The following discussion of our financial condition and results of operations as of and for the three and nine months endedSeptember 30, 2020 should be read in conjunction with the unaudited condensed consolidated financial statements and notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements as of and for the year endedDecember 31, 2019 included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 previously filed with theSEC . This report contains forward-looking statements that involve risks and uncertainties. These statements relate to future periods, future events or our future operating or financial plans or performance. Often, these statements include the words "believe," "expect," "target," "anticipate," "intend," "plan," "seek," "estimate," "potential," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could," "might," or "may," or the negative of these terms, and other similar expressions. These forward-looking statements include statements as to:
the discovery, development, formulation, manufacturing and commercialization of
? our compounds, our drug candidates and JAKAFI®/JAKAVI® (ruxolitinib), PEMAZYRE
® (pemigatinib), ICLUSIG® (ponatinib) and MONJUVI® (tafasitamab);
? our plans to further develop our operations outside of
? 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
? Administration and other international health authorities approval for our
products in
? 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;
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expected expenses and expenditure levels; expected uses of cash; expected
? revenues and sources of revenues, including milestone payments; expectations
with respect to inventory;
? 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;
? 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:
? 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;
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? 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;
? our ability to maintain or obtain adequate product liability and other
insurance coverage;
? the risk that our drug candidates may not obtain or maintain regulatory
approval;
? the impact of technological advances and competition, including potential
generic competition;
? our ability to compete against third parties with greater resources than ours;
? risks relating to changes in pricing and reimbursement in the markets in which
we may compete;
? risks relating to governmental healthcare reform efforts, including efforts to
control, set or cap pricing for our commercial drugs in the
? 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;
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? 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" meanIncyte Corporation and our subsidiaries, except where it is made clear that the term means only the parent company.
OverviewIncyte is a biopharmaceutical company focused on the discovery, development and commercialization of proprietary therapeutics. Our global headquarters is located inWilmington, Delaware . We conduct our European clinical development operations from our offices in Morges,Switzerland , our Japanese office is inTokyo and we have been conducting operations inCanada sinceApril 2020 .
COVID-19
Effects of the COVID-19 Pandemic on Our Business
InDecember 2019 , coronavirus disease of 2019, or COVID-19, was first reported inWuhan, China . InMarch 2020 , theWorld Health Organization declared COVID-19 a pandemic ("the COVID-19 Pandemic") and certain governments, including theState 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 personnelwho were required to perform critical business continuity activities. InMay 2020 , we initiated a return to full laboratory work at our facilities inWilmington, Delaware , as well as a gradual return to office-based working, where allowed under local guidelines, at our offices inNorth America ,Europe andAsia . 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. 44
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To date, we have not seen 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.
Clinical Trials to Address COVID-19
InApril 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 andwho have COVID-19 associated cytokine storm. Patient recruitment into RUXCOVID has been completed and we expect results to be available before the end of 2020. We sponsor this collaborative study inthe United States and our collaboration partnerNovartis International Pharmaceutical Ltd. sponsors the study outside ofthe United States . We are also conducting a second Phase III clinical trial in multiple geographies, includingthe United States , to evaluate the efficacy and safety of ruxolitinib plus SoC, compared to SoC therapy alone, in COVID-19 patients on mechanical ventilation andwho 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.
We have launched an Expanded Access Program in
InApril 2020 , our collaboration partner Eli Lilly and Company announced that it has entered into an agreement with theNational Institute of Allergy and Infectious Diseases (NIAID), part of theNational 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 inthe United States , and Lilly is also planning an expansion to includeEurope andAsia . InSeptember 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 inOctober 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 addition, in
Marketed Indications - JAKAFI (ruxolitinib)
JAKAFI (ruxolitinib) is our first product to be approved for sale inthe United States . It was approved by theU.S. Food and Drug Administration (FDA) inNovember 2011 for the treatment of adults with intermediate or high-risk myelofibrosis, inDecember 2014 for the treatment of adults with polycythemia verawho have had an inadequate response to or are intolerant of hydroxyurea and inMay 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 45
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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 Novartis, Novartis received exclusive development and commercialization rights to ruxolitinib outside ofthe United States for all hematologic and oncologic indications and sells ruxolitinib outside ofthe 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 inthe 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 GVHDwho 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.
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
To further support appropriate use and future development of JAKAFI, ourU.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 patientswho previously had polycythemia vera or essential thrombocythemia. We estimate there are between 16,000 and 18,500 patients with MF inthe 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 inthe United States and encompass patients over the age of 65, or patientswho 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. 46
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InAugust 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%. InDecember 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. InSeptember 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. InOctober 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 inthe 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. InDecember 2014 , the FDA approved JAKAFI for the treatment of patients with PVwho 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. InMarch 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. InJune 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 hydroxyureawho 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
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- 47
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refractory acute GVHD are 50% or less, and the incidence of steroid-refractory
acute and chronic GVHD is approximately 3,000 per year in
InJune 2016 , we announced that the FDA granted Breakthrough Therapy designation for ruxolitinib in patients with acute GVHD. InMay 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 inthe United States and are eligible to receive development and sales milestones as well as royalties from product sales outsidethe United States . We hold patents that cover the composition of matter and use of ruxolitinib, which patents, including applicable extensions, expire in late 2027.
Marketed Indications - ICLUSIG (ponatinib)
InJune 2016 , we acquired the European operations ofARIAD Pharmaceuticals, Inc. (ARIAD) and obtained an exclusive license to develop and commercialize ICLUSIG (ponatinib) inEurope 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) andPhiladelphia -chromosome positive acute lymphoblastic leukemia (Ph+ ALL). In theEuropean Union , ICLUSIG is approved for the treatment of adult patients with chronic phase, accelerated phase or blast phase CMLwho are resistant to dasatinib or nilotinib;who are intolerant to dasatinib or nilotinib and for whom subsequent treatment with imatinib is not clinically appropriate; orwho have the T315I mutation, or the treatment of adult patients with Ph+ ALLwho are resistant to dasatinib;who are intolerant to dasatinib and for whom subsequent treatment with imatinib is not clinically appropriate; orwho have the T315I mutation.
Marketed Indications - PEMAZYRE (pemigatinib)
InApril 2020 , we announced that the FDA approved PEMAZYRE (pemigatinib), a selective fibroblast growth factor receptor (FGFR) 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 inthe United States ,Europe andJapan . 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). Warnings and precautions included in the PEMAZYRE prescribing information include potential for eye problems such as dry or inflamed eyes, inflamed cornea, increased tears and a disorder of the retina; high levels of phosphate in the blood; and, for womenwho are pregnant, a risk of harm to the unborn baby or loss of pregnancy. 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 mainlandChina ,Hong Kong ,Macau andTaiwan . 48
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Marketed Indications - MONJUVI (tafasitamab-cxix)
InJanuary 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 effectiveMarch 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 inthe United States with MorphoSys, and we have exclusive development and commercialization rights outside ofthe United States . InJuly 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, andwho are not eligible for autologous stem cell transplant (ASCT). MONJUVI was approved under accelerated approval based on overall response rate.
In
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 inthe 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%).
Clinical Programs in Oncology
We believe that the future of cancer treatment lies in the use of targeted therapies, which aim to block the effects of cancer-causing mutations, and immune therapies, which seek to recruit the patient's own immune system to tackle cancer. Our most advanced programs are detailed below.
JAK Inhibition
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 are preparing a pivotal trial program of ruxolitinib in combination with parsaclisib (PI3K?) as both first-line therapy for MF patients and in MF patients with an inadequate response to ruxolitinib monotherapy. 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. 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 byIncyte and Novartis. 49 Table of Contents InOctober 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. InApril 2020 , we and Novartis announced that data from REACH2 were published inThe New England Journal of Medicine . InJuly 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, 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. 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.
FGFR Inhibition
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. InApril 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. InJanuary 2020 , we announced that the Marketing Authorization Application (MAA) for pemigatinib as a treatment of adults with locally advanced or metastatic cholangiocarcinoma (CCA) with an FGFR2 fusion or rearrangement that is relapsed or refractory after at least one line of systemic therapy had been validated by theEuropean Medicines Agency (EMA). InSeptember 2020 , we submitted a J-NDA seeking approval for pemigatinib as a treatment for CCA inJapan . InOctober 2020 , we announced thatHealth 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. Given the rapidly evolving treatment landscape for bladder cancer and recent regulatory feedback, we are reevaluating our development strategy for pemigatinib in bladder cancer. As part of that reevaluation, new patient recruitment into FIGHT-205, which is assessing pemigatinib in cisplatin-ineligible bladder cancer patients whose tumors express FGFR3 mutation or rearrangement, has been stopped, and we no longer intend to use data from FIGHT-201 to seek accelerated approval for pemigatinib in patients with previously treated bladder cancer whose tumors express FGFR3 mutation or rearrangement.
CD19 antagonism
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 50
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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. First-MIND is a Phase Ib safety trial of tafasitamab as a first-line therapy for patients with DLBCL, and Front-MIND, 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 proof-of-concept study of tafasitamab in combination with parsaclisib (PI3K?) in patients with relapsed or refractory B-cell malignancies is in preparation, as is a placebo-controlled Phase III trial of tafasitamab added to lenalidomide plus rituximab in patients with relapsed or refractory follicular lymphoma.
PI3K? Inhibition
The PI3K? pathway mediates oncogenic signaling in B cell malignancies. Parsaclisib is a PI3K? inhibitor that has demonstrated potency and selectivity in preclinical studies and has potential therapeutic utility in the treatment of patients with lymphoma. We initiated theCITADEL 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.
PD-1 Antagonism
InOctober 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 anal carcinoma (SCAC), microsatellite instability-high (MSI-H) endometrial cancer and Merkel cell carcinoma are ongoing. InSeptember 2020 , we announced initial results from the Phase II POD1UM-202 trial of retifanlimab in patients with advanced SCACwho have progressed following standard platinum-based chemotherapy. The Phase III POD1UM-303 trial of retifanlimab in combination with platinum-based chemotherapy as a first-line treatment for patients with SCAC is open for recruitment. The Phase III POD1UM-304 trial evaluating retifanlimab in combination with platinum-based chemotherapy as a first-line treatment for patients with non-small cell lung cancer (NSCLC) is now recruiting patients, and inOctober 2020 , our collaboration partner Zai Lab announced dosing of the first patient inChina . 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 and for the treatment of certain patients with locally advanced or metastatic SCAC. 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 Merkel cell carcinoma. Indication and status ruxolitinib Steroid-refractory chronic GVHD: Phase III (REACH3)1 primary (JAK1/JAK2) endpoint met Myelofibrosis: Phase III with parsaclisib (PI3K?) in preparation (1L and inadequate responders to ruxolitinib); Phase II with INCB57643 (BET) and with INCB00928 (ALK2) in preparation Once-a-day Myelofibrosis and polycythemia vera: clinical pharmacology ruxolitinib studies (JAK1/JAK2)
itacitinib (JAK1) Treatment-naïve chronic GVHD: Phase III (GRAVITAS-309)
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pemigatinib CCA: Phase II (FIGHT-202), Phase III (FIGHT-302); MAA, NDS and (FGFR) J-NDA under review 8p11 MPN: Phase II (FIGHT-203) Tumor agnostic: Phase II (FIGHT-207) tafasitamab (CD19)2 r/r DLBCL: Phase II (L-MIND); Phase III (B-MIND); MAA under review 1L DLBCL: Phase Ib (First-MIND); Phase III (Front-MIND) in preparation r/r follicular lymphoma: Phase III in preparation r/r B-cell malignancies: PoC with parsaclisib (PI3K?) in preparation
parsaclisib (PI3K?) r/r follicular lymphoma: Phase II (
r/r marginal zone lymphoma: Phase II (CITADEL -204) r/r mantle cell lymphoma: Phase II (CITADEL -205) retifanlimab (PD-1)3 MSI-high endometrial cancer: Phase II (POD1UM-101); Phase II (POD1UM-204) in preparation Merkel cell carcinoma: Phase II (POD1UM-201) SCAC: Phase II (POD1UM-202); Phase III (PODIUM-303) open for recruitment NSCLC: Phase III (POD1UM-304) in preparation
1. Clinical development of ruxolitinib in GVHD conducted in collaboration with Novartis.
2. tafasitamab development in collaboration with MorphoSys.
3. retifanlimab licensed from MacroGenics.
Earlier-Stage Programs
We also have a number of other earlier-stage clinical programs, as detailed in the table below. We intend to describe these programs more fully if we obtain clinical proof-of-concept and establish that a program warrants further development in a specific indication or group of indications. Modality Candidates Small molecules INCB01158 (ARG)1, INCB81776 (AXL/MER), epacadostat (IDO1), INCB86550 (PD-L1)
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.
Clinical Programs in Inflammation and AutoImmunity (IAI)
Dermatology
Incyte Dermatology has been established as a new franchise in theU.S. , which will include dedicated teams for the development and commercialization of our dermatology portfolio.
In
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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 are ongoing.
InSeptember 2020 , we purchased a priority review voucher from a third party, which had received it through theFDA's Rare Pediatric Disease Priority Review Voucher Program. The priority review voucher entitles the holder to designate a human drug application for priority review. InSeptember 2020 , we notified the FDA that we intend to use the priority review voucher in connection with our submission seeking FDA approval of ruxolitinib cream for the treatment of atopic dermatitis. Atopic dermatitis (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. Inthe United States , we estimate that there are approximately 10 million diagnosed and treated adolescent and adult patients with mild to moderate AD. InJune 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 inSeptember 2019 . InOctober 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 inthe United States with this disorder. There are no FDA approved treatments for repigmentation of vitiligo lesions. INCB54707 is a JAK1 selective inhibitor 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. InOctober 2020 , initial results from the clinical program were presented and a randomized Phase IIb trial of INCB54707 is now underway in patients with HS.
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 Atopic dermatitis: Phase III (TRuE-AD1, TRuE-AD2; primary (JAK1/JAK2) endpoints met)
Vitiligo: Phase III (TRuE-V1, TRuE-V2)
INCB54707 (JAK1) Hidradenitis suppurativa: Phase II parsaclisib (PI3K?) Autoimmune hemolytic anemia: Phase II INCB00928 (ALK2) Fibrodysplasia ossificans progressiva: Phase II in
preparation
1. Novartis' rights for ruxolitinib outside of
53 Table of Contents Partnered Programs 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.
InJanuary 2016 , Lilly submitted an NDA to the FDA and an MAA to the EMA for baricitinib as treatment for rheumatoid arthritis. InFebruary 2017 , we and Lilly announced that theEuropean Commission approved baricitinib as OLUMIANT for the treatment of moderate-to-severe rheumatoid arthritis in adult patientswho have responded inadequately to, orwho are intolerant to, one or more disease-modifying antirheumatic drugs (DMARDs). InJuly 2017 , theJapanese 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. InJune 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. InFebruary 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, inAugust 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. InJanuary 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.
In
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 54
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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-?, 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 a Phase III trial of baricitinib in patients with SLE. Alopecia Areata. Alopecia areata is an autoimmune disorder in which the immune system attacks the hair follicles, causing hair loss in patches. InMarch 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. InMay 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. InSeptember 2020 , we and Novartis announced that GEOMETRY mono-1 results were published inThe New England Journal of Medicine .
In
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. 55 Table of Contents Indication and status baricitinib Atopic dermatitis: Phase III (BREEZE-AD); approved in EU (JAK1/JAK2)1 Systemic lupus erythematosus: Phase III Severe alopecia areata: Phase III (BRAVE-AA1, BRAVE-AA2) capmatinib NSCLC (with MET exon 14 skipping mutations): FDA and MHLW approved (MET)2
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.
Novartis
InNovember 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 ofthe 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) inthe 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 inthe United States . Under this agreement, we received an upfront payment and immediate milestone payment totaling$210.0 million and were initially eligible to receive additional payments of up to approximately$1.2 billion if defined development, regulatory and sales milestones are achieved. We are also eligible to receive tiered, double-digit royalties ranging from the upper-teens to the mid-twenties percent on future ruxolitinib net sales outside ofthe United States , and tiered, worldwide royalties on future capmatinib net sales that range from 12% to 14%. In addition, Novartis has received reimbursement and pricing approval for ruxolitinib in a specified number of countries, and we are now obligated to pay to Novartis tiered royalties in the low single-digits on future ruxolitinib net sales withinthe United States . Each company is responsible for costs relating to the development and commercialization of ruxolitinib in its respective territories, with costs of collaborative studies shared equally. Novartis is also responsible for all costs relating to the development and commercialization of capmatinib. InApril 2016 , we amended this agreement to provide that Novartis has exclusive research, development and commercialization rights outside ofthe United States to ruxolitinib (excluding topical formulations) in the GVHD field. Under this amendment, we received a$5.0 million payment in exchange for the development and commercialization rights to ruxolitinib in GVHD outside ofthe United States and became eligible to receive up to$75.0 million of additional potential development and regulatory milestones relating to GVHD. InMay 2020 , we recognized a$25.0 million development milestone and a$45.0 million regulatory milestone for the FDA approval of capmatinib as TABRECTA. InJune 2020 , we recognized a$20.0 million regulatory milestone for the MHLW approval of TABRECTA. Exclusive of the upfront payment of$150.0 million received in 2009 and the 56 Table of Contents
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$120.0 million for the achievement of sales milestones throughSeptember 30, 2020 . 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.
Lilly
InDecember 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. We received an initial payment of$90.0 million , and were initially eligible to receive additional payments of up to$665.0 million based on the achievement of defined development, regulatory and sales milestones. We retained options to co-develop our JAK1/JAK2 inhibitors with Lilly on a compound-by-compound and indication-by-indication basis. Lilly is responsible for all costs relating to the development and commercialization of the compounds unless we elect to co-develop any compounds or indications. If we elect to co-develop any compounds and/or indications, we would be responsible for funding 30% of the associated future global development costs from the initiation of a Phase IIb trial through regulatory approval, including post-launch studies required by a regulatory authority. We would receive an incremental royalty rate increase across all tiers resulting in effective royalty rates ranging up to the high twenties on potential future global net sales for compounds and/or indications that we elect to co-develop. For indications that we elect not to co-develop, we would receive tiered, double-digit royalty payments on future global net sales with rates ranging up to 20% if the product is successfully commercialized. 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 inthe United States but, inMarch 2016 , we waived our co-promotion option as part of an amendment to the agreement. InJuly 2010 , we elected to co-develop baricitinib with Lilly in rheumatoid arthritis, and subsequently in several additional indications, and became responsible for funding 30% of the associated global development costs for such indications from the initiation of the Phase IIb trial through regulatory approval, including post-launch studies required by a regulatory authority. InApril 2019 , we elected to end additional co-funding of the development of baricitinib in all indications, effective as ofJanuary 1, 2019 . Pursuant to the terms of the Lilly agreement, we will continue to receive base tiered royalties on global net sales of OLUMIANT in all indications, as well as pro-rated incremental royalties, as described above. InMarch 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. 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. InMay 2019 , the approval of JAKAFI in steroid-refractory acute GVHD triggered a$20.0 million milestone payment to Lilly. InMay 2020 , we amended our agreement with Lilly to enable Lilly to commercialize baricitinib for the treatment of COVID-19. 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. 57 Table of Contents
Exclusive of the upfront payment of
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.
Agenus
InJanuary 2015 , we entered into a License, Development and Commercialization Agreement with Agenus Inc. and its wholly-owned subsidiary, 4-Antibody AG (now known asAgenus 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. InFebruary 2017 , we and Agenus amended this agreement. Under the terms of this agreement, as amended, 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 inNovember 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 untilFebruary 2017 , while the other targets currently under collaboration are royalty-bearing programs. TheFebruary 2017 amendment converted the programs relating to GITR and OX40 to royalty-bearing programs and removed from the collaboration the profit-share programs relating to the two undisclosed targets, with one reverting to us and one reverting to Agenus. Should any of those removed programs be successfully developed by a party, the other party will be eligible to receive the same milestone payments as the royalty-bearing programs and royalties at a 15% rate on global net sales. There are currently no profit-share programs. For each royalty-bearing product other than GITR and OX40, Agenus will be eligible to receive tiered royalties on global net sales ranging from 6% to 12%. For GITR and OX40, Agenus will be eligible to receive 15% royalties on global net sales. Under theFebruary 2017 amendment, we paid Agenus$20.0 million in accelerated milestones relating to the clinical development of the GITR and OX40 programs. 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. As ofSeptember 30, 2020 , we have paid Agenus an aggregate of$10.0 million in development milestones. 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.
InJune 2016 , we acquired fromARIAD Pharmaceuticals, Inc. all of the outstanding shares ofARIAD Pharmaceuticals (Luxembourg) S.à.r.l., the parent company of ARIAD's European subsidiaries responsible for the development and commercialization of ICLUSIG in theEuropean Union and other countries. We obtained an exclusive license to develop and commercialize ICLUSIG inEurope and other select countries. ARIAD was subsequently acquired by Takeda Pharmaceutical Company Limited in 2017. As such,Takeda will be eligible to receive from us tiered royalties on net sales of ICLUSIG in our territory and up to$135.0 million in potential future oncology development and regulatory approval milestone payments, together with additional milestone payments for non-oncology indications, if approved, in our territory. 58 Table of Contents Merus InDecember 2016 , we entered into a Collaboration and License Agreement with Merus N.V. Under this agreement, which became effective inJanuary 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 ofthe United States . Merus retained exclusive development and commercialization rights inthe 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 inthe United States and we will be responsible for commercializing it outside ofthe United States . In addition to receiving rights to MCLA-145 outside ofthe 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 inthe 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. InFebruary 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) inthe United States and be eligible to receive tiered royalties ranging from 6% to 10% of net sales of products outside ofthe 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 inthe 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 inthe 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.
Calithera
InJanuary 2017 , we entered into a Collaboration and License Agreement with Calithera Biosciences, Inc. Under this agreement, we received an exclusive, worldwide license to develop and commercialize small molecule arginase inhibitors, including INCB01158 (CB-1158), which is currently in Phase I clinical trials, for hematology and oncology indications. We have agreed to co-fund 70% of the global development costs for the development of the licensed products for hematology and oncology indications. Calithera will have the right to conduct certain clinical development under the 59
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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 inthe United States , and Calithera will have the right to co-detail licensed products inthe 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 outsidethe United States . Calithera retains rights to certain arginase inhibitors that are not part of the collaboration for specific orphan indications outside of hematology and oncology, subject to our rights to negotiate a license for any such programs under specified circumstances if Calithera elects to out-license them.
In
InAugust 2020 , Calithera delivered notice of its decision to opt out of its co-funding obligation, effective onSeptember 30, 2020 . As a result, theU.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 inthe United States and outsidethe 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. 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 inthe United States (if the parties are sharing profits inthe United States ) and until we have no further royalty payment obligations, unless earlier terminated according to the terms of the agreement. The agreement may be terminated in its entirety or on a product-by-product and/or a country-by-country basis by us for convenience. The agreement may also be terminated by us for Calithera's uncured material breach, by Calithera for our uncured material breach and by either party for bankruptcy or patent challenge. If the agreement is terminated early with respect to one or more products or countries, all rights in the terminated products and countries revert to Calithera.
MacroGenics
InOctober 2017 , we entered into a Global Collaboration and License Agreement with MacroGenics. Under this agreement, we received exclusive development and commercialization rights worldwide to MacroGenics' INCMGA0012, an investigational monoclonal antibody that inhibits PD-1. 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. As ofSeptember 30, 2020 , we have paid MacroGenics an upfront payment of$150.0 million and milestones totaling$30.0 million . MacroGenics will be eligible to receive up to an additional$390.0 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. 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. 60 Table of Contents Syros
InJanuary 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. We paid Syros$2.5 million in cash for access to proprietary technology and$7.5 million in cash for research and development services. 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.
Innovent
InDecember 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 in mainlandChina ,Hong Kong ,Macau andTaiwan . InJanuary 2019 , we recognized an upfront payment under this agreement of$40.0 million upon our transfer of the intellectual property related to the clinical-stage product candidates to Innovent. In addition, we were initially eligible to receive$20.0 million in connection with the first related IND filing inChina , up to an additional$129.0 million in potential development and regulatory milestones, and up to$202.5 million in potential sales milestones. 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. InJune 2019 , we recognized the$20.0 million milestone for the first related IND filing inChina . InApril 2020 , we recognized a$5.0 million milestone for the FDA approval of pemigatinib as PEMAZYRE.
Zai Lab
InJuly 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 mainlandChina ,Hong Kong ,Macau andTaiwan . We recognized an upfront payment under this agreement of$17.5 million inAugust 2019 upon our transfer of technology related to the licensed product candidate to Zai Lab, and are eligible to receive an additional$60.0 million in potential development, regulatory and sales milestones, as well as tiered royalties from the low to mid-twenties. We also retain an option to assist in the promotion of INCMGA0012 in Zai Lab's licensed territories.
MorphoSys
InJanuary 2020 , we entered into a Collaboration and License Agreement with MorphoSys AG andMorphoSys 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. MorphoSys gained exclusive worldwide development and commercialization rights to tafasitamab under aJune 2010 collaboration and license agreement with Xencor, Inc. Our agreement with MorphoSys became effective inMarch 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 ofthe United States , and MorphoSys and we have co-commercialization rights inthe United States , with respect to tafasitamab. MorphoSys is responsible for leading the commercialization strategy and booking all revenue from sales of tafasitamab inthe United States , and we and MorphoSys are both responsible for commercialization efforts inthe United States and will share equally the profits and losses from the co-commercialization efforts. We will lead the commercialization strategy outside ofthe United States , and will be responsible for commercialization efforts and book all revenue from sales of tafasitamab 61 Table of Contents outside ofthe 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 andU.S. -specific clinical trials, withIncyte 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 ofthe United States . All development costs related to the collaboration are subject to a joint development plan. InMarch 2020 , we paid MorphoSys an upfront non-refundable payment of$750.0 million . 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 ofthe 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.
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 condensed consolidated financial statements. See Note 2 of Notes to the Condensed 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. 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. The standard indicates that an entity must determine at contract inception whether it will transfer control of a promised good or service over time or satisfy the performance obligation at a point in time through analysis of the following criteria: (i) the entity has a present right to payment, (ii) the customer has legal title, (iii) the customer has physical possession, (iv) the customer has the significant risks and rewards of ownership and (v) the customer has accepted the asset. We assess collectability based primarily on the customer's payment history and on the creditworthiness of
the customer. Product Revenues Our product revenues consist ofU.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 theU.S. 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. Customer Credits: Our customers are offered various forms of consideration, including allowances, service fees and prompt payment discounts. We expect our customers will earn prompt payment discounts and, therefore, we deduct the full amount of these discounts from total product sales when revenues are recognized. Service fees are also deducted from total product sales as they are earned.
Rebates and Discounts: We accrue rebates for mandated discounts under the
Medicaid Drug Rebate Program in the
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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 inJanuary 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: Patientswho 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, the transaction price reflects the amount of consideration we expect to be entitled to in exchange for transferring promised goods or services to our collaborator. We review our estimate of the transaction price each period, and make revisions to such estimates as necessary. Milestone and contract revenues from collaborative agreements with multiple performance obligations is determined based upon assessment of each distinct promised good or service's estimated fair value and recognized based upon the completion of the promised good or service to our collaborator. Our license agreements often include contractual milestones, which 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. As such, milestones associated with our collaborations involve a substantial degree of uncertainty and risk that they may never be received. Given the uncertainty associated with achieving these milestones, constraints on the allocated consideration are assessed each reporting period. Revenues are recognized when achievement is probable, which may not be until achieved. 63 Table of Contents 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 theU.S. ,Europe , andAsia 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 theEuropean 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. 64
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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 discount rates 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.
Recent Accounting Pronouncements
InJune 2016 , theFinancial 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 will be 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 will recognize 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 ofJanuary 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. InAugust 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 afterDecember 15, 2019 . We adopted this guidance for the period beginningJanuary 1, 2020 and enhanced our disclosures in Note 4 to the condensed consolidated financial statements to comply with the standard. InAugust 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 afterDecember 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 inEurope . We are currently analyzing the impact of ASU No. 2018-14 on the condensed consolidated financial statements. InAugust 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 afterDecember 15, 2019 and may be applied on either a retrospective or prospective basis. We adopted this guidance for the period beginningJanuary 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. InNovember 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 65
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606, including clarifications on revenue recognition, unit of account, and reporting disclosure requirements. The guidance is effective for fiscal years beginning afterDecember 15, 2019 . We adopted this guidance for the period beginningJanuary 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 9 to the condensed consolidated financial statements. InDecember 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 afterDecember 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 condensed consolidated financial statements.
Results of Operations
We recorded net loss of$15.2 million and basic and diluted net loss per share of$0.07 for the three months endedSeptember 30, 2020 , as compared to net income of$128.3 million and basic net income per share of$0.60 and diluted net income per share of$0.59 in the corresponding period in 2019. We recorded net loss of$445.5 million and basic and diluted net loss per share of$2.05 for the nine months endedSeptember 30, 2020 , as compared to net income of$335.9 million and basic net income per share of$1.57 and diluted net income per share of$1.55 in the corresponding period in 2019. Revenues. For the Three Months Ended, For the Nine Months Ended, September 30, September 30, 2020 2019 2020 2019 (in millions) (in millions) JAKAFI revenues, net$ 487.8 $ 433.4 $ 1,421.0 $ 1,218.5 ICLUSIG revenues, net 26.4 20.6 76.4 65.6 PEMAZYRE revenues, net 8.1 - 11.9 - Total product revenues, net 522.3 454.0 1,509.3 1,284.1 JAKAVI product royalty revenues 68.3 58.4 190.9 160.9 OLUMIANT product royalty revenues 28.6 21.6 79.9 56.8 TABRECTA product royalty revenues 1.4 - 2.1 - Total product royalty revenues 98.3 80.0 272.9 217.7 Milestone and contract revenues - 17.5
95.0 77.5 Total revenues$ 620.6 $ 551.5 $ 1,877.2 $ 1,579.3 The increase in JAKAFI product revenues for the three months endedSeptember 30, 2020 as compared to the corresponding period in 2019 was comprised of a volume increase of$40.8 million and a price increase of$13.6 million . The increase in JAKAFI product revenues for the nine months endedSeptember 30, 2020 as compared to the corresponding period in 2019 was comprised of a volume increase of$176.4 million and a price increase of$26.1 million . Our product revenues may fluctuate from quarter to quarter due to our customers' purchasing patterns over the course of the year, including as a result of increased inventory building by customers in advance of expected or announced price increases. Product revenues are recorded net of estimated product returns, pricing discounts including rebates offered pursuant to mandatory federal and state government programs and chargebacks, prompt pay discounts and distribution fees and co-pay assistance. Our revenue recognition policies require estimates of the aforementioned sales allowances each period. 66 Table of Contents
The following table provides a summary of activity with respect to our sales allowances and accruals (in thousands):
Co-Pay Discounts and Government Assistance Distribution Rebates and and Other Product
Nine Months Ended September 30, 2020 Fees Chargebacks Discounts Returns Total Balance at January 1, 2020 $ 6,530 $
54,762
42,990 245,476 11,676 739 300,881 Allowances for prior period sales (160) 790 - (596) 34 Credits/payments for current period sales (36,169) (203,009) (10,595) - (249,773) Credits/payments for prior period sales (5,753) (30,537) (252) (307) (36,849) Balance at September 30, 2020 $ 7,438$ 67,482 $ 1,532 $ 1,496 $ 77,948 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 for the nine months endedSeptember 30, 2020 , were derived from a$5.0 million milestone under the Innovent research collaboration and licensing agreement and$90.0 million in milestones under the Novartis collaboration and license agreement. Our milestone and contract revenues for the nine months endedSeptember 30, 2019 , were derived from a$40.0 million upfront payment and a$20.0 million milestone under the Innovent research collaboration and licensing agreement and a$17.5 million upfront payment under the Zai Lab collaboration and license agreement. 67 Table of Contents Cost of Product Revenues. For the Three Months Ended, For the Nine Months Ended, September 30, September 30, 2020 2019 2020 2019 (in millions) (in millions)
Product costs $ 3.9 $ 2.7$ 10.8 $ 8.7 Salary and benefits related 0.9 0.6
2.7 1.9 Stock compensation 0.2 0.1 0.7 0.5 Royalty expense 23.9 21.2 64.6 54.7 Amortization of definite-lived intangible assets 5.4 5.4 16.2 16.2
Total cost of product revenues
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 inthe 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. The increase in cost of product revenues for the three and nine months endedSeptember 30, 2020 as compared to the corresponding periods in 2019 was due primarily to increased royalties to Novartis on all JAKAFI sales inthe United States . Operating Expenses.
Research and development expenses.
For the Three Months Ended, For the Nine Months Ended, September 30, September 30, 2020 2019 2020 2019 (in millions) (in millions) Salary and benefits related$ 73.2 $ 64.9 $ 206.2$ 185.6 Stock compensation 29.0 30.5 90.2 85.5 Clinical research and outside services 308.8 157.5 1,437.9 488.7 Occupancy and all other costs 27.1 28.4 75.7 81.4
Total research and development expenses
We account for research and development costs by natural expense line and not costs by project. The increase in salary and benefits related expense for the three and nine months endedSeptember 30, 2020 as compared to the corresponding periods in 2019 was due primarily to increased development headcount to sustain our development pipeline. Stock compensation expense may fluctuate from period to period based on the number of awards granted, stock price volatility and expected award lives, as well as expected award forfeiture rates which are used to value equity-based compensation. The increase in clinical research and outside services expense for the three months endedSeptember 30, 2020 as compared to the corresponding period in 2019 was primarily due to milestone achievement of$15.0 million under our collaboration and license agreement with MacroGenics and the cost of purchasing an FDA priority review voucher for$120.0 million , which we intend to use in connection with our submission seeking FDA approval of ruxolitinib cream for the treatment of atopic dermatitis. In addition, clinical research and outside services expense for the nine months endedSeptember 30, 2020 included upfront consideration of$804.5 million related to our collaborative agreement with MorphoSys contributing to the increase as compared to the corresponding period in 2019. Research and development expenses include upfront and milestone expenses related to our collaborative agreements and priority review voucher of$141.5 million and$950.5 million , respectively, for the three and nine months endedSeptember 30, 2020 . Research and development expenses include upfront and milestone expenses related to our collaborative agreements of$0.0 million and$25.3 million , respectively, for the three and nine months endedSeptember 30, 2019 . Research and development expenses for the three and nine months endedSeptember 30, 2020 and 2019 were net of$2.1 million ,$7.0 million ,$5.3 million and$11.6 million , respectively, of costs reimbursed by our collaborative partners. 68 Table of Contents
In addition to one-time expenses resulting from upfront fees in connection with the entry into any new or amended collaboration agreements and payment of milestones under those agreements, research and development expenses may fluctuate from period to period depending upon the stage of certain projects and the level of pre-clinical and clinical trial related activities. Many factors can affect the cost and timing of our clinical trials, including requests by regulatory agencies for more information, inconclusive results requiring additional clinical trials, slow patient enrollment, adverse side effects among patients, insufficient supplies for our clinical trials and real or perceived lack of effectiveness or safety of our investigational drugs in our clinical trials. In addition, the development of all of our products will be subject to extensive governmental regulation. These factors make it difficult for us to predict the timing and costs of the further development and approval of our products.
Selling, general and administrative expenses.
For the Three Months Ended, For the Nine Months Ended, September 30, September 30, 2020 2019 2020 2019 (in millions) (in millions) Salary and benefits related$ 42.1 $ 33.2 $ 113.1 $ 96.0 Stock compensation 14.6 12.8 41.7 38.6 Other contract services and outside costs 64.1 56.6 195.1 197.9 Total selling, general and administrative expenses$ 120.8 $
102.6
The increase in salary and benefits related expense for the three and nine months endedSeptember 30, 2020 as compared to the corresponding periods in 2019 was 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.
Change in fair value of acquisition-related contingent consideration
Acquisition-related contingent consideration, which consists of our future royalty obligations toTakeda , 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 three and nine months endedSeptember 30, 2020 was$7.1 million and$19.8 million , respectively, which is recorded in change in fair value of acquisition-related contingent consideration on the condensed consolidated statements of operations. The change in fair value of the acquisition-related contingent consideration for the three and nine months endedSeptember 30, 2019 was$3.3 million and$16.6 million , respectively, which is recorded in change in fair value of acquisition-related contingent consideration on the condensed consolidated statements of operations. The change in fair value for the three and nine months endedSeptember 30, 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 inMarch 2020 , we and MorphoSys are both responsible for the commercialization efforts of tafasitamab inthe United States and will share equally the profits and losses from the co-commercialization efforts. For the three and nine months endedSeptember 30, 2020 , our 50% share of the costs for tafasitamab was$15.0 million and$30.4 million , respectively, as recorded in collaboration loss sharing on the condensed consolidated statement of operations.
Other income (expense).
Other income (expense), net. Other income (expense), net for the three and nine
months ended
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Interest expense. Interest expense for the three and nine months endedSeptember 30, 2020 was$0.5 million and$1.7 million , respectively. Interest expense for the three and nine months endedSeptember 30, 2019 was$0.6 million and$1.2 million , respectively. Included in interest expense for the three and nine months endedSeptember 30, 2020 was$0.2 million and$0.6 million , respectively, of non-cash charges to amortize the discount on the 2020 Notes and approximately$0.3 million and$0.9 million , respectively, of interest expense on our finance lease liabilities. Included in interest expense for the three and nine months endedSeptember 30, 2019 was$0.2 million and$0.6 million , respectively, of non-cash charges to amortize the discount on the 2020 Notes and approximately$0.3 million of interest expense on our finance lease liabilities. 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): For the Three Months Ended, For the Nine Months Ended, September 30, September 30, 2020 2019 2020 2019 (in millions) (in millions) Agenus $ 3.9$ (7.5) $ 1.2 $ 3.5 Calithera (3.2) (1.4) (3.9) (1.6) Merus (13.1) 10.1 (6.7) 12.2 MorphoSys 0.9 - 18.5 - Syros (1.7) 1.1 1.8 4.6
Total unrealized gain (loss) on long term investments
Provision for income taxes. The provision for income taxes for the three and nine months endedSeptember 30, 2020 and was$11.7 million and$45.2 million , respectively. The provision for income taxes for the three and nine months endedSeptember 30, 2019 and was$19.7 million and$24.9 million , respectively. The decrease in tax expense for the three months endedSeptember 30, 2020 was primarily driven by increased tax benefits for stock-based compensation and foreign derived intangible income. The increase in tax expense for the nine months endedSeptember 30, 2020 was primarily driven by 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
Due to historical net losses, we had an accumulated deficit of$1.9 billion as ofSeptember 30, 2020 . We have funded our research and development operations through sales of equity securities, the issuance of convertible notes, cash received from customers, and collaborative arrangements. AtSeptember 30, 2020 , we had available cash, cash equivalents and marketable securities of$1.7 billion . Our cash and marketable securities balances are held in a variety of interest-bearing instruments, including money market accounts, andU.S. government debt securities. Available cash is invested in accordance with our investment policy's primary objectives of liquidity, safety of principal and diversity of investments. Net cash used in operating activities for the nine months endedSeptember 30, 2020 was$231.9 million and net cash provided by operating activities for the nine months endedSeptember 30, 2019 was$579.0 million . The$810.9 million decrease in cash provided by operating activities was due primarily to cash outflows related to our collaboration and license agreements and changes in working capital. Our investing activities, other than purchases, sales and maturities of marketable securities, have consisted predominantly of capital expenditures and purchases of long term investments. Net cash used by investing activities was$166.3 million for the nine months endedSeptember 30, 2020 , which represented purchases of marketable securities of$418.7 million , capital expenditures of$135.9 million and purchases of long term equity investments of$95.5 million , offset in part by the sale of long term investment of$17.3 million and the sale and maturity of marketable securities of 70
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$466.6 million . Net cash used in investing activities was$57.4 million for the nine months endedSeptember 30, 2019 , which represented purchases of marketable securities of$222.2 million and capital expenditures of$48.7 million , offset in part by the sale and maturity of marketable securities of$213.5 million . In the future, net cash used by investing activities may fluctuate significantly from period to period due to the timing of strategic equity investments, acquisitions, and capital expenditures and maturities/sales and purchases of marketable securities. Net cash provided by financing activities was$59.8 million and$16.4 million , respectively, for the nine months endedSeptember 30, 2020 and 2019, primarily representing proceeds from the issuance of common stock under our stock plans, offset in part by cash paid to ARIAD/Takeda for contingent consideration. The following summarizes our significant contractual obligations as ofSeptember 30, 2020 and the effect those obligations are expected to have on our liquidity and cash flow in future periods (in millions): Less Than Years Years Over Total 1 Year 2 - 3 4 - 5 5 Years Contractual Obligations:
Principal on convertible senior debt$ 12.0 $ 12.0 $ - $ - $ - Interest on convertible senior debt 0.1 0.1 - - - Finance lease liabilities 45.5 3.0 6.9 5.6 30.0 Operating lease liabilities 30.2 12.6 11.3 2.0 4.3 Other non-cancelable obligations 3.2 1.1 1.9 0.2 - Total contractual obligations$ 91.0 $ 28.8 $ 20.1 $ 7.8 $ 34.3 We have entered into and may in the future seek to license additional rights relating to technologies or drug development candidates in connection with our drug discovery and development programs. Under these licenses, we may be required to pay upfront fees, milestone payments, and royalties on sales of future products, which are not reflected in the table above. InOctober 2019 , we entered into an agreement withWilmington 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; our receipt of any milestone or other payments under any collaborative agreements we may enter into, including the agreements with Novartis, Lilly,Innovent and Zai Lab; and expenditures in connection with strategic relationships and license agreements, including our agreements with Agenus, ARIAD/Takeda , Calithera, Lilly, MacroGenics, MorphoSys, Merus and Syros, strategic equity investments or potential acquisitions. 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.
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