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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from               to               
Commission File Number: 001-12400
INCYTE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware94-3136539
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
1801 Augustine Cut-Off
Wilmington, DE 19803
19803
(Address of principal executive offices)(Zip Code)
(302) 498-6700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of exchange on which registered
Common Stock, $.001 par value per shareINCY
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
The number of outstanding shares of the registrant’s Common Stock, $.001 par value, was 222,475,468 as of October 25, 2022.


INCYTE CORPORATION
INDEX
2

PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
INCYTE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares and par value)
September 30,
2022
December 31,
2021*
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents$2,690,622 $2,057,440 
Marketable securities—available-for-sale (amortized cost $292,941 and $291,871 as of September 30, 2022 and December 31, 2021, respectively; allowance for credit losses $0 as of September 30, 2022 and December 31, 2021)
286,500 290,752 
Accounts receivable618,188 616,300 
Inventory45,869 27,904 
Prepaid expenses and other current assets179,932 126,278 
Total current assets3,821,111 3,118,674 
Restricted cash and investments1,601 1,720 
Long term investments149,124 221,266 
Inventory55,264 29,034 
Property and equipment, net715,733 723,920 
Finance lease right-of-use assets, net26,679 27,548 
Other intangible assets, net134,603 150,755 
Goodwill155,593 155,593 
Deferred income tax asset426,840 467,538 
Other assets, net23,666 37,304 
Total assets$5,510,214 $4,933,352 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$163,175 $172,110 
Accrued compensation106,309 108,962 
Accrued and other current liabilities699,814 533,595 
Finance lease liabilities3,112 2,635 
Acquisition-related contingent consideration34,186 37,006 
Total current liabilities1,006,596 854,308 
Acquisition-related contingent consideration171,814 206,994 
Finance lease liabilities30,476 31,632 
Other liabilities74,677 70,414 
Total liabilities1,283,563 1,163,348 
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued or outstanding
  
Common stock, $0.001 par value; 400,000,000 shares authorized; 222,454,839 and 221,084,433 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
222 221 
Additional paid-in capital4,721,166 4,567,111 
Accumulated other comprehensive loss(29,062)(19,454)
Accumulated deficit(465,675)(777,874)
Total stockholders’ equity4,226,651 3,770,004 
Total liabilities and stockholders’ equity$5,510,214 $4,933,352 
*The condensed consolidated balance sheet at December 31, 2021 has been derived from the audited consolidated financial statements at that date.
See accompanying notes.
3

INCYTE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Revenues:
Product revenues, net$713,010 $594,013 $1,982,682 $1,673,974 
Product royalty revenues110,293 183,974 350,253 404,440 
Milestone and contract revenues 35,000 135,000 45,000 
Total revenues823,303 812,987 2,467,935 2,123,414 
Costs and expenses:
Cost of product revenues (including definite-lived intangible amortization)54,584 39,869 147,834 107,117 
Research and development384,007 334,945 1,084,576 985,352 
Selling, general and administrative266,460 190,704 729,321 513,358 
(Gain) loss on change in fair value of acquisition-related contingent consideration(21,893)2,910 (12,198)13,068 
Collaboration loss sharing1,769 9,149 9,055 29,476 
Total costs and expenses684,927 577,577 1,958,588 1,648,371 
Income from operations138,376 235,410 509,347 475,043 
Other income (expense), net11,513 1,948 13,295 4,931 
Interest expense(641)(439)(1,999)(1,156)
Unrealized loss on long term investments(660)(27,450)(72,142)(28,394)
Income before provision for income taxes148,588 209,469 448,501 450,424 
Provision for income taxes35,813 27,730 136,302 65,694 
Net income$112,775 $181,739 $312,199 $384,730 
Net income per share:
Basic$0.51 $0.82 $1.41 $1.75 
Diluted$0.50 $0.82 $1.40 $1.73 
Shares used in computing net income per share:
Basic222,415220,845221,801220,243
Diluted224,175222,248223,626222,113
See accompanying notes.
4

INCYTE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Net income$112,775 $181,739 $312,199 $384,730 
Other comprehensive loss:
Foreign currency translation loss(2,513)(629)(5,132)(4,061)
Unrealized loss on marketable securities, net of tax(1,135)(86)(5,322)(251)
Defined benefit pension gain, net of tax282 342 846 1,026 
Other comprehensive loss(3,366)(373)(9,608)(3,286)
Comprehensive income$109,409 $181,366 $302,591 $381,444 
See accompanying notes.
5

INCYTE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited, in thousands, except number of shares)
Common
Stock
Additional
Paid-in Capital
Accumulated Other
Comprehensive Loss
Accumulated
Deficit
Total
Stockholders’
Equity
Balances at January 1, 2022$221 $4,567,111 $(19,454)$(777,874)$3,770,004 
Issuance of 323,582 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units, net of shares withheld for taxes
— 14,237 — — 14,237 
Issuance of 1,535 shares of Common Stock for services rendered
— 112 — — 112 
Stock compensation— 44,320 — — 44,320 
Other comprehensive loss— — (3,593)— (3,593)
Net income— — — 37,992 37,992 
Balance at March 31, 2022$221 $4,625,780 $(23,047)$(739,882)$3,863,072 
Issuance of 274,693 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units and performance shares, net of shares withheld for taxes and 189,684 shares of Common Stock under the ESPP
1 16,600 — — 16,601 
Issuance of 1,469 shares of Common Stock for services rendered
— 109 — — 109 
Stock compensation— 46,496 — — 46,496 
Other comprehensive loss— — (2,649)— (2,649)
Net income— — — 161,432 161,432 
Balances at June 30, 2022$222 $4,688,985 $(25,696)$(578,450)$4,085,061 
Issuance of 578,106 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units, net of shares withheld for taxes
— (13,572)— — (13,572)
Issuance of 1,337 shares of Common Stock for services rendered
— 94 — — 94 
Stock compensation— 45,659 — — 45,659 
Other comprehensive loss— — (3,366)— (3,366)
Net income— — — 112,775 112,775 
Balances at September 30, 2022$222 $4,721,166 $(29,062)$(465,675)$4,226,651 
6

INCYTE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)
(unaudited, in thousands, except number of shares)
Common
Stock
Additional
Paid-in Capital
Accumulated Other
Comprehensive Loss
Accumulated
Deficit
Total
Stockholders’
Equity
Balances at January 1, 2021$219 $4,352,864 $(15,360)$(1,726,455)$2,611,268 
Issuance of 389,512 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units, net of shares withheld for taxes
1 20,027 — — 20,028 
Issuance of 1,357 shares of Common Stock for services rendered
— 108 — — 108 
Stock compensation— 47,903 — — 47,903 
Other comprehensive loss— — (4,998)— (4,998)
Net income— — — 53,535 53,535 
Balances at March 31, 2021$220 $4,420,902 $(20,358)$(1,672,920)$2,727,844 
Issuance of 390,001 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units and performance shares, net of shares withheld for taxes and 153,082 shares of Common Stock under the ESPP
— 11,016 — — 11,016 
Issuance of 1,288 shares of Common Stock for services rendered
— 109 — — 109 
Stock compensation— 45,351 — — 45,351 
Other comprehensive income— — 2,085 — 2,085 
Net income— — — 149,456 149,456 
Balances at June 30, 2021$220 $4,477,378 $(18,273)$(1,523,464)$2,935,861 
Issuance of 459,084 shares of Common Stock upon exercise of stock options and settlement of employee restricted stock units, net of shares withheld for taxes
1 (11,993)— — (11,992)
Issuance of 1,466 shares of Common Stock for services rendered
— 108 — — 108 
Stock compensation— 43,314 — — 43,314 
Other comprehensive loss— — (373)— (373)
Net income— — — 181,739 181,739 
Balances at September 30, 2021$221 $4,508,807 $(18,646)$(1,341,725)$3,148,657 
See accompanying notes.
7

INCYTE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Nine Months Ended
September 30,
20222021
Cash flows from operating activities:
Net income$312,199 $384,730 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization49,637 42,986 
Stock-based compensation135,741 134,784 
Deferred income taxes40,432 (178)
Other, net15,097 5,268 
Unrealized loss on long term investments72,142 28,394 
(Gain) loss on change in fair value of acquisition-related contingent consideration(12,198)13,068 
Changes in operating assets and liabilities:
Accounts receivable(1,888)(34,695)
Prepaid expenses and other assets(40,016)(24,784)
Inventory(48,316)(16,215)
Accounts payable(8,935)15,742 
Accrued and other liabilities172,384 85,037 
Net cash provided by operating activities686,279 634,137 
Cash flows from investing activities:
Purchase of long term investments (8,662)
Sale of long term investments 10,473 
Capital expenditures(56,560)(146,543)
Purchases of marketable securities(59,058)(228,170)
Sale and maturities of marketable securities57,988 231,250 
Net cash used in investing activities(57,630)(141,652)
Cash flows from financing activities:
Proceeds from issuance of common stock under stock plans42,989 48,432 
Tax withholdings related to restricted and performance share vesting(25,724)(29,380)
Payment of finance lease liabilities(2,106)(1,788)
Payment of contingent consideration(13,473)(20,093)
Net cash provided by (used in) financing activities1,686 (2,829)
Effect of exchange rates on cash, cash equivalents, restricted cash and investments2,728 (3,718)
Net increase in cash, cash equivalents, restricted cash and investments633,063 485,938 
Cash, cash equivalents, restricted cash and investments at beginning of period2,059,160 1,514,765 
Cash, cash equivalents, restricted cash and investments at end of period$2,692,223 $2,000,703 
Supplemental Schedule of Cash Flow Information
Income taxes paid$116,537 $45,872 
Unpaid purchases of property and equipment$8,836 $23,892 
Leased assets obtained in exchange for new operating lease liabilities$3,650 $9,068 
Leased assets obtained in exchange for new finance lease liabilities$1,448 $455 
See accompanying notes.
8

INCYTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 1. Organization and Business
Incyte Corporation (including its subsidiaries, “Incyte,” “we,” “us,” or “our”) is a biopharmaceutical company focused on developing and commercializing proprietary therapeutics. Our portfolio includes compounds in various stages, ranging from preclinical to late stage development, and commercialized products JAKAFI® (ruxolitinib), ICLUSIG® (ponatinib), PEMAZYRE® (pemigatinib), OPZELURA™ (ruxolitinib cream), MINJUVI® (tafasitamab) and MONJUVI® (tafasitamab-cxix), which is co-commercialized. Our operations are treated as one operating segment.
Note 2. Summary of Significant Accounting Policies
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The condensed consolidated balance sheet as of September 30, 2022, the condensed consolidated statements of operations, comprehensive income (loss), and stockholders’ equity for the three and nine months ended September 30, 2022 and 2021, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021, are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The condensed consolidated balance sheet at December 31, 2021 has been derived from our audited consolidated financial statements.
Although we believe that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and footnote information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.
Results for any interim period are not necessarily indicative of results for any future interim period or for the entire year. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Principles of Consolidation. The condensed consolidated financial statements include the accounts of Incyte Corporation and our wholly owned subsidiaries. All inter-company accounts, transactions, and profits have been eliminated in consolidation.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Recent Accounting Pronouncements
There were no new accounting pronouncements issued nor adopted since our filing of the Annual Report on Form 10-K for the year ended December 31, 2021, which could have a significant effect on our condensed consolidated financial statements.
9

Note 3. Revenues
Revenues are recognized under guidance within ASC 606, Revenue from Contracts with Customers. The following table presents our disaggregated revenue for the periods presented (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
JAKAFI revenues, net$619,595 $547,373 $1,761,732 $1,542,138 
ICLUSIG revenues, net25,929 28,522 78,222 82,356 
PEMAZYRE revenues, net23,414 17,562 60,429 48,924 
MINJUVI revenues, net5,932 556 14,845 556 
OPZELURA revenues, net38,140  67,454  
Total product revenues, net713,010 594,013 1,982,682 1,673,974 
JAKAVI product royalty revenues85,808 94,655 240,386 242,295 
OLUMIANT product royalty revenues20,371 86,572 98,689 154,875 
TABRECTA product royalty revenues4,114 2,747 11,178 7,270 
Total product royalty revenues110,293 183,974 350,253 404,440 
Milestone and contract revenues 35,000 135,000 45,000 
Total revenues$823,303 $812,987 $2,467,935 $2,123,414 
For further information on our revenue-generating contracts, refer to Note 7.
Note 4. Fair Value of Financial Instruments
The following is a summary of our marketable security portfolio for the periods presented (in thousands):
Amortized
Cost
Net
Unrealized
Losses
Estimated
Fair Value
September 30, 2022
Debt securities (government)$292,941 $(6,441)$286,500 
December 31, 2021
Debt securities (government)$291,871 $(1,119)$290,752 
Our available-for-sale debt securities generally have contractual maturity dates of between 12 to 18 months. Debt security assets were assessed for risk of expected credit losses. As of September 30, 2022 and December 31, 2021, the available-for-sale debt securities were held in U.S.-government backed securities and in Treasury bonds and were assessed on an individual security basis to have a de minimis risk of credit loss.
Fair Value Measurements
FASB accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (“the exit price”) in an orderly transaction between market participants at the measurement date. The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. In determining fair value we use quoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of us. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:
Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.
10

Level 2—Valuations based on observable inputs and quoted prices in active markets for similar assets and liabilities.
Level 3—Valuations based on inputs that are unobservable and models that are significant to the overall fair value measurement.
Recurring Fair Value Measurements
Our marketable securities consist of investments in U.S. government debt securities that are classified as available-for-sale.
At September 30, 2022 and December 31, 2021, our Level 2 U.S. government debt securities were valued using readily available pricing sources which utilize market observable inputs, including the current interest rate and other characteristics for similar types of investments. Our long term investments classified as Level 1 were valued using their respective closing stock prices on The Nasdaq Stock Market. We did not experience any transfers of financial instruments between the fair value hierarchy levels during the nine months ended September 30, 2022.
The following fair value hierarchy table presents information about each major category of our financial assets measured at fair value on a recurring basis (in thousands):
Fair Value Measurement at Reporting Date Using:
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Balance as of
September 30, 2022
Cash and cash equivalents$2,690,622 $ $ $2,690,622 
Debt securities (government) 286,500  286,500 
Long term investments (Note 7)
149,124   149,124 
Total assets$2,839,746 $286,500 $ $3,126,246 
Fair Value Measurement at Reporting Date Using:
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Balance as of
December 31, 2021
Cash and cash equivalents$2,057,440 $ $ $2,057,440 
Debt securities (government) 290,752  290,752 
Long term investments (Note 7)
221,266   221,266 
Total assets$2,278,706 $290,752 $ $2,569,458 
The following fair value hierarchy table presents information about each major category of our financial liabilities measured at fair value on a recurring basis as (in thousands):
Fair Value Measurement at Reporting Date Using:
Quoted Prices in
Active Markets for
Identical Liabilities
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Balance as of
September 30, 2022
Acquisition-related contingent consideration$ $ $206,000 $206,000 
Total liabilities$ $ $206,000 $206,000 
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Fair Value Measurement at Reporting Date Using:
Quoted Prices in
Active Markets for
Identical Liabilities
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Balance as of
December 31, 2021
Acquisition-related contingent consideration$ $ $244,000 $244,000 
Total liabilities$ $ $244,000 $244,000 
The following is a rollforward of our Level 3 liabilities (in thousands):
2022
Balance at January 1, $244,000 
Contingent consideration earned during the period but not yet paid(25,802)
Change in fair value of contingent consideration(12,198)
Balance at September 30,$206,000 
The fair value of the contingent consideration was determined on the date of acquisition, June 1, 2016, using an income approach based on projected future net revenues of ICLUSIG in the European Union and other countries for the approved third line treatment over 18 years, and discounted to present value at a rate of 10%. The fair value of the contingent consideration is remeasured each reporting period, with changes in fair value recorded in the condensed consolidated statements of operations. The valuation inputs utilized to estimate the fair value of the contingent consideration as of September 30, 2022 and December 31, 2021 included a discount rate of 10% and updated projections of future net revenues of ICLUSIG in the European Union and other countries for the approved third line treatment. The gain on change in fair value of the contingent consideration during the three and nine months ended September 30, 2022 was due primarily to the changes in foreign currency exchange rates included within the updated projections of future net revenues of ICLUSIG.
We generally make payments to Takeda Pharmaceutical Company Limited quarterly based on the royalties or any additional milestone payments earned in the previous quarter. At September 30, 2022 and December 31, 2021, contingent consideration earned but not yet paid was $25.8 million and $19.6 million, respectively, and was included in accrued and other current liabilities.
Note 5. Concentration of Credit Risk and Current Expected Credit Losses
In November 2009, we entered into a collaboration and license agreement with Novartis Pharmaceutical International Ltd. (“Novartis”). In December 2009, we entered into a license, development and commercialization agreement with Eli Lilly and Company (“Lilly”). In December 2018, we entered into a research collaboration and licensing agreement with Innovent Biologics, Inc. (“Innovent”). In July 2019, we entered into a collaboration and license agreement with Zai Lab (Shanghai) Co., Ltd., a subsidiary of Zai Lab Limited (collectively, “Zai Lab”). The above collaboration partners comprised, in aggregate, 19% and 36% of the accounts receivable balance as of September 30, 2022 and December 31, 2021, respectively. For further information relating to these collaboration and license agreements, refer to Note 7.
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In November 2011, we began commercialization and distribution of JAKAFI, in April 2020, we began commercialization and distribution of PEMAZYRE, and in October 2021, we began commercialization and distribution of OPZELURA. Our product revenues are concentrated in a number of these customers. The concentration of credit risk related to our JAKAFI, PEMAZYRE and OPZELURA product revenues is as follows:
Percentage of Total Net
Product Revenues for the
Three Months Ended
Percentage of Total Net
Product Revenues for the
Nine Months Ended
September 30,September 30,
2022202120222021
Customer A19 %19 %19 %19 %
Customer B10 %11 %11 %12 %
Customer C15 %17 %18 %18 %
Customer D5 %9 %5 %10 %
Customer E9 %11 %10 %11 %
We are exposed to risks associated with extending credit to customers related to the sale of products. Customers A, B, C, D and E comprised, in aggregate, 36% and 31% of the accounts receivable balance as of September 30, 2022 and December 31, 2021, respectively. The concentration of credit risk relating to our other product revenues or accounts receivable is not significant.
We assessed our collaborative and customer receivable assets as of September 30, 2022 according to our accounting policy for applying reserves for expected credit losses, noting minimal history of uncollectible receivables and the continued perceived creditworthiness of our third party sales relationships, upon which the expected credit losses were considered de minimis. As of September 30, 2022 and December 31, 2021, we had no allowance for doubtful accounts.
Note 6. Inventory
Our inventory balance consists of the following (in thousands):
September 30,
2022
December 31,
2021
Raw materials$32,289 $1,275 
Work-in-process35,465 39,895 
Finished goods33,379 15,768 
Total inventory$101,133 $56,938 
Inventories, stated at the lower of cost and net realizable value, consist of raw materials, work in process and finished goods. At September 30, 2022, $45.9 million of inventory was classified as current on the condensed consolidated balance sheet as we expect this inventory to be consumed for commercial use within the next twelve months. At September 30, 2022, $55.3 million of inventory was classified as non-current on the condensed consolidated balance sheet as we did not expect this inventory to be consumed for commercial use within the next twelve months. We obtain some inventory components from a limited number of suppliers due to technology, availability, price, quality or other considerations. The loss of a supplier, the deterioration of our relationship with a supplier, or any unilateral violation of the contractual terms under which we are supplied components by a supplier could adversely affect our total revenues and gross margins.
We capitalize inventory after U.S. Food and Drug Administration (FDA) approval as the related costs are expected to be recoverable through the commercialization of the product. Costs incurred prior to FDA approval are recorded as research and development expense in our statements of operations. At September 30, 2022, inventory with approximately $56.8 million of product costs incurred prior to FDA approval had not yet been sold. We expect to sell the pre-commercialization inventory over the next 28 months and, as a result, cost of product revenues will reflect a lower average per unit cost of materials.
13

Note 7. License Agreements
Novartis
In November 2009, we entered into a Collaboration and License Agreement with Novartis. Under the terms of the agreement, Novartis received exclusive development and commercialization rights outside of the United States to our JAK inhibitor ruxolitinib and certain back-up compounds for hematologic and oncology indications, including all hematological malignancies, solid tumors and myeloproliferative diseases. We retained exclusive development and commercialization rights to JAKAFI (ruxolitinib) in the United States and in certain other indications. Novartis also received worldwide exclusive development and commercialization rights to our MET inhibitor compound capmatinib and certain back-up compounds in all indications.
Under this agreement, we were initially eligible to receive up to $174.0 million for the achievement of development milestones, up to $495.0 million for the achievement of regulatory milestones and up to $500.0 million for the achievement of sales milestones. In addition, under an amendment to this agreement, we were initially eligible to receive up to $75.0 million of additional potential development and regulatory milestones relating to graft-versus-host-disease (“GVHD”). We have recognized and received, in the aggregate, $157.0 million for the achievement of development milestones, $340.0 million for the achievement of regulatory milestones, and $200.0 million for the achievement of sales milestones through September 30, 2022.
In April 2022, we recognized a $15.0 million regulatory milestone for the positive opinion issued by the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) that recommends granting marketing authorization for capmatinib (TABRECTA) as a monotherapy for the treatment of adults with advanced non-small cell lung cancer. Additionally, in May 2022, we recognized a $45.0 million regulatory milestone as a result of the European Commission’s approval of JAKAVI (ruxolitinib) as the first post-steroid treatment for acute and chronic GVHD.
We also are eligible to receive tiered, double-digit royalties ranging from the upper-teens to the mid-twenties on future JAKAVI net sales outside of the United States, and tiered, worldwide royalties on TABRECTA net sales that range from 12% to 14%. We are obligated to pay to Novartis tiered royalties in the low single-digits on future JAKAFI net sales within the United States contingent on certain conditions. During the three and nine months ended September 30, 2022, such royalties on net sales within the United States totaled $30.3 million and $81.3 million, respectively, and were reflected in cost of product revenues on the condensed consolidated statements of operations. During the three and nine months ended September 30, 2021, such royalties on net sales within the United States totaled $26.9 million and $70.6 million, respectively, and were reflected in cost of product revenues on the condensed consolidated statements of operations. At September 30, 2022 and December 31, 2021, $221.7 million and $148.1 million, respectively, of accrued royalties were included in accrued and other current liabilities on the condensed consolidated balance sheets. Each company is responsible for costs relating to the development and commercialization of ruxolitinib in its respective territories, with costs of collaborative studies shared equally. Novartis is also responsible for all costs relating to the development and commercialization of capmatinib.
We had no milestone and contract revenue under the Novartis agreement for the three months ended September 30, 2022, and we had $60.0 million for the nine months ended September 30, 2022. Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States for the three and nine months ended September 30, 2022 was $85.8 million and $240.4 million, respectively. Product royalty revenue related to Novartis net sales of JAKAVI outside of the United States for the three and nine months ended September 30, 2021 was $94.7 million and $242.3 million, respectively. Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three and nine months ended September 30, 2022 was $4.1 million and $11.2 million, respectively. Product royalty revenue related to Novartis net sales of TABRECTA worldwide for the three and nine months ended September 30, 2021 was $2.7 million and $7.3 million, respectively.
Lilly – Baricitinib
In December 2009, we entered into a License, Development and Commercialization Agreement with Lilly. Under the terms of the agreement, Lilly received exclusive worldwide development and commercialization rights to our JAK inhibitor baricitinib, and certain back-up compounds for inflammatory and autoimmune diseases.
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Under this agreement, we were initially eligible to receive up to $150.0 million for the achievement of development milestones, up to $365.0 million for the achievement of regulatory milestones and up to $150.0 million for the achievement of sales milestones. We have recognized and received, in aggregate, $149.0 million for the achievement of development milestones, $335.0 million for the achievement of regulatory milestones and $50.0 million for the achievement of sales milestones through September 30, 2022. We are also eligible to receive tiered, double-digit royalty payments on future global sales with rates ranging up to the mid-twenties if a product is successfully commercialized.
In May 2020, we amended our agreement with Lilly to enable Lilly to develop and commercialize baricitinib for the treatment of COVID-19. As part of the amended agreement, in addition to the royalties described above, we will be entitled to receive additional royalty payments with rates in the low teens on global net sales of baricitinib for the treatment of COVID-19 that exceed a specified aggregate global net sales threshold.
In June 2022, we recognized a $40.0 million regulatory milestone for the FDA approval of OLUMIANT as a first-in-disease systemic treatment for adults with severe alopecia areata. Additionally, in June 2022 we recognized a $20.0 million regulatory milestone for the European Commission’s approval for OLUMIANT for the treatment of adults with severe alopecia areata, and a $10.0 million regulatory milestone for the Ministry of Health, Labour and Welfare of Japan’s approval for OLUMIANT for the treatment of adults with severe alopecia areata in Japan.
We had no milestone and contract revenue under the Lilly agreement for the three months ended September 30, 2022, and we had $70.0 million for the nine months ended September 30, 2022. Product royalty revenue related to Lilly net sales of OLUMIANT outside of the United States for the three and nine months ended September 30, 2022 was $20.4 million and $98.7 million, respectively. Product royalty revenue related to Lilly net sales of OLUMIANT outside of the United States for the three and nine months ended September 30, 2021 was $86.6 million and $154.9 million, respectively.
Lilly - Ruxolitinib
In March 2016, we entered into an amendment to the agreement with Lilly that amended the non-compete provision of the agreement to allow us to engage in the development and commercialization of ruxolitinib in the GVHD field. Lilly is eligible to receive up to $40.0 million in regulatory milestone payments relating to ruxolitinib in the GVHD field. In May 2019, the approval of JAKAFI in steroid-refractory acute GVHD triggered a $20.0 million milestone payment to Lilly. In March 2022, the positive recommendation from the European Medicines Agency for regulatory approval of ruxolitinib in the GVHD field triggered an additional $20.0 million milestone payment to Lilly, which was recorded as research and development expense in our condensed consolidated statements of operations.
Agenus
In January 2015, we entered into a License, Development and Commercialization Agreement with Agenus Inc. and its wholly-owned subsidiary, 4-Antibody AG (now known as Agenus Switzerland Inc.), which we collectively refer to as Agenus. Under this agreement, which was amended in February 2017, the parties have agreed to collaborate on the discovery of novel immuno-therapeutics using Agenus’ antibody discovery platforms. Under the terms of the amended agreement, we received exclusive worldwide development and commercialization rights to four checkpoint modulators directed against GITR, OX40, LAG-3 and TIM-3 as well as two undisclosed targets. Targets may be designated profit-share programs, where all costs and profits are shared equally by us and Agenus, or royalty-bearing programs, where we are responsible for all costs associated with discovery, preclinical, clinical development and commercialization activities. There are currently no profit-share programs. For each royalty-bearing product other than GITR and one undisclosed target, Agenus will be eligible to receive tiered royalties on global net sales ranging from 6% to 12%. For GITR and one undisclosed target, Agenus will be eligible to receive 15% royalties on global net sales. The agreement may be terminated by us for convenience upon 12 months’ notice and may also be terminated under certain other circumstances, including material breach. On October 19, 2022 we notified Agenus that we were terminating the OX40 project.
As of September 30, 2022, we have paid Agenus milestones totaling $30.0 million and Agenus is eligible to receive up to an additional $500.0 million in future contingent development, regulatory and commercialization milestones across all programs in the collaboration.
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In addition, in 2017 we purchased 10.0 million shares of Agenus Inc.’s common stock for an aggregate purchase price of $60.0 million in cash, or $6.00 per share. In 2020, we sold an aggregate of approximately 3.7 million shares of Agenus Inc.’s common stock resulting in gross proceeds of approximately $17.2 million. In 2021, we sold an aggregate of approximately 2.0 million shares of Agenus Inc.’s common stock resulting in gross proceeds of approximately $10.5 million. The fair market value of our long term investment in Agenus Inc. at September 30, 2022 and December 31, 2021 was $24.8 million and $38.9 million, respectively.
We intend to hold the investment in Agenus Inc. for the foreseeable future and therefore, are accounting for our shares held in Agenus Inc. at fair value whereby the investment is marked to market through earnings in each reporting period. Given our intent to hold the investment for the foreseeable future, we have classified the investment within long term investments on the accompanying condensed consolidated balance sheets. For the three and nine months ended September 30, 2022, we recorded an unrealized gain of $