Incyte(US:INCY)2022-08-01 16:00PART I: FINANCIAL INFORMATION Financial Statements This section presents Incyte Corporation's unaudited condensed consolidated financial statements for Q2 and H1 2022, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows Condensed Consolidated Balance Sheets Total assets increased to $5.32 billion by June 30, 2022, driven by cash growth, with total liabilities at $1.23 billion and equity at $4.09 billion Condensed Consolidated Balance Sheet Highlights (in millions USD) | Account | June 30, 2022 (in millions USD) | December 31, 2021 (in millions USD) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $2,435.4 | $2,057.4 | | Total current assets | $3,625.8 | $3,118.7 | | Total assets | $5,319.0 | $4,933.4 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $926.7 | $854.3 | | Total liabilities | $1,234.0 | $1,163.3 | | Total stockholders' equity | $4,085.1 | $3,770.0 | Condensed Consolidated Statements of Operations Total revenues for Q2 2022 increased 29% to $911.4 million, resulting in net income of $161.4 million or $0.72 per diluted share Q2 2022 vs Q2 2021 Statement of Operations (in millions USD, except per share data) | Metric | Q2 2022 (in millions USD) | Q2 2021 (in millions USD) | | :--- | :--- | :--- | | Total revenues | $911.4 | $705.7 | | Income from operations | $254.4 | $140.8 | | Net income | $161.4 | $149.5 | | Diluted net income per share | $0.72 | $0.67 | Six Months 2022 vs 2021 Statement of Operations (in millions USD, except per share data) | Metric | H1 2022 (in millions USD) | H1 2021 (in millions USD) | | :--- | :--- | :--- | | Total revenues | $1,644.6 | $1,310.4 | | Income from operations | $371.0 | $239.6 | | Net income | $199.4 | $203.0 | | Diluted net income per share | $0.89 | $0.91 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities for H1 2022 was $389.9 million, with investing activities using $29.2 million, primarily due to lower capital expenditures Cash Flow Summary for Six Months Ended June 30 (in millions USD) | Activity | 2022 (in millions USD) | 2021 (in millions USD) | | :--- | :--- | :--- | | Net cash provided by operating activities | $389.9 | $379.0 | | Net cash used in investing activities | ($29.2) | ($108.9) | | Net cash provided by financing activities | $16.0 | $16.5 | | Net increase in cash | $377.9 | $284.5 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue recognition, fair value, credit risk, inventory, and collaboration agreements, with Novartis and Lilly driving royalty and milestone revenue Disaggregated Revenue for Six Months Ended June 30 (in millions USD) | Revenue Source | H1 2022 (in millions USD) | H1 2021 (in millions USD) | | :--- | :--- | :--- | | JAKAFI revenues, net | $1,142.1 | $994.8 | | OPZELURA revenues, net | $29.3 | $0 | | Total product revenues, net | $1,269.7 | $1,080.0 | | Total product royalty revenues | $240.0 | $220.5 | | Milestone and contract revenues | $135.0 | $10.0 | | Total revenues | $1,644.6 | $1,310.4 | - In Q2 2022, the company recognized significant milestone revenues: $60.0 million from Novartis (related to capmatinib and JAKAVI approvals in Europe) and $70.0 million from Lilly (related to OLUMIANT approval for alopecia areata)444651 - Total inventory increased to $94.1 million as of June 30, 2022, from $56.9 million at year-end 2021, with approximately $66.0 million of pre-FDA approval inventory expected to lower future cost of product revenues4041 - The company's collaboration with MorphoSys for tafasitamab resulted in a collaboration loss sharing of $7.3 million for H1 2022, a decrease from $20.3 million in H1 2021, with R&D expenses for the collaboration at $48.5 million in H1 202287 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2022 financial results, highlighting a 29% revenue increase driven by JAKAFI and $130.0 million in milestone revenues, while SG&A expenses increased 50% due to OPZELURA launch activities Overview Incyte operates in Hematology/Oncology and Inflammation & Autoimmunity, with key products like JAKAFI and OPZELURA, and is advancing a broad clinical pipeline including the LIMBER program - JAKAFI (ruxolitinib) is approved in the U.S. for myelofibrosis (MF), polycythemia vera (PV), and both acute and chronic graft-versus-host disease (GVHD)143 - OPZELURA (ruxolitinib) cream was approved by the FDA in July 2022 for nonsegmental vitiligo, making it the first and only FDA-approved treatment for repigmentation in this condition, following its initial approval for atopic dermatitis in September 2021213214 - The LIMBER clinical development program is evaluating combinations of ruxolitinib with other agents like parsaclisib (PI3Kδ) and INCB57643 (BET) to expand treatment options for myeloproliferative neoplasms181182183 - In January 2022, the company withdrew the New Drug Application (NDA) for parsaclisib in non-Hodgkin lymphomas due to the infeasibility of completing required confirmatory studies in a timely manner197 Results of Operations Q2 2022 total revenues grew 29% to $911.4 million, driven by JAKAFI and $130.0 million in milestone revenues, while SG&A expenses increased 50% due to OPZELURA launch activities Revenue Breakdown (in millions USD) | Revenue Source | Q2 2022 (in millions USD) | Q2 2021 (in millions USD) | | :--- | :--- | :--- | | JAKAFI revenues, net | $597.7 | $529.1 | | OPZELURA revenues, net | $16.6 | $0 | | Total product revenues, net | $663.9 | $575.2 | | Total product royalty revenues | $117.5 | $120.5 | | Milestone and contract revenues | $130.0 | $10.0 | | Total revenues | $911.4 | $705.7 | Operating Expenses (in millions USD) | Expense Category | Q2 2022 (in millions USD) | Q2 2021 (in millions USD) | | :--- | :--- | :--- | | Cost of product revenues | $50.6 | $38.0 | | Research and development | $347.2 | $343.5 | | Selling, general and administrative | $253.3 | $168.9 | - The increase in SG&A expenses was primarily driven by costs related to establishing the dermatology commercial organization and activities supporting the launch of OPZELURA for atopic dermatitis and pre-launch activities for vitiligo295 - The company recorded an unrealized loss of $24.9 million on long-term investments in Q2 2022, compared to a gain of $26.8 million in Q2 2021, due to market value changes in its holdings of publicly traded collaboration partners300 Liquidity and Capital Resources As of June 30, 2022, Incyte held $2.7 billion in cash and marketable securities, with $389.9 million in H1 2022 operating cash flow, sufficient for future needs despite increased R&D tax capitalization - The company holds $2.7 billion in cash, cash equivalents, and marketable securities as of June 30, 2022301 - In August 2021, the company entered into a $500.0 million, three-year senior unsecured revolving credit facility, which was undrawn as of June 30, 2022308 - U.S. income tax payments are expected to increase significantly due to the mandatory capitalization and amortization of R&D expenses for tax purposes, as required by the Tax Cuts and Jobs Act of 2017, effective for tax years after December 31, 2021309 Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk stems from marketable securities, mainly U.S. government debt, subject to interest rate risk, though a 10% rate increase is not expected to materially impact fair value - The company's marketable securities, valued at $287.0 million as of June 30, 2022, are primarily composed of U.S. government debt securities and are subject to interest rate risk312 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2022315 - No material changes were made to the internal control over financial reporting during the second quarter of 2022316 PART II: OTHER INFORMATION Risk Factors This section details key risks including heavy dependence on JAKAFI, reimbursement challenges, competition, public health crises, clinical development failures, regulatory hurdles, and intellectual property threats - Commercial Risk: The company is heavily dependent on its lead product, JAKAFI, where any revenue decrease could materially harm the business, with success contingent on patient/physician acceptance, reimbursement, and fending off generic competition317318 - Reimbursement Risk: Successful product commercialization depends on obtaining and maintaining adequate coverage and reimbursement from government and private payors, who are increasingly challenging prices and implementing cost-control measures323324 - Development Risk: The company may be unsuccessful in discovering and developing new drug candidates, as clinical development is a long, expensive, and uncertain process with a high rate of failure even in late-stage trials365370 - Regulatory Risk: The FDA and other global regulatory agencies impose rigorous and extensive regulations, with non-compliance potentially leading to loss of approval, fines, or other penalties, and recent FDA labeling updates for JAK inhibitors like JAKAFI and OPZELURA could negatively affect future sales338339 - Intellectual Property Risk: The company's success depends on protecting its proprietary technology, as patents may be challenged, invalidated, or circumvented by competitors, with a generic drug company already challenging certain JAKAFI-related patents451454 Exhibits This section lists exhibits filed with the Form 10-Q, including an amendment to the MacroGenics collaboration agreement and CEO/CFO certifications - Key exhibits filed include CEO/CFO certifications (31.1, 31.2, 32.1, 32.2) and an amendment to the Global Collaboration and License Agreement with MacroGenics, Inc472 Signatures The report is duly signed and authorized by the company's Chairman, President, and CEO Hervé Hoppenot, and CFO Christiana Stamoulis, on August 2, 2022