INCYTE CORP

We recorded net income of $424.2 million and basic net income per share of $2.17 and diluted net income per share of $2.11 for the three months ended September 30, 2025, as compared to net income of $106.5 million and basic net income per share of $0.55 and diluted net income per share of $0.54 in the corresponding period in 2024. We recorded net income of $987.4 million and basic net income per share of $5.08 and diluted net income per share of $4.95 for the nine months ended September 30, 2025, as compared to net loss of $168.6 million and basic and diluted net loss per share of $0.80 in the corresponding period in 2024.

Revenues

The increase in JAKAFI for the three and nine months ended September 30, 2025 as compared to the corresponding periods in 2024 was primarily driven by an increase in paid demand reflecting continued demand growth in all indications. JAKAFI inventory levels were within normal range at the end of the third quarter of 2025.

The increase in OPZELURA net product revenues for the three and nine months ended September 30, 2025 as compared to the corresponding periods in 2024 was primarily due to increased patient demand and refills in the U.S. in both atopic dermatitis and vitiligo. Additionally, $44.4 million of net product revenues during the third quarter of 2025 were from outside of the U.S., driven by continued uptake in France and Italy in vitiligo. OPZELURA inventory levels were within normal range at the end of the third quarter of 2025.

NIKTIMVO net product revenues for the three and nine months ended September 30, 2025 reflects continued strong uptake of the product following its commercial launch during the first quarter of 2025.

The increase in ZYNYZ net product revenue for the three and nine months ended September 30, 2025 was primarily driven by the approval of the product in squamous cell anal carcinoma in the second quarter of 2025.

The increase in total royalty revenues for the three and nine months ended September 30, 2025 as compared to the corresponding periods in 2024 was primarily driven by growth in JAKAVI royalty revenue.

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

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

U.S. government rebates and chargebacks are the most significant component of our sales allowances. Increases in certain U.S. 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.

We brought a lawsuit against the U.S. Centers for Medicare and Medicaid Services (“CMS”) alleging that a regulation issued by CMS on the definition of “line extension” for purposes of the Medicaid rebate program is too broad and has the unintended consequence of treating OPZELURA as a “line extension” of JAKAFI under this program. We believe that such a reading would violate CMS’s statutory authority and be arbitrary and capricious given that OPZELURA, among other differentiators, is indicated to treat entirely different medical conditions and entirely different patient populations than JAKAFI. As of September 30, 2025, we have accrued approximately $188.9 million within accrued and other current liabilities on the condensed consolidated balance sheet, relating to the incremental rebates that would be owed were OPZELURA considered a line extension of JAKAFI. The impact on OPZELURA gross to net deductions for the quarter ending September 30, 2025 is approximately 6.8%. If OPZELURA is not treated as a line extension of JAKAFI, this would result in a reversal of our accrual and a lower future gross to net deduction for OPZELURA.

Claims by third-party payors for rebates and chargebacks are frequently submitted after the period in which the related sales occurred, which may result in adjustments to prior period accrual balances in the period in which the new information becomes available. Our company-sponsored patient savings program in which we provide financial assistance to enable commercially-insured patients to afford their insurance premium and co-pays may fluctuate as the commercial insurance landscape evolves and may impact net revenues, particularly for drugs like OPZELURA. We also adjust our allowance for product returns based on new information regarding actual returns as it becomes available.

We expect our sales allowances to fluctuate from quarter to quarter as a result of the 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 three and nine months ended September 30, 2025 and September 30, 2024 were derived from a combination of upfront payments received from our third party collaborators for the transfer of functional intellectual property, as well as developmental milestones received from our third party collaborators.

Cost of Product Revenues

Cost of product revenues includes all product related costs, reserves for obsolescence, employee personnel costs, including stock compensation, for those employees dedicated to the production of our commercial products, royalties and profit sharing under our collaborative agreements and amortization of our licensed intellectual property rights for ICLUSIG and capitalized milestone payments. The increase in cost of product revenues for the three and nine months ended September 30, 2025 as compared to the same periods in 2024 was driven by growth in net product revenues, the NIKTIMVO profit share and increased manufacturing related costs, partially offset by the impact of the contract dispute settlement with Novartis.

Contract Dispute Settlement

As described further in Note 8 of Notes to the Condensed Consolidated Financial Statements, during May 2025, we and Novartis entered into a settlement agreement with respect to litigation initiated by Novartis relating to the duration of royalty payments owed by us to Novartis under the our Collaboration and License Agreement. As of March 31, 2025, we had approximately $537.1 million of accrued royalties relating to the dispute with Novartis included in accrued and other current liabilities on our condensed consolidated balance sheet. Under the settlement agreement, we paid Novartis $280.0 million as the settlement of disputed royalties on net sales of JAKAFI in the United States through December 31, 2024, and agreed to reduce by 50% the royalty rate payable by us on future net sales of JAKAFI in the United States beginning January 1, 2025. The reduced royalty paid for the quarter ended March 31, 2025, was approximately $14.9 million. The difference of $242.2 million between the total accrued royalties and the total amount paid by us to Novartis as disclosed above was recorded in contract dispute settlement on our condensed consolidated statement of operations for the nine months ended September 30, 2025.

Operating Expenses

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 ended September 30, 2025 as compared to the corresponding period in 2024 was due primarily to increased 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. Additionally, as described in Note 6 of Notes to the Condensed Consolidated Financial Statements, as part of the Escient acquisition, during the second quarter of 2024, we recognized compensation expense in research and development of $11.3 million associated with the accelerated vesting for certain Escient stock awards in connection with the acquisition on our condensed consolidated statements of operations.

Research and development expenses for the nine months ended September 30, 2024 also include the $679.4 million of expense related to the acquired in-process research and development assets as part of the Escient acquisition, as described in Note 6 of Notes to the Condensed Consolidated Financial Statements. The decrease in clinical research and outside services expense for the three months ended September 30, 2025 as compared to the corresponding period in 2024, was primarily due to the $100.0 million milestone payment made to MacroGenics during the third quarter of 2024. Research and development expenses include upfront and milestone expenses related to our collaborative agreements of $0.1 million and $28.2 million, respectively, for the three and nine months ended September 30, 2025. Research and development expenses include upfront and milestone expenses related to our collaborative agreements of $100.0 million and $101.4 million, respectively, for the three and nine months ended September 30, 2024. Research and development expenses for the three and nine months ended September 30, 2025 and 2024 were net of $4.3 million, $10.8 million, $3.8 million and $25.1 million, respectively, of costs reimbursed by our collaborative partners.

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

Selling, general and administrative expenses

The increase in salary and benefits related expense for the three and nine months ended September 30, 2025 as compared to the corresponding period in 2024 was due primarily to increased headcount. 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. Additionally, as described in Note 6 of Notes to the Condensed Consolidated Financial Statements, as part of the Escient acquisition, during the second quarter of 2024, we recognized compensation expense in selling, general and administrative expenses of $20.2 million associated with the accelerated vesting for certain Escient stock awards in connection with the acquisition on our condensed consolidated statements of operations. The increase in other contract services and outside costs for the three months ended September 30, 2025, as compared to the corresponding period in 2024, was primarily due to international marketing activities to support product launches.

(Gain) loss on change in fair value of acquisition-related contingent consideration

Acquisition-related contingent consideration, which consists of our future royalty obligations to ARIAD/Takeda, was recorded on the acquisition date, June 1, 2016, at the estimated fair value of the obligation, in accordance with the acquisition method of accounting. The change in fair value of the acquisition-related contingent consideration for the three and nine months ended September 30, 2025 was a gain of $12.2 million and loss of $22.1 million, respectively, which is recorded in (gain) loss on 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 ended September 30, 2024 was a loss of $23.4 million and $23.8 million, respectively, which is recorded in (gain) loss on change in fair value of acquisition-related contingent consideration on the condensed consolidated statements of operations. The change in fair value of the contingent consideration during the three and nine months ended September 30, 2025 and 2024 was due primarily to updated projections of future net revenues of Iclusig, including the impacts from fluctuations in foreign currency exchange rates, and the passage of time.

Non-operating Income and Expenses

Interest income

Interest income for the three and nine months ended September 30, 2025 was $26.8 million and $74.8 million, respectively. Interest income for the three and nine months ended September 30, 2024 was $19.3 million and $107.5 million, respectively. The increase in Interest income for the three months ended September 30, 2025 is primarily due to higher cash and cash equivalent balances in the third quarter of 2025 as compared to the corresponding period in 2024, and the decrease in Interest income for the nine months ended September 30, 2025 is primarily due to lower interest rates in 2025 and to a lesser extent, lower average cash balances as compared to the corresponding periods in 2024.

Gain (loss) on equity investments

Gains and losses on equity investments will fluctuate from period to period, based on sales of securities and the change in fair value of the securities we hold in our publicly held collaboration partners. The following table provides a summary of those gains (losses):

Provision for income taxes

The provision for income taxes for the three and nine months ended September 30, 2025 was $58.1 million and $287.1 million, respectively. The provision for income taxes for the three and nine months ended September 30, 2024 was $50.1 million and $171.5 million, respectively.

Our effective tax rate for the three months ended September 30, 2025 is lower than the U.S. statutory rate primarily due to a net decrease in our valuation allowance against certain U.S. federal deferred tax assets, resulting from the recently enacted U.S. tax law changes, as more fully described in Note 14 of Notes to the Condensed Consolidated Financial Statements. Our effective tax rate for the nine months ended September 30, 2025 was higher than the U.S. statutory rate primarily due to an increase in our valuation allowance against certain U.S. federal and state deferred tax assets. This was partially offset by tax rate benefits associated with research and development and orphan drug tax credit generations, the foreign derived intangible income deduction and a decrease in a prior year valuation allowance against certain U.S. federal deferred tax assets, resulting from the recently enacted U.S. tax law changes.

Our effective tax rate for the three months ended September 30, 2024 was higher than the U.S. statutory rate primarily due to foreign losses with no associated tax benefit (i.e., full valuation allowance) and an increase in our valuation allowance against certain U.S. federal and state deferred tax assets. This was partially offset by tax rate benefits associated with research and development and orphan drug tax credit generations and the foreign derived intangible income deduction. Our effective tax rate for the nine months ended September 30, 2024 was higher than the U.S. statutory rate primarily due to non-deductible charges of $710.9 million associated with the Escient acquisition.

Liquidity and Capital Resources

At September 30, 2025, we had available cash, cash equivalents and marketable securities of $2.9 billion. Our cash and marketable securities balances are primarily held in a variety of interest-bearing instruments, including money market accounts and U.S. government debt securities. Available cash is invested in accordance with our investment policy’s primary objectives of liquidity, safety of principal and diversity of investments.

Net cash provided by operating activities for the nine months ended September 30, 2025 was $870.2 million and net cash used in operating activities for the nine months ended September 30, 2024 was $45.9 million. The increase in cash provided by operating activities was due primarily to the changes in net income as a result of the contract dispute settlement during the second quarter of 2025 and the Escient acquisition during the second quarter of 2024 and changes in working capital.

Our investing activities, other than purchases, sales and maturities of marketable securities, have consisted predominantly of capital expenditures and sales of long term investments. Net cash used in investing activities was $65.2 million for the nine months ended September 30, 2025, which primarily represented purchases of marketable securities of $212.9 million, capital expenditures of $37.0 million and payments for intangible assets of $25.0 million, offset in part by maturities of marketable securities of $209.6 million. Net cash provided by investing activities was $179.0 million for the nine months ended September 30, 2024, which primarily represented sales of equity investments of $282.9 million and maturities of marketable securities of $207.9 million, offset in part by purchases of marketable securities of $229.0 million, capital expenditures of $68.9 million and payments for intangible assets of $13.9 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 used in financing activities was $36.7 million for the nine months ended September 30, 2025, primarily representing the $19.1 million paid for excise taxes relating to the June 2024 share repurchase, cash paid for tax withholdings related to restricted and performance share vesting and cash paid to ARIAD/Takeda for contingent consideration, partially offset by proceeds from issuance of common stock under our stock plans. Net cash used in financing activities was $2.04 billion for the nine months ended September 30, 2024 and was primarily driven by expenditures associated with the share repurchase of $2.00 billion.

In August 2021, we entered into a $500.0 million, senior unsecured revolving credit facility, which was subsequently amended in May 2023 and June 2024 (as amended, the “Credit Agreement”). The June 2024 amendment to the Credit Agreement extended the maturity date of the revolving credit facility from August 2024 to June 2027. We may increase the maximum revolving commitments or add one or more incremental term loan facilities, subject to obtaining commitments from any participating lenders and certain other conditions, in an amount not to exceed $250.0 million plus a contingent additional amount that is dependent on our pro forma consolidated leverage ratio. As of September 30, 2025, we had no outstanding borrowings and were in compliance with all covenants under this facility. The Credit Agreement is described further in Note 17 of Notes to the Condensed Consolidated Financial Statements.

The enactment of the One Big Beautiful Bill Act on July 4, 2025 modified key provisions of the Tax Cuts and Jobs Act of 2017. The change related to the expensing of domestic research costs will materially reduce our U.S. tax liabilities in 2025 and 2026. We continue to evaluate the impacts of the modified provisions and have reflected an estimate in our financial statements for the period ending September 30, 2025.

We believe that our cash flow from operations, together with our cash, cash equivalents and marketable securities and funds available under our revolving credit facility, will be adequate to satisfy our capital needs for the foreseeable future. Our cash requirements depend on numerous factors, including our expenditures in connection with our drug discovery and development programs and commercialization operations; expenditures in connection with litigation or other legal proceedings; costs for future facility requirements; and expenditures for future strategic equity investments or potential acquisitions. We have entered into and may in the future seek to license additional rights relating to technologies or drug development candidates in connection with our drug discovery and development programs. Under these licenses, we may be required to pay upfront fees, milestone payments, and royalties on sales of future products. These contingent future payments are discussed in detail in Note 8 of Notes to the Condensed Consolidated Financial Statements.

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 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.