasonable waiting and adjustment
periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the participant’s Compensation, and establish such
other limitations or procedures as the administrator determines in its sole discretion advisable which are consistent with
the plan.
20. notices. all notices or other communications by a participant to the Company under or in connection with
the plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or
by the person, designated by the Company for the receipt thereof.
21. Conditions upon issuance of Shares. Shares shall not be issued with respect to an option unless the exercise
of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of
law, domestic or foreign, including, without limitation, the u.S. Securities act of 1933, as amended, the u.S. Securities
Exchange act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock
exchange or stock market upon which the shares may then be listed, and any other applicable securities, exchange control
or other regulations, and shall be further subject to the approval of counsel for the Company with respect to such
compliance.
as a condition to the exercise of an option, the Company may require the person exercising such option
to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned applicable provisions of law.
22. no rights as an Employee. nothing in the plan or in any right granted under the plan shall confer upon a
participant any right to continue in the employ of the Company or any Designated Subsidiary for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the Company or any Designated Subsidiary or of a
participant, which rights are hereby expressly reserved by each, to terminate his or her employment at any time and for
any reason, with or without cause (subject to applicable law).
23. term of plan. the plan, as amended and restated, shall become effective upon the Effective Date. it shall
continue until terminated under Section 19 hereof.
24. automatic transfer to low price offering period. to the extent permitted by any applicable laws,
regulations, or stock exchange rules, if the Fair market value of the Common Stock on any Exercise Date in an offering
period is lower than the Fair market value of the Common Stock on the Enrollment Date of such offering period, then all
participants in such offering period shall be automatically withdrawn from such offering period immediately after the
exercise of their option on such Exercise Date and automatically re-enrolled in the immediately following offering period
as of the first day thereof.
9
Certain identified information, marked by [***], has been excluded from the exhibit because it is both (i)
not material and (ii) would likely cause competitive harm to the Company, if publicly disclosed.
Exhibit 10.19.1
Confidential information
FIRST AMENDMENT
TO COLLABORATION AND LICENSE AGREEMENT
this First amendment (“Amendment”) to the Collaboration and license agreement, dated January 12,
2020 (“Agreement”) is effective as of July 17, 2020 (the “Effective Date”), by and between:
MorphoSys AG, a German stock corporation having a place of business at Semmelweisstrasse 7, 82152
planegg, Germany ("MorphoSys AG"), and MorphoSys US Inc., a Delaware corporation, wholly-owned
by morphoSys aG, having its place of business at 470 atlantic avenue, 14th floor. Boston, ma 02210,
uSa ("MorphoSys Inc."), (both morphoSys aG and morphoSys inc., "MorphoSys")
and
Incyte Corporation, a Delaware corporation with its principal place of business at 1801 augustine Cut-off,
Wilmington, Delaware 19803, uSa ("COMPANY").
morphoSys and CompanY each may be referred to herein individually as a "Party," or collectively as the
"Parties."
WhErEaS, the agreement, as more specifically set forth in its Sections 5.5(a)(i)-(ii) and 16.6(a)(i),
provides for the inclusion of the approved statement set forth in Exhibit 18 in any public Disclosure, media
release or public announcement referencing the licensed antibody and/or product, and in certain
publications; and
WhErEaS, CompanY and morphoSys have agreed to amend the agreement to provide for a change of
such approved statement and address potential further changes.
NOW and THEREFORE, the Parties hereby agree as follows:
all capitalized terms used in this amendment shall have the meaning ascribed to them in the agreement,
except as otherwise expressly stated herein.
1. Exhibit 18 to the agreement shall be deleted in its entirety and replaced by the new Exhibit 18 attached
to this amendment.
2. Performance under all other terms of the Agreement.
Except as expressly amended hereby, the agreement shall continue in full force and effect. this
amendment is incorporated and made a part of the agreement between morphoSys and CompanY. in
Confidential information
the event of any conflict or inconsistency between the agreement and this amendment, the latter shall
prevail.
3. Counterparts.
this amendment may be executed in three (3) or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument.
In Witness Whereof, the parties have by duly authorized persons, executed this amendment, as of the
Effective Date.
MorphoSys AG
By:
/s/ Dr. Barbara Krebs-pohl
By:
/s/ Dr. anja pomrehn
name: Dr. Barbara Krebs-pohl
name: Dr. anja pomrehn
title: Svp, head of BDl & am
title: Svp, head of ir
MorphoSys US Inc.
By: /s/ David trexler
name: David trexler
title: president
INCYTE CORPORATION
By:
/s/ vijay iyengar
name: vijay iyengar
title: Evp, GS & CD
By:
/s/ Ben looker
name: Ben looker
title: Secretary
2
Confidential information
EXHIBIT 18
STATEMENT FOR COMPANY’S MEDIA RELEASES AND PUBLICATIONS*
[***]
3
Subsidiary
incyte Biosciences Corporation
incyte holdings Corporation
incyte research institute llC
incyte international holdings Corporation
incyte Biosciences Canada Corporation
incyte international holdings S.à r.l.
incyte Biosciences international S.à r.l.
incyte Biosciences austria Gmbh
incyte Biosciences Denmark apS
incyte Biosciences Finland oy
incyte Biosciences France
incyte Biosciences Germany Gmbh
incyte Biosciences italy S.r.l.
incyte Biosciences israel ltd
incyte Biosciences Distribution B.v.
incyte Biosciences Benelux B.v.
incyte Biosciences norway aS
incyte Biosciences iberia S.l.
incyte Biosciences nordic aB
incyte Biosciences uK ltd
incyte Biosciences technical operations S.à r.l.
incyte Biosciences australia pty ltd
incyte Biosciences Japan G.K.
incyte Biosciences (Shanghai) Co., ltd.
SUBSIDIARIES
Jurisdiction of Incorporation
Exhibit 21.1
Delaware
Delaware
Delaware
Delaware
Canada
luxembourg
Switzerland
austria
Denmark
Finland
France
Germany
italy
israel
netherlands
netherlands
norway
Spain
Sweden
uK
Switzerland
australia
Japan
China
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following registration Statements:
(1) registration Statement (Form S-3 no. 333-229682) of incyte Corporation,
(2) registration Statements (Form S-8 nos. 333-31409, 333-174919, 333-212102 and 333-239162) pertaining to the 1997
Employee Stock purchase plan of incyte Corporation, and
(3) registration Statements (Form S-8 nos. 333-167526, 333-174918, 333-182218, 333-189424, 333-197907, 333-212104,
333-225181 and 333-231129) pertaining to the incyte Corporation amended and restated 2010 Stock incentive plan;
of our reports dated February 9, 2021, with respect to the consolidated financial statements of incyte Corporation and the
effectiveness of internal control over financial reporting of incyte Corporation, included in this annual report (Form 10-K) of
incyte Corporation for the year ended December 31, 2020.
/s/ Ernst & Young llp
philadelphia, pennsylvania
February 9, 2021
Exhibit 31.1
i, hervé hoppenot, certify that:
CERTIFICATION
1.
2.
3.
4.
i have reviewed this annual report on Form 10-K of incyte Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
the registrant’s other certifying officer(s) and i are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange act rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange act rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
the registrant’s other certifying officer(s) and i have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: February 9, 2021
/s/ hErvé hoppEnot
hervé hoppenot
Chief Executive Officer
Exhibit 31.2
i, Christiana Stamoulis, certify that:
CERTIFICATION
1.
2.
3.
4.
i have reviewed this annual report on Form 10-K of incyte Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
the registrant’s other certifying officer(s) and i are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange act rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange act rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
the registrant’s other certifying officer(s) and i have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: February 9, 2021
/s/ ChriStiana StamouliS
Christiana Stamoulis
Chief Financial Officer
STATEMENT PURSUANT TO
18 U.S.C. SECTION 1350
Exhibit 32.1
With reference to the annual report of incyte Corporation (the “Company”) on Form 10-K for the year ended
December 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “report”), i, hervé hoppenot,
Chief Executive officer of the Company, certify, for the purposes of 18 u.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-oxley act of 2002, that, to my knowledge:
(1)
(2)
6
the report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange act of
1934; and
the information contained in the report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ hErvé hoppEnot
hervé hoppenot
Chief Executive Officer
February 9, 2021
STATEMENT PURSUANT TO
18 U.S.C. SECTION 1350
Exhibit 32.2
With reference to the annual report of incyte Corporation (the “Company”) on Form 10-K for the year ended
December 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “report”), i, Christiana
Stamoulis, Chief Financial officer of the Company, certify, for the purposes of 18 u.S.C. § 1350, as adopted pursuant to § 906 of
the Sarbanes-oxley act of 2002, that, to my knowledge:
(1)
(2)
the report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange act of
1934; and
the information contained in the report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ ChriStiana StamouliS
Christiana Stamoulis
Chief Financial Officer
February 9, 2021